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NASDAQ OMX Files Proposed Rule Change to Permit the Listing and Trading of Exchange-Traded Managed Funds

BOSTON, Feb. 14, 2014 /PRNewswire/ -- Navigate Fund Solutions LLC (Navigate), a wholly owned subsidiary of Eaton Vance Corp. (NYSE: EV), today announced the filing by The NASDAQ OMX Group, Inc. (NASDAQ OMX) with the U.S. Securities and Exchange Commission (SEC) of a proposed rule change to permit the listing and trading of exchange-traded managed funds (ETMFs).  The NASDAQ OMX filing complements the previously announced application for exemptive relief to permit the offering of ETMFs as filed by Eaton Vance Management on March 27, 2013 and most recently amended on January 23, 2014.

ETMFs are a proposed new type of open-end fund designed to bring the performance and tax advantages of exchange-traded funds (ETFs) to active investment strategies, while maintaining the confidentiality of current portfolio trading information.  As described in the proposed rule change, ETMFs would trade on The NASDAQ Stock Market at prices directly linked to the fund's next-determined daily net asset value (NAV), using a new trading protocol called "NAV-based trading." In NAV-based trading, prices would vary from NAV by a market-determined premium or discount, which may be zero.  Because ETMFs would provide market makers with opportunities to earn reliable arbitrage profits without intraday hedging of their inventory positions, they can be expected to trade at consistently tight spreads to NAV in the absence of full holdings disclosure. 

Active fund managers have to date largely avoided introducing their leading strategies as transparent ETFs because the required daily holdings disclosures can facilitate front-running of portfolio trades and enable other investors to replicate the fund's portfolio positioning and exploit its research insights.  By removing the requirement for daily portfolio transparency, ETMFs can potentially enable investors to access a broad range of proven active strategies through a vehicle that provides the investor benefits of an exchange-traded fund.

Eaton Vance seeks to launch a family of ETMFs that mirror existing Eaton Vance mutual funds and to license the underlying technology to other fund groups through Navigate.  Aspects of ETMFs and NAV-based trading are protected intellectual property subject to issued and pending U.S. patents. 

"Today's action by NASDAQ OMX to file for a rule change permitting the listing and trading of ETMFs is a further milestone in seeking regulatory approval for ETMFs," said Stephen W. Clarke, President of Navigate. "In collaboration with our partners at NASDAQ OMX, we continue advancing this innovative fund structure toward approval and launch."

Navigate is a wholly owned subsidiary of Eaton Vance Corp. whose business purpose is to develop and commercialize ETMFs and NAV-based trading.  For more information about Navigate, contact Stephen W. Clarke, President, at 617-672-8660 or [email protected].

Eaton Vance Corp. is one of the oldest investment management firms in the United States, with a history dating back to 1924. Eaton Vance and its affiliates managed $278.6 billion in assets as of January 31, 2013, offering individuals and institutions a broad array of investment strategies and wealth management solutions. Eaton Vance's long record of providing exemplary service, timely innovation and attractive returns through a variety of market conditions has made it the investment manager of choice for many of today's most discerning investors. For more information, visit eatonvance.com.

The U.S. launch of ETMFs is conditional upon regulatory approval, the likelihood and timing of which cannot be predicted. Commercial success also requires completion of enabling implementation technology and acceptance by market participants, which cannot be assured. Like mutual funds, ETMFs will not offer investors the opportunity to buy and sell intraday based on current (versus end-of-day) determinations of fund value.  ETMF trade execution prices will fluctuate based on changes in NAV and may vary significantly from anticipated levels during periods of market volatility. Although limit orders may be used to control differences in trade price versus NAV, they cannot be used to control or limit trade execution prices. There can be no guarantee that an active trading market for an ETMF's shares will develop or be maintained, or that their listing will continue unchanged. Buying and selling ETMF shares may require payment of brokerage commissions and expose transacting shareholders to other trading costs. Market trading prices of ETMF shares may be above, at or below NAV, will fluctuate in relation to NAV based on supply and demand in the market for shares and other factors, and may vary significantly from NAV. The return on a shareholder's ETMF investment will be reduced if the shareholder sell shares at a greater discount or narrower premium to NAV than he or she acquired shares.  Because ETMFs will be actively managed, their performance will depend on the portfolio managers' successful application of analytical skill and investment judgment. An ETMF is not a complete investment program and there is no guarantee that it will achieve its investment objective. It is possible to lose money on an investment in an ETMF. ETMF shareholders should have a long-term investment perspective and be able to tolerate potentially sharp declines in value.  An investment in an ETMF is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person.

SOURCE Eaton Vance Corp.

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