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Eaton
Vance Ultra-Short Income ETF
Eaton
Vance High Yield ETF
Eaton
Vance Intermediate Municipal Income ETF
Prospectus | January
28, 2024
|
| |
Portfolio |
Ticker
Symbol |
Exchange |
Eaton
Vance Ultra-Short Income ETF |
EVSB |
NYSE
Arca |
Eaton
Vance High Yield ETF |
EVHY |
NYSE
Arca |
Eaton
Vance Intermediate Municipal Income
ETF |
EVIM |
NYSE
Arca |
The
Securities and Exchange Commission (“SEC”) has not approved or disapproved these
securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal
offense.
An
investment in a Fund is not a bank deposit and is not insured by the Federal
Deposit Insurance Corporation or any other government
agency. An investment in a Fund involves investment risks, and you may lose
money in the Fund.
Eaton
Vance | Fund
Summary
Eaton
Vance Ultra-Short Income ETF
Investment
Objective
Eaton
Vance Ultra-Short Income ETF (the “Fund”) seeks to maximize income, to the
extent consistent with preservation of
capital.
Fees
and Expenses
The
table below describes the fees and expenses that you may pay if you buy, hold
and sell shares of the Fund. You
may pay fees other
than the fees and expenses of the Fund, such as brokerage commissions and other
fees charged by financial intermediaries,
which are not reflected in the tables and examples
below.
Annual
Fund Operating Expenses1 (expenses
that you pay each year as a percentage of the value of your
investment)
|
| |
Management
Fee1
|
% |
|
Other
Expenses2
|
% |
|
Total
Annual Fund Operating Expenses |
0.17% |
|
1 |
The
Fund’s management agreement provides that the Fund’s “Adviser,” Morgan
Stanley Investment Management Inc., will pay substantially all expenses
of
the Fund (including expenses of Morgan Stanley ETF Trust (the “Trust”)
relating to the Fund), except for the distribution fees, if any, brokerage
expenses,
acquired fund fees and expenses, taxes, interest, litigation expenses, and
other extraordinary expenses, including the costs of proxies, not
incurred
in the ordinary course of the Fund’s
business. |
2 |
Other
Expenses have been estimated for the current fiscal
year. |
Example
The
example below is intended to help you compare the cost of investing in the Fund
with the cost of investing in other funds. The example
does not take into account brokerage commissions that you pay when purchasing or
selling shares of the Fund.
The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods. The example also assumes your investment has a 5% return each year and
the Fund’s operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account.
These costs, which are not reflected in Total Annual Fund Operating Expenses or
in the example, affect the Fund’s performance.
Because the Fund had not yet commenced operations as of the most recent fiscal
year end, no portfolio turnover rate is available
for the Fund.
Principal
Investment Strategies
The
Fund seeks to achieve its investment objective by primarily investing in a
portfolio of investment grade, short-term fixed, variable
and floating-rate securities. The Fund is not a money market fund and does not
seek to maintain a stable net asset value.
The
Fund is actively managed, not designed to track a benchmark, and therefore not
constrained by the composition of a benchmark.
Under
normal circumstances, the Fund’s weighted average portfolio duration will be one
year or less. In certain market or economic conditions,
such as in periods of significant volatility in interest rates and spreads, the
Fund’s weighted average portfolio duration may
be longer than one year. The Fund seeks to manage duration and hedge interest
rate risk through the purchase and sale of U.S. Treasury
securities. During periods when the Fund’s weighted average portfolio duration
is longer than one year, the Fund may not achieve
its investment objective.
The
Fund typically invests at least 90% of its net assets in investment grade, U.S.
dollar-denominated debt securities. A debt security is
considered investment grade when assigned a credit quality rating of BBB- or
higher by S&P Global Ratings (“S&P”) or an equivalent
rating by another nationally recognized statistical rating organization
(‘‘NRSRO”), including Moody’s Investors Service or Fitch
Ratings, or Kroll Bond Rating Agency, LLC for securitized debt instruments only
(such as asset-backed securities (“ABS”) and mortgage-backed
securities (“MBS”)) or if unrated, considered to be of comparable credit quality
by the Adviser. For purposes of rating
restrictions, if securities are rated differently by two or more rating
agencies, the highest rating is used.
Under
normal circumstances, the Fund will invest in below-investment grade, high-yield
debt instruments (commonly known as “junk
bonds”). The Fund’s investment in such instruments is limited to 10% of its net
assets, as assessed at time of
purchase.
Eaton
Vance | Fund
Summary
Eaton
Vance Ultra-Short Income ETF (Con’t)
The
Fund will concentrate its investments in the banking industry. Therefore, under
normal conditions, the Fund will invest more than
25% of its total assets in securities issued by issuers in the banking industry.
The Fund may, however, invest less than 25% of its total
assets in this industry as a temporary defensive
measure.
The
Fund invests in bonds issued by U.S. corporations, the U.S. Government or its
agencies, and U.S. government-sponsored enterprises
(“GSEs”) such as the Federal National Mortgage Association (“FNMA”) and the
Federal Home Loan Mortgage Corporation
(“FHLMC”). The Fund also may invest in money market instruments and taxable
municipal obligations. The Fund may
invest in pooled investment vehicles, including exchange-traded funds (“ETFs”)
and money market funds, for various portfolio management
purposes, such as to maintain exposure to certain investments or for cash
management purposes.
The
Fund may invest in ABS and MBS that represent interests in pools of mortgage
loans (MBS) or other assets (ABS) assembled for sale
to investors by various U.S. governmental agencies, government-related
organizations and private issuers (i.e., non-agency). MBS may
include collateralized mortgage obligations (“CMOs”), residential
mortgage-backed securities (“RMBS”) and commercial mortgage-backed
securities (“CMBS”). ABS may include collateralized loan obligations (“CLOs”).
In addition, the Fund may invest in
to-be-announced pass-through mortgage securities, which settle on a delayed
delivery basis (“TBA”).
The
Fund may also invest up to 25% of its net assets in foreign debt
securities.
In
managing the Fund, the Adviser considers macroeconomic factors in determining
the Fund’s sector allocation and yield curve positioning
and uses fundamental research in selecting individual securities for the
portfolio. Macroeconomic factors considered may include,
among others, the pace of economic growth, unemployment rates, interest rates,
inflation, monetary and fiscal policy, and general
trends in global economies and currencies. In combination with the top-down
macroeconomic approach, the Adviser employs
a bottom-up process of fundamental securities analysis to select the specific
securities for investment. This bottom-up, research-driven
and value-oriented approach emphasizes the financial strength of issuers,
current valuations and the interest rate sensitivity
of investments, among other factors. In selecting securities, the Adviser
generally seeks issuers with attractive valuations. The
Adviser may sell a security when the Adviser’s valuation target for the security
is reached, the fundamentals of the company deteriorate
or to pursue more attractive investment options. When deemed by the Adviser to
be relevant to its evaluation of creditworthiness
and when applicable information is available, the Adviser considers
environmental, social and/or governance issues (referred
to as ESG) which may impact the prospects of an issuer (or obligor) or financial
performance of an obligation. When considered,
one or more ESG issues are taken into account alongside other factors in the
investment decision-making process and are not
the sole determinant of whether an investment can be made or will remain in the
Fund’s portfolio. The Adviser also considers how
purchasing or selling an investment would impact the overall portfolio’s
potential return (income and capital gains) and risk profile
(for example, its sensitivity to currency risk, interest rate risk and
sector-specific risk) on both a benchmark-relative and absolute
return basis, and may include allocations to securities outside the
benchmark.
Principal
Risks
There
is no assurance that the Fund will achieve its investment objective, and you can
lose money investing in this Fund.
The principal
risks of investing in the Fund include:
• |
Fixed-Income
Securities.
Fixed-income securities are subject to the risk of the issuer’s inability
to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility
resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of
the issuer and general market liquidity (i.e., market risk).
For example, a type of fixed-income securities in which the Fund may
invest are corporate debt obligations. In addition to interest
rate, credit and other risks, corporate debt obligations are also subject
to factors directly related to the issuer, such as the credit
rating of the corporation, the corporation’s performance and perceptions
of the corporation in the marketplace, and by factors
not directly related to the issuer, such as general market liquidity,
economic conditions and inflation. The Fund may face a heightened
level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board
adjusts a quantitative easing program and/or changes rates. A changing
interest rate environment increases certain risks, including
the potential for periods of volatility, increased redemptions, shortened
durations (i.e., prepayment risk) and extended durations
(i.e., extension risk). The
Fund is not limited as to the maturities (when a debt security provides
its final payment) or durations
(measure of interest rate sensitivity) of the securities in which it may
invest. Securities
with longer durations are likely to be
more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated
fixed-income securities have greater volatility because there is less
certainty that principal and interest payments will be made as
scheduled. The Fund may be subject to certain liquidity risks that
may result from the lack of an active market and the reduced number
and capacity of traditional market participants to make a market in
fixed-income
securities. |
• |
Credit
and Interest Rate Risk.
Credit risk refers to the possibility that the issuer or guarantor of a
security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or
repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money.
Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of
interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level
of interest rates goes down, the prices of most
|
Eaton
Vance | Fund
Summary
Eaton
Vance Ultra-Short Income ETF (Con’t)
|
fixed-income
securities go up. The Fund may invest in variable and floating rate loans
and other variable and floating rate securities.
Although these instruments are generally less sensitive to interest rate
changes than fixed rate instruments, the value of variable
and floating rate loans and other securities may decline if their interest
rates do not rise as quickly, or as much, as general interest
rates. For example, during periods when interest rates are low, the Fund’s
yield (and total return) also may be low or otherwise
adversely affected or the Fund may be unable to maintain positive returns.
Credit ratings may not be an accurate assessment
of liquidity or credit risk. Although credit ratings may not accurately
reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid,
adverse effect on the instrument’s liquidity and make it more
difficult for the Fund to sell at an advantageous price or
time. |
• |
High
Yield Securities (“Junk Bonds”).
The Fund’s investments in high yield securities expose it to a substantial
degree of credit risk. High
yield securities may be more volatile in price in certain
environments. High yield securities may be issued by companies that
are
restructuring, are smaller and less creditworthy or are more highly
indebted than other companies, and therefore they may have
more difficulty making scheduled payments of principal and interest. High
yield securities are subject to greater risk of loss of income
and principal than higher rated securities and are considered speculative
because of increased credit risk relative to other fixed
income investments. High yield securities may experience reduced
liquidity, and sudden and substantial decreases in price. An
economic downturn affecting an issuer of high yield securities may result
in an increased incidence of default. In the event of a default,
the Fund may incur additional expenses to seek
recovery. |
• |
Asset-Backed
Securities.
Asset-backed securities are subject to credit (such as a borrower’s
default on its mortgage obligation and the
default or failure of a guarantee underlying the asset-backed security),
interest rate and certain additional risks, including the risk
that various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities
being insufficient to support payment on the securities. To
the extent the Fund invests in asset-backed securities issued by
non-governmental issuers, such as commercial banks, savings and loan
institutions, and other secondary market issuers, the Fund
will be exposed to additional risks because, among other things, there are
no direct or indirect government or agency guarantees
of payments in the pools underlying the securities.
Some asset-backed securities also entail prepayment risk and extension
risk, which may vary depending on the type of asset. Due to these and
other risks, asset-backed securities may become more
volatile in certain interest rate
environments. |
• |
Mortgage-Backed
Securities.
Mortgage-backed securities entail prepayment risk, which generally
increases during a period of falling
interest rates. Rising interest rates tend to discourage refinancings,
with the result that the average life and volatility of mortgage-backed
securities will increase and market price will decrease. Rates of
prepayment, faster or slower than expected by the Adviser,
could reduce the Fund’s yield, increase the volatility of the Fund and/or
cause a decline in net asset value (“NAV”). Mortgage-backed
securities are also subject to extension risk, which is the risk that
rising interest rates could cause mortgages or other
obligations underlying the securities to be prepaid more slowly than
expected, thereby lengthening the duration of such securities,
increasing their sensitivity to interest rate changes and causing their
prices to decline. Certain mortgage-backed securities
may be more volatile and less liquid than other traditional types of debt
securities. In addition, mortgage-backed securities
are subject to credit risk. The Fund may invest in non-agency
mortgage-backed securities offered by non-governmental issuers,
such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other
secondary market issuers. Non-agency mortgage-backed securities are not
subject to the same underwriting requirements for the
underlying mortgages that are applicable to those mortgage-backed
securities that have a government or government-sponsored
entity guarantee. As a result, the mortgage loans underlying non-agency
mortgage-backed securities may, and frequently
do, have less favorable collateral, credit risk or other underwriting
characteristics than government or government-sponsored
mortgage-backed securities and have wider variances in a number of terms
including interest rate, term, size, purpose and
borrower characteristics. To the extent the Fund invests in non-agency
mortgage-backed securities offered by non-governmental
issuers, the Fund will be exposed to additional risks because, among other
things, there are no direct or indirect government
or agency guarantees of payments in pools underlying the securities. An
unexpectedly high rate of defaults on the mortgages
held by a mortgage pool may adversely affect the value of a
mortgage-backed security and could result in losses to the Fund.
The risk of such defaults is generally higher in the case of mortgage
pools that include subprime mortgages. Furthermore, mortgage-backed
securities may be subject to risks associated with the assets underlying
those securities, such as a decline in value. Investments
in mortgage-backed securities may give rise to a form of leverage
(indebtedness) and may cause the Fund’s portfolio turnover
rate to appear higher. Leverage may cause the Fund to be more volatile
than if the Fund had not been leveraged. The risks
associated with mortgage-backed securities typically become elevated
during periods of distressed economic, market, health and
labor conditions. In particular, increased levels of unemployment, delays
and delinquencies in payments of mortgage and rent obligations,
and uncertainty regarding the effects and extent of government
intervention with respect to mortgage payments and other
economic matters may adversely affect the Fund’s investments in
mortgage-backed securities. In addition, commercial mortgage-backed
securities are also subject to risks associated with reduced demand for
commercial and office space, tightening lending
standards and increased interest and lending rates, and other developments
adverse to the commercial real estate
market. |
• |
Commercial
Mortgage-Backed Securities.
CMBS are subject to credit risk and prepayment risk. Although prepayment
risk is present,
it is of a lesser degree in the CMBS market than in the residential
mortgage market; commercial real estate property loans often
contain provisions which substantially reduce the likelihood that such
securities will be prepaid (e.g., significant prepayment penalties
on loans and, in some cases, prohibition on principal payments for several
years following
origination). |
Eaton
Vance | Fund
Summary
Eaton
Vance Ultra-Short Income ETF (Con’t)
• |
Collateralized
Mortgage Obligations.
CMOs are comprised of various tranches, the expected cash flows of which
have varying degrees
of predictability as compared with the underlying mortgage loans or
mortgage pass-through entities. The less predictable the
cash flow, the higher the yield and the greater the risk. In addition, if
the collateral securing CMOs or any third-party guarantees
is insufficient to make payments, the Fund could sustain a loss. Like
other mortgage backed-securities, some CMOs are subject
to credit risk. The Fund invests in both agency and non-agency CMOs. Many
agency CMOs do not have credit risk as they
are government
guaranteed. |
• |
Collateralized
Loan Obligations Risk. CLOs
are a type of asset-backed security that is typically structured as a
trust collateralized by a
pool of loans. The cash flows from the trust are split into two or more
portions, called tranches, varying in risk and yield. The risks
of an investment in a CLO depend largely on the type of the collateral
securities and the class of the instrument in which the Fund
invests. In addition to the normal risks associated with fixed income
securities, CLOs carry additional risks including, but not
limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments;
(ii) the quality of the collateral may decline in value or default; (iii)
the Fund may invest in CLOs that are subordinate to
other classes; and (iv) the complex structure of the security may not be
fully understood at the time of investment and may produce
disputes with the issuer or unexpected investment
results. |
• |
U.S.
Government Securities. Different
types of U.S. government securities are subject to different levels of
credit risk, including the risk
of default, depending on the nature of the particular government support
for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan
Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither
insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United
States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the
risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored
enterprises if it is not obligated to do so by
law. |
• |
Foreign
Securities.
Investments in foreign markets entail special risks such as currency,
political (including geopolitical), economic and
market risks. There also may be greater market volatility, less reliable
financial information, less stringent investor protections and
disclosure standards, higher transaction and custody costs, decreased
market liquidity and less government and exchange regulation
associated with investments in foreign markets. In addition, investments
in certain foreign markets that have historically
been considered stable may become more volatile and subject to increased
risk due to developments and changing conditions
in such markets. Moreover, the growing interconnectivity of global
economies and financial markets has increased the probability
that adverse developments and conditions in one country or region will
affect the stability of economies and financial markets
in other countries or regions. Certain foreign markets may rely heavily on
particular industries or foreign capital and are more
vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, organizations,
companies, entities and/or individuals, changes in international trading
patterns, trade barriers and other protectionist
or retaliatory measures. Investments in foreign markets may also be
adversely affected by governmental actions such as
the imposition of capital controls, nationalization of companies or
industries, expropriation of assets or the imposition of punitive
taxes. The governments of certain countries may prohibit or impose
substantial restrictions on foreign investing in their capital
markets or in certain sectors or industries. In addition, a foreign
government may limit or cause delay in the convertibility or
repatriation of its currency which would adversely affect the U.S. dollar
value and/or liquidity of investments denominated in that
currency. Certain foreign investments may become less liquid in response
to market developments or adverse investor perceptions,
or become illiquid after purchase by the Fund, particularly during periods
of market turmoil. When the Fund holds illiquid
investments, its portfolio may be harder to value. The issuer or
governmental authority that controls the repayment of sovereign
debt may not be willing or able to repay the principal and/or pay interest
when due in accordance with the terms of such obligations.
In addition, foreign governments may default on their debt securities,
which may require holders of such securities to participate
in debt rescheduling or additional lending to defaulting governments.
Moreover, there is no bankruptcy proceeding by which
defaulted sovereign debt may be collected in whole or in part. In
addition, the Fund’s investments in foreign issuers may be denominated
in foreign currencies and therefore, to the extent unhedged, the value of
those investments will fluctuate with U.S. dollar
exchange rates. To the extent hedged by the use of foreign currency
forward exchange contracts, the precise matching of the foreign
currency forward exchange contract amounts and the value of the securities
involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities
between the date on which the contract is entered into and the date it
matures. There is additional risk that such transactions
may reduce or preclude the opportunity for gain if the value of the
currency should move in the direction opposite to the
position taken and that foreign currency forward exchange contracts create
exposure to currencies in which the Fund’s securities
are not denominated. The use of foreign currency forward exchange
contracts involves the risk of loss from the insolvency
or bankruptcy of the counterparty to the contract or the failure of the
counterparty to make payments or otherwise comply
with the terms of the
contract. |
• |
When-Issued
Securities, Delayed Delivery Securities, TBAs and Forward
Commitments. The
Fund may purchase or sell securities that it
is entitled to receive on a when-issued, delayed delivery or through a
forward commitment basis. For example, the Fund may invest
in TBAs, which settle on a delayed delivery basis. These investments may
result in a form of leverage and may increase volatility
in the Fund’s share price. In a TBA transaction, the seller agrees to
deliver the MBS for an agreed upon price on an agreed
upon future date, but makes no guarantee as to which or how many
securities are to be delivered. Accordingly, the Fund’s
|
Eaton
Vance | Fund
Summary
Eaton
Vance Ultra-Short Income ETF (Con’t)
|
investments
in TBAs are subject to risks such as failure of the counterparty to
perform its obligation to deliver the security, the characteristics
of a security delivered to the Fund may be less favorable than expected
and the security the Fund buys will lose value
prior to its delivery. The Fund’s purchase of other securities on a
when-issued, delayed delivery or through a forward commitment
basis are subject to similar risks. When the Fund has sold a security on a
when-issued, delayed delivery, or forward commitment
basis, the Fund does not benefit if the value of the security appreciates
above the sale price during the commitment period
and the Fund is subject to failure of the counterparty to pay for the
securities. |
• |
Market
and Geopolitical Risk.
The value of your investment in the Fund is based on the values of the
Fund’s investments, which change
due to economic and other events that affect markets generally, as well as
those that affect particular regions, countries, industries,
companies or governments. These events may be sudden and unexpected, and
could adversely affect the liquidity of the Fund’s
investments, which may in turn impact valuation, the Fund’s ability to
sell securities and/or its ability to meet redemptions.
The risks associated with these developments may be magnified if certain
social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics,
terrorism, conflicts, social unrest, recessions, inflation,
interest rate changes and supply chain disruptions) adversely interrupt
the global economy and financial markets. It is difficult
to predict when events affecting the U.S. or global financial markets may
occur, the effects that such events may have and the
duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses
and populations and have a significant and rapid negative impact on the
performance of the Fund’s investments, adversely
affect and increase the volatility of the Fund’s share price
and exacerbate pre-existing risks to the
Fund. |
|
Authorized
Participant Concentration Risk.
Only an authorized participant may engage in creation or redemption
transactions directly
with the Fund. The Fund has a limited number of intermediaries that act as
authorized participants and none of these authorized
participants is or will be obligated to engage in creation or redemption
transactions. There can be no assurance that an active
trading market for the Fund’s shares will develop or be maintained. To the
extent that these intermediaries exit the business or
are unable to or choose not to proceed with creation and/or redemption
orders with respect to the Fund, such as during periods of
market stress, and no other authorized participant creates or redeems,
shares may trade at a discount to net asset value (“NAV”) and
possibly face trading halts and/or
delisting. |
|
Cash
Transactions Risk.
Unlike certain ETFs, the Fund may effect creations and redemptions in cash
or partially in cash. Therefore,
it may be required to sell portfolio securities and subsequently recognize
gains on such sales that the Fund might not have
recognized if it were to distribute portfolio securities in-kind. As such,
investments in shares may be less tax-efficient than an investment
in an ETF that distributes portfolio securities entirely
in-kind. |
|
Trading
Risk.
The market prices of shares are expected to fluctuate, in some cases
materially, in response to changes in the Fund’s NAV,
the intra-day value of the Fund’s holdings, and supply and demand for
shares. The Adviser cannot predict whether shares will
trade above, below or at their NAV. Disruptions to creations and
redemptions, the existence of significant market volatility or
potential
lack of an active trading market for the shares (including through a
trading halt), as well as other factors, may result in the
shares trading significantly above (at a premium) or below (at a discount)
to NAV or to the intraday value of the Fund’s holdings.
You may pay significantly more or receive significantly less than the
Fund’s NAV per share during periods when there is a
significant premium or discount. Buying or selling shares in the secondary
market may require paying brokerage commissions or other
charges imposed by brokers as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant
proportional cost when seeking to buy or sell relatively small amounts of
shares. In addition, the market price of shares, like
the price of any exchange-traded security, includes a “bid-ask spread”
charged by the market makers or other participants that trade
the particular security. The spread of the Fund’s shares varies over time
based on the Fund’s trading volume and market liquidity
and may increase if the Fund’s trading volume, the spread of the Fund’s
underlying securities, or market liquidity decrease. |
• |
Active
Management Risk.
In pursuing the Fund’s investment objective, the Adviser has considerable
leeway in deciding which investments
to buy, hold or sell on a day-to-day basis, and which trading strategies
to use. For example, the Adviser, in its discretion,
may determine to use some permitted trading strategies while not using
others. The success or failure of such decisions will
affect the Fund’s
performance. |
• |
Banking
Industry.
Investment opportunities in investment grade securities may be
concentrated in the banking industry. Under normal
conditions, the Fund will invest more than 25% of its total assets in
securities issued by issuers in the banking industry. As a
result, the Fund may have a high concentration of investments in the
banking industry. The banking industry can be affected by global
and local economic conditions, such as the levels and liquidity of the
global and local financial and asset markets, the absolute
and relative level and volatility of interest rates and equity prices,
investor sentiment, inflation, the availability and cost of credit
and other factors and such effects can at times be significant. The
enactment of new legislation or regulations, as well as changes
in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of the banking industry.
Because the Fund’s investments will be concentrated in the banking
industry, factors that have an adverse impact on this industry
may have a disproportionate impact on the Fund’s
performance. |
Eaton
Vance | Fund
Summary
Eaton
Vance Ultra-Short Income ETF (Con’t)
• |
New
Fund Risk.
A new fund’s performance may not represent how the fund is expected to or
may perform in the long term. In addition,
new funds have limited operating histories for investors to evaluate and
new funds may not attract sufficient assets to achieve
investment and trading
efficiencies. |
Shares
of the Fund are not bank deposits and are not guaranteed or insured by the
Federal Deposit Insurance Corporation or any other
government agency.
Performance
Information
As
of the date hereof, the Fund has not yet completed a full calendar year of
investment operations. Upon the completion of a full calendar
year of investment operations by the Fund, this section will include charts that
provide some indication of the risks of an investment
in the Fund, by showing the difference in annual total returns, highest and
lowest quarterly returns and average annual total
returns (before and after taxes) compared to the benchmark index selected for
the Fund. Performance information for the Fund will
be available online at www.eatonvance.com
or by calling toll-free 800-836-2414.
