How do NextShares invest? Introducing NextShares

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1 UNLEASH THE ACTIVE.

2 What are NextShares? NextShares exchange-traded managed funds are a new way to invest in actively managed strategies. Because they are actively managed, NextShares offer the potential for benchmark-beating returns by applying their manager s proprietary investment research. Because they trade on an exchange, NextShares may offer cost and tax efficiencies that can enhance shareholder returns. Bottom line: NextShares are the next evolution of fund investing. How do NextShares invest? Introducing NextShares Actively managed NextShares can invest in all the same strategies and asset classes as mutual funds. NextShares funds may include equity, income, alternative and multi-asset funds managed in a wide range of active styles. EQUITIES INCOME ALTERNATIVES MULTI-ASSET Potential built-in performance and tax advantages NextShares may replicate the strategies of their managers mutual funds or employ strategies offered exclusively as NextShares. Different from most ETFs, NextShares are actively managed and seek to exceed the returns of their performance benchmark and peer funds. NextShares are designed for long-term investors who seek active portfolio management with structural cost and tax efficiencies. Bottom line: NextShares investors will have access to a broad range of investment strategies. Visit nextshares.com for informative videos and to explore other resources. NextShares, mutual funds and ETFs are purchased and sold differently and have varying costs. These and other distinctions may result in significant differences in investor returns. 2

3 How do the costs of NextShares compare? Compared to a mutual fund with the same strategy and portfolio management, a NextShares fund can offer cost advantages that can translate into improved fund performance. Fund costs explained. NextShares, mutual funds and ETFs are subject to different fund costs that impact investor returns. 3 1 No distribution and service (12b-1) fees Unlike many mutual funds, NextShares offer investors a single share class with no embedded distribution and service fees. What are distribution and service (12b-1) fees? Fund payments to support the distribution of fund shares and the provision of shareholder services under Rule 12b-1 of the Investment Company Act of A fund s 12b-1 fees are typically paid to the fund s distributor and generally pass through to intermediaries that sell fund shares. Permitted 12b-1 fees are limited to one percent of average fund net assets annually. Mutual funds are often subject to 12b-1 fees that vary by share class. NextShares, and most ETFs, do not pay 12b-1 fees. A fund s 12b-1 fees are disclosed in its prospectus and included in its total expense ratio. 2 Lower fund transfer agency expenses Because NextShares are exchange-traded, their transfer agency expenses the costs of administering shareholder accounts are lower than for most mutual funds. What are transfer agency expenses? The fees paid by a fund to its transfer agent and other intermediaries to process shareholder transactions and maintain shareholder accounts. Transfer agency costs are normally the largest component of mutual fund expenses other than management fees and 12b-1 fees. NextShares and ETFs typically have minimal transfer agency expenses. Transfer agency fees are characterized as other expenses in a fund s prospectus and are included in its total expense ratio. 3 Lower flow-related trading costs NextShares can keep the trading costs associated with shareholder inflows and outflows low. What are flow-related trading costs? The trading costs a fund incurs to purchase and sell investments in connection with shareholder inflows and outflows, including commissions, bid-ask spread (i.e., the difference between the best offer price to sell a security and the best bid price to buy a security) and market impact (i.e., the effect of a purchase or sale of a security on its trading price) costs. Flow-related trading costs are not disclosed in a fund s prospectus or reflected in its total expense ratio. NextShares keep flow-related trading costs low by issuing and redeeming shares primarily in kind (using securities and other noncash payments) and by charging transaction fees to Authorized Participants (professional investors who transact directly with the fund). Most mutual funds do not issue or redeem shares in kind or charge transaction fees. 4 Less cash drag NextShares generally don t need to hold a significant reserve of cash to accommodate shareholder withdrawals. That means more of an investor s money can be put to work in pursuit of returns. What is cash drag? The impact on fund performance of holding cash. Cash drag hurts fund performance when the returns of the fund s noncash investments exceed cash returns, and helps fund performance when the opposite is true. Cash drag is not disclosed in a fund s prospectus or reflected in its total expense ratio. NextShares that transact with Authorized Participants primarily in kind may experience less cash drag than mutual funds, which often need to hold cash to meet shareholder redemptions. What is a fund s total expense ratio (TER)? A fund s total annual expenses expressed as a percentage of the fund s average net assets for the year, as stated in its prospectus. Fund TERs include management fees, 12b-1 fees, custody charges, transfer agency fees and other operating expenses of the fund. TERs do not include flow-related trading costs or cash drag. TERs also do not reflect fund sales charges or other costs borne by buyers and sellers of shares. Compared to mutual funds that can be purchased and sold at net asset value, NextShares and ETFs may be more expensive to buy and sell. 4

