Prospectus
J.P. Morgan
Exchange-Traded Funds
March
2,
2023
|
JPMorgan
Active Small Cap Value ETF |
Ticker:
JPSV |
Listing
Exchange: NYSE Arca |
THIS
FUND IS DIFFERENT FROM TRADITIONAL ETFs
Traditional
exchange-traded funds (ETFs) tell the public what assets they hold each day.
This Fund will not. This may create additional risks for your
investment.
For example:
For example:
•
You may have to pay
more money to trade the Fund’s shares. This Fund will provide less information
to traders, who tend to charge more for trades when they have less
information.
•
The price you pay to
buy fund shares on an exchange may not match the value of the Fund’s portfolio.
The same is true when you sell shares. These price differences may be greater
for this Fund compared to other ETFs because it provides less information to
traders.
•
These additional
risks may be even greater in bad or uncertain market conditions.
•
The ETF will publish
on its website each day a “Proxy Portfolio” designed to help trading in shares
of the ETF. While the Proxy Portfolio includes some of the ETF’s holdings, it is
not the ETF’s actual portfolio.
The differences
between this Fund and other ETFs may also have advantages. By keeping certain
information about the Fund secret, this Fund may face less risk that other
traders can predict or copy its investment strategy. This may improve the Fund’s
performance. If other traders are able to copy or predict the Fund’s investment
strategy, however, this may hurt the Fund’s performance.
For additional
information regarding the unique attributes and risks of the Fund, see Proxy
Portfolio Risk, Premium/Discount Risk, Trading Halt Risk, Authorized Participant
Concentration Risk, Tracking Error Risk and ETF Shares Trading Risk in the
Principal Risks and Proxy Portfolio and Proxy Overlap section of the prospectus
and/or the Proxy Portfolio Structure section of the Statement of Additional
Information.
The Securities and
Exchange Commission and the Commodity Futures Trading Commission have not
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
JPMorgan
Active Small Cap Value ETF
|
| |
|
Management
Fees |
|
|
Total
Annual Fund Operating Expenses |
|
1
|
| ||
|
|
1
Year |
3
Years |
|
SHARES
($) |
|
|
March
2, 2023 | 1
JPMorgan
Active Small Cap Value ETF
(continued)
2 | J.P.
Morgan Exchange-Traded Funds
March
2, 2023 | 3
JPMorgan
Active Small Cap Value ETF
(continued)
Management
J.P. Morgan
Investment Management Inc. (the adviser)
|
Portfolio
Manager |
Managed
the
Fund
Since |
Primary
Title with
Investment
Adviser |
|
Lawrence
E. Playford |
2023 |
Managing
Director |
|
Jeremy
C. Miller |
2023 |
Executive
Director |
|
Ryan
N. Jones |
2023 |
Executive
Director |
Purchase
and Sale of Shares
Individual Shares of
the Fund may only be purchased and sold in secondary market transactions through
brokers or financial intermediaries. Shares of the Fund are listed for trading
on the Exchange, and because Shares trade at market prices rather than NAV,
Shares of the Fund may trade at a price greater than NAV (premium) or less than
NAV (discount). Certain affiliates of the Fund and the adviser may purchase and
resell Shares pursuant to this prospectus.
An investor may
incur costs attributable to the difference between the highest price a buyer is
willing to pay to purchase Shares of the Fund (bid) and the lowest price a
seller is willing to accept for Shares (ask) when buying or selling Shares in
the secondary market (the bid-ask spread).
Recent information,
including information about the Fund’s NAV, market price, premiums and
discounts, and bid-ask spreads (when available), is included on the Fund’s
website at jpmorganfunds.com.
Tax
Information
To the extent the
Fund makes distributions, those distributions will be taxed as ordinary income
or capital gains, except when your investment is in an IRA, 401(k) plan or other
tax-advantaged investment plan, in which case you may be subject to federal
income tax upon withdrawal from the tax-advantaged investment plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If you purchase
Shares of the Fund through a broker-dealer or other financial intermediary (such
as a bank), the adviser and its related companies may pay the financial
intermediary for the sale of Shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or
4 | J.P.
Morgan Exchange-Traded Funds
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.
March
2, 2023 | 5
More
About the Fund
Additional
Information About the Fund’s Investment Strategies
The Fund is an ETF,
which is a fund that trades like other publicly-traded securities. The Fund is
not an index fund. The Fund is actively managed and does not seek to replicate
the performance of a specified index.