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Portfolio
Managers.
Information about the individuals jointly and primarily responsible for the
day-to-day management of the Fund is
shown below:
|
| |
Name |
Title
with Adviser |
Date
Began Managing
Fund |
Brian
S. Ellis, CFA |
Managing
Director |
October
2023 |
Eric
Jesionowski |
Executive
Director |
October
2023 |
Brandon
Matsui, CFA |
Executive
Director |
October
2023 |
Kinzer
Jennings, CFA |
Vice
President |
October
2023 |
Alec
Schaefer |
Vice
President |
October
2023 |
Purchase
and Sale of Fund Shares
Individual
shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price.
Because shares trade at market prices, rather than NAV, shares of the Fund may
trade at a price greater than NAV (i.e., a premium)
or less than NAV (i.e., a discount).
You
may incur costs attributable to the difference between the highest price a buyer
is willing to pay for shares (bid) and the lowest price
a seller is willing to accept for shares (ask) (the “bid-ask spread”) when
buying or selling shares in the secondary market.
Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads (when
available), will be available on the Fund’s website at
www.eatonvance.com.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or
capital gains, unless you are investing through a tax-deferred
arrangement, such as a 401(k) plan or an individual retirement
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or financial
intermediary (such as a bank), the Adviser and/or Foreside Fund
Services, LLC (the “Distributor”) may pay the financial intermediary for the
sale of Fund shares and related services. These payments,
which may be significant in amount, may create a conflict of interest by
influencing the financial intermediary and your salesperson
to recommend the Fund over another investment. Ask your salesperson or visit
your financial intermediary’s website for more
information.
Eaton
Vance | Fund
Summary
Eaton
Vance High Yield ETF
Investment
Objective
Eaton
Vance High Yield ETF (the “Fund”) seeks to provide a high level of current
income. The Fund’s secondary objectives are to seek
growth of income and capital.
Fees
and Expenses
The
table below describes the fees and expenses that you may pay if you buy, hold
and sell shares of the Fund. You
may pay fees other
than the fees and expenses of the Fund, such as brokerage commissions and other
fees charged by financial intermediaries,
which are not reflected in the tables and examples
below.
Annual
Fund Operating Expenses1 (expenses
that you pay each year as a percentage of the value of your
investment)
|
| |
Management
Fee1
|
% |
|
Other
Expenses2
|
% |
|
Total
Annual Fund Operating Expenses |
0.48% |
|
1 |
The
Fund’s management agreement provides that the Fund’s “Adviser,” Morgan
Stanley Investment Management Inc., will pay substantially all expenses
of
the Fund (including expenses of Morgan Stanley ETF Trust (the “Trust”)
relating to the Fund), except for the distribution fees, if any, brokerage
expenses,
acquired fund fees and expenses, taxes, interest, litigation expenses, and
other extraordinary expenses, including the costs of proxies, not
incurred
in the ordinary course of the Fund’s
business. |
2 |
Other
Expenses have been estimated for the current fiscal
year. |
Example
The
example below is intended to help you compare the cost of investing in the Fund
with the cost of investing in other funds. The example
does not take into account brokerage commissions that you pay when purchasing or
selling shares of the Fund.
The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods. The example also assumes your investment has a 5% return each year and
the Fund’s operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account.
These costs, which are not reflected in Total Annual Fund Operating Expenses or
in the example, affect the Fund’s performance.
Because the Fund had not yet commenced operations as of the most recent fiscal
year end, no portfolio turnover rate is available
for the Fund.
Principal
Investment Strategies
Under
normal circumstances, at least 80% of the Fund’s net assets (plus any borrowings
for investment purposes) will be invested in high
yield securities. This policy may be changed without shareholder approval;
however, shareholders would be notified upon 60 days’
notice in writing of any changes. High-yield securities (commonly referred to as
“junk bonds”) include U.S. dollar denominated high
risk corporate bonds which are rated lower than investment grade (i.e., bonds
rated lower than Baa3 by Moody’s Investors Service,
Inc. (“Moody’s”) or lower than BBB- by S&P Global Ratings (“S&P”) or
Fitch Ratings (“Fitch”)) or are unrated and of comparable
quality as determined by the Adviser or Morgan Stanley Investment Management
Limited (the “Sub-Adviser”). Bonds rated
BBB and Baa have speculative characteristics, while lower-rated bonds are
predominantly speculative. The Fund may not hold more
than 10% of its net assets in securities rated below B3 by Moody’s or lower than
B- by S&P or Fitch.
The
Fund may invest up to 15% of its net assets in securities that are rated
investment grade (i.e., bonds rated higher than Ba1 by Moody’s
or higher than BB+ by S&P or Fitch). The Fund may invest up to
5% of its total assets in subordinated preferred securities. The
Fund may invest up to 20% of its net assets in foreign and emerging market
securities, which are predominantly U.S. dollar-denominated.
The Fund may invest in securities with a minimum primary issuance of $500
million or greater. The Fund’s investment
in an individual sector may be equal to an amount up to the greater of 15% of
its total assets or 1.2x the relative weight of such
sector in the ICE BofA BB-B U.S. High Yield
Index.
The
Fund may purchase or sell derivative instruments for hedging purposes, to seek
return, to manage certain investment risks and/or
as a substitute for the purchase or sale of securities. Transactions in
derivative instruments may include: the purchase or sale of futures
contracts on securities, indices or other financial instruments or currencies;
options on futures contracts; exchange-traded and over-the-counter
options on securities, indices, currencies and other instruments; interest rate,
credit default, inflation and total return
swaps; forward rate contracts and credit linked notes as well as instruments
that have a greater or lesser credit risk than the
Eaton
Vance | Fund
Summary
Eaton
Vance High Yield ETF (Con’t)
security
underlying that instrument. The Fund may use interest rate swaps for risk
management purposes and not as a speculative investment
and would typically use interest rate swaps to seek to shorten the average
interest rate reset dates of its holdings. With respect
to non-U.S. dollar-denominated securities, the Fund may seek to hedge currency
fluctuations by entering into forward foreign
currency exchange contracts. Derivative instruments used by the Fund will be
counted toward the Fund’s 80% policy discussed
above to the extent they have economic characteristics similar to the securities
included within that policy. The Fund may invest
in pooled investment vehicles, including exchange-traded funds (“ETFs”) and
money market funds, for various portfolio management
purposes, such as to maintain exposure to certain investments or for cash
management purposes.
The
Fund’s investments are actively managed and securities may be bought and sold on
a daily basis. Preservation of capital is considered
when consistent with the Fund’s investment objectives. The Adviser and/or
Sub-Adviser monitor the credit quality of securities
held by the Fund. Although the Adviser and Sub-Adviser consider security ratings
when making investment decisions, they perform
their own credit and investment analysis utilizing various methodologies
including “bottom up/top down” analysis and consideration
of macroeconomic and technical factors, and do not rely primarily on the ratings
assigned by the rating services. When deemed
by the Adviser and/or Sub-Adviser to be relevant to their evaluation of
creditworthiness and when applicable information is available,
the Adviser and/or Sub-Adviser consider environmental, social and/or governance
issues (referred to as ESG) which may impact
the prospects of an issuer (or obligor) or financial performance of an
obligation. When considered, one or more ESG issues are
taken into account alongside other factors in the investment decision-making
process and are not the sole determinant of whether an
investment can be made or will remain in the Fund’s
portfolio.
The
portfolio managers attempt to improve yield and preserve and enhance principal
value through timely trading. The portfolio managers
also consider the relative value of securities in the marketplace in making
investment decisions.
Principal
Risks
There
is no assurance that the Fund will achieve its investment objective, and you can
lose money investing in this Fund.
The principal
risks of investing in the Fund include:
• |
Fixed-Income
Securities.
Fixed-income securities are subject to the risk of the issuer’s inability
to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility
resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of
the issuer and general market liquidity (i.e., market risk).
For example, a type of fixed-income securities in which the Fund may
invest are corporate debt obligations. In addition to interest
rate, credit and other risks, corporate debt obligations are also subject
to factors directly related to the issuer, such as the credit
rating of the corporation, the corporation’s performance and perceptions
of the corporation in the marketplace, and by factors
not directly related to the issuer, such as general market liquidity,
economic conditions and inflation. The Fund may face a heightened
level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board
adjusts a quantitative easing program and/or changes rates. A changing
interest rate environment increases certain risks, including
the potential for periods of volatility, increased redemptions, shortened
durations (i.e., prepayment risk) and extended durations
(i.e., extension risk). The
Fund is not limited as to the maturities (when a debt security provides
its final payment) or durations
(measure of interest rate sensitivity) of the securities in which it may
invest. Securities
with longer durations are likely to be
more sensitive to changes in interest rates, generally making them more
volatile than securities with shorter durations. Lower rated
fixed-income securities have greater volatility because there is less
certainty that principal and interest payments will be made as
scheduled. The Fund may be subject to certain liquidity risks that
may result from the lack of an active market and the reduced number
and capacity of traditional market participants to make a market in
fixed-income
securities. |
• |
Credit
and Interest Rate Risk.
Credit risk refers to the possibility that the issuer or guarantor of a
security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or
repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money.
Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of
interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level
of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may invest in variable and floating rate loans
and other variable and floating rate securities.
Although these instruments are generally less sensitive to interest rate
changes than fixed rate instruments, the value of variable
and floating rate loans and other securities may decline if their interest
rates do not rise as quickly, or as much, as general interest
rates. For example, during periods when interest rates are low, the Fund’s
yield (and total return) also may be low or otherwise
adversely affected or the Fund may be unable to maintain positive returns.
Credit ratings may not be an accurate assessment
of liquidity or credit risk. Although credit ratings may not accurately
reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid,
adverse effect on the instrument’s liquidity and make it more
difficult for the Fund to sell at an advantageous price or
time. |
• |
High
Yield Securities (“Junk Bonds”).
The Fund’s investments in high yield securities expose it to a substantial
degree of credit risk. High
yield securities may be issued by companies that are restructuring, are
smaller and less creditworthy or are more highly indebted
than other companies, and therefore they may have more difficulty making
scheduled payments of principal and interest. High
yield securities are subject to greater risk of loss of income and
principal than higher rated securities and are considered
|
Eaton
Vance | Fund
Summary
Eaton
Vance High Yield ETF (Con’t)
|
speculative
because of increased credit risk relative to other fixed income
investments. High yield securities may experience reduced
liquidity, and sudden and substantial decreases in price. An economic
downturn affecting an issuer of high yield securities may
result in an increased incidence of default. In the event of a default,
the Fund may incur additional expenses to seek
recovery. |
• |
Preferred
Securities.
Preferred stock is issued with a fixed par value and pays dividends based
on a percentage of that par value at a fixed
rate. As with fixed-income securities, which also make fixed payments, the
market value of preferred stock is sensitive to changes
in interest rates. Preferred stock generally decreases in value if
interest rates rise and increases in value if interest rates
fall. |
• |
Foreign
and Emerging Market Securities.
Investments in foreign markets entail special risks such as currency,
political (including geopolitical),
economic and market risks. There also may be greater market volatility,
less reliable financial information, less stringent
investor protections and disclosure standards, higher transaction and
custody costs, decreased market liquidity and less government
and exchange regulation associated with investments in foreign markets. In
addition, investments in certain foreign markets
that have historically been considered stable may become more volatile and
subject to increased risk due to developments and
changing conditions in such markets. Moreover, the growing
interconnectivity of global economies and financial markets has
increased
the probability that adverse developments and conditions in one country or
region will affect the stability of economies and
financial markets in other countries or regions. Certain foreign markets
may rely heavily on particular industries or foreign capital
and are more vulnerable to diplomatic developments, the imposition of
economic sanctions against a particular country or countries,
organizations, companies, entities and/or individuals, changes in
international trading patterns, trade barriers and other protectionist
or retaliatory measures. Investments in foreign markets may also be
adversely affected by governmental actions such as
the imposition of capital controls, nationalization of companies or
industries, expropriation of assets or the imposition of punitive
taxes. The governments of certain countries may prohibit or impose
substantial restrictions on foreign investing in their capital
markets or in certain sectors or industries. In addition, a foreign
government may limit or cause delay in the convertibility or
repatriation of its currency which would adversely affect the U.S. dollar
value and/or liquidity of investments denominated in that
currency. Certain foreign investments may become less liquid in response
to market developments or adverse investor perceptions,
or become illiquid after purchase by the Fund, particularly during periods
of market turmoil. When the Fund holds illiquid
investments, its portfolio may be harder to value. The risks of investing
in emerging market countries are greater than the risks
associated with investments in foreign developed countries. Certain
emerging market countries may be subject to less stringent
requirements regarding accounting, auditing, financial reporting and
record keeping and therefore, material information related
to an investment may not be available or reliable. Certain
emerging market or developing countries are among the largest debtors
to commercial banks and foreign governments. The issuer or governmental
authority that controls the repayment of sovereign
debt may not be willing or able to repay the principal and/or pay interest
when due in accordance with the terms of such obligations.
In addition, foreign governments may default on their debt securities,
which may require holders of such securities to participate
in debt rescheduling or additional lending to defaulting governments.
Moreover, there is no bankruptcy proceeding by which
defaulted sovereign debt may be collected in whole or in part.
In addition, the Fund is limited in its ability to exercise its
legal
rights or enforce a counterparty’s legal obligations in certain
jurisdictions outside of the United States, in particular, in emerging
market countries. In addition, the Fund’s investments in foreign issuers
may be denominated in foreign currencies and therefore,
to the extent unhedged, the value of those investments will fluctuate with
U.S. dollar exchange rates. To the extent hedged
by the use of foreign currency forward exchange contracts, the precise
matching of the foreign currency forward exchange contract
amounts and the value of the securities involved will not generally be
possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the
value of those securities between the date on which the
contract is entered into and the date it matures. There is additional risk
that such transactions may reduce or preclude the opportunity
for gain if the value of the currency should move in the direction
opposite to the position taken and that foreign currency
forward exchange contracts create exposure to currencies in which the
Fund’s securities are not denominated. The use of foreign
currency forward exchange contracts involves the risk of loss from the
insolvency or bankruptcy of the counterparty to the contract
or the failure of the counterparty to make payments or otherwise comply
with the terms of the contract. Economic sanctions
or other similar measures may be, and have been, imposed against certain
countries, organizations, companies, entities and/or
individuals. Economic sanctions and other similar measures could, among
other things, effectively restrict or eliminate the Fund’s
ability to purchase or sell securities, negatively impact the value or
liquidity of the Fund’s investments, significantly delay
or
prevent the settlement of the Fund’s securities transactions, force the
Fund to sell or otherwise dispose of investments at inopportune
times or prices, or impair the Fund’s ability to meet its investment
objective or invest in accordance with its investment
strategies. |
• |
Foreign
Currency.
The Fund’s investments in foreign securities may be denominated in foreign
currencies. The value of foreign currencies
may fluctuate relative to the value of the U.S. dollar. Since the Fund may
invest in such non-U.S. dollar-denominated securities,
and therefore may convert the value of such securities into U.S. dollars,
changes in currency exchange rates can increase or
decrease the U.S. dollar value of the Fund’s assets. Currency exchange
rates may fluctuate significantly over short periods of time
for a number of reasons, including changes in interest rates and the
overall economic health of the issuer. Devaluation of a currency
by a country’s government or banking authority also will have a
significant impact on the value of any investments denominated
in that currency. The Adviser and/or Sub-Adviser may use derivatives to
reduce this risk. The Adviser and/or Sub-Adviser
may in their discretion choose not to hedge against currency risk. In
addition, certain market conditions may make it impossible
or uneconomical to hedge against currency
risk. |
Eaton
Vance | Fund
Summary
Eaton
Vance High Yield ETF (Con’t)
• |
Liquidity.
The Fund may make investments that are illiquid or restricted or that may
become illiquid or less liquid in response to overall
economic conditions or adverse investor perceptions, and which may entail
greater risk than investments in other types of securities.
These investments may be more difficult to value or sell, particularly in
times of market turmoil, and there may be little trading
in the secondary market available for particular securities. Liquidity
risk may be magnified in a market where credit spread and
interest rate volatility is rising and where investor redemptions from
fixed-income funds may be higher than normal.
If the Fund
is forced to sell an illiquid or restricted security to fund redemptions
or for other cash needs, it may be forced to sell the security
at a loss or for less than its fair value and may be unable to sell the
security at all. |
• |
Derivatives.
Derivatives and other similar instruments that create synthetic exposure
often are subject to risks similar to those of the
underlying asset or instrument, including market risk, and may be subject
to additional risks, including imperfect correlation between
the value of the derivative and the underlying asset, risks of default by
the counterparty to certain transactions, magnification
of losses incurred due to changes in the market value of the securities,
instruments, indices or interest rates to which the
derivative instrument relates, risks that the transactions may not be
liquid, risks arising from margin and payment requirements,
risks arising from mispricing or valuation complexity and operational and
legal risks. Certain derivative transactions may
give rise to a form of leverage. Leverage magnifies the potential for gain
and the risk of
loss. |
• |
Market
and Geopolitical Risk.
The value of your investment in the Fund is based on the values of the
Fund’s investments, which change
due to economic and other events that affect markets generally, as well as
those that affect particular regions, countries, industries,
companies or governments. These events may be sudden and unexpected, and
could adversely affect the liquidity of the Fund’s
investments, which may in turn impact valuation, the Fund’s ability to
sell securities and/or its ability to meet redemptions.
The risks associated with these developments may be magnified if certain
social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics,
terrorism, conflicts, social unrest, recessions, inflation,
interest rate changes and supply chain disruptions) adversely interrupt
the global economy and financial markets. It is difficult
to predict when events affecting the U.S. or global financial markets may
occur, the effects that such events may have and the
duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses
and populations and have a significant and rapid negative impact on the
performance of the Fund’s investments, adversely
affect and increase the volatility of the Fund’s share price
and exacerbate pre-existing risks to the
Fund. |
• |
Distressed
and Defaulted Securities.
Distressed and defaulted securities are speculative and involve
substantial risks in addition to the
risks of investing in high yield securities. The Fund will generally not
receive interest payments on the distressed securities and the
repayment of principal may also be subject to increased risk. These
securities may present a substantial risk of default or may be
in default at the time of investment, requiring the Fund to incur
additional costs. The repayment of defaulted securities is also
subject
to significant uncertainties. The Fund may incur substantial expenses in
seeking recovery upon a default in the payment of principal
of or interest on its portfolio
holdings. |
|
Authorized
Participant Concentration Risk.
Only an authorized participant may engage in creation or redemption
transactions directly
with the Fund. The Fund has a limited number of intermediaries that act as
authorized participants and none of these authorized
participants is or will be obligated to engage in creation or redemption
transactions. There can be no assurance that an active
trading market for the Fund’s shares will develop or be maintained. To the
extent that these intermediaries exit the business or
are unable to or choose not to proceed with creation and/or redemption
orders with respect to the Fund, such as during periods of
market stress, and no other authorized participant creates or redeems,
shares may trade at a discount to net asset value (“NAV”) and
possibly face trading halts and/or
delisting. |
|
Trading
Risk.
The market prices of shares are expected to fluctuate, in some cases
materially, in response to changes in the Fund’s NAV,
the intra-day value of the Fund’s holdings, and supply and demand for
shares. The Adviser
and/or Sub-Adviser cannot predict
whether shares will trade above, below or at their NAV. Disruptions to
creations and redemptions, the existence of significant
market volatility or potential lack of an active trading market for the
shares (including through a trading halt), as well as
other factors, may result in the shares trading significantly above (at a
premium) or below (at a discount) to NAV or to the intraday
value of the Fund’s holdings. You may pay significantly more or receive
significantly less than the Fund’s NAV per share during
periods when there is a significant premium or discount. Buying or selling
shares in the secondary market may require paying
brokerage commissions or other charges imposed by brokers as determined by
that broker. Brokerage commissions are often
a fixed amount and may be a significant proportional cost when seeking to
buy or sell relatively small amounts of shares. In addition,
the market price of shares, like the price of any exchange-traded
security, includes a “bid-ask spread” charged by the market
makers or other participants that trade the particular security. The
spread of the Fund’s shares varies over time based on the
Fund’s trading volume and market liquidity and may increase if the Fund’s
trading volume, the spread of the Fund’s underlying
securities, or market liquidity
decrease. |
• |
Active
Management Risk.
In pursuing the Fund’s investment objective, the Adviser and/or
Sub-Adviser have considerable leeway in deciding
which investments to buy, hold or sell on a day-to-day basis, and which
trading strategies to use. For example, the Adviser
and/or Sub-Adviser, in their discretion, may determine to use some
permitted trading strategies while not using others. The
success or failure of such decisions will affect the Fund’s
performance. |
Eaton
Vance | Fund
Summary
Eaton
Vance High Yield ETF (Con’t)
• |
Investment
Company Securities.
Subject to the limitations set forth in the Investment
Company Act of 1940, as amended (the “1940
Act”), or as otherwise permitted by the SEC, the Fund may acquire shares
in other investment companies, including foreign
investment companies, ETFs and money market funds which may be
managed by the Adviser or its affiliates. The market value
of the shares of other investment companies may differ from the NAV of the
Fund. The shares of closed-end investment companies
frequently trade at a discount to their NAV. As a shareholder in an
investment company, the Fund would bear its ratable
share of that entity’s expenses, including its investment advisory and
administration fees, and be subject to the associated risks.
At the same time, the Fund would continue to pay its own advisory and
administration fees and other expenses. As a result, the
Fund and its shareholders, in effect, will also be absorbing fees with
respect to investments in other investment
companies. |
• |
New
Fund Risk.
A new fund’s performance may not represent how the fund is expected to or
may perform in the long term. In addition,
new funds have limited operating histories for investors to evaluate and
new funds may not attract sufficient assets to achieve
investment and trading
efficiencies. |
Shares
of the Fund are not bank deposits and are not guaranteed or insured by the
Federal Deposit Insurance Corporation or any other
government agency.
Performance
Information
As
of the date hereof, the Fund has not yet completed a full calendar year of
investment operations. Upon the completion of a full calendar
year of investment operations by the Fund, this section will include charts that
provide some indication of the risks of an investment
in the Fund, by showing the difference in annual total returns, highest and
lowest quarterly returns and average annual total
returns (before and after taxes) compared to the benchmark index selected for
the Fund. Performance information for the Fund will
be available online at www.eatonvance.com
or by calling toll-free 800-836-2414.
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Sub-Adviser.
Morgan Stanley Investment Management Limited
Portfolio
Managers.
Information about the individuals jointly and primarily responsible for the
day-to-day management of the Fund is
shown below:
|
| |
Name |
Title
with Adviser or Sub-Adviser |
Date
Began Managing
Fund |
Stephen
Concannon, CFA |
Managing
Director |
October
2023 |
Jeffrey
Mueller |
Managing
Director |
October
2023 |
Kelley
Gerrity |
Managing
Director |
October
2023 |
Brandon
Matsui, CFA |
Executive
Director |
October
2023 |
Purchase
and Sale of Fund Shares
Individual
shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price.
Because shares trade at market prices, rather than NAV, shares of the Fund may
trade at a price greater than NAV (i.e., a premium)
or less than NAV (i.e., a discount).
You
may incur costs attributable to the difference between the highest price a buyer
is willing to pay for shares (bid) and the lowest price
a seller is willing to accept for shares (ask) (the “bid-ask spread”) when
buying or selling shares in the secondary market.
Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads (when
available), will be available on the Fund’s website at
www.eatonvance.com.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or
capital gains, unless you are investing through a tax-deferred
arrangement, such as a 401(k) plan or an individual retirement
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or financial
intermediary (such as a bank), the Adviser and/or Foreside Fund
Services, LLC (the “Distributor”) may pay the financial intermediary for the
sale of Fund shares and related services. These payments,
which may be significant in amount, may create a conflict of interest by
influencing the financial intermediary and your salesperson
to recommend the Fund over another investment. Ask your salesperson or visit
your financial intermediary’s website for more
information.
Eaton
Vance | Fund
Summary
Eaton
Vance Intermediate Municipal Income ETF
Investment
Objective
Eaton
Vance Intermediate Municipal Income ETF (the “Fund”) seeks to provide
current income exempt from regular federal income tax.
Fees
and Expenses
The
table below describes the fees and expenses that you may pay if you buy, hold
and sell shares of the Fund. You
may pay fees other
than the fees and expenses of the Fund, such as brokerage commissions and other
fees charged by financial intermediaries,
which are not reflected in the tables and examples
below.
