2022-10-07MSETFTrust_PassiveFundsProspectus_January2023
The
information in this Preliminary Prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Preliminary Prospectus is not an offer to sell
these securities and is not soliciting offers to buy these securities in any
jurisdiction where the offer or sale is not permitted.
Subject
to Completion. Dated January
20, 2023
Calvert
Ultra-Short Investment Grade ETF
Prospectus | January
[ ], 2023
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Ticker
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CVSB |
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.
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A-1 |
Calvert
Ultra-Short Investment Grade ETF
Investment
Objective
Calvert
Ultra-Short Investment Grade ETF (the “Fund”) seeks to maximize income, to the
extent consistent with preservation of capital,
through investment in short-term bonds and income-producing
securities.
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.
|
| |
Management
Fee1
|
% |
|
Other
Expenses2
|
% |
|
Total
Annual Fund Operating Expenses |
0.24% |
|
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 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 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 investing, under normal
circumstances, at least 80% of its net assets (including any
borrowings for investment purposes) in a portfolio of investment grade,
short-term fixed, variable and floating-rate securities. This
policy may be changed without shareholder approval; however, shareholders would
be notified upon 60 days’ notice in writing of any
changes. 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 average portfolio duration will be one year or
less. In certain market conditions, such as in periods of
significant volatility in interest rates and spreads, the Fund’s duration may be
longer than one year. During periods when the Fund’s
average duration is longer than one year, the Fund may not achieve its
investment objective.
The Fund
will only invest in investment grade securities, as assessed at the time of
purchase. The Fund invests principally in 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.
Calvert
Ultra-Short Investment Grade ETF (Con’t)
The Fund
invests principally 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 trust preferred securities, money market
instruments and taxable municipal obligations.
The Fund
may invest up to 50% of its net assets 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.
MBS may include collateralized mortgage obligations (“CMOs”) and commercial
mortgage-backed securities (“CMBS”). The Fund may
invest up to 25% of its net assets in non-agency ABS and
MBS.
The Fund
may also invest up to 25% of its net assets in foreign debt securities. Foreign
debt securities include American Depositary Receipts
(“ADRs”). The Fund may engage in forward foreign currency exchange contracts to
seek to hedge against the decline in the value of
currencies in which its portfolio holdings are denominated against the U.S.
dollar. The Fund may also lend its
securities.
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
portfolio managers are responsible for fundamental analysis and security
selection, incorporating environmental, social and governance
(“ESG”) information provided by ESG analysts at Calvert Research and Management
(“Calvert”). The Fund seeks to invest in
issuers that manage ESG risk exposures adequately and that are not exposed to
excessive ESG risk through their principal business
activities. Issuers are analyzed by Calvert’s ESG analysts utilizing the Calvert
Principles for Responsible Investment, a framework
for considering ESG factors (a copy of which is included as an appendix to the
Fund’s Prospectus). Management of the Fund
involves consideration of numerous factors other than ESG, such as quality of
business franchises, financial strength, management
quality and security structural and collateral considerations. The portfolio
managers may also use sector rotation and relative
value strategies in their management of the Fund. The portfolio managers may
sell a security when the Adviser’s valuation target is
reached, the fundamentals of the investment change or to pursue more attractive
investment options. A security will also be sold (in
accordance with the Adviser’s guidelines and at a time and in a manner that is
determined to be in the best interests of shareholders)
if the Adviser determines that the issuer does not operate in a manner
consistent with the Fund’s responsible investment
criteria. The portfolio managers intend to focus on risk management and also
seek to preserve capital to the extent consistent
with the Fund’s investment objective. The Fund intends to seek to manage
investment risk by maintaining broad issuer and
industry diversification among its holdings, and by utilizing fundamental
analysis of risk/return characteristics in securities selection.
The Fund seeks to manage duration and any hedging of interest rate risk through
the purchase and sale of U.S. Treasury securities
and related futures contracts (which are a type of derivative
instrument).
Although
the Fund’s ESG factors and responsible investing criteria are typically
considered with respect to each company or issuer in which the
Fund invests, other factors may be considered by the portfolio management team.
In assessing investments, Calvert generally
focuses on the ESG factors and responsible investing criteria relevant to the
issuer’s operations, and an issuer may be acceptable
for investment based primarily on such assessment. As a result, securities may
be deemed suitable for investment even if the issuer
does not operate in accordance with all elements of the Fund’s ESG factors and
responsible investing criteria. For instance, the Fund
may also invest in issuers that Calvert believes are likely to operate in
accordance with the Calvert Principles pending Calvert’s
engagement activity with such issuer. Additionally, the Fund may invest in cash,
money market instruments and ETFs. Such
investments will generally not be subject to the Fund’s responsible investment
analysis and will not be required to be consistent with the
Fund’s ESG factors and responsible investment criteria otherwise applicable to
investments made by the Fund. In addition, ETFs in
which the Fund may invest may hold securities of issuers that do not operate in
accordance with the Fund’s ESG factors and responsible
investment criteria.
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).