4 How can NextShares potentially reduce fund capital gains distributions? Mutual fund investors can get hit with big tax bills, whether or not their funds increase in value. Mutual funds are frequently forced to sell securities they own to meet withdrawals by fund shareholders. Sales of fund positions at a gain can trigger capital gains distributions and associated taxes for the fund s remaining shareholders. In fact, sales to meet investor outflows are often a leading cause of fund capital gains distributions. 1 NextShares work differently. When NextShares investors sell their shares, they don t normally transact with the fund; instead, they trade through a broker to sell their shares to someone else. Buyers may include other long-term investors or professional traders acting as market makers in the fund s shares. Because the NextShares fund itself is not involved in these transactions, the fund isn t required to sell securities to raise cash so no capital gains distributions are triggered for remaining fund shareholders. When market makers and other large investors accumulate sufficient shares of a NextShares fund, they can redeem their shares from the fund by transacting through intermediaries called Authorized Participants. Here, too, NextShares work differently than mutual funds. Like ETFs, most NextShares funds meet redemptions through Authorized Participants primarily in kind, 2 meaning that the fund distributes current portfolio holdings of securities rather than cash. By avoiding the sale of securities to meet redemptions, NextShares can potentially reduce fund capital gains distributions and associated shareholder taxes. The enhanced tax efficiency that NextShares may provide can be a meaningful source of improved investor outcomes. Bottom line: NextShares can keep capital gains distributions low. TAXES Tax efficiency can have a meaningful impact on investor returns. According to recent Lipper data, shareholder income and capital gains taxes resulting from fund distributions reduced annual returns of actively managed U.S. equity mutual funds by an average of 1.15% over the past 10 years and 2.23% over the past three years for individual investors in the highest tax bracket. 3 That excludes state and local taxes and taxes paid when shareholders sell their positions. Average capital gains distributions for equity mutual funds equaled 8.5% of fund net assets in 2015 more than twice the 3.9% incurred in A fund s investment strategy and portfolio turnover rate are other important determinants of the frequency and amount of its capital gains distributions. Fund distributions of net short-term capital gains are generally taxable as ordinary income; distributions of net gains from investments held by the fund for more than one year are generally taxable at long-term capital gains rates. The tax character of fund distributions is determined and provided to shareholders after the end of each calendar year. In addition to capital gains distributions, fund distributions may include nonqualified ordinary dividends (taxed at ordinary income tax rates), qualified dividends (taxed at rates applicable to long-term capital gains if holding period and other requirements are met), exempt-interest dividends (not subject to regular federal income tax) and nondividend, or return of capital, distributions, which are not subject to current tax. 2 A NextShares fund s redemptions may be effected partially or entirely in cash when in-kind delivery is not practicable or deemed not in the best interests of fund shareholders. 3 As of March 31, Based on the mutual funds included in the Lipper large-cap, multicap, midcap and small-cap domestic equity categories and using the highest individual federal income tax rates in effect each year. Actual after-tax returns depend on a shareholder s tax situation and may differ from those shown. After-tax returns are not relevant for shareholders who are not subject to tax or hold fund shares in tax-deferred accounts. 4 Source: Morningstar, Inc. Includes all domestic, international and global U.S.-registered equity mutual funds tracked by Morningstar. 5 6