Annual
Fund Operating Expenses1 (expenses
that you pay each year as a percentage of the value of your
investment)
|
| |
Management
Fee1
|
% |
|
Other
Expenses2
|
% |
|
Total
Annual Fund Operating Expenses |
0.29% |
|
1 |
The
Fund’s management agreement provides that the Fund’s “Adviser,” Morgan
Stanley Investment Management Inc., will pay substantially all expenses
of
the Fund (including expenses of Morgan Stanley ETF Trust (the “Trust”)
relating to the Fund), except for the distribution fees, if any, brokerage
expenses,
acquired fund fees and expenses, taxes, interest, litigation expenses, and
other extraordinary expenses, including the costs of proxies, not
incurred
in the ordinary course of the Fund’s
business. |
2 |
Other
Expenses have been estimated for the current fiscal
year. |
Example
The
example below is intended to help you compare the cost of investing in the Fund
with the cost of investing in other funds. The example
does not take into account brokerage commissions that you pay when purchasing or
selling shares of the Fund.
The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods. The example also assumes your investment has a 5% return each year and
the Fund’s operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account.
These costs, which are not reflected in Total Annual Fund Operating Expenses or
in the example, affect the Fund’s performance.
Because the Fund had not yet commenced operations as of the most recent fiscal
year end, no portfolio turnover rate is available
for the Fund.
Principal
Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus any
borrowings for investment purposes) in municipal
obligations, the interest on which is exempt from regular federal income tax.
This policy is fundamental and may not be changed
without shareholder approval. The Fund may invest without limit in obligations
the income from which is subject to the federal
alternative minimum tax. At least 65% of the Fund’s net assets normally will be
invested in municipal obligations rated at least
investment grade at the time of investment (which are those rated Baa3 or higher
by Moody’s Investors Service, Inc. (“Moody’s”),
or BBB- or higher by either S&P Global Ratings (“S&P”) or Fitch Ratings
(“Fitch”)) or, if unrated, determined by the Adviser
to be of at least investment grade quality. The balance of net assets may be
invested in obligations rated below investment grade
and in unrated obligations considered to be of comparable quality by the Adviser
(“junk bonds”). The Fund will not invest more
than 10% of its net assets in obligations rated below B3 by Moody’s or lower
than B- by S&P or Fitch or in unrated obligations considered
to be of comparable quality by the Adviser. For purposes of rating restrictions,
if securities are rated differently by two or more
rating agencies, the highest rating is used. The Fund may invest up to 20% of
its net assets in other debt obligations, including (but
not limited to) taxable municipal obligations, U.S. Treasury securities and
obligations of the U.S. Government, its agencies and instrumentalities
(“Agency Securities”).
Although
the Fund invests in obligations to seek to maintain, under normal circumstances,
a dollar-weighted average portfolio duration
between three and eight years, the Fund may invest in individual municipal
obligations of any maturity. Duration represents
the dollar-weighted average maturity of expected cash flows (i.e., interest and
principal payments) on one or more municipal
obligations, discounted to their present values. The Fund may use various
techniques to shorten or lengthen its dollar-weighted
average duration, including the acquisition of municipal obligations at a
premium or discount, and transactions in futures contracts
and options on futures. The Fund may invest 25% or more of its total assets in
certain types of municipal obligations (such as
general obligations, municipal leases, principal only municipal investments,
revenue bonds and industrial development bonds) and
Eaton
Vance | Fund
Summary
Eaton
Vance Intermediate Municipal Income ETF (Con’t)
in
one or more states, territories and economic sectors (such as housing,
hospitals, healthcare facilities or utilities). The Fund may invest
in pooled investment vehicles, including exchange-traded funds (“ETFs”), to seek
exposure to the municipal markets or municipal
market sectors. The Fund may invest in restricted securities, including
securities that are subject to resale
restrictions.
The
Adviser’s process for selecting obligations for purchase and sale emphasizes the
creditworthiness of the issuer or other person obligated
to repay the obligation and the relative value of the obligation in the market.
In evaluating creditworthiness, the Adviser considers
ratings assigned by rating agencies and generally performs additional credit and
investment analysis. When deemed by
the Adviser to be relevant to its evaluation of creditworthiness and when
applicable information is available, the Adviser considers environmental,
social and/or governance issues (referred to as ESG) which may impact the
prospects of an issuer (or obligor) or financial
performance of an obligation. When considered, one or more ESG issues are taken
into account alongside other factors in the
investment decision-making process and are not the sole determinant of whether
an investment can be made or will remain in the Fund’s
portfolio.
The
Fund may engage in relative value trading to take advantage of price
appreciation opportunities or to realize capital losses. The portfolio
managers also may trade securities to minimize taxable capital gains to
shareholders. A portion of the Fund’s distributions generally
will be subject to the federal alternative minimum tax. The Fund may not be
suitable for investors subject to the federal alternative
minimum tax.
Principal
Risks
There
is no assurance that the Fund will achieve its investment objective, and you can
lose money investing in this Fund.
The principal
risks of investing in the Fund include:
• |
Fixed-Income
Securities.
Fixed-income securities are subject to the risk of the issuer’s inability
to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility
resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of
the issuer and general market liquidity (i.e., market risk).
For example, a type of fixed-income securities in which the Fund may
invest are corporate debt obligations. In addition to interest
rate, credit and other risks, corporate debt obligations are also subject
to factors directly related to the issuer, such as the credit
rating of the corporation, the corporation’s performance and perceptions
of the corporation in the marketplace, and by factors
not directly related to the issuer, such as general market liquidity,
economic conditions and inflation. The Fund may face a heightened
level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board
adjusts a quantitative easing program and/or changes rates. A changing
interest rate environment increases certain risks, including
the potential for periods of volatility, increased redemptions, shortened
durations (i.e., prepayment risk) and extended durations
(i.e., extension risk). The
Fund is not limited as to the maturities (when a debt security provides
its final payment) or durations
(measure of interest rate sensitivity) of the securities in which it may
invest but, under normal circumstances, the Fund intends
to maintain a dollar-weighted average portfolio duration between three and
eight years. Securities
with longer durations are
likely to be more sensitive to changes in interest rates, generally making
them more volatile than securities with shorter durations.
Lower rated fixed-income securities have greater volatility because there
is less certainty that principal and interest payments
will be made as scheduled. The Fund may be subject to certain
liquidity risks that may result from the lack of an active market
and the reduced number and capacity of traditional market participants to
make a market in fixed-income
securities. |
• |
Credit
and Interest Rate Risk.
Credit risk refers to the possibility that the issuer or guarantor of a
security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or
repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money.
Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of
interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level
of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may invest in variable and floating rate loans
and other variable and floating rate securities.
Although these instruments are generally less sensitive to interest rate
changes than fixed rate instruments, the value of variable
and floating rate loans and other securities may decline if their interest
rates do not rise as quickly, or as much, as general interest
rates. For example, during periods when interest rates are low, the Fund’s
yield (and total return) also may be low or otherwise
adversely affected or the Fund may be unable to maintain positive returns.
Credit ratings may not be an accurate assessment
of liquidity or credit risk. Although credit ratings may not accurately
reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid,
adverse effect on the instrument’s liquidity and make it more
difficult for the Fund to sell at an advantageous price or
time. |
• |
U.S.
Government Securities. Different
types of U.S. government securities are subject to different levels of
credit risk, including the risk
of default, depending on the nature of the particular government support
for that security. For example, a U.S. government-sponsored
entity, such as Federal National Mortgage Association or Federal Home Loan
Mortgage Corporation, although chartered
or sponsored by an Act of Congress, may issue securities that are neither
insured nor guaranteed by the U.S. Treasury and,
therefore, are not backed by the full faith and credit of the United
States. With respect to U.S. government securities that are not
backed by the full faith and credit of the United States, there is the
risk that the U.S. Government will not provide financial support
to such U.S. government agencies, instrumentalities or sponsored
enterprises if it is not obligated to do so by
law. |
Eaton
Vance | Fund
Summary
Eaton
Vance Intermediate Municipal Income ETF (Con’t)
• |
Municipals.
Because the Fund may
invest in municipal securities (also referred to as municipal
obligations), the Fund may be susceptible
to political, legislative, economic, regulatory, tax or other factors
affecting issuers of these municipal securities, such as state
and local governments and their agencies. To the extent that the Fund
invests in municipal securities of issuers in the same state
or economic sector, it could be more sensitive to economic, business or
political developments that affect such state or sector. Municipal
securities and their issuers may be more susceptible to downgrade, loss of
revenue, default and bankruptcy during periods
of economic stress. Municipal securities also involve the risk that an
issuer may call the securities for redemption, which could
force the Fund to reinvest the proceeds at a lower rate of interest. While
interest earned on municipal securities is generally not
subject to federal income tax, any interest earned on taxable municipal
securities is fully taxable at the federal level and may be subject
to state and/or local income
tax. |
• |
Restricted
Securities.
The Fund’s investments may include securities which are subject to resale
restrictions. These securities could have
the effect of increasing the level of Fund illiquidity to the extent the
Fund may be unable to sell or transfer these securities due
to restrictions on transfers or on the ability to find buyers interested
in purchasing the securities. Additionally, the market for certain
investments deemed liquid at the time of purchase may become illiquid
under adverse market or economic conditions. The
illiquidity of the market, as well as the lack of publicly available
information regarding these securities, may also adversely affect
the ability to arrive at a fair value for certain securities at certain
times and could make it difficult for the Fund to sell certain
securities.
If the Fund is forced to sell an illiquid security to fund redemptions or
for other cash needs, it may be forced to sell the security
at a loss or for less than its fair value and may be unable to sell the
security at all. |
• |
Liquidity.
The Fund may make investments that are illiquid or restricted or that may
become illiquid or less liquid in response to overall
economic conditions or adverse investor perceptions, and which may entail
greater risk than investments in other types of securities.
These investments may be more difficult to value or sell, particularly in
times of market turmoil, and there may be little trading
in the secondary market available for particular securities. Liquidity
risk may be magnified in a market where credit spread and
interest rate volatility is rising and where investor redemptions from
fixed-income funds may be higher than normal.
If the Fund
is forced to sell an illiquid or restricted security to fund redemptions
or for other cash needs, it may be forced to sell the security
at a loss or for less than its fair value and may be unable to sell the
security at all. |
• |
Market
and Geopolitical Risk.
The value of your investment in the Fund is based on the values of the
Fund’s investments, which change
due to economic and other events that affect markets generally, as well as
those that affect particular regions, countries, industries,
companies or governments. These events may be sudden and unexpected, and
could adversely affect the liquidity of the Fund’s
investments, which may in turn impact valuation, the Fund’s ability to
sell securities and/or its ability to meet redemptions.
The risks associated with these developments may be magnified if certain
social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics,
terrorism, conflicts, social unrest, recessions, inflation,
interest rate changes and supply chain disruptions) adversely interrupt
the global economy and financial markets. It is difficult
to predict when events affecting the U.S. or global financial markets may
occur, the effects that such events may have and the
duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses
and populations and have a significant and rapid negative impact on the
performance of the Fund’s investments, adversely
affect and increase the volatility of the Fund’s share price
and exacerbate pre-existing risks to the
Fund. |
|
Authorized
Participant Concentration Risk.
Only an authorized participant may engage in creation or redemption
transactions directly
with the Fund. The Fund has a limited number of intermediaries that act as
authorized participants and none of these authorized
participants is or will be obligated to engage in creation or redemption
transactions. There can be no assurance that an active
trading market for the Fund’s shares will develop or be maintained. To the
extent that these intermediaries exit the business or
are unable to or choose not to proceed with creation and/or redemption
orders with respect to the Fund, such as during periods of
market stress, and no other authorized participant creates or redeems,
shares may trade at a discount to net asset value (“NAV”) and
possibly face trading halts and/or
delisting. |
|
Cash
Transactions Risk.
Unlike certain ETFs, the Fund may effect creations and redemptions in cash
or partially in cash. Therefore,
it may be required to sell portfolio securities and subsequently recognize
gains on such sales that the Fund might not have
recognized if it were to distribute portfolio securities in-kind. As such,
investments in shares may be less tax-efficient than an investment
in an ETF that distributes portfolio securities entirely
in-kind. |
|
Trading
Risk.
The market prices of shares are expected to fluctuate, in some cases
materially, in response to changes in the Fund’s NAV,
the intra-day value of the Fund’s holdings, and supply and demand for
shares. The Adviser cannot predict whether shares will
trade above, below or at their NAV. Disruptions to creations and
redemptions, the existence of significant market volatility or
potential
lack of an active trading market for the shares (including through a
trading halt), as well as other factors, may result in the
shares trading significantly above (at a premium) or below (at a discount)
to NAV or to the intraday value of the Fund’s holdings.
You may pay significantly more or receive significantly less than the
Fund’s NAV per share during periods when there is a
significant premium or discount. Buying or selling shares in the secondary
market may require paying brokerage commissions or other
charges imposed by brokers as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant
proportional cost when seeking to buy or sell relatively small amounts of
shares. In addition, the market price of shares,
|
Eaton
Vance | Fund
Summary
Eaton
Vance Intermediate Municipal Income ETF (Con’t)
|
like
the price of any exchange-traded security, includes a “bid-ask spread”
charged by the market makers or other participants that trade
the particular security. The spread of the Fund’s shares varies over time
based on the Fund’s trading volume and market liquidity
and may increase if the Fund’s trading volume, the spread of the Fund’s
underlying securities, or market liquidity decrease. |
• |
Active
Management Risk.
In pursuing the Fund’s investment objective, the Adviser has considerable
leeway in deciding which investments
to buy, hold or sell on a day-to-day basis, and which trading strategies
to use. For example, the Adviser, in its discretion,
may determine to use some permitted trading strategies while not using
others. The success or failure of such decisions will
affect the Fund’s
performance. |
• |
High
Yield Securities (“Junk Bonds”).
The Fund’s investments in high yield securities expose it to a substantial
degree of credit risk. High
yield securities may be issued by companies that are restructuring, are
smaller and less creditworthy or are more highly indebted
than other companies, and therefore they may have more difficulty making
scheduled payments of principal and interest. High
yield securities are subject to greater risk of loss of income and
principal than higher rated securities and are considered speculative
because of increased credit risk relative to other fixed income
investments. High yield securities may experience reduced
liquidity, and sudden and substantial decreases in price. An economic
downturn affecting an issuer of high yield securities may
result in an increased incidence of default. In the event of a default,
the Fund may incur additional expenses to seek
recovery. |
• |
Taxability
Risk. Changes
in tax laws or adverse determinations by the Internal Revenue Service
(“IRS”) may make the income from some
municipal obligations
taxable. |
• |
New
Fund Risk.
A new fund’s performance may not represent how the fund is expected to or
may perform in the long term. In addition,
new funds have limited operating histories for investors to evaluate and
new funds may not attract sufficient assets to achieve
investment and trading
efficiencies. |
• |
Investment
Company Securities.
Subject to the limitations set forth in the Investment
Company Act of 1940, as amended (the “1940
Act”), or as otherwise permitted by the SEC, the Fund may acquire shares
in other investment companies, including foreign
investment companies, ETFs and money market funds which may be
managed by the Adviser or its affiliates. The market value
of the shares of other investment companies may differ from the NAV of the
Fund. The shares of closed-end investment companies
frequently trade at a discount to their NAV. As a shareholder in an
investment company, the Fund would bear its ratable
share of that entity’s expenses, including its investment advisory and
administration fees, and be subject to the associated risks.
At the same time, the Fund would continue to pay its own advisory and
administration fees and other expenses. As a result, the
Fund and its shareholders, in effect, will also be absorbing fees with
respect to investments in other investment
companies. |
Shares
of the Fund are not bank deposits and are not guaranteed or insured by the
Federal Deposit Insurance Corporation or any other
government agency.
Performance
Information
As
of the date hereof, the Fund has not yet completed a full calendar year of
investment operations. Upon the completion of a full calendar
year of investment operations by the Fund, this section will include charts that
provide some indication of the risks of an investment
in the Fund, by showing the difference in annual total returns, highest and
lowest quarterly returns and average annual total
returns (before and after taxes) compared to the benchmark index selected for
the Fund. Performance information for the Fund will
be available online at www.eatonvance.com
or by calling toll-free 800-836-2414.
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Portfolio
Managers.
Information about the individuals jointly and primarily responsible for the
day-to-day management of the Fund is
shown below:
|
| |
Name |
Title
with Adviser |
Date
Began Managing
Fund |
Julie
P. Callahan, CFA |
Managing
Director |
October
2023 |
Paul
Metheny, CFA |
Executive
Director |
October
2023 |
Carl
Thompson, CFA |
Executive
Director |
October
2023 |
Brandon
Matsui, CFA |
Executive
Director |
October
2023 |
Purchase
and Sale of Fund Shares
Individual
shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price.
Because shares trade at market prices, rather than NAV, shares of the Fund may
trade at a price greater than NAV (i.e., a premium)
or less than NAV (i.e., a discount).
Eaton
Vance | Fund
Summary
Eaton
Vance Intermediate Municipal Income ETF (Con’t)
You
may incur costs attributable to the difference between the highest price a buyer
is willing to pay for shares (bid) and the lowest price
a seller is willing to accept for shares (ask) (the “bid-ask spread”) when
buying or selling shares in the secondary market.
Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads (when
available), will be available on the Fund’s website at
www.eatonvance.com.
Tax
Information
The
Fund’s distributions of interest on municipal obligations generally are not
subject to federal income tax. The Fund’s distributions
from other portfolio securities may be subject to federal, state and/or local
income taxes. Income derived from some municipal
securities is subject to the federal alternative minimum tax. If the Fund makes
any capital gain distributions, those distributions
will normally be subject to federal and state income tax when they are paid,
whether you take them in cash or reinvest them
in Fund shares.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or financial
intermediary (such as a bank), the Adviser and/or Foreside Fund
Services, LLC (the “Distributor”) may pay the financial intermediary for the
sale of Fund shares and related services. These payments,
which may be significant in amount, may create a conflict of interest by
influencing the financial intermediary and your salesperson
to recommend the Fund over another investment. Ask your salesperson or visit
your financial intermediary’s website for more
information.
Eaton
Vance | Details
of the Fund
Eaton
Vance Ultra-Short Income ETF
Investment
Objective
The
Fund seeks to maximize income, to the extent consistent with preservation of
capital.
The
Fund’s investment objective may be changed by the Trust’s Board of Trustees
without shareholder approval, but no change is anticipated.
If the Fund’s investment objective changes, the Fund will notify shareholders
and shareholders should consider whether the
Fund remains an appropriate investment in light of the change.
Approach
The
Fund seeks to achieve its investment objective by primarily investing in a
portfolio of investment grade, short-term fixed, variable
and floating-rate securities. The Fund is not a money market fund and does not
seek to maintain a stable net asset value.
The
Fund is actively managed, not designed to track a benchmark, and therefore not
constrained by the composition of a benchmark.
Under
normal circumstances, the Fund’s weighted average portfolio duration will be one
year or less. In certain market or economic conditions,
such as in periods of significant volatility in interest rates and spreads, the
Fund’s weighted average portfolio duration may
be longer than one year. The Fund seeks to manage duration and hedge interest
rate risk through the purchase and sale of U.S. Treasury
securities. During periods when the Fund’s weighted average portfolio duration
is longer than one year, the Fund may not achieve
its investment objective.
Process
The
Fund typically invests at least 90% of its net assets in investment grade, U.S.
dollar-denominated debt securities. A debt security is
considered investment grade when assigned a credit quality rating of BBB- or
higher by S&P Global Ratings (“S&P”) or an equivalent
rating by another nationally recognized statistical rating organization
(‘‘NRSRO”), including Moody’s Investors Service or Fitch
Ratings, or Kroll Bond Rating Agency, LLC for securitized debt instruments only
(such as asset-backed securities (“ABS”) and mortgage-backed
securities (“MBS”)) or if unrated, considered to be of comparable credit quality
by the Adviser. For purposes of rating
restrictions, if securities are rated differently by two or more rating
agencies, the highest rating is used.
Under
normal circumstances, the Fund will invest in below-investment grade, high-yield
debt instruments (commonly known as “junk
bonds”). The Fund’s investment in such instruments is limited to 10% of its net
assets, as assessed at time of purchase.
The
Fund will concentrate its investments in the banking industry. Therefore, under
normal conditions, the Fund will invest more than
25% of its total assets in securities issued by issuers in the banking industry.
The Fund may, however, invest less than 25% of its total
assets in this industry as a temporary defensive measure.
The
Fund invests in bonds issued by U.S. corporations, the U.S. Government or its
agencies, and U.S. government-sponsored enterprises
(“GSEs”) such as the Federal National Mortgage Association (“FNMA”) and the
Federal Home Loan Mortgage Corporation
(“FHLMC”). The Fund also may invest in money market instruments and taxable
municipal obligations. The Fund may
invest in pooled investment vehicles, including exchange-traded funds (“ETFs”)
and money market funds, for various portfolio management
purposes, such as to maintain exposure to certain investments or for cash
management purposes.
The
Fund may invest in ABS and MBS that represent interests in pools of mortgage
loans (MBS) or other assets (ABS) assembled for sale
to investors by various U.S. governmental agencies, government-related
organizations and private issuers (i.e., non-agency). MBS may
include collateralized mortgage obligations (“CMOs”), residential
mortgage-backed securities (“RMBS”) and commercial mortgage-backed
securities (“CMBS”). ABS may include collateralized loan obligations (“CLOs”).
In addition, the Fund may invest in
to-be-announced pass-through mortgage securities, which settle on a delayed
delivery basis (“TBA”).
The
Fund may also invest up to 25% of its net assets in foreign debt
securities.
In
managing the Fund, the Adviser considers macroeconomic factors in determining
the Fund’s sector allocation and yield curve positioning
and uses fundamental research in selecting individual securities for the
portfolio. Macroeconomic factors considered may include,
among others, the pace of economic growth, unemployment rates, interest rates,
inflation, monetary and fiscal policy, and general
trends in global economies and currencies. In combination with the top-down
macroeconomic approach, the Adviser employs
a bottom-up process of fundamental securities analysis to select the specific
securities for investment. This bottom-up, research-driven
and value-oriented approach emphasizes the financial strength of issuers,
current valuations and the interest rate sensitivity
of investments, among other factors. In selecting securities, the Adviser
generally seeks issuers with attractive valuations. The
Adviser may sell a security when the Adviser’s valuation target for the security
is reached, the fundamentals of the company deteriorate
or to pursue more attractive investment options. When deemed by the Adviser to
be relevant to its evaluation of creditworthiness
and when applicable information is available, the Adviser considers
environmental, social and/or governance issues (referred
to as ESG) which may impact the prospects of an issuer (or obligor) or financial
performance of an obligation. When considered,
one or more ESG issues are taken into account alongside other factors in the
investment decision-making process and are not
the sole determinant of whether an investment can be made or will remain in the
Fund’s portfolio. The Adviser also considers
Eaton
Vance | Details
of the Fund
Eaton
Vance Ultra-Short Income ETF (Con’t)
how
purchasing or selling an investment would impact the overall portfolio’s
potential return (income and capital gains) and risk profile
(for example, its sensitivity to currency risk, interest rate risk and
sector-specific risk) on both a benchmark-relative and absolute
return basis, and may include allocations to securities outside the
benchmark.
Eaton
Vance | Details
of the Fund
Eaton
Vance High Yield ETF
Investment
Objective
The
Fund seeks to provide a high level of current income. The Fund’s secondary
objectives are to seek growth of income and capital.
The
Fund’s investment objective may be changed by the Trust’s Board of Trustees
without shareholder approval, but no change is anticipated.
If the Fund’s investment objective changes, the Fund will notify shareholders
and shareholders should consider whether the
Fund remains an appropriate investment in light of the change.
Approach
Under
normal circumstances, at least 80% of the Fund’s net assets (plus any borrowings
for investment purposes) will be invested in high
yield securities. This policy may be changed without shareholder approval;
however, shareholders would be notified upon 60 days’
notice in writing of any changes. High-yield securities (commonly referred to as
“junk bonds”) include U.S. dollar denominated high
risk corporate bonds which are rated lower than investment grade (i.e., bonds
rated lower than Baa3 by Moody’s Investors Service,
Inc. (“Moody’s”) or lower than BBB- by S&P Global Ratings (“S&P”) or
Fitch Ratings (“Fitch”)) or are unrated and of comparable
quality as determined by the Adviser or Morgan Stanley Investment Management
Limited (the “Sub-Adviser”). Bonds rated
BBB and Baa have speculative characteristics, while lower-rated bonds are
predominantly speculative. The Fund may not hold more
than 10% of its net assets in securities rated below B3 by Moody’s or lower than
B- by S&P or Fitch.
The
Fund’s investments are actively managed and securities may be bought and sold on
a daily basis. Preservation of capital is considered
when consistent with the Fund’s investment objective.
The
portfolio managers attempt to improve yield and preserve and enhance principal
value through timely trading. The portfolio managers
also consider the relative value of securities in the marketplace in making
investment decisions.
Process
The
Fund may invest up to 15% of its net assets in securities that are rated
investment grade (i.e., bonds rated higher than Ba1 by Moody’s
or higher than BB+ by S&P or Fitch). The Fund may invest up to
5% of its total assets in subordinated preferred securities. The
Fund may invest up to 20% of its net assets in foreign and emerging market
securities, which are predominantly U.S. dollar-denominated.
The Fund may invest in securities with a minimum primary issuance of $500
million or greater. The Fund may not purchase
senior floating rate loans or secured or unsecured subordinated (“junior”)
floating rate loans, second lien loans or bridge loans.