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 may invest
in securities of any maturity (when a debt security
provides its final payment) or duration (measure of interest rate
sensitivity). 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. A portion of the Fund’s fixed-income securities may be rated
below investment grade. The Fund may be subject to
|
Calvert
Ultra-Short Investment Grade ETF (Con’t)
|
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 to 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. 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). During
periods when interest rates are low or there are negative
interest rates, 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 quality
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. |
• |
LIBOR
Discontinuance or Unavailability Risk. The
London InterBank Offered Rate (“LIBOR”) is intended to represent the rate
at which
contributing banks may obtain short-term borrowings from each other in the
London interbank market. The regulatory authority
that oversees financial services firms and financial markets in the U.K.
has announced that, after the end of 2021, it would
no longer persuade or compel contributing banks to make rate submissions
for purposes of determining the LIBOR rate. However,
subsequent announcements by the Financial Conduct Authority, the LIBOR
administrator and other regulators indicate
that it is possible that the most widely used tenors of U.S. Dollar LIBOR
may continue to be provided on a representative basis
until mid-2023. However, in connection with supervisory guidance from
regulators, some regulated entities ceased to enter into
most new LIBOR-based contracts after January 1, 2022. As a result, it is
possible that LIBOR may no longer be available or no
longer deemed an appropriate reference rate upon which to determine the
interest rate on or impacting certain loans, notes, derivatives
and other instruments or investments comprising some or all of the Fund’s
portfolio. |
• |
Asset-Backed
Securities.
Asset-backed securities 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. Some asset-backed securities
also entail prepayment risk and extension risk, which may vary depending
on the type of
asset. |
• |
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. 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. 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 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. |
Calvert
Ultra-Short Investment Grade ETF (Con’t)
• |
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 FNMA or FHLMC, 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. |
• |
Money
Market Instrument Risk.
Money market instruments may be adversely affected by market and economic
events, such as a sharp
rise 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. |
• |
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. |
• |
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 economic
sector, it could be more sensitive to economic, business or political
developments that affect such sector. Municipal securities
and their issuers may be more susceptible to downgrade, loss of revenue,
default and bankruptcy because of recent 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. |
• |
Foreign
Securities.
Investments
in foreign markets entail special risks such as currency, political,
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
ongoing 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. 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. |
• |
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
|
Calvert
Ultra-Short Investment Grade ETF (Con’t)
|
denominated
in that currency. The Adviser may use derivatives 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. |
• |
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. |
• |
Liquidity. The
Fund may make investments that are illiquid or restricted or that may
become 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. 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. |
• |
Derivatives. A
derivative instrument often has risks similar to its underlying asset and
may have 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 requirements
and risks arising from mispricing or valuation complexity. 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 may
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 and social unrest) 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. |
• |
Securities
Lending.
Securities lending involves a possible delay in recovery of the loaned
securities or a possible loss of rights in the collateral
if the borrower fails financially. The Fund could also lose money if the
value of the collateral
decreases. |
• |
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. 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 and no other authorized participant creates or redeems, shares may
trade at a discount to 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. |
• |
Responsible
Investing.
Investing primarily in responsible investments carries the risk that,
under certain market conditions, the Fund
may underperform funds that do not utilize a responsible investment
strategy. The application of responsible investment criteria
may affect the Fund’s exposure to certain sectors or types of investments,
and may impact the Fund’s relative investment performance
depending on whether such sectors or investments are in or out of favor in
the market. An investment’s ESG performance,
or Calvert’s and/or the Adviser’s assessment of such performance may
change over time, which could cause the Fund to
temporarily hold securities that do not comply with the Fund’s responsible
investment criteria. In evaluating an investment, Calvert
and the Adviser are dependent upon information and data that may be
incomplete, inaccurate or unavailable, which could adversely
affect the analysis of the ESG factors relevant to a particular
investment. Successful application of the Fund’s responsible investment
strategy will depend on Calvert’s and/or the Adviser’s skill in properly
identifying and analyzing material ESG
issues. |
• |
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
|
Calvert
Ultra-Short Investment Grade ETF (Con’t)
|
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, and the availability and cost
of credit. 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. |
• |
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.
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 a 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. |
• |
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.calvert.com or by
calling toll-free 800-836-2414.
Fund
Management
Adviser. Morgan
Stanley Investment Management Inc.
Portfolio
Managers.
Information about the members 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 |
Executive
Director |
Since
Inception |
Eric
Jesionowski |
Executive
Director |
Since
Inception |
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.calvert.com.
Calvert
Ultra-Short Investment Grade ETF (Con’t)
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 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.
Calvert | Details
of the Fund
Calvert
Ultra-Short Investment Grade ETF
Investment
Objective
The Fund’s
investment objective is to seek to maximize income, to the extent consistent
with preservation of capital, through investment
in short-term bonds and income-producing securities.
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 investing, under normal
circumstances, at least 80% of its net assets (including any
borrowings for investment purposes) in a portfolio of investment grade,
short-term fixed, variable and floating-rate securities. This
policy may be changed without shareholder approval; however, shareholders would
be notified upon 60 days’ notice in writing of any
changes. 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 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 average portfolio duration will be one year or
less. In certain market conditions, such as in periods of
significant volatility in interest rates and spreads, the Fund’s duration may be
longer than one year. During periods when the Fund’s
average duration is longer than one year, the Fund may not achieve its
investment objective.