5 How do I buy and sell NextShares? What kinds of investors are NextShares designed for? There is nothing complicated about investing in NextShares Determine the dollar amount or number of shares you would like to trade. 5 Place an order with your broker. Receive a confirmation at the close of the day indicating your trading activity. NextShares list and trade on Nasdaq and are priced at the fund s next end-of-day net asset value (NAV), plus or minus a trading cost determined when the trade executes. 6 Trading costs are fully transparent and can be controlled using limit orders. Transactions in NextShares may be subject to selling commissions and other trading costs. As a new type of fund, NextShares may be offered initially by a limited number of brokers. Bottom line: Buying and selling NextShares is straightforward. Know what you pay to buy and sell. Investor trading costs are the costs you pay to buy and sell a fund. These include the commissions, sales charges and other fees in connection with the transaction, and the difference between the executed trade price and the corresponding fund value (the amount of the premium/discount) when the trade is priced. Because all NextShares trading prices are directly linked to NAV, buyers and sellers of NextShares always know exactly what they pay in trading costs. By contrast, ETF investors typically cannot measure their trading costs because they don t have access to a reliable measure of underlying fund value at the time of trade execution. NextShares are designed for investors who seek: Professional, active portfolio management Long-term investments The potential for better performance through structurally lower costs The potential for lower capital gains taxes NextShares are not suitable for frequent traders. Bottom line: NextShares have wide investor appeal. Be sure to visit nextshares.com for the latest news about NextShares and our licensees. 5 Not all broker-dealers offering NextShares may accept dollar-based orders. In share-based orders, you specify the number of fund shares to buy or sell. 6 Buyers and sellers of share amounts of NextShares will not know the value of their purchases and sales until after the fund s NAV is determined at the end of the trading day. 7 8

6 How do NextShares compare with mutual funds and ETFs? MUTUAL FUNDS INDEX ETFs NEXTSHARES MUTUAL FUNDS INDEX ETFs NEXTSHARES INVESTMENT OVERVIEW BUYING AND SELLING SHARES Active investment approach Active investment managers apply their research and expertise in selecting securities for a fund. Passively managed, or index, funds select their investments to replicate a specified index. Trade on an exchange Shares of NextShares and ETFs are listed and trade on an exchange. Mutual funds are not exchange-listed, and shareholders transact directly with the fund. Seeks to beat index and peer funds COSTS 7 Avoids distribution and service (12b-1) fees Lower fund transfer agency expenses Actively managed funds seek to outperform their benchmarks and peer funds. Index funds seek to match the returns of their benchmarks. Mutual funds often are subject to 12b-1 fees that may vary by share class. ETFs may (but typically don t) pay 12b-1 fees. NextShares do not pay 12b-1 fees. Transfer agency expenses are typically the largest mutual fund expense after management fees and 12b-1 fees. Unlike mutual funds, NextShares and ETFs utilize a highly efficient share processing system to keep transfer agency expenses low. End-of-day pricing Transparency of investor trading costs 9 PORTFOLIO HOLDINGS DISCLOSURE The prices of NextShares and mutual fund trades are based on the fund s next end-of-day NAV. ETF trade prices are determined intraday when the trade executes, and do not bear a direct relationship to NAV or portfolio values at the time of trade execution. 8 The costs to buy and sell NextShares and mutual funds are fully transparent. ETF trading costs are not disclosed and cannot be accurately measured by most investors. Keeps flow-related trading costs low Most NextShares funds and ETFs issue and redeem shares primarily in kind, keeping their flow-related trading costs low. NextShares and ETFs also charge transaction fees to offset their flow-related trading costs. Mutual funds typically do not issue or redeem in kind or charge fees to offset flow-related costs. Protects against front-runners Front-running is a short-term trading strategy that seeks to profit from buying and selling ahead of large investors whose trades the front-runner learns to anticipate. By trading ahead of a fund, a front-runner can drive up fund trading costs and undercut shareholder returns. Reduces cash drag NextShares and ETFs that transact primarily in kind may operate with lower average cash balances, and therefore experience less cash drag, than mutual funds that issue and redeem shares in cash. NextShares and mutual funds protect the confidentiality of their fund trading information to avoid front-running. Because ETFs typically disclose their entire holdings each day, they may be vulnerable to front-running. TAX EFFICIENCY Keeps capital gains distributions low Mutual funds often must sell positions that have increased in value to raise cash to meet redemptions which can trigger capital gains distributions to the fund s continuing shareholders. With NextShares, investors sell their shares through a broker to other long-term investors or professional traders acting as market makers in the fund s shares. When market makers and other large investors accumulate sufficient shares of a NextShares fund, they can redeem their shares from the fund by transacting through intermediaries called Authorized Participants. Like ETFs, most NextShares funds meet redemptions by Authorized Participants primarily in kind, meaning they deliver securities rather than cash. By avoiding the sale of securities to meet redemptions, NextShares can potentially reduce fund capital gains distributions for remaining fund shareholders. Daily portfolio holdings disclosure By disclosing its full holdings each day, an ETF provides potentially valuable information to front-runners. 7 See pages 3 and 4 of this brochure for additional information about the costs of mutual funds, ETFs and NextShares. NextShares, mutual funds and ETFs are purchased and sold differently and have varying costs. These and other distinctions may result in significant differences in investor returns. 8 NextShares trade execution prices will fluctuate based on changes in NAV. Although limit orders may be used to control trading costs, they cannot be used to control or limit trade execution prices. 9 See discussion of investor trading costs on pages 3 and 4. Because commissions may apply, NextShares and ETFs may be more expensive to buy and sell than mutual funds. 9 10