The Fund may not conduct short sales. The Fund’s investment in an individual
sector may be equal to an amount up to the greater
of 15% of its total assets or 1.2x the relative weight of such sector in the ICE
BofA BB-B U.S. High Yield Index.
The
Fund may purchase or sell derivative instruments for hedging purposes, to seek
return, to manage certain investment risks and/or
as a substitute for the purchase or sale of securities. Transactions in
derivative instruments may include: the purchase or sale of futures
contracts on securities, indices or other financial instruments or currencies;
options on futures contracts; exchange-traded and over-the-counter
options on securities, indices, currencies and other instruments; interest rate,
credit default, inflation and total return
swaps; forward rate contracts and credit linked notes as well as instruments
that have a greater or lesser credit risk than the security
underlying that instrument. The Fund may use interest rate swaps for risk
management purposes and not as a speculative investment
and would typically use interest rate swaps to seek to shorten the average
interest rate reset dates of its holdings. With respect
to non-U.S. dollar-denominated securities, the Fund may seek to hedge currency
fluctuations by entering into forward foreign
currency exchange contracts. Derivative instruments used by the Fund will be
counted toward the Fund’s 80% policy discussed
above to the extent they have economic characteristics similar to the securities
included within that policy. The Fund may invest
in pooled investment vehicles, including exchange-traded funds (“ETFs”) and
money market funds, for various portfolio management
purposes, such as to maintain exposure to certain investments or for cash
management purposes.
The
Adviser and/or Sub-Adviser monitor the credit quality of securities held by the
Fund. Although the Adviser and/or Sub-Adviser consider
security ratings when making investment decisions, they perform their own credit
and investment analysis utilizing various methodologies
including “bottom up/top down” analysis and consideration of macroeconomic and
technical factors, and do not rely primarily
on the ratings assigned by the rating services. When deemed by the Adviser
and/or Sub-Adviser to be relevant to their evaluation
of creditworthiness and when applicable information is available, the Adviser
and/or Sub-Adviser consider environmental, social
and/or governance issues (referred to as ESG) which may impact the prospects of
an issuer (or obligor) or financial performance
of an obligation. When considered, one or more ESG issues are taken into account
alongside other factors in the investment
decision-making process and are not the sole determinant of whether an
investment can be made or will remain in the Fund’s
portfolio.
Eaton
Vance | Details
of the Fund
Eaton
Vance Intermediate Municipal Income ETF
Investment
Objective
The
Fund seeks to provide current income exempt from regular federal income
tax.
The
Fund’s investment objective may be changed by the Trust’s Board of Trustees
without shareholder approval, but no change is anticipated.
If the Fund’s investment objective changes, the Fund will notify shareholders
and shareholders should consider whether the
Fund remains an appropriate investment in light of the change.
Approach
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus any
borrowings for investment purposes) in municipal
obligations, the interest on which is exempt from regular federal income tax.
This policy is fundamental and may not be changed
without shareholder approval.
Process
The
Fund may invest without limit in obligations the income from which is subject to
the federal alternative minimum tax. At least 65%
of the Fund’s net assets normally will be invested in municipal obligations
rated at least investment grade at the time of investment
(which are those rated Baa3 or higher by Moody’s Investors Service, Inc.
(“Moody’s”), or BBB- or higher by either S&P Global
Ratings (“S&P”) or Fitch Ratings (“Fitch”)) or, if unrated, determined by
the Adviser to be of at least investment grade quality.
The balance of net assets may be invested in obligations rated below investment
grade and in unrated obligations considered to
be of comparable quality by the Adviser (“junk bonds”). The Fund will not invest
more than 10% of its net assets in obligations rated
below B3 by Moody’s or lower than B- by S&P or Fitch or in unrated
obligations considered to be of comparable quality by the
Adviser. For purposes of rating restrictions, if securities are rated
differently by two or more rating agencies, the highest rating is used.
The Fund may invest up to 20% of its net assets in other debt obligations,
including (but not limited to) taxable municipal obligations,
U.S. Treasury securities and obligations of the U.S. Government, its agencies
and instrumentalities (“Agency Securities”).
Although
the Fund invests in obligations to seek to maintain, under normal circumstances,
a dollar-weighted average portfolio duration
between three and eight years, the Fund may invest in individual municipal
obligations of any maturity. Duration represents
the dollar-weighted average maturity of expected cash flows (i.e., interest and
principal payments) on one or more municipal
obligations, discounted to their present values. The Fund may use various
techniques to shorten or lengthen its dollar-weighted
average duration, including the acquisition of municipal obligations at a
premium or discount, and transactions in futures contracts
and options on futures. The Fund may invest 25% or more of its total assets in
certain types of municipal obligations (such as
general obligations, municipal leases, principal only municipal investments,
revenue bonds and industrial development bonds) and in
one or more states, territories and economic sectors (such as housing,
hospitals, healthcare facilities or utilities). The Fund may invest
in pooled investment vehicles, including exchange-traded funds (“ETFs”), to seek
exposure to the municipal markets or municipal
market sectors. The Fund may invest in restricted securities, including
securities that are subject to resale restrictions.
The
Adviser’s process for selecting obligations for purchase and sale emphasizes the
creditworthiness of the issuer or other person obligated
to repay the obligation and the relative value of the obligation in the market.
In evaluating creditworthiness, the Adviser considers
ratings assigned by rating agencies and generally performs additional credit and
investment analysis. When deemed by the Adviser
to be relevant to its evaluation of creditworthiness and when applicable
information is available, the Adviser considers environmental,
social and/or governance issues (referred to as ESG) which may impact the
prospects of an issuer (or obligor) or financial
performance of an obligation. When considered, one or more ESG issues are taken
into account alongside other factors in the
investment decision-making process and are not the sole determinant of whether
an investment can be made or will remain in the Fund’s
portfolio.
The
Fund may engage in relative value trading to take advantage of price
appreciation opportunities or to realize capital losses. The portfolio
managers also may trade securities to minimize taxable capital gains to
shareholders. A portion of the Fund’s distributions generally
will be subject to the federal alternative minimum tax. The Fund may not be
suitable for investors subject to the federal alternative
minimum tax.
Eaton
Vance | Additional
Information About Fund Investment Strategies and Related Risks
Additional
Information About Fund Investment Strategies and Related Risks
|
| |
This
section discusses additional information relating to Fund investment
strategies, other types of investments that the Funds
may make and related risk factors. “Fund” as used herein and under
“Additional Information About Fund Investment Strategies
and Related Risks” refers to each Fund listed on the cover page of this
Prospectus (unless otherwise noted). In addition,
references to the “Adviser” under “Additional Information About Fund
Investment Strategies and Related Risks” refer
to the Adviser and/or Sub-Adviser. Fund investment practices and
limitations are described in more detail in the Statement
of Additional Information (“SAI”), which is incorporated by reference and
legally is a part of this Prospectus. For details
on how to obtain a copy of the SAI and other reports and information, see
the back cover of this Prospectus. |
Economies
and financial markets worldwide have recently experienced periods of increased
volatility, uncertainty, distress, government
spending, inflation and disruption to consumer demand, economic output and
supply chains. To the extent these conditions
continue, the risks associated with an investment in the Fund, including those
described below, could be heightened and the
Fund’s investments (and thus a shareholder’s investment in the Fund) may be
particularly susceptible to sudden and substantial losses,
reduced yield or income or other adverse developments. The occurrence, duration
and extent of these or other types of adverse economic
and market conditions and uncertainty over the long term cannot be reasonably
projected or estimated at this time.
The
Eaton Vance Ultra-Short Income ETF is not a money market fund (or equivalent to
a money market fund), does not attempt to maintain
a stable net asset value, and is not subject to the rules that govern the
quality, maturity, liquidity, and other features of securities
that money market funds may purchase. Under normal conditions, the Fund’s
investments are generally more susceptible than
a money market fund to interest rate risk, valuation risk, credit risk, and
other risks relevant to the Fund’s investments.
The
name, investment objective and/or policies of a Fund may be similar to other
funds advised by the Adviser or its affiliates. However,
the investment results of the Fund may be higher or lower than, and there is no
guarantee that the investment results of the Fund
will be comparable to, any such other funds for any period of time.
The
Fund may be more significantly affected by purchases and redemptions of its
Creation Units (as defined below) than a fund with relatively
greater assets under management would be affected by purchases and redemptions
of its shares. As compared to a larger fund,
the Fund is more likely to sell a comparatively large portion of its portfolio
to meet significant Creation Unit redemptions or invest
a comparatively large amount of cash to facilitate Creation Unit purchases, in
each case when the Fund otherwise would not seek
to do so. Such transactions may cause the Fund to make investment decisions at
inopportune times or prices or miss attractive investment
opportunities. Such transactions may also accelerate the realization of taxable
income if sales of securities resulted in gains and
the Fund redeems Creation Units for cash, or otherwise cause a fund to perform
differently than intended. While such risks may apply
to funds of any size, such risks are heightened in funds with fewer assets under
management.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until
a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored
agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage-backed securities, securities rated
below investment grade (commonly referred to as “junk
bonds” or “high yield/high risk securities”), municipal bonds, loan
participations and assignments, zero coupon bonds, Eurobonds,
Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash
equivalents.
Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit
risk) and are subject to price volatility resulting from, among other things,
interest rate sensitivity (i.e., interest rate risk), market
perception of the creditworthiness of the issuer and general market liquidity
(i.e., market risk). For example, a type of fixed-income
securities in which the Fund may invest are corporate debt obligations. In
addition to interest rate, credit and other risks, corporate
debt obligations are also subject to factors directly related to the issuer,
such as the credit rating of the corporation, the corporation’s
performance and perceptions of the corporation in the marketplace, and by
factors not directly related to the issuer, such
as general market liquidity, economic conditions and inflation. The Fund may
face a heightened level of interest rate risk in times
of monetary policy change and/or uncertainty, such as when the Federal Reserve
Board adjusts a quantitative easing program and/or
changes rates. A changing interest rate environment increases certain risks,
including the potential for periods of volatility, increased
redemptions, shortened durations (i.e., prepayment risk) and extended durations
(i.e., extension risk).
Fixed
income and other debt instruments, including mortgage- and other asset-backed
securities, are subject to prepayment risk, which
is the risk that the principal of such obligation is paid earlier than expected,
such as in the case of refinancing. This risk is increased
during periods of declining interest rates and prepayments may reduce the Fund’s
yield or income as a result of reinvesting the
income or other proceeds in lower yielding securities or instruments. These
investments are also subject to extension risk, which is the
risk that the principal of such obligation is paid lower or later than expected.
This may negatively affect Fund returns, as the value of
the investment decreases when principal payments are made later than expected.
This risk is elevated during periods of increasing interest
rates. In addition, because principal payments are made later than expected, the
investment’s duration may extend (and result in
increased interest rate risk) and the Fund may be prevented from investing
proceeds it would otherwise have received at the higher
Eaton
Vance | Additional
Information About Fund Investment Strategies and Related Risks
Additional
Information About Fund Investment Strategies and Related Risks (Con’t)
prevailing
interest rates. Prepayments and extensions may result in a security or debt
instrument offering less potential for gains during
periods of declining interest rates or rising interest rates,
respectively.
With
respect to the Eaton Vance Intermediate Municipal Income ETF, the Fund is not
limited as to the maturities (when a debt security
provides its final payment) or durations (measure of interest rate sensitivity)
of the securities in which it may invest but, under
normal circumstances, the Eaton Vance Intermediate Municipal Income ETF intends
to maintain a dollar-weighted average portfolio
duration between three and eight years. Securities with longer durations are
likely to be more sensitive to changes in interest rates,
generally making them more volatile than securities with shorter durations.
Lower rated fixed-income securities have greater volatility
because there is less certainty that principal and interest payments will be
made as scheduled. The Funds may be subject to liquidity
risk, which may result from the lack of an active market and the reduced number
and capacity of traditional market participants
to make a market in fixed-income securities. Fixed-income securities may be
called (i.e., redeemed by the issuer) prior to final
maturity. If a callable security is called, the Fund may have to reinvest the
proceeds at a lower rate of interest.
Duration
Duration
is a measure of the expected life of a bond that is used to determine the
sensitivity of an instrument’s price to changes in interest
rates. Thus, the average duration of a portfolio of fixed-income securities
represents its exposure to changing interest rates. For
example, when the level of interest rates increases by 1%, a fixed-income
security having a positive duration of four years generally
will decrease in value by 4%; when the level of interest rates decreases by 1%,
the value of that same security generally will increase
by 4%. A portfolio with a shorter average duration generally will experience
less price volatility in response to changes in interest
rates than a portfolio with a longer average duration.
Measures
such as average duration may not accurately reflect the true interest rate
sensitivity of the Fund, particularly if the Fund consists
of securities with widely varying durations. As a result, if the Fund has an
average duration that suggests a certain level of interest
rate risk, the Fund may in fact be subject to greater interest rate risk than
the average would suggest. This risk is greater to the extent
the Adviser uses leverage or derivatives in connection with the management of
the Fund.
Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit
risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or
unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across
issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the
value of (or yield or income generated by) a fixed-income
or other debt security resulting from changes in the general level of interest
rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of
interest rates goes down, the prices of most fixed-income
securities go up. To
the extent the Fund invests in variable and floating rate securities, although
these instruments are generally
less sensitive to interest rate changes than fixed rate instruments, the value
of these securities may decline if their interest rates
do not rise as quickly, or as much, as general interest rates. A
low interest rate environment may prevent the Fund from providing
a positive yield or paying Fund expenses out of current income. The Fund may
face a heightened level of interest rate risk in
times of monetary policy change and/or uncertainty, such as when the Federal
Reserve Board adjusts a quantitative easing program and/or
changes rates. For example, during periods when interest rates are low, the
Fund’s yield (and total return) also may be low or otherwise
adversely affected or the Fund may be unable to maintain positive returns.
Monetary
policies, and market interest rates, are subject
to change at any time and potentially frequently based on a variety of market
and economic conditions. The impact on fixed income
and other debt instruments from interest rate changes, regardless of the cause,
could be significant and could adversely affect the
Fund and its investments.
Credit ratings may not be an accurate assessment of liquidity or credit risk.
Although credit ratings may
not accurately reflect the true credit risk of an instrument, a change in the
credit rating of an instrument or an issuer can have a rapid,
adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time.
In
addition, under certain conditions, there may be an increasing amount of issuers
that are unprofitable, have little cash on hand and/or
are unable to pay the interest owed on their debt obligations and the number of
such issuers may increase if demand for their goods
and services falls, borrowing costs rise due to governmental action or inaction
or other reasons.
Low
or high interest rates could magnify the risks associated with changes in
interest rates. In general, changing interest rates could have
unpredictable effects on markets and may expose debt and related markets to
heightened volatility and may detract from Fund performance
to the extent the Fund is exposed to such interest rates and/or
volatility.
Governmental
authorities and regulators may enact significant fiscal and monetary policy
changes, which present heightened risks to debt
instruments, and such risks could be even further heightened if these actions
are unexpectedly or suddenly reversed or are ineffective
in achieving their desired outcomes.
Asset-Backed
Securities
Asset-backed
securities apply the securitization techniques used to develop mortgage-backed
securities to a broad range of other assets.
Various types of assets, primarily automobile and credit card receivables and
home equity loans, are pooled and securitized in
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pass-through
structures similar to pass-through structures developed with respect to mortgage
securitizations. Asset-backed securities have
risk characteristics similar to mortgage-backed securities. Like mortgage-backed
securities, they generally decrease in value as a result
of interest rate increases, but may benefit less than other fixed-income
securities from declining interest rates, principally because
of prepayments (i.e., when a borrower pays back the principal of a debt
obligation earlier than expected). Also, as in the case of
mortgage-backed securities, prepayments generally increase during a period of
declining interest rates, although other factors, such as
changes in credit use and payment patterns, may also influence prepayment rates.
Asset-backed securities also involve the risk that various
federal and state consumer laws and other legal and economic factors may result
in the collateral backing the securities being insufficient
to support payment on the securities.
To
the extent the Fund invests in asset-backed securities issued by
non-governmental issuers, such as commercial banks, savings and loan
institutions, and other secondary market issuers, the Fund will be exposed to
additional risks because, among other things, there are
no direct or indirect government or agency guarantees of payments in the pools
underlying the securities. Privately-issued asset-backed
securities may be less readily marketable, subject to heightened credit risk and
the market for such securities is typically smaller
and less liquid than other asset-backed securities.
The
Fund may invest in other asset-backed or similarly structured securities, such
as collateralized debt obligations (“CDOs”), collateralized
bond obligations (“CBOs”), and collateralized loan obligations (“CLOs”) These
investments are subject to many of the same
risks as other forms of asset-backed securities, including interest rate risk,
credit risk and default risk, and are also subject to additional
risks, including but not limited to: (i) the possibility that
distributions from collateral securities will not be adequate to make
interest or other payments; (ii) the risk that the collateral may default or
decline in value or be downgraded, if rated by a nationally
recognized statistical rating organization; (iii) the Fund may invest in
tranches of CDOs that are subordinate to other tranches;
(iv) the structure and complexity of the transaction and the legal documents
could lead to disputes among investors regarding
the characterization of proceeds; (v) the investment return achieved by the Fund
could be significantly different than those predicted
by financial models; (vi) the lack of a readily available secondary market for
CDOs; (vii) the risk of forced “fire sale” liquidation
due to technical defaults such as coverage test failures; and (viii) the CDO’s
manager may perform poorly. Investments in CDOs,
CBOs and CLOs are also subject to risks particular to their respective asset
class and structure.
For
example, because CLOs are backed primarily by commercial loans, CLOs also bear
many of the same risks as investing in loans directly.
However, in addition to the risks associated with investing in commercial loans,
the complex structure and highly leveraged nature
of a CLO poses additional risks. CLOs may experience substantial losses
attributable to loan defaults or trading losses. Such losses
on the underlying assets are borne first by the holders of subordinate tranches.
In addition, the Fund’s investments in CLOs may
decrease in market value when the CLO’s assets experience loan defaults or
credit impairment, losses that exceed the most subordinate
tranches, or market anticipation of loan defaults and investor aversion to CLO
securities as a class. CDOs are structured similarly
to CLOs and bear many of the same risks as CLOs as well as additional risks
because they are backed by pools of assets other than
commercial loans, including securities (such as other asset-backed securities),
synthetic instruments or bonds, and may be highly leveraged.
Like CLOs, losses incurred by a CDO are borne first by holders of the most
subordinate tranches. Accordingly, the risks of CDOs
depend largely on the type of underlying collateral and the tranche of CDOs in
which the Fund invests. Moreover, CDOs that
obtain their exposure through synthetic investments are exposed to risks
associated with derivative instruments.
Mortgage-Backed
Securities
Mortgage-backed
securities are fixed-income securities representing an interest in a pool of
underlying mortgage loans. They are sensitive
to changes in interest rates, but may respond to these changes differently from
other fixed-income securities due to the possibility
of prepayment of the underlying mortgage loans (i.e., when a borrower pays back
the principal of a debt obligation earlier than
expected). As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed
security. Rising interest rates tend to discourage refinancings, with the
result that the average life and volatility of the security will
increase and its market price will decrease. When interest rates fall, however,
mortgage-backed securities may not gain as much in market
value because additional mortgage prepayments must be reinvested at lower
interest rates. Prepayment risk may make it difficult
to calculate the average maturity of a portfolio of mortgage-backed securities
and, therefore, to assess the volatility risk of that
portfolio.
The
Fund may invest in mortgage-backed securities that are issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
These securities are either direct obligations of the U.S. Government or the
issuing agency or instrumentality has the
right to borrow from the U.S. Treasury to meet its obligations although it is
not legally required to extend credit to the agency or instrumentality.
Certain of these mortgage-backed securities purchased by the Fund, such as those
issued by the Government National
Mortgage Association and the Federal Housing Administration, are backed by the
full faith and credit of the United States. Other
of these mortgage-backed securities purchased by the Fund, such as those issued
by the Federal
National Mortgage Association (“Fannie
Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), are not backed
by the full faith and credit of the United
States and there is a risk that the U.S. Government will not provide financial
support to these agencies if it is not obligated to do
so by law. The maximum potential liability of the issuers of some of the
mortgage-backed securities held by the Fund may greatly exceed
its current resources, including their legal right to support from the U.S.
Treasury. It is possible that these issuers will not have the
funds to meet their payment obligations in the future.
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To
the extent the Fund invests in mortgage-backed securities issued by
non-governmental issuers, such as commercial banks, savings and
loan institutions, private mortgage insurance companies, mortgage bankers and
other secondary market issuers, the Fund may be subject
to additional risks. Pools created by such non-governmental issuers generally
offer a higher rate of interest than government and
government-related pools because there are no direct or indirect government or
agency guarantees of payments in such pools. However,
timely payment of interest and principal of these pools may be supported by
various forms of private insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of
intent. The insurance and guarantees are issued by
governmental entities, private insurers and the mortgage poolers. There can be
no assurance that the private insurers or guarantors can
meet their obligations under the insurance policies or guarantee arrangements.
Mortgage pools underlying mortgage-backed securities
offered by non-governmental issuers more frequently include second mortgages,
high loan-to-value ratio mortgages and manufactured
housing loans, in addition to commercial mortgages and other types of mortgages
where a government or government-sponsored
entity guarantee is not available. An unexpectedly high rate of defaults on the
mortgages held by a mortgage pool may adversely
affect the value of a mortgage-backed security and could result in losses to the
Fund. The risk of such defaults is generally higher
in the case of mortgage pools that include subprime mortgages. Subprime
mortgages refer to loans made to borrowers with weakened
credit histories or with a lower capacity to make timely payments on their
mortgages. For these reasons, the loans underlying
these securities have had in many cases higher default rates than those loans
that meet government underwriting requirements.
The risk of non-payment is greater for mortgage-related securities that are
backed by loans that were originated under weak
underwriting standards, including loans made to borrowers with limited means to
make repayment. A level of risk exists for all loans,
although, historically, the poorest performing loans have been those classified
as subprime. Other types of privately issued mortgage-related
securities, such as those classified as pay-option adjustable rate or Alt-A,
have also performed poorly.
Non-agency
mortgage-backed securities are not traded on an exchange and there may be a
limited market for the securities, especially when
there is a perceived weakness in the mortgage and real estate market sectors.
Without an active trading market, mortgage-related
securities held in the Fund’s portfolio may be particularly difficult to value
because of the complexities involved in assessing the
value of the underlying mortgage loans or to sell. Non-agency mortgage-backed
securities include securities that reflect an interest in,
and are secured by, mortgage loans on commercial real property. Many of the
risks of investing in CMBS reflect the risks of investing
in the real estate securing the underlying mortgage loans. These risks reflect
the effects of local and other economic conditions
on real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants.
The
risks associated with mortgage-backed securities are elevated in distressed
economic, market, health and labor conditions, notably,
increased levels of unemployment, delays and delinquencies in payments of
mortgage and rent obligations, and uncertainty regarding
the effects and extent of government intervention with respect to mortgage
payments and other economic matters.
Delinquencies,
defaults and losses on residential mortgage loans may increase substantially
over certain periods, which may affect the performance
of the mortgage-backed securities in which the Fund may invest. Mortgage loans
backing non-agency mortgage-backed securities
are more sensitive to economic factors that could affect the ability of
borrowers to pay their obligations under the mortgage loans
backing these securities. In addition, housing prices and appraisal values in
many states and localities over certain periods have declined
or stopped appreciating. A sustained decline or an extended flattening of those
values may result in additional increases in delinquencies
and losses on mortgage-backed securities generally (including the
mortgaged-backed securities that the Fund may invest
in as described above). Adverse changes in market conditions and regulatory
climate may reduce the cash flow which the Fund, to
the extent it invests in mortgage-backed securities or other asset-backed
securities, receives from such securities and increase the incidence
and severity of credit events and losses in respect of such securities. In the
event that interest rate spreads for mortgage-backed
securities and other asset-backed securities widen following the purchase of
such assets by the Fund, the market value of such securities
is likely to decline and, in the case of a substantial spread widening, could
decline by a substantial amount. Furthermore, adverse
changes in market conditions may result in reduced liquidity in the market for
mortgage-backed securities and other asset-backed
securities (including the mortgage-backed securities and other asset-backed
securities in which the Fund may invest) and an unwillingness
by banks, financial institutions and investors to extend credit to servicers,
originators and other participants in the market
for mortgage-backed and other asset-backed securities. As a result, the
liquidity and/or the market value of any mortgage-backed
or asset-backed securities that are owned by the Fund may experience declines
after they are purchased by the Fund.
Collateralized Mortgage
Obligations. CMOs are
debt obligations collateralized by mortgage loans or mortgage pass-through
securities (collectively
“Mortgage Assets”). Payments of principal and interest on the Mortgage Assets
and any reinvestment income are used to make
payments on the CMOs. CMOs are issued in multiple classes. Each class has a
fixed or floating rate and a stated maturity or final
distribution date. The principal and interest on the Mortgage Assets may be
allocated among the classes in a number of different ways.