Process
The Fund
will only invest in investment grade securities as assessed at the time of
purchase. The Fund invests principally in 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 or an equivalent rating by another NRSRO, including Moody’s Investors
Service or Fitch Ratings, or Kroll Bond Rating
Agency, LLC for securitized debt instruments only (such as ABS and 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.
The Fund
invests principally in bonds issued by U.S. corporations, the U.S. Government or
its agencies, and GSEs such as the FNMA
and FHLMC. The Fund also may invest in trust preferred securities, money market
instruments and taxable municipal obligations.
The Fund
may invest up to 50% of its net assets 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.
MBS may include CMOs and CMBS. The Fund may invest up to 25% of its net assets
in non-agency ABS and
MBS.
The Fund
may also invest up to 25% of its net assets in foreign debt securities. Foreign
debt securities include ADRs. The Fund may engage in
forward foreign currency exchange contracts to seek to hedge against the decline
in the value of currencies in which its portfolio
holdings are denominated against the U.S. dollar. The Fund may also lend its
securities.
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
portfolio managers are responsible for fundamental analysis and security
selection, incorporating ESG information provided by ESG
analysts at Calvert. The Fund seeks to invest in issuers that manage ESG risk
exposures adequately and that are not exposed to excessive
ESG risk through their principal business activities. Issuers are analyzed
by Calvert’s ESG analysts utilizing The Calvert Principles
for Responsible Investment, a framework for considering ESG factors (a copy of
which is included as an appendix to the Fund’s
Prospectus). Management of the Fund involves consideration of numerous factors
other than ESG, such as quality of business franchises,
financial strength, management quality and security structural and collateral
considerations. The portfolio managers may also use
sector rotation and relative value strategies in their management of the Fund.
The portfolio managers may sell a security when the
Adviser’s valuation target is reached, the fundamentals of the investment change
or to pursue more attractive investment options. A
security will also be sold (in accordance with the Adviser’s guidelines and at a
time and in a manner that is determined to be in the
best interests of shareholders) if the Adviser determines that the issuer does
not operate in a manner consistent with the Fund’s
responsible investment criteria. The portfolio managers intend to focus on risk
management and also seek to preserve capital to the
extent consistent with the Fund’s investment objective. The Fund intends to seek
to manage investment risk by maintaining broad
issuer and industry diversification among its holdings, and by utilizing
fundamental analysis of risk/return characteristics in securities
selection. The Fund seeks to manage duration and any hedging of interest rate
risk through the purchase and sale of U.S. Treasury
securities and related futures contracts (which are a type of derivative
instrument).
Calvert | Details
of the Fund
Calvert
Ultra-Short Investment Grade ETF (Con’t)
Although
the Fund’s ESG factors and responsible investing criteria are typically
considered with respect to each company or issuer in which the
Fund invests, other factors may be considered by the portfolio management team.
In assessing investments, Calvert generally
focuses on the ESG factors and responsible investing criteria relevant to the
issuer’s operations, and an issuer may be acceptable
for investment based primarily on such assessment. As a result, securities may
be deemed suitable for investment even if the issuer
does not operate in accordance with all elements of the Fund’s ESG factors and
responsible investing criteria. For instance, the Fund
may also invest in issuers that Calvert believes are likely to operate in
accordance with the Calvert Principles pending Calvert’s
engagement activity with such issuer. Additionally, the Fund may invest in cash,
money market instruments and ETFs. Such
investments will generally not be subject to the Fund’s responsible investment
analysis and will not be required to be consistent with the
Fund’s ESG factors and responsible investment criteria otherwise applicable to
investments made by the Fund. In addition, ETFs in
which the Fund may invest may hold securities of issuers that do not operate in
accordance with the Fund’s ESG factors and responsible
investment criteria.
Calvert | Additional
Information About the Fund’s Investment Strategies and Related
Risks
Additional
Information About the Fund’s Investment Strategies and Related
Risks
|
| |
This
section discusses additional information relating to the
Fund’s investment strategies, other types of investments that
the
Fund may make and related risk factors. The Fund’s 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 throughout the world have experienced periods of increased
volatility, uncertainty and distress and disruption
to consumer demand, economic output and supply chains as a result of conditions
associated with the COVID-19 pandemic.
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 duration and extent of COVID-19
and associated economic and market conditions and uncertainty over the long term
cannot be reasonably estimated at this time.
The ultimate impact of COVID-19 and the extent to which the associated
conditions impact the Fund will also depend on future
developments, which are highly uncertain, difficult to accurately predict and
subject to change at any time.
The Fund
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 may be more
susceptible than a money market fund to interest rate risk,
valuation risk, credit risk, and other risks relevant to the Fund’s
investments.
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 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). 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). 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. 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
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 lower average duration generally will experience less price volatility in
response to changes in interest rates than a portfolio
with a higher average duration.
