https://www.sec.gov/Archives/edgar/data/806564/000110465925024024/tm258948d2_497.htm497 1 tm258948d2_497.htm 497
Filed by: Morgan Stanley ETF Trust
Pursuant to Rule 425 under the Securities Act of 1933 and
deemed filed under Rule 14a-12(b) under the Securities Exchange Act of 1934.
Subject Company: Morgan Stanley Mortgage Securities Trust
SEC File No. 811-04917 and 033-10363
SUPPLEMENT DATED MARCH 14, 2025 TO THE SUMMARY PROSPECTUS, PROSPECTUS, AND STATEMENT OF ADDITIONAL INFORMATION OF
Morgan Stanley Mortgage Securities Trust, dated February 28, 2025
(the “Acquired Fund”)
At a meeting held on March 12-13, 2025, the Board of Trustees (the “Board”) of the Morgan Stanley Mortgage Securities Trust unanimously approved the reorganization of the Acquired Fund into a newly-created exchange-traded fund (“ETF”), which will be managed by Morgan Stanley Investment Management Inc. (“MSIM”), which is also the investment adviser to the Acquired Fund. The Board, which is comprised solely of Trustees who are not “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the Acquired Fund, determined that participation in the Reorganization (defined below) is in the best interests of the Acquired Fund and the interests of existing shareholders of the Acquired Fund (“Acquired Fund Shareholders”) will not be diluted as a result of the Reorganization.
Subject to shareholder approval, the Acquired Fund will be reorganized into a newly-created ETF, Eaton Vance Mortgage Opportunities ETF (the “Acquiring Fund” and together with the Acquired Fund, the “Funds”), a series of Morgan Stanley ETF Trust (the “Acquiring Fund Trust”) (the “Reorganization”).
If approved by Acquired Fund Shareholders, the Reorganization would be accomplished in accordance with an Agreement and Plan of Reorganization. Subject to shareholder approval, the Reorganization is anticipated to occur (after the close of trading) on or about August 1, 2025 (the “Closing Date”). This supplement is not a solicitation of proxy.
Acquired Fund Shareholders of record on April 10, 2025 will receive a combined Proxy Statement and Prospectus that contains important information about the Reorganization and the Acquiring Fund, including information regarding the Acquiring Fund’s investment strategies and risks, fees and expenses.
If Acquired Fund Shareholders approve the Reorganization, and certain other closing conditions are satisfied or waived, Acquired Fund Shareholders who own shares of the Acquired Fund (“Acquired Fund Shares”) through a brokerage account that can accept shares of an ETF will become shareholders of the Acquiring Fund (which will operate as an ETF) receiving shares of the Acquiring Fund (“Acquiring Fund Shares”) with an aggregate value equal to the aggregate net asset value (“NAV”) of their Acquired Fund Shares held immediately prior to the Reorganization, except with respect to cash received in lieu of fractional Acquiring Fund Shares, which cash payment may be taxable.
The Acquiring Fund is a newly-created series of the Acquiring Fund Trust and will not commence operations until the consummation of the Reorganization. The Acquired Fund and the Acquiring Fund have identical investment objectives and principal investment strategies. However, there are important differences between the Acquired Fund and the Acquiring Fund. For example, although the Acquiring Fund will be subject to similar investment risks as the Acquired Fund, the Acquiring Fund will be subject to additional risks, such as structural risks related to ETFs, which will be described in the combined Proxy Statement and Prospectus. In addition, the Acquired Fund and the Acquiring Fund have substantially similar fundamental investment policies. However, the Acquired Fund’s investment objective is “fundamental” (i.e., it may not be changed without shareholder approval) whereas the Acquiring Fund’s investment objective may be changed without shareholder approval with notice to shareholders of the Acquiring Fund (“Acquiring Fund Shareholders”).
MSIM believes that the Reorganization will provide multiple benefits for Acquired Fund Shareholders, including anticipated lower gross and net expenses as well as additional trading flexibility, increased transparency and the potential for enhanced tax efficiency. However, given that the Acquiring Fund will effect some or all of its creations and redemptions in cash rather than in-kind, a shareholder will not benefit from the greater tax efficiency of the ETF structure to the same extent as a shareholder of an ETF that effects all of its creations and redemptions in-kind.
The Reorganization is structured to be a tax-free reorganization under the U.S. Internal Revenue Code of 1986, as amended. As a result, Acquired Fund Shareholders generally will not recognize a taxable gain (or loss) for U.S. tax purposes as a result of the Reorganization (except with respect to cash received or with respect to investors whose shares are redeemed prior to the Reorganization, as explained elsewhere in this Supplement).
In addition, to fund redemption transactions prior to and in connection with the Reorganization, the Acquired Fund may have to sell securities. These transactions may also result in net realized capital gains to the Acquired Fund, which may result in taxable distributions to shareholders either (i) by the Acquired Fund prior to the Reorganization or (ii) by the Acquiring Fund after the Reorganization.
Importantly, in order to receive Acquiring Fund Shares as part of the Reorganization, Acquired Fund Shareholders must hold their Acquired Fund Shares through a brokerage account that can accept shares of an ETF (i.e., the Acquiring Fund). If Acquired Fund Shareholders do not hold their Acquired Fund Shares through that type of brokerage account, they will not receive Acquiring Fund Shares as part of the Reorganization. For Acquired Fund Shareholders that do not currently hold their Acquired Fund Shares through a brokerage account that can hold Acquiring Fund Shares, please see the Q&A that follows for additional actions that such Acquired Fund Shareholders must take to receive Acquiring Fund Shares as part of the Reorganization. Other than the approval by the requisite vote of Acquired Fund Shareholders, no further action is required for Acquired Fund Shareholders that hold Acquired Fund Shares through a brokerage account that can hold Acquiring Fund Shares.
If (and only if) the Reorganization is approved by Acquired Fund Shareholders, it is expected that effective on or about the first business day of the month following shareholder approval of the Reorganization (the “Effective Date”), the following fees will be waived: (i) the sales charge on purchases of Class A shares of the Acquired Fund; (ii) the contingent deferred sales charge (“CDSC”) on Class A and Class C shares of the Acquired Fund; (iii) the 12b-1 fees for any applicable share class of the Acquired Fund; and (iv) any finder’s fee payments applicable to any class of shares of the Acquired Fund. Also, effective on the Effective Date, any current Letter of Intent under which Class A shares of the Acquired Fund were purchased would be considered completed. In addition, it is currently expected that if (and only if) the Reorganization is approved by Acquired Fund Shareholders, effective on the Effective Date, the Acquired Fund will be closed to new investors.
The Summary Prospectus, Prospectus and Statement of Additional Information will be amended accordingly...