Certain classes will, as a result of the allocation, have more predictable cash
flows than others. As a general matter, the more predictable
the cash flow, the lower the yield relative to other Mortgage Assets. The less
predictable the cash flow, the higher the yield and
the greater the risk. The Fund may invest in any class of CMO, including classes
that vary inversely with interest rates and may be
more volatile and sensitive to prepayment rates.
The
principal and interest on the Mortgage Assets comprising a CMO may be allocated
among the several classes of a CMO in many ways.
The general goal in allocating cash flows on Mortgage Assets to the various
classes of a CMO is to create certain tranches on
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which
the expected cash flows have a higher degree of predictability than do the
underlying Mortgage Assets. As a general matter, the more
predictable the cash flow is on a particular CMO tranche, the lower the
anticipated yield on that tranche at the time of issue will
be relative to the prevailing market yields on the Mortgage Assets. As part of
the process of creating more predictable cash flows on
certain tranches of a CMO, one or more tranches generally must be created that
absorb most of the changes in the cash flows on the
underlying Mortgage Assets. The yields on these tranches are generally higher
than prevailing market yields on other mortgage related
securities with similar average lives. Principal prepayments on the underlying
Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Because of the uncertainty of the cash flows on these
tranches, the market prices and yields of these tranches are more volatile and
may increase or decrease in value substantially with
changes in interest rates and/or the rates of prepayment relative to other
tranches. Due to the possibility that prepayments (on home
mortgages and other collateral) will alter the cash flow on CMOs, it is
not possible to determine in advance the final maturity date
or average life. Faster prepayment will shorten the average life and slower
prepayments will lengthen it. In addition, if the collateral
securing CMOs or any third party guarantees are insufficient to make payments,
the Fund could sustain a loss.
Stripped
Mortgage-Backed Securities.
Stripped mortgage-backed securities (“SMBS”) are derivative multi-class
mortgage-backed securities. SMBS
may be issued by agencies or instrumentalities of the U.S. Government, or by
private originators. A common type of
SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class receives
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the interest
only or “IO” class), while the other class will receive all of the principal
(the principal-only or “PO” class). Investments in each
class of SMBS are extremely sensitive to changes in interest rates. IOs tend to
decrease in value substantially if interest rates decline
and prepayment rates become more rapid. POs tend to decrease in value
substantially if interest rates increase and the rate of prepayment
decreases. If the Fund invests in SMBS and interest rates move in a manner
not anticipated by management, it is possible
that the Fund could lose all or substantially all of its
investment.
Commercial
Mortgage-Backed Securities.
CMBS are generally multi-class or pass-through securities backed by a
mortgage loan or a pool
of mortgage loans secured by commercial property, such as industrial and
warehouse properties, office buildings, retail space and shopping
malls, multifamily properties and cooperative apartments. The commercial
mortgage loans that underlie CMBS are generally
not amortizing or not fully amortizing. That is, at their maturity date,
repayment of their remaining principal balance or “balloon”
is due and is repaid through the attainment of an additional loan or sale of the
property. An extension of a final payment on
commercial mortgages will increase the average life of the CMBS, generally
resulting in a lower yield for discount bonds and a higher
yield for premium bonds.
CMBS
are subject to credit risk and prepayment risk, among other risks. Although
prepayment risk is present, it is of a lesser degree in
the CMBS market than in the residential mortgage market; commercial real estate
property loans often contain provisions that substantially
reduce the likelihood that such securities will be prepaid (e.g., significant
prepayment penalties on loans and, in some cases,
prohibition on principal payments for several years following
origination).
The
values of, and income generated by, CMBS may be adversely affected by changing
interest rates, tightening lending standards, and
other developments impacting the commercial real estate market, such as
population shifts and other demographic changes, increasing
vacancies (potentially for extended periods) and reduced demand for commercial
and office space as well as maintenance or
tenant improvement costs and costs to convert properties for other uses. These
developments could result from, among other things,
changing tastes and preferences (such as remote work arrangements) as well as
cultural, technological, global or local economic
and market developments. In addition, changing interest rate environments and
associated changes in lending standards and
higher refinancing rates may adversely affect the commercial real estate and
CMBS markets. The occurrence of any of the foregoing
or similar developments would likely increase default risk for the properties
and loans underlying these investments as well as
impact the value of, and income generated by, these investments. These
developments could also result in reduced liquidity for CMBS.
Inverse
Floaters
Inverse
floaters are obligations which pay interest at rates that vary inversely with
changes in market rates of interest. Because the interest
rate paid to holders of such obligations is generally determined by subtracting
a variable or floating rate from a predetermined amount,
the interest rate paid to holders of such obligations will decrease as such
variable or floating rate increases and increase as such
variable or floating rate decreases.
Like
most other fixed-income securities, the value of inverse floaters will decrease
as interest rates increase. They are more volatile, however,
than most other fixed-income securities because the coupon rate on an inverse
floater typically changes at a multiple of the change
in the relevant index rate. Thus, any rise in the index rate (as a consequence
of an increase in interest rates) causes a correspondingly
greater drop in the coupon rate of an inverse floater while a drop in the index
rate causes a correspondingly greater increase
in the coupon of an inverse floater. Some inverse floaters may also increase or
decrease substantially because of changes in the rate
of prepayments.
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U.S.
Treasury and Government Securities
The
U.S. government securities that the
Fund may purchase include U.S. Treasury bills, notes and bonds, all of which are
direct obligations
of the U.S. Government. In addition, the
Fund may purchase securities issued or guaranteed by agencies and
instrumentalities
of the U.S. Government which are backed by the full faith and credit of the
United States. Among the agencies and instrumentalities
issuing these obligations are the Government National Mortgage Association
and the Federal Housing Administration.
Also, the
Fund may purchase securities issued by agencies and instrumentalities
which are not backed by the full faith
and credit of the United States, but whose issuing agency or instrumentality has
the right to borrow, to meet its obligations, from
the U.S. Treasury. Among these agencies and instrumentalities are the Federal
National Mortgage Association (“Fannie Mae”), the
Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal Home Loan
Banks. Further, the
Fund may purchase
securities issued by agencies and instrumentalities which are backed solely by
the credit of the issuing agency or instrumentality.
Among these agencies and instrumentalities is the Federal Farm Credit System.
Because these securities are not backed
by the full faith and credit of the United States, there is a risk that the U.S.
Government will not provide financial support to these
agencies if it is not obligated to do so by law. The maximum potential liability
of the issuers of some U.S. government securities held
by the Fund may greatly exceed their current resources, including their
legal right to support from the U.S. Treasury. It is possible
that these issuers will not have the funds to meet their payment obligations in
the future. The interest from U.S. government securities
generally is not subject to state and local taxation.
The
U.S. government securities that the Fund may purchase include U.S. Treasury
bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, the Fund may purchase securities issued or
guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the
United States. Among the agencies and instrumentalities
issuing these obligations are the Government National Mortgage Association and
the Federal Housing Administration.
Also, the Fund may purchase securities issued by agencies and instrumentalities
which are not backed by the full faith
and credit of the United States, but whose issuing agency or instrumentality has
the right to borrow, to meet its obligations, from
the U.S. Treasury. Among these agencies and instrumentalities are FNMA, the
FHLMC and the Federal Home Loan Banks. Further,
the Fund may purchase securities issued by agencies and instrumentalities which
are backed solely by the credit of the issuing
agency or instrumentality. Among these agencies and instrumentalities is the
Federal Farm Credit System. Because these securities
are not backed by the full faith and credit of the United States, there is a
risk that the U.S. Government will not provide financial
support to these agencies if it is not obligated to do so by law, and therefore
these U.S. government securities involve greater credit
risk than other types of U.S. government securities. The maximum potential
liability of the issuers of some U.S. government securities
held by the Fund may greatly exceed their current resources, including their
legal right to support from the U.S. Treasury. It
is possible that these issuers will not have the funds to meet their payment
obligations in the future. The interest from U.S. government
securities generally is not subject to state and local taxation. In addition,
uncertainty regarding the status of negotiations in
the U.S. government to increase the statutory debt ceiling could increase the
risk that the U.S. government may default on payments
on certain U.S. government securities and may cause the credit rating of the
U.S. government to be downgraded. Any uncertainty
regarding the ability of the United States to repay its debt obligations, and
any default by the U.S. government, would have
a negative impact on the Fund’s investments in U.S. government
securities.
When-Issued
Securities, Delayed Delivery Securities, TBAs and Forward
Commitments
The
Fund may purchase or sell securities that it is entitled to receive on a
when-issued basis. The Fund may also purchase or sell securities
on a delayed delivery basis or through a forward commitment (including on a TBA
(to be announced) basis). These transactions
involve the purchase or sale of securities by the Fund at an established price
with payment and delivery taking place in the
future. The Fund enters into these transactions to obtain what is considered an
advantageous price to the Fund at the time of entering
into the transaction. Such
transactions entered into by the Fund will be counted towards the Fund’s
exposure in the types of securities
listed herein to the extent they have economic characteristics similar to such
securities. For
example, the Fund may invest in TBAs,
which settle on a delayed delivery basis. In a TBA transaction, the seller
agrees to deliver the MBS for an agreed upon price on an
agreed upon future date, but makes no guarantee as to which or how many
securities are to be delivered. Accordingly, the Fund’s investments
in TBAs are subject to risks such as failure of the counterparty to perform its
obligation to deliver the security, the characteristics
of a security delivered to the Fund may be less favorable than expected and the
security the Fund buys will lose value prior
to its delivery. Investments in TBAs may give rise to a form of leverage.
Leverage may cause the Fund to be more volatile than if the
Fund had not been leveraged and may increase the impact that gains (losses) have
on the Fund. Further, TBAs may increase the Fund’s
portfolio turnover rate. FINRA rules include mandatory margin requirements that
will require the Fund to post collateral in connection
with its TBA transactions, which could increase the cost of TBA transactions to
the Fund and impose added operational complexity.
The
Fund’s purchase of other securities on a when-issued, delayed delivery or
through a forward commitment basis are subject to similar
risks, including counterparty risk and that the value of securities in these
transactions on the delivery date may be less than the price
paid by the Fund to purchase the securities. In addition, there can be no
assurance that a security purchased on a when-issued basis
will be issued. When the Fund has sold a security on a when-issued, delayed
delivery, or forward commitment basis, the Fund does
not benefit if the value of the security appreciates above the sale price during
the commitment period and the Fund is subject to failure
of the counterparty to pay for the securities.
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Money
Market Instruments
Money
market instruments may be adversely affected by market and economic events, such
as a change in prevailing short-term interest
rates; adverse developments in the banking industry, which issues or guarantees
many money market instruments; adverse economic,
political or other developments affecting issuers of money market instruments;
changes in the credit quality of issuers; and default
by a counterparty or an issuer. These instruments may be subject to federal
income, state income and/or other taxes. Instead of
investing in money market instruments directly, the Fund may invest money market
funds, including those advised by the Adviser or
its affiliates. These instruments may be adversely affected by changes to
interest rates, which may be sudden and significant. During
unusual market conditions, the Fund may invest up to 100% of its assets in cash
or cash equivalents temporarily, which may be
inconsistent with its investment objective(s) and other policies.
Preferred
Securities
Preferred
securities are subject to risks applicable generally to equity securities. In
addition, a company’s preferred securities generally pay
dividends only after the company makes required payments to holders of its bonds
and other debt, so the value of preferred securities
will usually react more strongly than bonds and other debt to actual or
perceived changes in the company’s financial condition
or prospects. Preferred securities may pay fixed or adjustable rates of return.
Like fixed-income securities, preferred stock generally
decreases in value if interest rates rise and increases in value if interest
rates fall.
Distressed
and Defaulted Securities
Distressed
and defaulted securities are speculative and involve substantial risks in
addition to the risks of investing in high yield securities.
The Fund will generally not receive interest payments on the distressed
securities and the repayment of principal may also be
at risk. These securities may present a substantial risk of default or may be in
default at the time of investment. The repayment of defaulted
securities is also subject to significant uncertainties. The Fund may incur
substantial expenses in seeking recovery upon a default
in the payment of principal of or interest on its portfolio holdings. If the
portfolio company is forced to reorganize or liquidate,
the Fund may lose its entire investment or may be required to accept cash or
securities with a value less than its original investment.
Distressed securities and any securities received in an exchange for such
securities may be subject to restrictions on resale.
Municipals
Municipal
securities (also referred to as municipal obligations) include debt obligations
of states, territories or possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities, such as local or regional governments.
The interest on municipal securities is generally exempt from federal income tax
at the time of issuance, in the opinion of
bond counsel or other counsel to the issuers of such securities. However, the
Fund may purchase municipal securities that pay interest
that is subject to the federal alternative minimum tax, and municipal securities
on which the interest payments are taxable. Municipal
securities typically are “general obligation” or “revenue” bonds, notes or
commercial paper, including participations in lease
obligations and installment purchase contracts of municipalities. General
obligation bonds are secured by the issuer’s full faith and
credit including its taxing power for payment of principal and interest. Revenue
bonds, however, are generally payable from a specific
revenue source. Revenue bonds are issued for a wide variety of projects such as
financing public utilities, hospitals, housing, airports,
highways and educational facilities. These types of bonds involve the risk that
the tax or other revenues so derived will not be
sufficient to meet interest and/or principal payment obligations.
Municipal
obligations may have fixed, variable or floating rates. Because the Fund may
invest in municipal securities, the Fund may be
affected significantly by the economic, regulatory, legislative, tax or
political developments affecting the ability of issuers of municipal
securities to pay interest or repay principal. The risks of municipal securities
generally depend on the financial and credit status
of the issuer and may rely on a specific stream of revenue associated with a
project or other revenue source. Thus, adverse developments
related to a municipality’s ability to raise revenue, including through its
taxing authority, or the failure of specific revenues
to materialize would negatively impact such investments. These factors, which
may also impact other municipal obligations, include,
among others, changing demographic trends, such as population shifts or changing
tastes and values, or increasing vacancies or
declining rents resulting from legal, cultural, technological, global or local
economic developments, as well as reduced demand for properties,
revenues or goods. Changes in the financial health of an issuer of municipal
securities may make it difficult for the issuer to
make interest and principal payments when due. Some municipalities or issuers of
municipal securities have had significant financial
problems recently, and these and other municipalities or issuers of municipal
securities could, potentially, continue to experience
significant financial problems resulting from lower tax or other revenues and/or
decreased aid from state and local governments
in the event of an economic downturn. In addition, adverse legislative, tax,
regulatory, demographic or political changes may
negatively impact the Fund’s investments in municipal securities. These events
could decrease the Fund’s income and/or adversely
affect the Fund’s performance and investments. Municipal securities also involve
the risk that an issuer may call securities for
redemption, which could force the Fund to reinvest the proceeds at a lower rate
of interest, and the value of municipal securities may
be affected by the rights of municipal security holders. Municipal securities
may be more susceptible to downgrades, defaults or loss
of tax or other revenue during recessions or similar periods of economic stress.
Factors contributing to the financial stress on municipalities
and issuers of municipal securities may include, among other developments, lower
property tax collections as a result of
lower home values, lower sales tax revenue as a result of consumers cutting back
spending and lower income tax revenue as a result of
a higher unemployment rate. In addition, because some municipal obligations may
be secured or guaranteed by banks and other
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institutions,
the risk to the Fund associated with investments in such municipal securities
could increase if the banking or financial sector
suffers an economic downturn and/or if the credit ratings of the institutions
issuing the guarantee are downgraded or at risk of being
downgraded by a national rating organization. If such events occur, the value of
the security could decrease or the value could be
lost entirely, and it may be difficult or impossible for the Fund to sell the
security at the time and the price that normally prevails in
the market.
For
example, recent public health emergencies have significantly stressed the
financial resources of many municipalities and other issuers
of municipal securities, which may impair their ability to meet their financial
obligations and may harm the value or liquidity of
the Fund’s investments in municipal securities (or the income generated by such
investments). In particular, responses by municipalities
to recent public health emergencies have caused disruptions in business
activities. These and other effects of recent public
health emergencies, such as increased unemployment levels, have impacted tax and
other revenues of municipalities and other issuers
of municipal securities and the financial conditions of such issuers. As a
result, there is an increased budgetary and financial pressure
on municipalities and other issuers of municipal securities and heightened risk
of default or other adverse credit or similar events
for issuers of municipal securities, which would adversely impact the Fund’s
investments.
In
addition, the ability of an issuer to make payments or repay interest may be
affected by litigation or bankruptcy. In the event of bankruptcy
of such an issuer, the Fund investing in the issuer’s securities could
experience delays in collecting principal and interest, and
the Fund may not, in all circumstances, be able to collect all principal and
interest to which it is entitled. To enforce its rights in the
event of a default in the payment of interest or repayment of principal, or
both, the Fund may, in some instances, take possession of,
and manage, the assets securing the issuer’s obligations on such securities,
which may increase the Fund’s operating expenses. Any income
derived from the Fund’s ownership or operation of such assets may not be
tax-exempt. Municipal securities are subject to, among
other risks, credit and interest rate risk, liquidity risk and market and
geopolitical risk.
Because
many municipal securities are issued to finance similar projects (such as those
relating to education, health care, housing, transportation,
and utilities), conditions in those sectors may affect the overall municipal
securities market. In addition, changes in the
financial condition of an individual municipal issuer can affect the overall
municipal market. Municipal securities backed by current
or anticipated revenues from a specific project or specific assets can be
negatively affected by the discontinuance of the supporting
taxation or the inability to collect revenues for the specific project or
specific assets.
Some
municipal securities are subject to the risk that the U.S. Internal Revenue
Service (“IRS”) may determine that an issuer has not complied
with applicable tax requirements (or the occurrence of other adverse tax
developments) and that interest from the municipal
security is taxable, which may result in a significant decline in the value of
the security. In addition, interest on municipal obligations,
while generally exempt from federal income tax, may not be exempt from the
federal alternative minimum tax. Municipal
securities may be less liquid than taxable bonds and there may be less publicly
available information on the financial condition
of municipal security issuers than for issuers of other securities, and the
investment performance of the Fund investing in municipal
securities may therefore be more dependent on the analytical abilities of the
Adviser than if the Fund held other types of investments
such as stocks or taxable bonds. The secondary market for municipal securities
also tends to be less well developed or liquid
than many other securities markets, which may adversely affect the Fund’s
ability to sell municipal securities it holds at attractive
prices or value municipal securities. In addition, the demand for municipal
securities is strongly influenced by the value of tax-exempt
income to investors and lower income tax rates could reduce the advantage of
owning municipal securities, which may also
adversely affect the value and liquidity of municipal securities.
State
and Municipal Project-Specific Risk
The
Eaton
Vance Intermediate Municipal Income ETF may invest in municipal securities that
are related in such a way that an economic,
business, or political development or change affecting one such security would
likewise affect the other municipal securities.
For example, the Fund may invest 25% or more of its total assets in certain
types of municipal obligations (such as general obligations,
municipal leases, principal only municipal investments, revenue bonds and
industrial development bonds) and in one or more
states, territories and economic sectors (such as housing, hospitals, healthcare
facilities or utilities). Because the Fund may invest a
significant portion of its assets in obligations issued in one or more states
and/or U.S. territories and in certain types of municipal or other
obligations and/or in certain sectors, the value of Fund shares may be affected
by events that adversely affect that state, U.S. territory,
sector or type of obligation and may fluctuate more than that of a fund that
invests more broadly. These developments or changes
may include, among other things, legislative developments involving the
financing of projects, judicial decisions regarding the
validity of the projects or the means of financing such projects, shortages or
price increases of materials needed for the project or declining
needs for the projects as well as other developments that may adversely affect
municipalities and other issuers of municipal securities
located within the same state, such as natural disasters, health emergencies,
and adverse economic, political or social environments.
General obligation bonds issued by municipalities can be adversely affected by,
among other things, economic downturns
and other developments that result in a decline in tax revenues. Revenue bonds
can be adversely affected by, among other things,
the negative economic performance or viability of the facility or revenue
source.
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Trust
Preferred Securities
Trust
preferred securities are convertible preferred shares issued by a trust where
proceeds from the sale are used to purchase convertible
subordinated debt from the issuer which is typically a financial institution,
such as a bank holding company. The convertible
subordinated debt is the sole asset of the trust. The coupon from the issuer to
the trust exactly mirrors the preferred dividend
paid by the trust. Upon conversion by the investors, the trust in turn converts
the convertible debentures and passes through
the shares to the investors. The risks associated with trust preferred
securities generally include, among others, the financial condition
of the issuer, as the trust typically has no business operations other than
holding the subordinated debt and issuing the trust
preferred securities. In addition, holders of trust preferred securities have
limited voting rights to control the activities of the trust
and no voting rights with respect to the issuer. The market value of trust
preferred securities may be more volatile than those of conventional
debt securities. There can be no assurance as to the liquidity of trust
preferred securities and the ability of holders, such as
the Fund, to sell their holdings. If an issuer is financially unsound and
defaults on interest payments to the trust, the trust will not be
able to make dividend payments to holders of the trust preferred securities,
such as the Fund.
Foreign
Investing
To
the extent that the Fund invests in foreign issuers, there is the risk that news
and events unique to a country or region will affect those
markets and their issuers. These same events will not necessarily have an effect
on the U.S. economy or similar issuers located in the
United States. In addition, some of the Fund’s
securities, including underlying securities represented by depositary receipts,
may be
denominated in foreign currencies. As a result, changes in the value of a
country’s currency compared to the U.S. dollar may affect the
value of the Fund’s investments. These changes may happen separately from, and
in response to, events that do not otherwise affect
the value of the security in the issuer’s home country. These risks may be
intensified for the Fund’s investments in securities of issuers
located in emerging market or developing countries.
High
Yield Securities
Fixed-income
securities that are not investment grade are commonly referred to as “junk
bonds” or high yield, high risk securities. These
securities offer a higher yield than other higher rated securities, but they
carry a greater degree of risk. High yield securities are subject
to greater risk of loss of income and principal than higher rated securities and
are considered speculative by the major credit rating
agencies because of increased credit risk relative to other fixed income
investments. High yield securities may be issued by companies
that are restructuring, are smaller and less creditworthy or are more highly
indebted than other companies. This means that
they may have more difficulty making scheduled payments of principal and
interest. Changes in the value of high yield securities are
influenced more by changes in the financial and business position of the issuing
company than by changes in interest rates when compared
to investment grade securities.
In
recent years, there has been a broad trend of weaker or less restrictive
covenant protections in the high yield market. Among other things,
under such weaker or less restrictive covenants, borrowers might be able to
exercise more flexibility with respect to certain activities
than borrowers who are subject to stronger or more protective covenants. For
example, borrowers might be able to incur more
debt, including secured debt, return more capital to shareholders, remove or
reduce assets that are designated as collateral securing
high yield securities, increase the claims against assets that are permitted
against collateral securing high yield securities or otherwise
manage their business in ways that could impact creditors negatively. In
addition, certain privately held borrowers might be permitted
to file less frequent, less detailed or less timely financial reporting or other
information, which could negatively impact the value
of the high yield securities issued by such borrowers. Each of these factors
might negatively impact the high yield securities held by
the Fund. During adverse market or economic conditions, high yield securities
are typically particularly susceptible to default risk.
Foreign
Securities
Foreign
issuers generally are subject to different accounting, auditing and financial
reporting standards than U.S. issuers. There may be
less information available to the public about foreign issuers. Securities of
foreign issuers can be less liquid and experience greater price
movements. In addition, the prices of such securities may be susceptible to
influence by large traders, due to the limited size of many
foreign securities markets. Moreover, investments in certain foreign markets
that have historically been considered stable may become
more volatile and subject to increased risk due to developments and
changing conditions in such markets. Also, the growing interconnectivity
of global economies and financial markets has increased the probability that
adverse developments and conditions
in one country or region will affect the stability of economies and financial
markets in other countries or regions. In some foreign
countries, there is also the risk of government expropriation, excessive
taxation, political or social instability, the imposition of currency
controls or diplomatic developments that could affect the Fund’s investment.
There also can be difficulty obtaining and enforcing
judgments against issuers in foreign countries. Foreign stock exchanges,
broker-dealers and listed issuers may be subject to less
government regulation and oversight. The cost of investing in foreign
securities, including brokerage commissions and custodial expenses,
can be higher than the cost of investing in domestic securities.
Certain
foreign markets may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments,
the imposition of economic sanctions against a particular country or countries,
organizations, companies, entities and/or
individuals, changes in international trading patterns, trade barriers and other
protectionist or retaliatory measures. International trade
barriers or economic sanctions against foreign countries, organizations,
companies, entities and/or individuals may adversely affect
the Fund’s foreign holdings or exposures. Investments in foreign markets may
also be adversely affected by less stringent
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investor
protections and disclosure standards, and governmental actions such as the
imposition of capital controls, nationalization of companies
or industries, expropriation of assets or the imposition of punitive taxes.