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 (such as a
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. 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. During
periods when interest rates are low or there are
negative interest rates, 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 quality
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.
Calvert | Additional
Information About the Fund’s Investment Strategies and Related
Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
(Con’t)
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.
LIBOR
LIBOR is
intended to represent the rate at which contributing banks may obtain short-term
borrowings from each other in the London
interbank market. The regulatory authority that oversees financial services
firms and financial markets in the U.K. has announced
that, after the end of 2021, it would no longer persuade or compel contributing
banks to make rate submissions for purposes
of determining the LIBOR rate. However, subsequent announcements by the
Financial Conduct Authority, the LIBOR administrator
and other regulators indicate that it is possible that the most widely used
tenors of U.S. Dollar LIBOR may continue to be
provided on a representative basis until mid-2023. However, in connection with
supervisory guidance from regulators, some regulated
entities ceased to enter into most new LIBOR-based contracts after January 1,
2022. As a result, it is possible that LIBOR may no
longer be available or no longer deemed an appropriate reference rate upon which
to determine the interest rate on or impacting
certain derivatives and other instruments or investments comprising some or all
of the Fund’s portfolio. In light of this eventuality,
public and private sector industry initiatives are currently underway to
establish new or alternative reference rates to be used in
place of LIBOR. There is no assurance that the composition or characteristics of
any such alternative reference rate will be similar to
or produce the same value or economic equivalence as LIBOR or that it will have
the same volume or liquidity as did LIBOR
prior to its discontinuance or unavailability, which may affect the value or
liquidity or return on certain of the Fund’s investments
and result in costs incurred in connection with closing out positions and
entering into new trades.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be
known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of new
hedges placed against, instruments whose terms currently
include LIBOR. While some existing LIBOR-based instruments may contemplate a
scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be
significant uncertainty regarding the effectiveness of any such
alternative methodologies to replicate LIBOR. Not all existing LIBOR-based
instruments may have alternative rate-setting provisions
and there remains uncertainty regarding the willingness and ability of issuers
to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments
that use a reference rate other than LIBOR still may
be developing. There may also be challenges for the Fund to enter into hedging
transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned
may adversely affect the Fund’s performance
or net asset value.
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 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. 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 and the market for such securities is
typically smaller and less liquid than other asset-backed
securities.
Mortgage-Backed
Securities
Mortgage
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. As a result, it may not be possible to
determine in advance the actual maturity date or average
life of a mortgage 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 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
securities and, therefore, to assess the volatility risk of that
portfolio.
The Fund
may invest in mortgage 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.
Calvert | Additional
Information About the Fund’s Investment Strategies and Related
Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
(Con’t)
Certain of
these mortgage 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 securities
purchased by the Fund, such as those issued by FNMA and FHLMC, 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
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.
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 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. 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 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.
Privately-issued
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. Privately-issued 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 privately-issued 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.
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
Calvert | Additional
Information About the Fund’s Investment Strategies and Related
Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
(Con’t)
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 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. 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.
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. 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).
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 FNMA, the FHLMC
and the Federal Home Loan Banks. No
assurance can be given that these initiatives will be successful. 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.
Money
Market Investments
Money
market instruments may be adversely affected by market and economic events, such
as a sharp rise in prevailing short-term interest
rates; adverse developments in the banking industry, which issues or guarantees
many money market securities; adverse economic,
political or other developments affecting domestic issuers of money market
securities; changes in the credit quality of issuers;
and default by a counterparty. These securities may be subject to federal
income, state income and/or other taxes. Instead of investing
in money market instruments directly, the Fund may invest in an affiliated or
unaffiliated money market fund. Recent actions by
governmental authorities in response to the economic disruptions caused by the
COVID-19 pandemic have included dramatic
reductions in interest rates, which in some cases could result in negative rates
on investments in money market funds and similar
cash management products. 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.
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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.
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 income 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. These
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. They 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. These 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. 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 have had significant financial problems recently,
and these and other municipalities could, potentially,
continue to experience significant financial problems resulting from lower tax
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
may include 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
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, the current COVID-19 pandemic has 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 the COVID-19 pandemic have caused disruptions in business activities. These
and other effects of the COVID-19 pandemic,
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 and market and geopolitical
risk.
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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. Interest on municipal obligations, while
generally exempt from federal income tax, may not be exempt from the federal
alternative minimum tax. In addition, 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. 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.
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.
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
may be considered speculative by the major credit
rating agencies. 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.
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 ongoing 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.
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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 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
economic sanctions and trade laws 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.
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 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 may use derivatives 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 its 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 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.
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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
expects. 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 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
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.
Derivatives
The Fund
may, but is not required to, use derivative instruments for a variety of
purposes, including hedging, risk management, portfolio
management or 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 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. A derivative instrument
often has risks similar to its underlying asset and may have 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 and risks arising from margin
requirements. 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
to satisfy its obligations or to meet earmarking or segregation requirements,
pursuant to applicable SEC rules and regulations,
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.
Liquidity
The Fund
may make investments that are illiquid or restricted or that may become 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. 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.