The Fund operates in
reliance on the Order, which incorporates by reference the conditions and
restrictions of a previous order issued by the SEC, to permit the operation of
non-transparent active ETFs (the Prior Order), and limits the types of
investments the Fund may hold to those listed in the application for the Prior
Order. Under the terms of the Order, the Fund may invest only in the following
types of securities: ETFs, exchange-traded notes, exchange-traded common stocks
(excluding “penny stocks”), common stocks listed on a foreign exchange that
trade on such exchange contemporaneously with the Fund’s Shares, exchange-traded
preferred stocks, exchange-traded American Depositary Receipts, exchange-traded
REITs, exchange-traded commodity pools, exchange-traded metals trusts,
exchange-traded currency trusts and exchange-traded futures that trade
contemporaneously with Fund Shares, as well as cash and cash equivalents (which
are short-term U.S. Treasury securities, government money market funds, and
repurchase agreements).
The name, investment
objective and policies of the Fund are similar to other funds advised by the
adviser or its affiliates. However, the investment results of the Fund may be
higher or lower than, and there is no guarantee that the investment results of
the Fund will be comparable to, any other of these funds. A new fund or a fund
with fewer assets under management may be more significantly affected by
purchases and redemptions of its Creation Units (as defined below) than a fund
with relatively greater assets under management would be affected by purchases
and redemptions of its shares. As compared to a larger fund, a new or smaller
fund is more likely to sell a comparatively large portion of its portfolio to
meet significant Creation Unit redemptions, or invest a comparatively large
amount of cash to facilitate Creation Unit purchases, in each case when the fund
otherwise would not seek to do so. Such transactions may cause funds to make
investment decisions at inopportune times or prices or miss attractive
investment opportunities. Such transactions may also accelerate the realization
of taxable income if sales of securities resulted in gains and the fund redeems
Creation Units for cash, or otherwise cause a fund to perform differently than
intended. While such risks may apply to funds of any size, such risks are
heightened in funds with fewer assets under management. In addition, new funds
may not be able to fully implement their investment strategy immediately upon
commencing investment operations, which could reduce investment
performance.
The adviser, in its
discretion, may make modifications to the Fund’s investment strategy that it
believes to be in the best interests of the Fund, including to address capacity
or other concerns. Such modifications may include, but are not limited to, the
addition of investment sleeves managed by other investment teams or changes to
investment methodology, utilization of other investment companies and the
conversion of the Fund to a transparent structure. Any such changes may
adversely impact the Fund’s performance.
Main
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its Assets in equity securities of small cap companies.
“Assets” means net assets, plus the amount of borrowings for investment
purposes. Small cap companies are companies with market capitalizations equal to
those within the universe of the Russell 2000® Value Index stocks at the time of
purchase. As of January 31, 2023, the market capitalizations of the companies in
the Russell 2000® Value Index ranged from $6.8
million to $7,168.0 million. The small cap companies in which the Fund invests
are listed on an exchange that trades contemporaneously with the Fund’s Shares.
In implementing its main strategies, the Fund’s equity investments are primarily
in common stock and REITs.
Investment Process: In reviewing
investment opportunities, the adviser implements an investment process that
seeks to systematically identify high quality small cap companies at attractive
valuations. Specifically, the adviser seeks to invest in attractively valued
companies with durable businesses, strong balance sheets and which are led by
management teams who have proven their ability to increase the intrinsic value
per share of the company.
•
In making such evaluations, the
adviser considers a company to be attractively valued based on characteristics
such as the market value that has been added since the company’s inception,
profitability based on both its core operations and on an after-taxes basis, and
market expectations of future growth for the company.
•
Companies with durable franchises
generally have a sustainable competitive position relative to peers, high
returns on capital, a diversified client or asset base and a strong
brand.
•
Companies with strong balance sheets
generally generate strong levels of free cash flow with reasonable debt
levels.
•
In considering whether a management
team has proven its ability to increase the intrinsic value per share, the
adviser looks at whether management has earned and grown economic profits, i.e.,
generated returns in excess of the cost of capital over time.
The adviser also integrates
financially material environmental, social and governance (ESG) factors as part of the Fund’s
investment process (ESG Integration). ESG Integration is the systematic
inclusion of ESG issues in investment analysis and investment decisions. As part
of its investment process, the adviser seeks to assess the impact of ESG factors
on many issuers in the universe in which the
6 | J.P.