Governmental actions can have a significant effect
on the economic conditions in foreign countries, which also may adversely affect
the value and liquidity of the Fund’s investments.
Foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. For
example, the governments of certain countries may prohibit or impose substantial
restrictions on foreign investing in their capital markets
or in certain sectors or industries. In addition, a foreign government may limit
or cause delay in the convertibility or repatriation
of its currency which would adversely affect the U.S. dollar value and/or
liquidity of investments denominated in that currency.
Moreover, if a deterioration occurs in a country’s balance of payments, the
country could impose temporary restrictions on foreign
capital remittances. The Fund could also be adversely affected by delays in, or
a refusal to grant, any required governmental approval
for repatriation, as well as by the application to it of other restrictions on
investment. Any of these actions could severely affect
security prices, which could result in losses to the Fund and increased
transaction costs, impair the Fund’s ability to purchase or sell
foreign securities or transfer the Fund’s assets back into the United States, or
otherwise adversely affect the Fund’s operations. Certain
foreign investments may become less liquid in response to market developments or
adverse investor perceptions, or become illiquid
after purchase by the Fund, particularly during periods of market turmoil.
Certain foreign investments may become illiquid when,
for instance, there are few, if any, interested buyers and sellers or when
dealers are unwilling to make a market for certain securities.
When the Fund holds illiquid investments, its portfolio may be harder to
value.
Economic
sanctions or other similar measures may be, and have been, imposed against
certain countries, organizations, companies, entities
and/or individuals. The
Fund’s investments in foreign securities are subject to trade laws and potential
economic sanctions in the
United States and other jurisdictions. These laws and related governmental
actions, including counter-sanctions and other retaliatory
measures, can, from time to time, prevent or prohibit the Fund from
investing in certain foreign securities. In addition, economic
sanctions could prohibit the Fund from transacting with particular
countries, organizations, companies, entities and/or individuals
by banning them from global payment systems that facilitate cross-border
payments, restricting their ability to settle securities
transactions, and freezing their assets. The imposition of sanctions and other
similar measures could, among other things, cause
a decline in the value of securities issued by the sanctioned country or
companies located in, or economically linked to, the sanctioned
country, downgrades in the credit ratings of the sanctioned country or companies
located in, or economically linked to, the
sanctioned country, devaluation of the sanctioned country’s currency, and
increased market volatility and disruption in the sanctioned
country and throughout the world. Economic sanctions or other similar measures
could, among other things, effectively restrict
or eliminate the Fund’s ability to purchase or sell securities, negatively
impact the value or liquidity of the Fund’s investments, significantly
delay or prevent the settlement of the Fund’s securities transactions,
force the Fund to sell or otherwise dispose of investments
at inopportune times or prices, increase the Fund’s transaction costs, make the
Fund’s investments more difficult to value
or impair the Fund’s ability to meet its investment objective or invest in
accordance with its investment strategies. These conditions
may be in place for a substantial period of time and enacted with limited
advance notice to the Fund. Even if the Fund does
not have significant investments in securities affected by sanctions, sanctions
or the threat of sanctions may cause volatility in regional
and global markets and may negatively impact the performance of various sectors
and industries, as well as companies in other
countries, including through global supply chain disruptions, increased
inflationary pressures, and reduced economic activity, which
could have a negative effect on the Fund’s performance. In addition, trade
disputes may affect investor and consumer confidence
and adversely affect financial markets and the broader economy, perhaps suddenly
and to a significant degree. Events such as
these and their impact on the Fund are difficult to predict.
In
addition, the Holding Foreign Companies Accountable Act (the “HFCAA”) could
cause securities of a foreign (non-U.S.) company,
including American Depositary Receipts, to be delisted from U.S. stock exchanges
if the company does not allow the U.S. government
to oversee the auditing of its financial information. Although the requirements
of the HFCAA apply to securities of all foreign
(non-U.S.) issuers, the SEC has thus far limited its enforcement efforts to
securities of Chinese companies. If securities are delisted,
the Fund’s ability to transact in such securities will be impaired, and the
liquidity and market price of the securities may decline.
The Fund may also need to seek other markets in which to transact in such
securities, which could increase the Fund’s costs.
Sovereign
Debt Obligations
The Fund may
invest in debt obligations known as “sovereign debt,” which are obligations of
governmental issuers in emerging market
or developing countries and industrialized countries. Certain emerging market or
developing countries are among the largest debtors
to commercial banks and foreign governments. The issuer or governmental
authority that controls the repayment of sovereign
debt may not be willing or able to repay the principal and/or pay interest when
due in accordance with the terms of such obligations.
Uncertainty surrounding the level and sustainability of sovereign debt of
certain countries has at times increased volatility in
the financial markets. In addition, a number of Latin American countries are
among the largest debtors of developing countries and
have a long history of reliance on foreign debt. Additional factors that may
influence the ability or willingness to service debt include,
but are not limited to, a country’s cash flow situation, the availability of
sufficient foreign exchange on the date a payment is due,
the relative size of its debt service burden to the economy as a whole and its
government’s policy towards the International Monetary
Fund, the World Bank and other multilateral agencies. A country whose exports
are concentrated in a few commodities or whose
economy depends on certain strategic imports could be vulnerable to fluctuations
in international prices of these commodities or
imports. If a foreign sovereign obligor cannot generate sufficient earnings from
foreign trade to service its external debt, it may
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need
to depend on continuing loans and aid from foreign governments, commercial banks
and multilateral organizations, and inflows
of foreign investment. The commitment on the part of these foreign governments,
multilateral organizations and others to make
such disbursements may be conditioned on the government’s implementation of
economic reforms and/or economic performance
and the timely service of its obligations. Failure to implement such reforms,
achieve such levels of economic performance
or repay principal or interest when due may result in the cancellation of such
third-parties’ commitments to lend funds, which
may further impair the foreign sovereign obligor’s ability or willingness to
timely service its debts. In addition, there is no legal process
for collecting on a sovereign debt that a government does not pay or bankruptcy
proceeding by which all or part of the sovereign
debt that a government entity has not repaid may be collected.
Depositary
Receipts
A
depositary receipt is generally issued by a bank or financial institution and
represents the common stock or other equity securities of
a foreign company. Depositary receipts involve many of the same risks as those
associated with direct investment in foreign securities.
In addition, the underlying issuers of certain depositary receipts, particularly
unsponsored or unregistered depositary receipts,
are under no obligation to distribute shareholder communications to the holders
of such receipts, or to pass through to them any
voting rights with respect to the deposited securities.
Foreign
Currency
Investments
in foreign securities may be denominated in foreign currencies. The value of
foreign currencies may fluctuate relative to the
value of the U.S. dollar or other applicable foreign currency. Since the
Fund
may invest in non-U.S. dollar-denominated securities,
and therefore may convert the value of such securities into U.S. dollars,
changes in currency exchange rates can increase or decrease
the U.S. dollar value of the Fund’s
assets. Currency exchange rates may fluctuate significantly over short periods
of time for a number
of reasons, including changes in interest rates and the overall economic health
of the issuer. Devaluation of a currency by a country’s
government or banking authority also will have a significant impact on the value
of any investments denominated in that currency.
The Adviser may use derivatives to seek to reduce this risk. The Adviser may in
its discretion choose not to hedge against currency
risk. In addition, certain market conditions may make it impossible or
uneconomical to hedge against currency risk.
Foreign
Currency Forward Exchange Contracts
In
connection with their
investments in foreign securities, the
Fund also may enter into contracts with banks, brokers or dealers to
purchase
or sell securities or foreign currencies at a future date. A foreign currency
forward exchange contract is a negotiated agreement
between the contracting parties to exchange a specified amount of currency at a
specified future time at a specified rate. The
rate can be higher or lower than the spot rate between the currencies that are
the subject of the contract. Foreign currency forward
exchange contracts may be used to seek to protect against uncertainty in the
level of future foreign currency exchange rates or to
gain or modify exposure to a particular currency. In addition, the Fund may use
cross currency hedging or proxy hedging with respect
to currencies in which the Fund has or expects to have portfolio or currency
exposure. Cross currency and proxy hedges involve
the sale of one currency against the positive exposure to a different currency
and may be used for hedging purposes or to establish
an active exposure to the exchange rate between any two currencies.
Investments
in foreign currency forward exchange contracts may substantially change the
Fund’s exposure to currency exchange rates and
could result in losses to the Fund if currencies do not perform as the Adviser
expect. The Adviser’s success in these transactions will
depend principally on its ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar. Foreign
currency forward exchange contracts may be used for non-hedging purposes in
seeking to meet the Fund’s investment objectives,
such as when the Adviser anticipate that particular non-U.S. currencies will
appreciate or depreciate in value, even though securities
denominated in those currencies are not then held in the Fund’s investment
portfolios. Investing in foreign currency forward
exchange contracts for purposes of gaining from projected changes in exchange
rates, as opposed to hedging currency risks applicable
to the Fund’s holdings, further increases the Fund’s exposure to foreign
securities losses. There is no assurance that the Adviser’s
use of currency derivatives will benefit the Fund or that they will be, or can
be, used at appropriate times.
Restricted
Securities
The
Fund’s investments may include securities which are subject to resale
restrictions. These securities could have the effect of increasing
the level of Fund illiquidity to the extent the Fund may be unable to sell or
transfer these securities due to restrictions on transfers
or on the ability to find buyers interested in purchasing the securities.
Additionally, the market for certain investments deemed
liquid at the time of purchase may become illiquid under adverse market or
economic conditions. The illiquidity of the market,
as well as the lack of publicly available information regarding these
securities, may also adversely affect the ability to arrive at a
fair value for certain securities at certain times and could make it difficult
for the Fund to sell certain securities. If the Fund is forced to
sell an illiquid security to fund redemptions or for other cash needs, it may be
forced to sell the security at a loss or for less than its fair
value and may be unable to sell the security at all.
Derivatives
The Fund may,
but is not required to, use derivatives and other similar instruments for a
variety of purposes, including hedging, risk management,
portfolio management or to seek to earn income. Derivative instruments used by
the Fund will be counted towards the Fund’s
exposure in the types of securities listed herein to the extent they have
economic characteristics similar to such securities. A
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derivative
is a financial instrument whose value is based, in part, on the value of an
underlying asset, interest rate, index or financial instrument.
Prevailing interest rates and volatility levels, among other things, also affect
the value of derivative instruments. Derivatives
and other similar instruments that create synthetic exposure often are subject
to risks similar to those of the underlying asset
or instrument and may be subject to additional risks, including imperfect
correlation between the value of the derivative and the underlying
asset, risks of default by the counterparty to certain transactions,
magnification of losses incurred due to changes in the market
value of the securities, instruments, indices or interest rates to which the
derivative instrument relates, risks that the transactions
may not be liquid, risks arising from margin and payment requirements, risks
arising from mispricing or valuation complexity
and operational and legal risks. The use of derivatives involves risks that are
different from, and possibly greater than, the risks
associated with other portfolio investments. Derivatives may involve the use of
highly specialized instruments that require investment
techniques and risk analyses different from those associated with other
portfolio investments.
Certain
derivative transactions may give rise to a form of leverage. Leverage magnifies
the potential for gain and the risk of loss. Leverage
associated with derivative transactions may cause the Fund to liquidate
portfolio positions when it may not be advantageous to
do so, or may cause the Fund to be more volatile than if the Fund had not been
leveraged. Although the Adviser seeks to use derivatives
to further the Fund’s investment objective, there is no assurance that the use
of derivatives will achieve this result.
The
derivative instruments and techniques that the Fund may use
include:
Futures.
A futures contract is a standardized, exchange-traded agreement to buy or sell a
specific quantity of an underlying asset, reference
rate or index at a specific price at a specific future time. While the value of
a futures contract tends to increase or decrease in tandem
with the value of the underlying instrument, differences between the futures
market and the market for the underlying asset may
result in an imperfect correlation. Depending on the terms of the particular
contract, futures contracts are settled through either physical
delivery of the underlying instrument on the settlement date or by payment of a
cash settlement amount on the settlement date.
A decision as to whether, when and how to use futures contracts involves the
exercise of skill and judgment and even a well-conceived
futures transaction may be unsuccessful because of market behavior or unexpected
events. In addition to the derivatives risks
discussed above, the prices of futures contracts can be highly volatile, using
futures contracts can lower total return, and the potential
loss from futures contracts can exceed the Fund’s initial investment in such
contracts. No assurance can be given that a liquid
market will exist for any particular futures contract at any particular time.
There is also the risk of loss by the Fund of margin deposits
in the event of bankruptcy of a broker with which the Fund has open
positions in the futures contract.
Options.
If the Fund buys an option, it buys a legal contract giving it the right
to buy or sell a specific amount of the underlying instrument,
foreign currency or contract, such as a swap agreement or futures contract, on
the underlying instrument or foreign currency
at an agreed-upon price during a period of time or on a specified date typically
in exchange for a premium paid by the Fund.
If the Fund sells an option, it sells to another person the right to buy from or
sell to the Fund a specific amount of the underlying
instrument, swap, foreign currency, or futures contract on the underlying
instrument or foreign currency at an agreed-upon
price during a period of time or on a specified date typically in exchange for a
premium received by the Fund. When options are
purchased OTC, the Fund bears the risk that the counterparty that wrote the
option will be unable or unwilling to perform its obligations
under the option contract. Options may also be illiquid and the Fund may
have difficulty closing out its position. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment and even a well-conceived option transaction
may be unsuccessful because of market behavior or unexpected events. The prices
of options can be highly volatile and the
use of options can lower total returns.
Investments
in foreign currency options may substantially change the Fund’s exposure to
currency exchange rates and could result in losses
to the Fund if currencies do not perform as the Adviser expects. There is a risk
that such transactions may reduce or preclude the
opportunity for gain if the value of the currency should move in the direction
opposite to the position taken. The value of a foreign
currency option is dependent upon the value of the underlying foreign currency
relative to the U.S. dollar or other applicable foreign
currency. The price of the option may vary with changes in the value of either
or both currencies and has no relationship to the
investment merits of a foreign security. Options on foreign currencies are
affected by all of those factors that influence foreign exchange
rates and foreign investment generally. Unanticipated changes in currency prices
may result in losses to the Fund and poorer
overall performance for the Fund than if it had not entered into such contracts.
Options on foreign currencies are traded primarily
in the OTC market, but may also be traded on U.S. and foreign
exchanges.
Foreign
currency options contracts may be used for hedging purposes or non-hedging
purposes in pursuing the Fund’s investment objective,
such as when the Adviser anticipates that particular non-U.S. currencies will
appreciate or depreciate in value, even though securities
denominated in those currencies are not then held in the Fund’s investment
portfolio. Investing in foreign currencies for purposes
of gaining from projected changes in exchange rates, as opposed to only hedging
currency risks applicable to the Fund’s holdings,
further increases the Fund’s exposure to foreign securities losses. There is no
assurance that the Adviser’s use of currency derivatives
will benefit the Fund or that they will be, or can be, used at appropriate
times.
Swaps.
The Fund may enter into OTC swap contracts or cleared swap transactions. An OTC
swap contract is an agreement between two
parties pursuant to which the parties exchange payments at specified dates on
the basis of a specified notional amount, with the
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payments
calculated by reference to specified securities, indices, reference rates,
currencies or other instruments. Typically swap agreements
provide that when the period payment dates for both parties are the same, the
payments are made on a net basis (i.e., the two
payment streams are netted out, with only the net amount paid by one party to
the other). The Fund’s obligations or rights under
a swap contract entered into on a net basis will generally be equal only to the
net amount to be paid or received under the agreement,
based on the relative values of the positions held by each party. Cleared swap
transactions may help reduce counterparty credit
risk. In a cleared swap, the Fund’s ultimate counterparty is a clearinghouse
rather than a swap dealer, bank or other financial institution.
OTC swap agreements are not entered into or traded on exchanges and often there
is no central clearing or guaranty function
for swaps. These OTC swaps are often subject to credit risk or the risk of
default or non-performance by the counterparty. Certain
swaps have begun trading on exchanges called swap execution facilities. Exchange
trading is expected to increase liquidity of swaps
trading. Both OTC and cleared swaps could result in losses if interest rates,
foreign currency exchange rates or other factors are not
correctly anticipated by the Fund or if the reference index, security or
investments do not perform as expected. The Dodd-Frank Wall
Street Reform and Consumer Protection Act and related regulatory developments
require the clearing and exchange trading of certain
standardized swap transactions. Mandatory exchange-trading and clearing is
occurring on a phased-in basis. The Fund may pay
fees or incur costs each time it enters into, amends or terminates a swap
agreement.
Liquidity
The
Fund may make investments that are illiquid or restricted or that may become
illiquid or less liquid in response to, among other developments,
overall economic conditions or adverse investor perceptions, and which may
entail greater risk than investments in other
types of securities. Illiquidity can also be caused by, among other things, a
drop in overall market trading volume, an inability to
find a willing buyer, or legal restrictions on the securities’
resale. These investments may be more difficult to value or sell,
particularly
in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity
risk may be magnified in a market where credit spread and interest rate
volatility is rising and where investor redemptions from
fixed-income funds may be higher than normal. If the Fund is forced to sell an
illiquid or restricted security to fund redemptions
or for other cash needs, it may be forced to sell the security at a loss or for
less than its fair value and may be unable to sell
the security at all.
Market
and Geopolitical Risk
The
value of your investment in the Fund is based on the values of the Fund’s
investments, which change due to economic and other events
that affect markets generally, as well as those that affect particular regions,
countries, industries, companies or governments. Price
movements, sometimes called volatility, may be greater or less depending on the
types of securities the Fund owns and the markets
in which the securities trade. Volatility and disruption in financial markets
and economies may be sudden and unexpected, expose
the Fund to greater risk, including risks associated with reduced market
liquidity and fair valuation, and adversely affect the Fund’s
operations. For example, the Adviser potentially will be prevented from
executing investment decisions at an advantageous time
or price as a result of any domestic or global market disruptions and reduced
market liquidity may impact the Fund’s ability to sell
securities to meet redemptions.
The
increasing interconnectivity between global economies and markets increases the
likelihood that events or conditions in one region
or market may adversely impact other companies and issuers in a different
country, region, sector, industry, market or with respect
to one company may adversely impact issuers in a different country, region,
sector, industry, or market. For example, adverse developments
in the banking or financial services sector could impact companies operating in
various sectors or industries and adversely
impact the Fund’s investments. Securities in the Fund’s portfolio may
underperform due to inflation (or expectations for inflation),
interest rates, global demand for particular products or resources, natural
disasters and extreme weather events, health emergencies
(such as epidemics and pandemics), terrorism, regulatory events and governmental
or quasi-governmental actions. The occurrence
of global events, such as terrorist attacks around the world, natural disasters,
health emergencies, social and political (including
geopolitical) discord and tensions or debt crises and downgrades, among others,
may result in market volatility and may have
long term effects on both the U.S. and global financial markets. Inflation rates
may change frequently and significantly because of
various factors, including unexpected shifts in the domestic or global economy
and changes in monetary or economic policies (or expectations
that these policies may change). Changes in expected inflation rates may
adversely affect market and economic conditions,
the Fund’s investments and an investment in the Fund. The market price of
debt securities generally falls as inflation increases
because the purchasing power of the future income and repaid principal is
expected to be worth less when received by the Fund.
The risk of inflation is greater for debt instruments with longer maturities and
especially those that pay a fixed rather than variable
interest rate. Other financial, economic and other global market and
social developments or disruptions may result in similar adverse
circumstances, and it is difficult to predict when similar events affecting the
U.S. or global financial markets may occur, the effects
that such events may have and the duration of those effects (which may last for
extended periods). In general, the securities or other
instruments that the Adviser believes represent an attractive investment
opportunity or in which the Fund seeks to invest may be
unavailable entirely or in the specific quantities sought by the Fund. As a
result, the Fund may need to obtain the desired exposure through
a less advantageous investment, forgo the investment at the time or seek to
replicate the desired exposure through a derivative
transaction or investment in another investment vehicle. Any such event(s) could
have a significant adverse impact on the value
and risk profile of the Fund’s portfolio. There is a risk that you may lose
money by investing in the Fund.
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Social,
political, economic and other conditions and events, such as war, natural
disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts, social unrest,
recessions, inflation, interest rate changes and
supply chain disruptions could reduce consumer demand or economic output, result
in market closures, travel restrictions or quarantines,
and generally have a significant impact on the economies and financial markets
and the Adviser’s investment advisory activities
and services of other service providers, which in turn could adversely affect
the Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which the Fund may
invest, can be adversely affected by changes
in local and global economic conditions that result in increased debt levels.
Although high levels of government and other public
debt do not necessarily indicate or cause economic problems, high levels of debt
may create certain systemic risks if sound debt management
practices are not implemented. A high debt level may increase market pressures
to meet an issuer’s funding needs, which
may increase borrowing costs and cause a government or public or municipal
entity to issue additional debt, thereby increasing the
risk of refinancing. A high debt level also raises concerns that the issuer may
be unable or unwilling to repay the principal or interest
on its debt, which may adversely impact instruments held by the Fund that rely
on such payments.
Governmental
and quasi-governmental responses to certain economic or other conditions may
lead to increasing government and other
public debt, which heighten these risks. Unsustainable debt levels can lead to
declines in the value of currency, and can prevent a
government from implementing effective counter-cyclical fiscal policy during
economic downturns, can generate or contribute to an
economic downturn or cause other adverse economic or market developments, such
as increases in inflation or volatility. Increasing
government and other public debt may adversely affect issuers, obligors,
guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations, cause
a significant negative impact on the performance
of the Fund’s investments, adversely affect and increase the volatility of the
Fund’s share price, exacerbate pre-existing political,
social and economic risks to the Fund. The Fund’s operations may be interrupted
as a result, which may contribute to the negative
impact on investment performance. In addition, governments, their regulatory
agencies, or self-regulatory organizations may take
actions that affect the instruments in which the Fund invests, or the issuers of
such instruments, in ways that could have a significant
negative impact on the Fund’s investment performance. In addition, government
actions (such as changes to interest rates) could
have unintended economic and market consequences that adversely affect the
Fund’s investments.
Emerging
Market Securities
The
Fund
may invest in emerging market or developing countries, which are countries that
major international financial institutions generally
consider to be less economically mature than developed nations (such as the
United States or most nations in Western Europe).
Emerging market or developing countries may be more likely to experience
political turmoil or rapid changes in economic conditions
than more developed countries, and the financial condition of issuers in
emerging market or developing countries may be more
precarious than in other countries. Certain emerging market countries may be
subject to less stringent requirements regarding accounting,
auditing, financial reporting and record keeping and therefore, material
information related to an investment may not be available
or reliable. In addition, the
Fund is limited in its ability to exercise its legal rights or enforce a
counterparty’s legal obligations
in certain jurisdictions outside of the United States, in particular, in
emerging markets countries. In addition, due to jurisdictional
limitations, U.S. authorities (e.g., SEC and the U.S. Department of Justice) may
be limited in their ability to enforce regulatory
or legal obligations in emerging market countries. In addition, emerging market
securities generally are less liquid and subject
to wider price and currency fluctuations than securities issued in more
developed countries. These characteristics result in greater
risk of price volatility in emerging market or developing countries, which may
be heightened by currency fluctuations relative to
the U.S. dollar.
ESG
Investment Risk
To
the extent that the Adviser considers environmental, social and/or governance
(“ESG”) issues as a component in its investment decision-making
process, the Fund’s performance may be impacted. Additionally, the Adviser’s
consideration of ESG issues in its investment
decision-making process may require subjective analysis and the ability of the
Adviser to consider ESG issues may be difficult
if data about a particular issuer (or obligor) is limited. The Adviser’s
consideration of ESG issues may contribute to the Adviser’s
decision to forgo opportunities to buy certain securities. ESG issues with
respect to an issuer (or obligor) or the Adviser’s assessment
of such may change over time.
Large
Shareholder Transactions Risk
The Fund
may experience adverse effects when certain shareholders, or shareholders
collectively, purchase or redeem large amounts of shares
of the Fund. In addition, a third party investor, the Adviser, or an affiliate
of the Adviser, an authorized participant, a lead market
maker, or another entity (i.e., a seed investor) may invest in the Fund and hold
its investment solely to facilitate commencement
of the Fund or to facilitate the Fund’s achieving a specified size or scale. Any
such investment may be held for a limited
period of time. There can be no assurance that any large shareholder would not
redeem its investment, that the size of the Fund
would be maintained at such levels or that the Fund would continue to meet
applicable listing requirements. Such larger than normal
redemptions may cause the Fund to sell portfolio securities at times when it
would not otherwise do so, which may negatively impact
the Fund’s NAV and liquidity. Similarly, large Fund share purchases may
adversely affect the Fund’s performance to the
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extent
that the Fund is delayed in investing new cash and is required to maintain a
larger cash position than it ordinarily would. Large
shareholder transactions may also accelerate the realization of taxable income
to shareholders if such sales of investments resulted
in gains, and may also increase transaction costs. In addition, a large
redemption could result in the Fund’s current expenses being
allocated over a smaller asset base, leading to an increase in the Fund’s
expense ratio. Although large shareholder transactions may
be more frequent under certain circumstances, the Fund is generally subject to
the risk that shareholders can purchase or redeem a
significant percentage of Fund shares at any time. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on NYSE Arca and may, therefore, have a material upward or
downward effect on the market price of the shares.