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Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by
collateral. These agreements typically involve the
acquisition by the Fund of securities from the selling institution (such as a
bank or a broker-dealer), coupled with the agreement that the
selling institution will repurchase the underlying securities at a specified
price and at a fixed time in the future (or on demand, if
applicable). The underlying securities which serve as collateral for the
repurchase agreements entered into by the Fund may
include U.S. government securities, municipal securities, corporate debt
obligations, and common and preferred stock and may be of
below investment grade quality. These securities are marked-to-market daily in
order to maintain full collateralization (typically purchase
price plus accrued interest). The use of repurchase agreements involves certain
risks. For example, if the selling institution defaults
on its obligation to repurchase the underlying securities at a time when the
value of the securities has declined, the Fund may incur a
loss upon disposition of them. The risk of such loss may be greater when
utilizing collateral other than U.S. government securities.
In the event of an insolvency or bankruptcy by the selling institution, the
Fund’s right to control the collateral could be affected
and result in certain costs and delays. Additionally, if the proceeds from the
liquidation of such collateral after an insolvency were less
than the repurchase price, the Fund could suffer a loss. Fund procedures are
followed that are designed to minimize such risks.
Market
and Geopolitical Risk
The value
of your investment in the Fund is based on the values of the Fund’s investments,
which may 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 financial markets
increases the likelihood that events or conditions in one region
or financial market may adversely impact issuers in a different country, region
or financial market. 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, health emergencies (such as epidemics and pandemics),
terrorism, regulatory events and governmental or quasi-governmental
actions. The occurrence of global events similar to those in recent years, such
as terrorist attacks around the world,
natural disasters, health emergencies, social and political discord 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
inflation rates may adversely affect market and economic
conditions, the Fund’s investments and an investment in
the Fund. 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.
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 and social
unrest, 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 large and sudden
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
Calvert | Additional
Information About the Fund’s Investment Strategies and Related
Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
(Con’t)
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.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy
tool to encourage economic growth during periods of
deflation. In a negative interest rate environment, debt instruments may trade
at negative yields, which means the purchaser
of the instrument may receive at maturity less than the total amount invested.
In addition, in a negative interest rate environment,
if a bank charges negative interest rates, instead of receiving interest on
deposits, a depositor must pay the bank fees to keep money
with the bank. To the extent the Fund holds a debt instrument or has a bank
deposit with a negative interest rate, the Fund would
generate a negative return on that investment.
Responsible
Investing
Investing
primarily in responsible investments carries the risk that, under certain market
conditions, the Fund may underperform funds that
do not utilize a responsible investment strategy. The application of responsible
investment criteria may affect the Fund’s exposure
to certain sectors or types of investments, and may impact the Fund’s relative
investment performance depending on whether
such sectors or investments are in or out of favor in the market. An
investment’s ESG performance, or Calvert’s and/or the Adviser’s
assessment of such performance may change over time, which could cause the Fund
to temporarily hold securities that do not comply
with the Fund’s responsible investment criteria. In evaluating an investment,
Calvert and the Adviser are dependent upon information
and data that may be incomplete, inaccurate or unavailable, which could
adversely affect the analysis of the ESG factors relevant
to a particular investment. Successful application of the Fund’s responsible
investment strategy will depend on Calvert’s and/or the
Adviser’s skill in properly identifying and analyzing material ESG issues.
Regulatory changes or interpretations regarding the definitions
and/or use of ESG criteria could have a material adverse effect on the Fund’s
ability to invest in accordance with its ESG strategy.
Socially responsible norms differ by country and region, and a company’s ESG
practices or Calvert’s and/or the Adviser’s assessment
of such may change over time and there is a risk that the Adviser may
incorrectly assess a company’s ESG practices. The Fund may
invest in companies that do not reflect the beliefs and values of any particular
investor.
Large
Shareholder Transactions Risk
The Fund
may experience adverse effects when certain shareholders 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
extent that the Fund is delayed in investing new cash
and is required to maintain a larger cash position than it ordinarily would.
These 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.
Cash
Transactions Risk
Unlike
certain ETFs, a Fund may effect its creations and redemptions in cash or
partially in cash. As a result, an investment in a 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. If a 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 a Fund recognizes gain on these sales,
this generally will cause a 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. A Fund generally intends to distribute these gains to
shareholders to avoid being taxed on this gain at a 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.
Calvert | Additional
Information About the Fund’s Investment Strategies and Related
Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
(Con’t)
Counterparty
Risk
A
financial institution or other counterparty with whom the Fund does business
(such as trading, securities lending or as a derivatives counterparty),
or that underwrites, distributes or guarantees any instruments that the Fund
owns or is otherwise exposed to, may decline in
financial condition and become unable to honor its commitments. This could cause
the value of Fund shares to decline or could
delay the return or delivery of collateral or other assets to the Fund.
Counterparty risk is increased for contracts with longer maturities.
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 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.
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 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.
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 a 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.
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. To the extent that these intermediaries
exit the business or are unable to or choose not
Calvert | Additional
Information About the Fund’s Investment Strategies and Related
Risks
Additional
Information About the Fund’s Investment Strategies and Related Risks
(Con’t)
to proceed
with creation and/or redemption orders with respect to the Fund and no other
authorized participant creates or redeems, shares may
trade at a discount to NAV and possibly face trading halts and/or
delisting.