7 Trusted managers and proven strategies Each of the companies below has entered into a preliminary licensing and services agreement to permit the offering of NextShares. Additional fund managers are also expected to offer NextShares. ALPS Advisors American Beacon Broms Asset Management Columbia Threadneedle Investments Eaton Vance Gabelli Funds, LLC Hartford Funds Management Company Ivy Investment Management Company Nile Capital Management Pioneer Investments Principal Management Corporation UBS Asset Management Victory Capital The information contained herein is provided for educational purposes only. Nothing contained herein constitutes a recommendation or solicitation of, or an offer to buy or sell, any security, investment product or service. Individual investors are solely responsible for determining whether any investment, investment strategy, security or related transaction is appropriate for them based on their personal investment objectives, financial circumstances and risk tolerance. Information contained herein should not be used or relied upon by anyone as a substitute for independent research or professional tax, financial or legal advice. Individual investors should seek such professional tax, financial or legal advice for their specific situation. The information included herein is not representative of any specific fund or other investment. The views expressed are those of NextShares Solutions LLC, and the information contained herein is not all-inclusive. Shares of NextShares funds are normally bought and sold in the secondary market through a broker, and may not be individually purchased or redeemed from the fund. In the secondary market, buyers and sellers transact with each other, rather than with the fund. NextShares funds issue and redeem shares only in specified creation unit quantities in transactions by or through Authorized Participants. In such transactions, a fund issues and redeems shares in exchange for the basket of securities, other instruments and/or cash that the fund specifies each business day. By transacting in kind, a NextShares fund can lower its trading costs and enhance fund tax efficiency by avoiding forced sales of securities to meet redemptions. Redemptions may be effected partially or entirely in cash when in-kind delivery is not practicable or deemed not in the best interests of shareholders. A fund s basket is not intended to be representative of the fund s current portfolio positions and may vary significantly from current positions. As exchange-traded securities, NextShares can operate with low transfer agency expenses by utilizing the same highly efficient share processing system as used for exchange-listed stocks and ETFs. Market trading prices of NextShares are linked to the fund s next-computed net asset value (NAV) and will vary from NAV by a market-determined premium or discount, which may be zero. Buyers and sellers of NextShares will not know the value of their purchases and sales until after the fund s NAV is determined at the end of the trading day. Market trading prices may vary significantly from anticipated levels. NextShares do not offer investors the opportunity to buy and sell intraday based on current (versus end-of-day) determinations of fund value. NextShares trade execution prices will fluctuate based on changes in NAV. Although limit orders may be used to control trading costs, they cannot be used to control or limit trade execution prices. As a new type of fund, NextShares have a limited operating history and may initially be available through a limited number of brokers. There can be no guarantee that an active trading market for NextShares will develop or be maintained, or that their listing will continue unchanged. Buying and selling NextShares may require payment of brokerage commissions and expose transacting shareholders to other trading costs. Frequent trading may detract from realized investment returns. The return on a shareholder s NextShares investment will be reduced if the shareholder sells shares at a greater discount or narrower premium to NAV than he or she acquired the shares. About NextShares Solutions LLC NextShares Solutions LLC is a wholly owned subsidiary of Eaton Vance Corp. formed in 2011 to develop and commercialize NextShares. Aspects of the operation of NextShares are protected intellectual property owned by NextShares Solutions. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE 2016 NextShares Solutions LLC NextShares is a trademark of NextShares Solutions LLC. All rights reserved. Two International Place, Boston, MA nextshares.com