Securities
Lending
The
Fund may lend its portfolio securities to broker-dealers and other institutional
borrowers. During the existence of a loan, the Fund
will continue to receive the equivalent of the interest paid by the issuer on
the securities loaned, or all or a portion of the interest
on investment of the collateral, if any. The Fund may pay lending fees to such
borrowers. Loans will only be made to firms that
have been approved by the Adviser, and the Adviser or the securities lending
agent will periodically monitor the financial condition
of such firms while such loans are outstanding. Securities loans will only be
made when the Adviser believes that the expected
returns, net of expenses, justify the attendant risks. Securities loans
currently are required to be secured continuously by collateral
in cash, cash equivalents (such as money market instruments) or other liquid
securities held by the custodian and maintained
in an amount at least equal to the market value of the securities loaned. The
Fund may engage in securities lending to seek
to generate income. Upon return of the loaned securities, the Fund would be
required to return the related collateral to the borrower
and may be required to liquidate portfolio securities in order to do so. The
Fund may lend up to one-third of the value of its
total assets or such other amount as may be permitted by law.
As
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the
securities fails financially. To the extent that the portfolio securities
acquired with such collateral have decreased in value, it may result
in the Fund realizing a loss at a time when it would not otherwise do so. As
such, securities lending may introduce leverage into the
Fund. The Fund also may incur losses if the returns on securities that it
acquires with cash collateral are less than the applicable rebate
rates paid to borrowers and related administrative costs.
Borrowing
The
Fund is permitted to borrow for temporary purposes (such as to satisfy
redemption requests, to remain fully invested in anticipation
of expected cash inflows and to settle transactions). Any borrowings by the Fund
are subject to the requirements of the 1940
Act. Borrowings are also subject to the terms of any credit agreement between
the Fund and lender(s). Fund borrowings may be equal
to as much as 33 1/3% of the value of the Fund’s total assets (including such
borrowings) less the Fund’s liabilities (other than borrowings).
The Fund will not purchase additional investments while outstanding borrowings
exceed 5% of the value of its total assets.
ETF
Structure Risks
Authorized
Participant Concentration Risk
Only
an authorized participant may engage in creation or redemption transactions
directly with the Fund. The Fund has a limited number
of intermediaries that act as authorized participants and none of these
authorized participants is or will be obligated to engage
in creation or redemption transactions. There can be no assurance that an active
trading market for the Fund’s shares will develop
or be maintained. To the extent that these intermediaries exit the business or
are unable to or choose not to proceed with creation
and/or redemption orders with respect to the Fund, such as during periods of
market stress, and no other authorized participant
creates or redeems, shares may trade at a discount to net asset value (“NAV”)
and possibly face trading halts and/or delisting.
Cash
Transactions Risk
Unlike
certain ETFs, the Fund may effect its creations and redemptions in cash or
partially in cash. As a result, an investment in the Fund
may be less tax-efficient than an investment in such ETFs. Other ETFs generally
are able to make in-kind redemptions and avoid
realizing gains in connection with transactions designed to raise cash to meet
redemption requests. To the extent the Fund effects
its redemptions in-kind, the in-kind redemption mechanism generally will not
lead to a tax event for the Fund or its non-redeeming
shareholders. If the Fund effects a portion of redemptions for cash, it may be
required to sell portfolio securities in order to
obtain the cash needed to distribute redemption proceeds, which also involves
transaction costs. If the Fund recognizes gain on these
sales, this generally will cause the Fund to recognize gain it might not
otherwise have recognized if it were to distribute portfolio securities
in-kind, or to recognize such gain sooner than would otherwise be required. The
Fund generally intends to distribute these gains
to shareholders to avoid being taxed on this gain at the Fund level and
otherwise comply with the special tax rules that apply to it.
This strategy may cause shareholders to be subject to tax on gains they would
not otherwise be subject to, or at an earlier date than,
if they had made an investment in a different ETF.
Trading
Risk
Shares
are listed for trading on NYSE Arca and are bought and sold in the secondary
market at market prices. The market prices of
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shares
are expected to fluctuate, in some cases materially, in response to changes in
the Fund’s NAV, the intra-day value of the Fund’s holdings,
and supply and demand for shares. The Adviser cannot predict whether shares will
trade above, below or at their NAV. Disruptions
to creations and redemptions, the existence of significant market volatility or
potential lack of an active trading market for
the shares (including through a trading halt), as well as other factors, may
result in the shares trading significantly above (at a premium)
or below (at a discount) to NAV or to the intraday value of the Fund’s holdings.
You may pay significantly more or receive significantly
less than the Fund’s NAV per share during periods when there is a significant
premium or discount. During such periods,
you may incur significant losses if you sell your shares.
Buying
or selling shares in the secondary market may require paying brokerage
commissions or other charges imposed by brokers as determined
by that broker. Brokerage commissions are often a fixed amount and may be a
significant proportional cost when seeking to
buy or sell relatively small amounts of shares. In addition, the market price of
shares, like the price of any exchange-traded security, includes
a “bid-ask spread” charged by the market makers or other participants that trade
the particular security. The spread of the Fund’s
shares varies over time based on the Fund’s trading volume and market liquidity
and may increase if the Fund’s trading volume,
the spread of the Fund’s underlying securities, or market liquidity
decrease.
Trading
in shares on NYSE Arca may be halted due to market conditions or for reasons
that, in the view of NYSE Arca, make trading
in shares inadvisable. In addition, trading in shares on NYSE Arca is subject to
trading halts caused by extraordinary market volatility
pursuant to NYSE Arca “circuit breaker” rules. If a trading halt or
unanticipated closing of the exchange occurs, a shareholder
may be unable to purchase or sell shares. There can be no assurance that the
requirements of NYSE Arca necessary to maintain
the listing of the Fund will continue to be met or will remain
unchanged.
Active
Management Risk
In
pursuing the Fund’s investment objective, the Adviser has considerable leeway in
deciding which investments to buy, hold or sell on
a day-to-day basis, and which trading strategies to use. For example, the
Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such
decisions will affect the Fund’s performance. In addition,
it is expected that confidential or material non-public information regarding an
investment or potential investment opportunity
may become available to the Adviser. If such information becomes available, the
Adviser may be precluded (including by applicable
law or internal policies or procedures) from pursuing an investment or
disposition opportunity with respect to such investment
or investment opportunity and the Adviser may be restricted in its ability to
cause the Fund to buy or sell securities of an issuer
for substantial periods of time when the Fund otherwise could realize profit or
avoid loss. This may adversely affect the Fund’s flexibility
with respect to buying or selling securities and may impair the Fund’s
liquidity.
Banking
Industry
Investment
opportunities in investment grade securities may be concentrated in the banking
industry. Under normal conditions, the Eaton
Vance Ultra-Short Income ETF will invest more than 25% of its total assets in
securities issued by issuers in the banking industry.
As a result, the Funds may have a high concentration of investments in the
banking industry. The banking industry can be affected
by global and local economic conditions, such as the levels and liquidity of the
global and local financial and asset markets, the
absolute and relative level and volatility of interest rates and equity prices,
investor sentiment, inflation, the availability and cost of
credit and other factors and such effects can at times be significant. The
enactment of new legislation or regulations, as well as changes
in interpretation and enforcement of current laws, may affect the manner of
operations and profitability of the banking industry.
Because the Eaton Vance Ultra-Short Income ETF’s investments will be
concentrated in the banking industry, factors that have
an adverse impact on this industry may have a disproportionate impact on a
Fund’s performance. Adverse developments that affect
financial institutions, the financial services sector or the banking industry
generally, or concerns or rumors about any events of these
kinds or other similar risks, may reduce liquidity in the market generally or
have other adverse effects on the economy, the Fund,
or issuers in which the Fund invests. In addition, the Fund and issuers in which
it invests may not be able to identify all potential
solvency or stress concerns with respect to a financial institution or to
transfer assets from one bank or financial institution to
another in a timely manner in the event such bank or financial institution comes
under stress or fails. The financial sector, in particular
depository institutions, such as banks, is particularly susceptible to systemic
risks and contagion which may adversely affect the
Fund’s investments in the financial services sector or the banking
industry.
Temporary
Investments
Under
adverse or unstable market conditions or abnormal circumstances or when the
Adviser believes that changes in market, economic,
political or other conditions warrant, the Funds may, in the discretion of the
Adviser, take temporary positions that are inconsistent
with the Funds’ principal investment strategies in attempting to respond to such
conditions or circumstances. For example,
the Funds may invest without limit in cash, cash equivalents or other
fixed-income instruments, derivatives, repurchase agreements
or securities of other investment companies, including money market funds, for
temporary purposes. For example, with respect
to the Eaton Vance Intermediate Municipal Income ETF, when the Adviser believes
that conditions warrant, including when suitable
municipal obligations are unavailable, the Fund may invest without limit in
securities subject to federal income tax or in securities
that pay interest income subject to the federal alternative minimum tax. Under
such circumstances, a higher portion of the Fund’s
distributions will likely be subject to federal income tax and/or the federal
alternative minimum tax. If the Adviser incorrectly
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the effects of these changes or during periods of temporary defensive or other
temporary positions, such temporary investments
may adversely affect a Fund’s performance and the Fund may not achieve its
investment objective.
Investment
Company Securities
Subject
to the limitations set forth in the 1940 Act, or as otherwise permitted by the
SEC, the Fund may acquire shares in other investment
companies, including foreign investment companies, ETFs and money market funds
which may be managed by the Adviser
or its affiliates. The market value of the shares of other investment
companies may differ from the NAV of the Fund. The shares
of certain investment companies, principally closed-end investment companies,
frequently trade at a discount to their NAV. As a
shareholder in an investment company, the Fund would bear its ratable
share of that entity’s expenses, including its investment advisory
and administration fees and be subject to the associated risks. At the same
time, the Fund would continue to pay its own advisory
and administration fees and other expenses. As a result, the Fund and its
shareholders will directly bear the expenses of their investment
in the Fund and indirectly bear the expenses of the Fund’s investments in
other investment companies.
Taxability
Risk
Changes
in tax laws or adverse determinations by the Internal Revenue Service (“IRS”)
may make the income from some municipal obligations
taxable and adversely affect the value of such obligations.
Cybersecurity
Risk
With
the increased use of technologies such as the internet to conduct business, the
Fund, the Adviser, authorized participants, service
providers and the relevant listing exchange are susceptible to operational,
information security and related “cyber” risks both directly
and through the service providers. Similar types of cybersecurity risks are also
present for issuers of securities in which the Fund
invests, which could result in material adverse consequences for such issuers
and may cause the Fund’s investment in such issuers
to lose value. In general, cyber incidents can result from deliberate attacks or
unintentional events. Cyber incidents include, but
are not limited to, gaining unauthorized access to digital systems (e.g.,
through “hacking” or malicious software coding) for purposes
of misappropriating assets or sensitive information, corrupting data, or causing
operational disruption. Cyberattacks may also
be carried out in a manner that does not require gaining unauthorized access,
such as causing denial-of-service attacks on websites
(i.e., efforts to make network services unavailable to intended users).
Recently, geopolitical tensions may have increased the scale
and sophistication of deliberate attacks, particularly those from nation-states
or from entities with nation-state backing.
Cybersecurity
failures by, or breaches of, the systems of the Adviser, distributor and other
service providers (including, but not limited
to, index and benchmark providers, fund accountants, custodians, transfer agents
and administrators), exchanges, market participants,
market makers, authorized participants or the issuers of securities in which the
Fund invests have the ability to cause disruptions
and impact business operations, potentially resulting in: financial losses,
interference with the Fund’s ability to calculate its
NAV, disclosure of confidential trading information, impediments to trading,
submission of erroneous trades or erroneous creation
or redemption orders, the inability of the Fund or its service providers to
transact business, violations of applicable privacy and
other laws, regulatory fines, penalties, reputational damage, reimbursement or
other compensation costs, or additional compliance
costs. In addition, cyberattacks may render records of Fund assets and
transactions, shareholder ownership of Fund shares,
and other data integral to the functioning of the Fund inaccessible, inaccurate
or incomplete. Substantial costs may be incurred
by the Fund in order to resolve or prevent cyber incidents in the future. While
the Fund has established business continuity plans
in the event of, and risk management systems to prevent, such cyber incidents,
there are inherent limitations in such plans and systems,
including the possibility that certain risks have not been identified, that
prevention and remediation efforts will not be successful
or that cyberattacks will go undetected. Furthermore, the Fund cannot control
the cybersecurity plans and systems put in place
by service providers to the Fund, issuers in which the Fund invests, market
makers or authorized participants. The Fund and its shareholders
could be negatively impacted as a result.
Regulatory
and Legal Risk
U.S.
and non-U.S. governmental agencies and other regulators regularly implement
additional regulations and legislators pass new laws
that affect the investments held by the Fund, the strategies used by the Fund or
the level of regulation or taxation applying to the
Fund (such as regulations related to investments in derivatives and other
transactions). These regulations and laws impact the investment
strategies, performance, costs and operations of the Fund or taxation of
shareholders.
The
SEC has recently proposed amendments to Rule 22e-4 of the 1940 Act that, if
adopted, would result in changes to the Fund’s liquidity
classification framework and could potentially increase the percentage of the
Fund’s investments classified as illiquid. In addition,
the Fund’s operations and investment strategies may be adversely impacted if the
proposed amendments are adopted.
New
Fund Risk
A
new fund’s performance may not represent how the fund is expected to or may
perform in the long term. In addition, new funds have
limited operating histories for investors to evaluate and new funds may not
attract sufficient assets to achieve investment and trading
efficiencies. Moreover, a new fund may not be able to fully implement its
investment strategy immediately upon commencing
investment operations, which could reduce investment
performance.
Eaton
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Fund
Management
Adviser
Morgan
Stanley Investment Management Inc., with principal offices at 1585 Broadway, New
York, NY 10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management
services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser. Morgan
Stanley is a preeminent global financial services
firm engaged in securities trading and brokerage activities, as well as
providing investment banking, research and analysis, financing
and financial advisory services. As of December 31, 2023, the Adviser, together
with its affiliated asset management companies,
had approximately $1.5 trillion in assets under management or
supervision.
A
discussion regarding the basis for the Board of Trustees’ approval of the
Management Agreement and, with respect to the Eaton Vance
High Yield ETF, Sub-Advisory Agreement will be available in the the Funds’
semi-annual reports to shareholders for the period
ending March 31, 2024.
The
Adviser, Sub-Adviser, if applicable, and/or their affiliates may make payments
to one or more investors that contribute seed capital
to one or more of the Funds. Such payments may continue for a specified period
of time and/or until a specified dollar amount
is reached. Those payments will be made from the assets of the Adviser,
Sub-Adviser, if applicable, and/or such affiliates (and not
the Funds). Seed investors may contribute all or a majority of the assets in one
or more of the Funds. There is a risk that such seed
investors may redeem their investments in one or more of the Funds. As with
redemptions by other large shareholders, such redemptions
could have a significant negative impact on one or more of the
Funds.
Sub-Adviser
With
respect to the Eaton Vance High-Yield ETF, the Adviser has entered into a
Sub-Advisory Agreement with Morgan Stanley Investment
Management Limited, located at located at 25 Cabot Square, Canary Wharf, London,
E14 4QA, England. The Sub-Adviser
is a wholly owned subsidiary of Morgan Stanley. The Sub-Adviser provides the
Eaton Vance High-Yield ETF with investment
advisory services subject to the overall supervision of the Adviser and the
Trust’s officers and Trustees. The Adviser pays the
Sub-Adviser on a monthly basis a portion of the net advisory fees the Adviser
receives from the Eaton Vance High-Yield ETF.
Management
Fees
The
Adviser receives a fee for management services equal to the portion of the
average daily net assets as set forth in the table below.
|
| |
Fund
(as a percentage of average daily net assets) |
|
Eaton
Vance Ultra-Short Income ETF |
0.17% |
|
Eaton
Vance High Yield ETF |
0.48% |
|
Eaton
Vance Intermediate Municipal Income ETF |
0.29% |
|
Under
the Management Agreement, the Adviser will pay substantially all the expenses of
each Fund (including expenses of the Trust relating
to each Fund), except for the distribution fees, if any, brokerage expenses,
acquired fund fees and expenses, taxes, interest, litigation
expenses, and other extraordinary expenses, including the costs of proxies, not
incurred in the ordinary course of the Funds’ business.
Portfolio
Management
Eaton
Vance Ultra-Short Income ETF
The
Fund is managed by members of the Broad Markets team. The team consists of
portfolio managers and analysts. The current members
of the team primarily responsible for the day-to-day management of the Fund are
Brian Ellis, CFA, Eric Jesionowski, Kinzer
Jennings, CFA, Alec Schaefer and Brandon Matsui, CFA.
Mr.
Ellis is a Managing Director of Morgan Stanley Investment Management Inc.,
manages other funds and has been employed by the
Morgan Stanley organization for more than five years. Mr. Jesionowski is an
Executive Director of Morgan Stanley Investment Management
Inc., manages other funds and has been employed by the Morgan Stanley
organization for more than five years. Messrs. Schaefer
and Jennings are Vice Presidents of the Adviser, manage other funds and have
been employed by the Morgan Stanley organization
for more than five years and since 2020, respectively. Mr. Matsui is an
Executive Director of the Adviser. Prior to joining
the Adviser in 2023, Mr. Matsui served as the Head of Fixed Income for DWS’
Systematic Investment Solutions group since 2016.
Eaton
Vance High Yield ETF
The
Fund is managed by members of the High Yield team. The team consists of
portfolio managers and analysts. The current
Eaton
Vance |
Fund
Management
members
of the team primarily responsible for the day-to-day management of the Fund are
Stephen Concannon, CFA, Jeffrey Mueller,
Kelley Gerrity and Brandon Matsui, CFA.
Mr.
Concannon and Ms. Gerrity are Managing Directors of the Adviser, manage
other funds and have been employed by the Morgan
Stanley organization for more than five years. Mr. Mueller is a Managing
Director of the Sub-Adviser, manages other funds and
has been employed by the Sub-Adviser for more than five years. Mr. Matsui is an
Executive Director of the Adviser. Prior to joining
the Adviser in 2023, Mr. Matsui served as the Head of Fixed Income for DWS’
Systematic Investment Solutions group since 2016.
Eaton
Vance Intermediate Municipal Income ETF
The
Fund is managed by members of the Municipal Bond team. The team consists of
portfolio managers and analysts. The current members
of the team primarily responsible for the day-to-day management of the Fund are
Julie P. Callahan, CFA, Paul Metheny, CFA,
Carl Thompson, CFA and Brandon Matsui, CFA.
Ms.
Callahan has been a Managing Director of the Adviser since 2020. Prior to
joining the Adviser, Ms. Callahan was a senior member
of the municipal bond portfolio management team at PIMCO from 2011 to 2020.
Messrs. Metheny and Thompson are Executive
Directors of the Adviser, manage other funds and have been employed by the
Morgan Stanley organization for more than five
years. Mr. Matsui is an Executive Director of the Adviser. Prior to joining the
Adviser in 2023, Mr. Matsui served as the Head of Fixed
Income for DWS’ Systematic Investment Solutions group since 2016.
The
composition of each Fund’s team may change from time to time.
Eaton
Vance |
Shareholder
Information
Distribution
of Fund Shares
The
Distributor is the exclusive distributor of Creation Units of a Fund. The
Distributor or its agent distributes Creation Units for the
Funds on an agency basis. The Distributor does not maintain a secondary market
in shares of the Fund. The Distributor has no role
in determining the investment policies of the Funds or the securities that are
purchased or sold by the Fund. The Distributor’s principal
address is 3 Canal Plaza Suite 100, Portland, ME 04101.
The
Board of Trustees of the Trust has adopted a distribution and service plan
(“Plan”) pursuant to Rule 12b-1 under the 1940 Act. Under
the Plan, the Funds are authorized to pay distribution fees in connection with
the sale and distribution of its shares and pay service
fees in connection with the provision of ongoing services to shareholders of the
Funds and the maintenance of shareholder accounts
in an amount up to 0.25% of its average daily net assets each year.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no current plans
to impose these fees. However, in the event Rule 12b-1
fees are charged in the future, because these fees are paid out of the Funds’
assets on an ongoing basis, these fees will increase the
cost of your investment in the Funds. By purchasing shares subject to
distribution fees and service fees, you may pay more over time
than you would by purchasing shares with other types of sales charge
arrangements. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the rules
of FINRA. The net income attributable to shares
will be reduced by the amount of distribution fees and service fees and other
expenses of the Funds.
About
Net Asset Value
A
Fund’s NAV per share is determined by dividing the total of the value of the
Fund’s investments and other assets, less any liabilities attributable
to the Fund, by the total number of outstanding shares of the Fund. In making
this calculation, a Fund generally values its
portfolio securities and other assets at market price.
When
no market quotations are readily available for a security or other asset,
including circumstances under which the Adviser determines
that a market quotation is not accurate, fair value for the security or other
asset will be determined in good faith using methods
approved by the Board of Trustees. The Adviser, consistent with its procedures
and applicable regulatory guidance, may (but
need not) determine to make an adjustment to the previous closing prices of
either domestic or foreign securities in light of significant
events, to reflect what it believes to be the fair value of the securities at
the time of determining a Fund’s NAV. In these cases,
the Fund’s NAV will reflect certain portfolio securities’ fair value rather than
their market price. In addition, the securities held by
a Fund may be traded in markets that close at a different time than the exchange
on which the Fund’s shares are listed. Accordingly,
during the time when a Fund’s listing exchange is open but after the applicable
market closes, bid-ask spreads may widen
and Fund shares may trade at a premium or discount to NAV. To the extent a Fund
invests in open-end management companies
(other than ETFs) that are registered under the 1940 Act, the Fund’s NAV is
calculated based in relevant part upon the NAV
of such funds. The prospectuses for such funds explain the circumstances under
which they will use fair value pricing and its effects.
Fair
value pricing involves subjective judgments and it is possible that the fair
value determined for a security or other asset is materially
different than the value that could be realized upon the sale of that security
or other asset. With respect to securities that are
primarily listed on foreign exchanges, the values of the Funds’ portfolio
securities may change on days when you will not be able to
purchase or sell your shares. The NAV of a Fund is based on the value of the
Fund’s portfolio securities or other assets.
The
Funds rely on various sources to calculate their NAV. The ability of a Fund’s
provider of administrative services to calculate the NAV
per share of the Fund is subject to operational risks associated with processing
or human errors, systems or technology failures, cyber
attacks and errors caused by third party service providers, data sources, or
trading counterparties. Such failures may result in delays
in the calculation of a Fund’s NAV and/or the inability to calculate NAV over
extended time periods. A Fund may be unable to
recover any losses associated with such failures. In addition, if the third
party service providers and/or data sources upon which a Fund
directly or indirectly relies to calculate its NAV or price individual
securities are unavailable or otherwise unable to calculate the NAV
correctly, it may be necessary for alternative procedures to be utilized to
price the securities at the time of determining the Fund’s
NAV.
A
Fund’s NAV per share is subject to various investment and other risks. Please
refer to the “Additional Information About Fund Investment
Strategies and Related Risks” and “Investment Strategies and Techniques”
sections of the Prospectus and SAI, respectively,
for more information regarding risks associated with an investment in the
Funds.
Book
Entry
The
Depository Trust Company (“DTC”) serves as securities depository for the shares.
The shares may be held only in book-entry form;
stock certificates will not be issued. DTC, or its nominee, is the record or
registered owner of all outstanding shares. Beneficial ownership
of shares will be shown on the records of DTC or its participants (described
below). Beneficial owners of shares are not entitled
to have shares registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form
and are not considered the registered holder thereof. Accordingly, to exercise
any rights of a holder of shares, each beneficial owner
must rely on the procedures of: (i) DTC; (ii) “DTC Participants,” i.e.,
securities brokers and dealers, banks, trust companies,
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clearing
corporations and certain other organizations, some of whom (and/or their
representatives) own DTC; and (iii) “Indirect Participants,”
i.e., brokers, dealers, banks and trust companies that clear through or maintain
a custodial relationship with a DTC Participant,
either directly or indirectly, through which such beneficial owner holds its
interests. The Trust understands that under existing
industry practice, in the event the Trust requests any action of holders of
shares, or a beneficial owner desires to take any action
that DTC, as the record owner of all outstanding shares, is entitled to take,
DTC would authorize the DTC Participants to take
such action and that the DTC Participants would authorize the Indirect
Participants and beneficial owners acting through such DTC
Participants to take such action and would otherwise act upon the instructions
of beneficial owners owning through them. As described
above, the Trust recognizes DTC or its nominee as the owner of all shares for
all purposes.