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, and the
availability and cost of credit. 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.
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 Fund may, in the discretion of the
Adviser, take temporary positions that are inconsistent
with the Fund’s principal investment strategies in attempting to respond to such
conditions or circumstances. For example,
the Fund 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. If the Adviser incorrectly
predicts the effects of these changes, such temporary investments may adversely
affect the Fund’s performance and the Fund may
not achieve its investment objective.
Cybersecurity
Risk
With the
increased use of technologies such as the internet to conduct business, the
Fund, 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), 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.
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.
Calvert | About
Responsible Investing
About
Responsible Investing
Investment
Selection Process
The Fund
seeks to invest in issuers that manage ESG risk exposures adequately and that
are not exposed to excessive ESG risk through
their principal business activities. Issuers are analyzed using the Calvert
Principles for Responsible Investment (included as Appendix A
to this Prospectus), a framework for considering ESG factors. Each issuer is
evaluated relative to an appropriate peer group
based on financially material ESG factors as determined by Calvert. Calvert’s
evaluation of a particular security’s responsible investing
characteristics generally involves both quantitative and qualitative analysis.
In assessing investments, Calvert generally focuses on
the ESG factors relevant to the issuer’s operations, and an issuer may be
acceptable for investment based primarily on such assessment.
Securities may be deemed suitable for investment even if the issuer does not
operate in accordance with all elements of the Fund’s
responsible investing criteria. In assessing issuers for which quantitative data
is limited, subjective judgments may serve as the
primary basis for Calvert’s evaluation. The responsible investment criteria of
the Fund may be changed by the Board without shareholder
approval.
The Fund
may invest in a fixed or floating-rate income security before Calvert has
completed its evaluation of the security’s responsible
investment characteristics if, in the opinion of the portfolio manager, the
timing of the purchase is appropriate given market
conditions. Factors that a portfolio manager may consider in making such an
investment decision include, but are not limited to, (i)
prevailing market prices, (ii) liquidity, (iii) bid-ask spreads, (iv) market
color, and (v) availability. Following any such investment
in a security, Calvert will evaluate the issuer to determine if it operates in a
manner that is consistent with the Fund’s responsible
investment criteria. A security will also be sold (in accordance with the
Adviser’s guidelines and at a time and in a manner that is
determined to be in the best interests of shareholders) if the Adviser
determines that the issuer does not operate in a manner consistent
with the Fund’s responsible investment criteria. As described above, or in the
SAI, the Fund may invest in cash, money market
instruments and ETFs. Such investments will generally not be subject to
responsible investment analysis and will not be required
to be consistent with the responsible investment criteria otherwise applicable
to investments made by the Fund. In addition, ETFs in
which a Fund may invest may hold securities of issuers that do not operate in
accordance with the Fund’s responsible investment
criteria.
Shareholder
Advocacy and Corporate Responsibility
The
Adviser has engaged Calvert to vote proxies consistent with Calvert’s Proxy
Voting Policies and Procedures and Global Proxy Voting
Guidelines (the “Proxy Voting Policies”). The Adviser has also engaged Calvert
to seek to actively engage with issuers. Calvert uses
strategic engagement and shareholder advocacy to encourage positive change in
companies. Calvert’s activities may include, but are not
limited to:
Direct
Dialogue with Company Management. Calvert,
or its agent, may initiate dialogue with management through phone calls, letters
and
in-person meetings. Through its interaction, Calvert seeks to learn about
management’s successes and challenges and to press for improvement
on issues of concern.
Proxy
Voting. As a
shareholder of the companies in its portfolio, the Fund typically has an
opportunity each year to express its views on issues
of corporate governance and sustainability at annual stockholder meetings.
Calvert votes proxies consistent with the Proxy Voting
Policies attached to the SAI.
Shareholder
Resolutions. Calvert
may propose that companies submit resolutions to their shareholders on a variety
of ESG issues. Calvert
believes that submitting shareholder resolutions may help establish dialogue
with management and encourage companies to take
action.
Calvert | Fund
Management
Adviser
Morgan
Stanley Investment Management Inc., with principal offices at 522 Fifth Avenue,
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 September 30, 2022, the Adviser, together
with its affiliated asset management companies,
had approximately $1.3 trillion in assets under management or
supervision.
A
discussion regarding the Board of Trustees’ approval of the Management Agreement
will be available in the Fund’s semi-annual report to
shareholders for the period ending March 31, 2023.
Management
Fees
The
Adviser receives a fee for management services equal to 0.24% of the
Fund’s average daily net assets.
Under the
Management Agreement, the Adviser will pay substantially all the expenses of the
Fund (including expenses of 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.
Portfolio
Management
The Fund
is managed by Brian S. Ellis, CFA and Eric Jesionowski, who are jointly and
primarily responsible for the day-to-day management
of the Fund.
Messrs.
Ellis and Jesionowski are Executive Directors or Morgan Stanley Investment
Management Inc., manage other funds and have been
employed by the Morgan Stanley organization for more than five
years.
The Fund’s
SAI provides additional information about the portfolio managers’ compensation
structure, other accounts managed by the
portfolio managers and the portfolio managers’ ownership of securities in the
Fund.
Calvert | Shareholder
Information
Distribution
of Fund Shares
The
Distributor is the exclusive distributor of Creation Units of the Fund. The
Distributor or its agent distributes Creation Units for the Fund
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 Fund 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 Fund is 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
Fund 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 Fund, 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 Fund’s assets
on an ongoing basis, these fees will increase the cost
of your investment in the Fund. 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 Fund.
About
Net Asset Value
The 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, the 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 the Fund’s NAV. In these cases, the
Fund’s NAV will reflect certain portfolio securities’ fair value rather than
their market price. To the extent the 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 Fund’s portfolio
securities may change on days when you will not be able to
purchase or sell your shares. The NAV of the Fund is based on the value of the
Fund’s portfolio securities or other assets.
The Fund
relies on various sources to calculate its NAV. The ability of the 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 the Fund’s NAV and/or the inability to calculate NAV over
extended time periods. The 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 the
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.
The Fund’s
NAV per share is subject to various investment and other risks. Please refer to
the “Additional Information About the Fund’s
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
Fund.
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, 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
Calvert | Shareholder
Information
Shareholder
Information (Con’t)
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
the Fund may be acquired or redeemed directly from the 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 the Fund. Once created, shares of the Fund
generally trade in the secondary market in amounts less than a Creation
Unit.
Shares of
the 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.
The 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 Fund is each day the New York Stock Exchange,
NYSE Arca, and the Trust are open and includes
any day that the 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, the 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 the 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 Fund, 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 the Fund issues and redeems Creation Units at NAV plus
applicable transaction fees, and the 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 the 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 the 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 the 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 Fund only
up to the limits set forth in Section 12(d)(1), subject to any applicable SEC
Staff no-action relief.
The Fund
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.
Creations
and Redemptions
Prior to
trading in the secondary market, shares of the 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 Fund’s Distributor. An Authorized
Participant is a member or participant of a
Calvert | Shareholder
Information
Shareholder
Information (Con’t)
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 the Fund and a specified
amount of cash. Except when aggregated in Creation
Units, shares are not redeemable by the 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.
In
connection with certain cash creations, the Adviser may provide the creating
Authorized Participants with information regarding securities
that the Fund would be willing to purchase with the proceeds of the cash
creation, which may not be the current holdings of the
Fund. In certain cases, the Fund may purchase such securities from an Authorized
Participant that has submitted a creation order.
Regardless of whether the Fund purchases securities with the proceeds of a cash
creation order from the creating Authorized Participant,
the Authorized Participant may be assessed a variable charge to compensate the
Fund for the costs associated with purchasing
the applicable securities, as described in the SAI. For more information, see
the SAI.
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.
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 the Fund’s portfolio securities is available in the Trust’s
SAI.
Dividends
and Distributions
General
Policies
Dividends
from net investment income, if any, generally are declared and paid monthly by
the 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 the 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 the 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 the 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 the 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
Calvert | Shareholder
Information
Shareholder
Information (Con’t)
both
income and realized gains will be automatically reinvested in additional whole
shares of the 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 the Fund.
Unless your investment in the 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, including an exchange to another
Morgan Stanley Fund.
Taxation
of Distributions. 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 the Fund. It is not anticipated that any
portion of the distributions by the Fund would qualify for a lower tax rate as
qualified dividend income. Further, such distributions
are not anticipated to be eligible for a dividends-received deduction for
corporate shareholders.
If you buy
shares of the 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).
Investment
income received by the 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 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. Your exchange of Fund shares for
shares of another Morgan Stanley Fund is treated
for tax purposes like a sale of your original shares and a purchase of your new
shares. Thus, the exchange may, like a sale, result in
a taxable gain or loss to you and will give you a new tax basis for your shares.
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. Additionally, any loss
realized on a sale, exchange or redemption of shares of
the 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 the 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.
Calvert | Shareholder
Information
Shareholder
Information (Con’t)
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 the Fund of investment income 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 the Fund to
enable the Fund to determine whether withholding is required.
Reporting
to you and the IRS is required annually on Form 1099-B 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.
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 the 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 the 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 the 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 Fund (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for the 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 the Fund or its shareholders. The 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 the 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 Fund, 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 the Fund, to certain Financial Intermediaries
(which may include affiliates of the Adviser
Calvert | Shareholder
Information
Shareholder
Information (Con’t)
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
the Fund over other investment options with 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 the 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
the 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 the 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 the 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 the Fund and with respect to investments that the
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 the Fund.
Morgan Stanley may give advice and provide recommendations
to persons competing with the Fund and/or any of the 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 the 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.
Calvert | Financial
Highlights
No
financial information is provided for the Fund because it had not commenced
operations as of the date of this Prospectus. Financial
information will be provided in the first shareholder report after commencement
of operations.