Buying
and Selling Shares
Shares
of a Fund may be acquired or redeemed directly from a Fund at NAV only in
Creation Units or multiples thereof, as discussed
in the Creations and Redemptions section of the Prospectus. Only an Authorized
Participant (as defined in the Creations and
Redemptions section below) may engage in creation or redemption transactions
directly with a Fund. Once created, shares of a Fund
generally trade in the secondary market in amounts less than a Creation
Unit.
Shares
of a Fund are listed for trading on a national securities exchange during the
trading day. Shares can be bought and sold throughout
the trading day at market price like shares of other publicly traded companies.
However, there can be no guarantee that an
active trading market will develop or be maintained, or that the Fund shares
listing will continue or remain unchanged. The Trust does
not impose any minimum investment for shares of the Fund purchased on an
exchange. Buying or selling the Fund’s shares involves
certain costs that apply to all securities transactions. When buying or selling
shares of the Fund through a financial intermediary,
you may incur a brokerage commission or other charges determined by your
financial intermediary. Due to these brokerage
costs, if any, frequent trading may detract significantly from investment
returns. In addition, you may also incur the cost of the
spread (the difference between the bid price and the ask price). The commission
is frequently a fixed amount and may be a significant
cost for investors seeking to buy or sell small amounts of shares. The spread
varies over time for shares of the Fund based on
its trading volume and market liquidity, and is generally less if the Fund has
more trading volume and market liquidity and more if
the Fund has less trading volume and market liquidity.
Each
Fund’s primary listing exchange is NYSE Arca. NYSE Arca is open for trading
Monday through Friday and is closed on the following
holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good
Friday, Memorial Day, Juneteenth National
Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
A
“business day” with respect to the Funds is each day the New York Stock
Exchange, NYSE Arca and the Trust are open and includes
any day that a Fund is required to be open under Section 22(e) of the 1940 Act.
Orders from authorized participants to create
or redeem Creation Units will only be accepted on a business day. On days when
NYSE Arca closes earlier than normal, a Fund
may require orders to create or redeem Creation Units to be placed earlier in
the day. See the SAI for more information.
The
Trust’s Board of Trustees has not adopted a policy of monitoring for frequent
purchases and redemptions of Fund shares (“frequent
trading”) that appear to attempt to take advantage of potential arbitrage
opportunities presented by a lag between a change in
the value of a Fund’s portfolio securities after the close of the primary
markets for the Fund’s portfolio securities and the reflection of
that change in the Fund’s NAV (“market timing”). The Trust believes this is
appropriate because ETFs, such as the Funds, are intended
to be attractive to arbitrageurs, as trading activity is critical to ensuring
that the market price of Fund shares remains at or close
to NAV. Since each Fund issues and redeems Creation Units at NAV plus applicable
transaction fees, and a Fund’s shares may be
purchased and sold on NYSE Arca at prevailing market prices, the risks of
frequent trading are limited.
Section
12(d)(1) of the 1940 Act generally restricts investments by investment
companies, including foreign and unregistered investment
companies, in the securities of other investment companies. For example, a
registered investment company (the “Acquired
Fund”), such as a Fund, may not knowingly sell or otherwise dispose of any
security issued by the Acquired Fund to any investment
company (the “Acquiring Fund”) or any company or companies controlled by the
Acquiring Fund if, immediately after such
sale or disposition: (i) more than 3% of the total outstanding voting stock of
the Acquired Fund is owned by the Acquiring Fund
and any company or companies controlled by the Acquiring Fund, or (ii) more than
10% of the total outstanding voting stock of
the Acquired Fund is owned by the Acquiring Fund and other investment companies
and companies controlled by them. However,
registered investment companies are permitted to invest in a Fund beyond the
limits set forth in Section 12(d)(1), subject to
certain terms and conditions set forth in SEC rules. In order for a registered
investment company to invest in shares of a Fund beyond
the limitations of Section 12(d)(1) in reliance on Rule 12d1-4 under the 1940
Act, the registered investment company must, among
other things, enter into an agreement with the Trust. Foreign investment
companies are permitted to invest in the Funds only up
to the limits set forth in Section 12(d)(1), subject to any applicable SEC Staff
no-action relief.
The
Funds and the Distributor will have the sole right to accept orders to purchase
shares and reserve the right to reject any purchase order
in whole or in part.
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Creations
and Redemptions
Prior
to trading in the secondary market, shares of a Fund are “created” at NAV by
market makers, large investors and institutions only
in block-size Creation Units or multiples thereof. Each “creator” or authorized
participant (an “Authorized Participant”) enters into
an authorized participant agreement with the Funds’ Distributor. An Authorized
Participant is a member or participant of a clearing
agency registered with the SEC, which has a written agreement with the Fund or
one of its service providers that allows such member
or participant to place orders for the purchase and redemption of Creation
Units.
A
creation transaction, which is subject to acceptance by JPMorgan Chase Bank,
N.A., as the Trust’s transfer agent, generally takes place
when an Authorized Participant deposits into the Fund a designated portfolio of
securities (including any portion of such securities
for which cash may be substituted) and a specified amount of cash in exchange
for a specified number of Creation Units.
Similarly,
shares can be redeemed only in Creation Units, generally for a designated
portfolio of securities (including any portion of such
securities for which cash may be substituted) held by a Fund and a specified
amount of cash. Except when aggregated in Creation
Units, shares are not redeemable by a Fund.
The
prices at which creations and redemptions occur are based on the next
calculation of NAV after a creation or redemption order is received
in an acceptable form under the authorized participant agreement.
Only
an Authorized Participant may create or redeem Creation Units directly with the
Fund.
In
the event of a system failure or other interruption, including disruptions at
market makers or authorized participants, orders to purchase
or redeem Creation Units either may not be executed according to the Fund’s
instructions or may not be executed at all, or the
Fund may not be able to place or change orders.
To
the extent the Fund engages in in-kind transactions, the Fund intends to comply
with the U.S. federal securities laws in accepting securities
for deposit and satisfying redemptions with redemption securities by, among
other means, assuring that any securities accepted
for deposit and any securities used to satisfy redemption requests will be sold
in transactions that would be exempt from registration
under the Securities Act of 1933, as amended (the “Securities Act”). Further, an
Authorized Participant that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities
Act, will not be able to receive restricted securities
eligible for resale under Rule 144A.
The
in-kind arrangements are intended to protect ongoing shareholders from adverse
effects on the
Fund’s portfolio that could arise from
frequent cash creation and redemption transactions and generally will not lead
to a tax event for the Fund or its ongoing shareholders.
Creations
and redemptions must be made through a firm that is either a member of the
Continuous Net Settlement System of the National
Securities Clearing Corporation or a DTC Participant and has executed an
agreement with the Distributor with respect to creations
and redemptions of Creation Unit aggregations. Information about the procedures
regarding creation and redemption of Creation
Units (including the cut-off times for receipt of creation and redemption
orders) and the applicable transaction fees is included
in the Fund’s SAI.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the
disclosure of each Fund’s portfolio securities is available in the Trust’s
SAI.
Inactive
Accounts and Risk of Escheatment
In
accordance with state “unclaimed property” laws, your Fund shares may legally be
considered abandoned and required to be transferred
to the relevant state (also known as “escheatment”) under various circumstances.
These circumstances, which vary by state,
can include inactivity (e.g., no owner-initiated contact for a certain period),
returned mail (e.g., when mail sent to a shareholder is
returned by the post office as undeliverable), uncashed checks or a combination
of these. An incorrect address may cause a shareholder’s
account statements and other mailings to be returned to the Fund or your
Financial Intermediary. Since states’ statutory
requirements regarding inactivity differ, it is important to regularly contact
your Financial Intermediary or the Fund’s transfer
agent. The process described above, and the application of state escheatment
laws, may vary by state and/or depending on how
shareholders hold their shares in the Fund.
It
is your responsibility to ensure that you maintain a valid mailing address for
your account, keep your account active by contacting your
Financial Intermediary or the Fund’s transfer agent (e.g., by mail or
telephone), and promptly cash all checks for dividends, capital
gains and redemptions. Neither the Fund nor the Adviser will be liable to
shareholders or their representatives for good faith compliance
with escheatment laws.
For
more information, please contact us at 800-836-2414.
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Dividends
and Distributions
General
Policies
Dividends
from net investment income, if any, generally are declared and paid monthly by a
Fund. Distributions of net realized securities
gains, if any, generally are declared and paid once a year, but the Trust may
make distributions on a more frequent basis for a
Fund. The Trust reserves the right to declare special distributions if, in its
reasonable discretion, such action is necessary or advisable
to preserve its status as a regulated investment company or to avoid imposition
of income or excise taxes on undistributed income
or realized gains. Dividends and other distributions on shares of a Fund are
distributed on a pro rata basis to beneficial owners
of such shares. Dividend payments are made through DTC participants and indirect
participants to beneficial owners then of record
with proceeds received from a Fund.
Dividend
Reinvestment Service
No
dividend reinvestment service is provided by the Trust. Broker-dealers may make
available the DTC book-entry dividend reinvestment
service for use by beneficial owners of a Fund for reinvestment of their
dividend distributions. Beneficial owners should contact
their broker to determine the availability and costs of the service and the
details of participation therein. Brokers may require beneficial
owners to adhere to specific procedures and timetables. If this service is
available and used, dividend distributions of both income
and realized gains will be automatically reinvested in additional whole shares
of a Fund purchased in the secondary market.
Taxes
As
with any investment, you should consider how your Fund investment will be taxed.
The tax information in this Prospectus is provided
as general information. You should consult your own tax professional about the
tax consequences of an investment in a Fund.
Unless your investment in a Fund is through a tax deferred retirement account,
such as a 401(k) plan or IRA, you need to be aware
of the possible tax consequences when the Fund makes distributions and when you
sell shares.
Taxation
of Distributions.
With respect to the Eaton Vance Ultra-Short Income ETF and Eaton Vance High
Yield ETF, your distributions
normally are subject to federal and state income tax when they are paid, whether
you take them in cash or reinvest them in
Fund shares. A distribution also may be subject to local income tax. Any income
dividend distributions and any short-term capital gain
distributions are taxable to you as ordinary income. Any long-term capital gain
distributions are taxable as long-term capital gains,
no matter how long you have owned shares in a Fund. It is not anticipated that
any distributions would be eligible for the reduced
rate of taxation applicable to qualified dividend income or for a
dividends-received deduction.
With
respect to the Eaton Vance Intermediate Municipal Income ETF, your income
dividend distributions are normally exempt from
federal income tax—to the extent they are derived from municipal obligations.
Income derived from other portfolio securities may
be subject to federal, state and/or local income taxes. Income derived from some
municipal securities is subject to the federal alternative
minimum tax. Certain tax-exempt securities whose proceeds are used to finance
private, for-profit organizations are subject
to this special tax system that ensures that individuals pay at least some
federal taxes. Although interest on these securities is generally
exempt from federal income tax, some individual taxpayers who have many tax
deductions or exemptions nevertheless may have
to pay tax on the income. However, the alternative minimum tax consequences
discussed in this paragraph do not apply with respect
to interest paid on bonds issued after December 31, 2008 and before January 1,
2011 (including refunding bonds issued during
that period to refund bonds originally issued after December 31, 2003 and before
January 1, 2009).
The
Eaton Vance Intermediate Municipal Income ETF may derive gains in part from
municipal obligations that the Fund purchased below
their principal or face values. All or a portion of these gains may be taxable
to you as ordinary income rather than capital gains. If
the Fund makes any capital gain distributions, those distributions will normally
be subject to federal and state income tax when they
are paid, whether you take them in cash or reinvest them in Fund shares. Any
short-term capital gain distributions are taxable to you
as ordinary income. Any long-term capital gain distributions are taxable to you
as long-term capital gains, no matter how long you
have owned shares in the Fund. The Fund does not anticipate that it will make
any distributions eligible for the reduced rate of taxation
applicable to qualified dividend income or for a dividends-received
deduction.
Shareholders
could periodically receive distributions which constitute a return of capital
for tax purposes. A return of capital is not taxable,
but it reduces the shareholder’s basis in their Fund shares, which reduces the
loss (or increases the gain) on a subsequent taxable
disposition by such shareholder of the shares.
If
you borrow money to purchase shares of the Eaton Vance Intermediate Municipal
Income ETF, the interest on the borrowed money
is generally not deductible for income tax purposes.
If
you buy shares of a Fund before a distribution, you may be subject to tax on the
entire amount of the taxable distribution you receive.
Distributions are taxable to you even if they are paid from income or gain
earned by the Fund before your investment (and thus
were included in the price you paid for your Fund shares).
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Investment
income received by a Fund from sources within foreign countries may be subject
to foreign income, withholding, and other
taxes. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes.
You
will be sent a statement (Internal Revenue Service (“IRS”) Form 1099-DIV) by
February of each year showing the taxable distributions
paid to you in the previous year. The statement provides information on your
dividends and any capital gains for tax purposes.
Taxation
of Sales.
Your sale of Fund shares normally is subject to federal and state income tax and
may result in a taxable gain or loss to
you. A sale also may be subject to local income tax. When you sell your shares,
you will generally recognize a capital gain or loss in an
amount equal to the difference between your adjusted tax basis in
the shares and the amount received. Generally, this capital gain
or
loss is long-term or short-term depending on whether your holding period exceeds
one year, except that any loss realized on shares held
for six months or less will be treated as a long-term capital loss to the extent
of any long-term capital gain dividends that were received
on the shares. Further, any loss realized on the sale of shares held for
six months or less may be disallowed to the extent of any
distributions treated as exempt-interest dividends with respect to the shares.
Additionally, any loss realized on a sale of shares of a Fund
may be disallowed under “wash sale” rules to the extent the shares
disposed of are replaced with other shares of the Fund within a
period of 61 days beginning 30 days before and ending 30 days after the date of
disposition, such as pursuant to a dividend reinvestment
in Fund shares. If disallowed, the loss will be reflected in an adjustment to
the basis of the shares acquired.
Creations
and Redemptions.
A person who exchanges securities for Creation Units generally will recognize a
gain or loss. The gain or loss
will be equal to the difference between the market value of the Creation Units
at the time of exchange and the sum of the exchanger’s
aggregate basis in the securities surrendered and the amount of any cash paid
for such Creation Units. A person who exchanges
Creation Units for securities will generally recognize a gain or loss equal to
the difference between the exchanger’s basis in the
Creation Units and the sum of the aggregate market value of the securities
received. The IRS, however, may assert that a loss realized
upon an exchange of primarily securities for Creation Units cannot be deducted
currently under the rules governing “wash sales,”
or on the basis that there has been no significant change in economic position.
Persons exchanging securities for Creation Units
or redeeming Creation Units should consult their own tax adviser with respect to
whether wash sale rules apply and when a loss might
be deductible and the tax treatment of any creation or redemption
transaction.
Under
current U.S. federal income tax laws, any capital gain or loss realized upon a
redemption (or creation) of Creation Units is generally
treated as long-term capital gain or loss if the Fund shares (or securities
surrendered) have been held for more than one year and
as a short-term capital gain or loss if the Fund shares (or securities
surrendered) have been held for one year or less.
Other
Information.
An additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital
gain distributions received from a Fund and net gains from redemptions or other
taxable dispositions of Fund shares) of U.S. individuals,
estates and trusts to the extent that such person’s “modified adjusted gross
income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
You
may be subject to backup withholding at a rate of 24% with respect to taxable
distributions if you do not provide your correct taxpayer
identification number, or certify that it is correct, or if you have been
notified by the IRS that you are subject to backup withholding.
Shareholders
who are not citizens or residents of the United States and certain foreign
entities will generally be subject to withholding of
U.S. tax of 30% on distributions made by a Fund of investment income (other than
exempt-interest dividends) and short-term capital
gains.
Withholding
of U.S. tax is required (at a 30% rate) on payments of taxable dividends made to
certain non-U.S. entities that fail to comply
(or be deemed compliant) with extensive reporting and withholding requirements
designed to inform the U.S. Department of
the Treasury of U.S.-owned foreign investment accounts. Shareholders may be
requested to provide additional information to a Fund
to enable the Fund to determine whether withholding is required.
Reporting
to you and the IRS is required annually on Form 1099-B with respect to not only
the gross proceeds of Fund shares you sell
or redeem but also their cost basis. Shareholders should contact their
intermediaries with respect to reporting of cost basis and available
elections with respect to their accounts. You should carefully review the cost
basis information provided by the applicable intermediary
and make any additional basis, holding period or other adjustments that are
required when reporting these amounts on your
federal income tax returns.
Because
each investor’s tax circumstances are unique and the tax laws may change, you
should consult your tax advisor about your investment.
Tax-Advantaged
Product Structure
Unlike
interests in many conventional mutual funds, each Fund’s shares are traded
throughout the day on a national securities exchange,
whereas mutual fund interests are typically only bought and sold at closing
NAVs. Each Fund’s shares have been designed
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to
be tradable in the secondary market on a national securities exchange on an
intra-day basis, and to be created and redeemed in Creation
Units at each day’s next calculated NAV. Shares of the Eaton Vance High Yield
ETF are created and redeemed principally in
kind (but cash may be substituted in lieu of certain securities). The in-kind
arrangements are designed to protect ongoing shareholders
from adverse effects on the Eaton Vance High Yield ETF’s portfolio that could
arise from frequent cash creation and redemption
transactions. In a conventional mutual fund, redemptions can have an adverse tax
impact on taxable shareholders because the
mutual fund may need to sell portfolio securities to obtain cash to meet fund
redemptions. These sales may generate taxable gains for
the shareholders of the mutual fund, whereas the shares’ in-kind redemption
mechanism generally will not lead to a tax event for the
Eaton Vance High Yield ETF or its ongoing shareholders. There is no guarantee
that these tax advantages will be realized or will materially
reduce the amount of taxable capital gains distributed by the Eaton Vance High
Yield ETF to shareholders. To the extent the
Eaton Vance High Yield ETF substitutes cash in lieu of certain portfolio
securities for redemption transactions, the Eaton Vance High
Yield ETF may be required to sell portfolio securities and subsequently
recognize gains on such sales that the Eaton Vance High
Yield ETF might not have recognized if it were to distribute such portfolio
securities in-kind.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company
of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities,
lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal
securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course
of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where
Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment funds
and investment programs, accounts and businesses (collectively, together with
any new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of
investment objectives that in some instances may overlap or
conflict with a Fund’s investment objectives and present conflicts of interest.
In addition, Morgan Stanley may also from time to time
create new or successor Affiliated Investment Accounts that may compete with a
Fund and present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of
interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be.
Conflicts of interest not described below may also
exist.
For
more information about conflicts of interest, see the section entitled
“Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information.
It is expected that confidential or material nonpublic information regarding an
investment or potential
investment opportunity may become available to the Adviser. If such information
becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing
an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has
established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan
Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject
to policies and procedures and any applicable
regulations, personnel, including personnel of the Adviser, on one side of an
information barrier may have access to information
and personnel on the other side of the information barrier through “wall
crossings.” The Adviser faces conflicts of interest
in determining whether to engage in such wall crossings. Information obtained in
connection with such wall crossings may limit
or restrict the ability of the Adviser to engage in or otherwise effect
transactions on behalf of the Funds (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for a Fund in
the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have
obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests
of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated
Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment
opportunities among a Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain
Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead
allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other
accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable
manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all
clients of the Adviser, including the Funds, fair
access to investment opportunities consistent with the requirements of
organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of a Fund, to certain Financial Intermediaries
(which may include affiliates of the Adviser and Distributor),
including recordkeepers and administrators of various deferred compensation
plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The
prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such
Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of a
Fund over other investment options with
Eaton
Vance |
Shareholder
Information
Shareholder
Information (Con’t)
respect
to which these Financial Intermediaries do not receive additional compensation
(or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor
pays for shares of a Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to
take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and
should review carefully any disclosures provided by
Financial Intermediaries as to their compensation. In addition, in certain
circumstances, the Adviser restricts, limits or reduces the amount
of a Fund’s investment, or restricts the type of governance or voting rights it
acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses
certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will
generally
conduct its sales and trading businesses, publish research and analysis, and
render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of
one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments
that is different from, and potentially adverse to,
that of a Fund.
Morgan
Stanley’s Investment Banking and Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions. Morgan Stanley may act as
an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund
may hold. Morgan Stanley may give advice
and take action with respect to any of its clients or proprietary accounts that
may differ from the advice given, or may involve an
action of a different timing or nature than the action taken, by a Fund. Morgan
Stanley may give advice and provide recommendations
to persons competing with a Fund and/or any of a Fund’s investments that are
contrary to the Fund’s best interests and/or
the best interests of any of its investments. Morgan Stanley’s activities on
behalf of its clients (such as engagements as an underwriter
or placement agent) may restrict or otherwise limit investment opportunities
that may otherwise be available to a Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection
with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its
mergers and acquisition activities and may provide
lending and other related financing services in connection with such
transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in
substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a
transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an
acquisition.
Eaton
Vance |
Financial
Highlights
No
financial information is provided for the Funds because they had not yet
commenced operations as of the most recent fiscal year end.
Financial information will be provided in the first Shareholder Report after
commencement of operations.
Eaton
Vance | Premium/Discount
Information
Premium/Discount
Information
Information
regarding how often the closing trading price of the shares of a Fund was above
(i.e., at a premium) or below (i.e., at a discount)
the NAV of the shares of the Fund for the most recently completed calendar year
and the most recently completed calendar quarter(s)
since that year (or the life of the Fund, if shorter) can be found at
www.eatonvance.com.
Eaton
Vance | Continuous
Offering Information
Continuous
Offering Information
The
method by which Creation Units are created and traded may raise certain issues
under applicable securities laws. Because new Creation
Units are issued and sold by the Trust on an ongoing basis, a “distribution,” as
such term is used in the Securities Act may occur
at any point. Broker dealers and other persons are cautioned that some
activities on their part may, depending on the circumstances,
result in their being deemed participants in a distribution in a manner which
could render them statutory underwriters
and subject them to the prospectus delivery and liability provisions of the
Securities Act.
For
example, a broker dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with
the Distributor, breaks them down into constituent shares, and sells such shares
directly to customers, or if it chooses to couple the
creation of a supply of new shares with an active selling effort involving
solicitation of secondary market demand for shares. A determination
of whether one is an underwriter for purposes of the Securities Act must take
into account all the facts and circumstances
pertaining to the activities of the broker dealer or its client in the
particular case, and the examples mentioned above should
not be considered a complete description of all the activities that could lead
to a categorization as an underwriter.
Broker
dealers who are not “underwriters” but are participating in a distribution (as
contrasted to ordinary secondary trading transactions),
and thus dealing with shares that are part of an “unsold allotment” within the
meaning of Section 4(a)(3)(C) of the Securities
Act, would be unable to take advantage of the prospectus delivery exemption
provided by Section 4(a)(3) of the Securities Act.
This is because the prospectus delivery exemption in Section 4(a)(3) of the
Securities Act is not available in respect of such transactions
as a result of Section 24(d) of the 1940 Act. As a result, broker dealer firms
should note that dealers who are not underwriters
but are participating in a distribution (as contrasted with ordinary secondary
market transactions) and thus dealing with the
shares that are part of an overallotment within the meaning of Section
4(a)(3)(A) of the Securities Act would be unable to take advantage
of the prospectus delivery exemption provided by Section 4(a)(3) of the
Securities Act. Firms that incur a prospectus delivery
obligation with respect to shares are reminded that, under Rule 153 of the
Securities Act, a prospectus delivery obligation under
Section 5(b)(2) of the Securities Act owed to an exchange member in connection
with a sale on the Exchange is satisfied by the fact
that the prospectus is available at the Exchange upon request. The prospectus
delivery mechanism provided in Rule 153 is only available
with respect to transactions on an exchange.
In
addition, certain affiliates of the Funds and the Adviser and/or Sub-Adviser may
purchase and resell Fund shares pursuant to this Prospectus.
Where
to Find Additional Information
In
addition to this Prospectus, the Funds have an SAI, dated January
28, 2024 (as may be supplemented from time to time), which contains
additional, more detailed information about the Trust and the Funds. The SAI is
incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus. Certain affiliates of
the Funds and the Adviser may purchase and resell
Fund shares pursuant to this Prospectus.
The
Trust publishes Annual and Semi-Annual Reports (“Shareholder Reports”) that
contain additional information about a Fund’s investments.
In each Fund’s Annual Report to Shareholders (once available), you will find a
discussion of the market conditions and the
investment strategies that significantly affected such Fund’s performance during
the last fiscal year. For additional Trust information,
including information regarding the investments comprising each of the funds,
please call the toll-free number below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the
Trust at the toll-free number below or on its website
at: www.eatonvance.com. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without
charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Funds are available on the EDGAR
Database on the SEC’s website at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee,
by electronic request at the following e-mail
address: [email protected].
Morgan
Stanley ETF Trustc/o
Morgan Stanley Investment Management Inc.1585
BroadwayNew
York, New York 10036For
Shareholder Inquiries,call
toll-free 800-836-2414.Prices
and Investment Results are available at www.eatonvance.com.
The
Trust’s 1940 Act registration number is 811-23820.