Calvert | Premium/Discount
Information
Premium/Discount
Information
The Fund
has not yet commenced operations and, therefore, does not have information about
the differences between the Fund’s daily
market price on NYSE Arca and its NAV. Information regarding how often the
closing trading price of the shares of the Fund was above
(i.e., at a premium) or below (i.e., at a discount) the NAV 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 NYSE Arca.
Calvert |
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 Fund and the Adviser may purchase and resell
Fund shares pursuant to this Prospectus.
The
Calvert Principles for Responsible Investment
We believe
that most corporations deliver benefits to society, through their products and
services, creation of jobs, payment of taxes and the
sum of their behaviors. As a responsible investor, Calvert Research and
Management seeks to invest in companies and other issuers
that provide positive leadership in the areas of their operations and overall
activities that are material to improving long-term shareholder
value and societal outcomes.
Calvert
seeks to invest in issuers that balance the needs of financial and nonfinancial
stakeholders and demonstrate a commitment to the global
commons, as well as to the rights of individuals and communities.
The
Calvert Principles for Responsible Investment (Calvert Principles) provide a
framework for Calvert’s evaluation of investments and guide
Calvert’s stewardship on behalf of clients through active engagement with
issuers. The Calvert Principles seek to identify companies
and other issuers that operate in a manner that is consistent with or
promote:
Environmental
Sustainability and Resource Efficiency
• |
Reduce
the negative impact of operations and practices on the
environment |
• |
Manage
water scarcity and ensure efficient and equitable access to clean
sources |
• |
Mitigate
impact on all types of natural capital |
• |
Diminish
climate-related risks and reduce carbon
emissions |
• |
Drive
sustainability innovation and resource efficiency through business
operations or other activities, products and
services |
Equitable
Societies and Respect for Human Rights
• |
Respect
consumers by marketing products and services in a fair and ethical manner,
maintaining integrity in customer relations and
ensuring the security of sensitive consumer
data |
• |
Respect
human rights, respect culture and tradition in local communities and
economies, and respect Indigenous Peoples’
Rights |
• |
Promote
diversity and gender equity across workplaces, marketplaces and
communities |
• |
Demonstrate
a commitment to employees by promoting development, communication,
appropriate economic opportunity and decent
workplace standards |
• |
Respect
the health and well-being of consumers and other users of products and
services by promoting product safety |
Accountable
Governance and Transparency
• |
Provide
responsible stewardship of capital in the best interests of shareholders
and debtholders |
• |
Exhibit
accountable governance and develop effective boards or other governing
bodies that reflect expertise and diversity of perspective
and provide oversight of sustainability risk and
opportunity |
• |
Include
environmental and social risks, impacts and performance in material
financial disclosures to inform shareholders and debtholders,
benefit stakeholders and contribute to
strategy |
• |
Lift
ethical standards in all operations, including in dealings with customers,
regulators and business partners |
• |
Demonstrate
transparency and accountability in addressing adverse events and
controversies while minimizing risks and building trust |
Through
the application of the Calvert Principles, Calvert could have no or limited
exposure to issuers that:
• |
Demonstrate
poor management of environmental risks or contribute significantly to
local or global environmental problems. |
• |
Demonstrate
a pattern of employing forced, compulsory or child
labor. |
• |
Exhibit
a pattern and practice directly or through the company’s supply chain of
human rights violations or are complicit in human
rights violations committed by governments or security forces, including
those that are under U.S. or international sanction
for human rights abuses. |
• |
Exhibit
a pattern and practice of violating the rights and protections of
Indigenous Peoples. |
• |
Demonstrate
poor governance or engage in harmful or unethical
practices. |
• |
Manufacture
tobacco products. |
• |
Have
significant and direct involvement in the manufacture of alcoholic
beverages without taking significant steps to reduce the harmful
impact of these products. |
• |
Have
significant and direct involvement in gambling or gaming operations
without taking significant steps to reduce the harmful impact
of these businesses. |
• |
Have
significant and direct involvement in the manufacture of civilian handguns
and/or automatic weapons marketed to
civilians. |
• |
Have
significant and direct involvement in the manufacture of military weapons
that violate international humanitarian law, including
cluster bombs, landmines, biochemical weapons, nuclear weapons, blinding
laser weapons, or incendiary weapons. |
• |
Use
animals in product testing without countervailing social benefits such as
the development of medical treatments to ease human
suffering and disease |
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Where to
Find Additional Information
In
addition to this Prospectus, the Fund has an SAI, dated January
[ ],
2023 (as may
be supplemented from time to time), which contains
additional, more detailed information about the Trust and the Fund. The SAI is
incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus. Certain affiliates of
the Fund 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 the Fund’s investments.
In the Fund’s Annual Report to Shareholders, 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 the Fund, 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 our website
at: www.calvert.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 Fund 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 Trust
c/o Morgan
Stanley Investment Management Inc.
522 Fifth
Avenue
New York,
New York 10036
For
Shareholder Inquiries,
call
toll-free 800-836-2414.
Prices and
Investment Results are available at www.calvert.com.
The
Trust’s 1940 Act registration number is 811-23820.
©
2023 Calvert
Research and Management