Morgan Exchange-Traded Funds
Fund may invest. The
adviser’s assessment is based on an analysis of key opportunities and risks
across industries to identify financially material issues with respect to the
Fund’s investments in issuers and ascertain key issues that merit engagement
with issuers. These assessments may not be conclusive and securities of issuers
that may be negatively impacted by such factors may be purchased and retained by
the Fund, while the Fund may divest or not invest in securities of issuers that
may be positively impacted by such factors. In particular, ESG Integration does
not change the Fund’s investment objective, exclude specific types of industries
or companies or limit the Fund’s investable universe. The Fund is not designed
for investors who wish to screen out particular types of companies or
investments or are looking for Funds that meet specific ESG goals.
The adviser may sell
a security for several reasons. A security may be sold due to a change in the
company’s fundamentals or if the adviser believes the security is no longer
attractively valued. Investments may also be sold if the adviser identifies a
security that it believes offers a better investment opportunity.
The Fund is an
actively managed ETF that operates pursuant to the Order and is not required to
publicly disclose its complete portfolio holdings each business day. In lieu of
publishing its Actual Portfolio daily, the Fund publishes the Proxy Portfolio
each day on its website. The Proxy Portfolio is designed to closely track the
daily performance of the Fund but is not the Actual Portfolio. The Fund will
also publish certain related information about the Proxy Portfolio and the
Actual Portfolio on its website daily. There is no minimum overlap required
between the Actual Portfolio and the Proxy Portfolio.
The Fund may have a
higher portfolio turnover as a result of selling securities that it receives in
the Proxy Portfolio, but which are not held in the Actual
Portfolio.
Additional
Investment Strategies
Although not part of
the Fund’s main investment strategies, the Fund may also utilize the
following:
•
equity securities of
mid cap companies – this may typically occur if companies that were previously
small cap companies are successful and grow
•
preferred
stock
•
equity securities
purchased in initial public offerings
•
derivatives, which
are instruments that have a value based on another instrument, exchange rate or
index, may be used as substitutes for securities in which the Fund can invest.
The Fund may use U.S. exchange-traded futures contracts to gain or reduce
exposure to its index, maintain liquidity and minimize transaction costs. In
managing cash flows, the Fund buys futures contracts to invest incoming cash in
the market or sells futures contracts in response to cash outflows, thereby
gaining market exposure to the index while maintaining a cash balance for
liquidity.
|
NON-FUNDAMENTAL
INVESTMENT OBJECTIVE |
|
An
investment objective is fundamental if it cannot be changed without the
consent of a majority of the outstanding Shares of the
Fund.
The Fund’s investment objective is not fundamental and may be changed
without the consent of a majority of the outstanding
Shares
of the Fund. |
Securities
Lending. The Fund may
engage in securities lending to increase its income. Securities lending involves
the lending of securities owned by the Fund to financial institutions such as
certain broker-dealers in exchange for cash collateral. The Fund will invest
cash collateral in one or more money market funds advised by the adviser or its
affiliates. The adviser or its affiliates will receive additional compensation
from the affiliated money market funds on the Fund’s investment in such money
market funds. During the term of the loan, the Fund is entitled to receive
amounts equivalent to distributions paid on the loaned securities as well as the
return on the cash collateral investments. Upon termination of the loan, the
Fund is required to return the cash collateral to the borrower plus any agreed
upon rebate. Cash collateral investments will be subject to market depreciation
or appreciation, and the Fund will be responsible for any loss that might result
from its investment of cash collateral. If the adviser determines to make
securities loans, the value of the securities loaned may not exceed
33 1∕3% of the value of total assets of
the Fund. Loan collateral (including any investment of that collateral) is not
subject to the percentage limitations regarding the Fund’s investments described
elsewhere in this prospectus. Securities
lending is not a principal strategy of the Fund.
The Fund also may
use other non-principal strategies that are not described herein as permitted by
the Order and which are described in the Statement of Additional
Information.
Investment
Risks
There can be no
assurance that the Fund will achieve its investment objective.
March
2, 2023 | 7
More
About the Fund
(continued)
The main risks
associated with investing in the Fund are summarized in the “Risk/Return
Summary” at the front of this prospectus. In addition to the Fund’s main risks,
the Fund may be subject to additional risks in connection with investments and
strategies used by the Fund from time to time. The table below identifies main
risks and some of the additional risks for the Fund.
An investment in the Fund or any other fund may not provide a complete investment program. The suitability of an investment in the Fund should be considered based on the investment objective, strategies and risks described in this prospectus, considered in light of all of the other investments in your portfolio, as well as your risk tolerance, financial goals and time horizons. You may want to consult with a financial advisor to determine if the Fund is suitable for you.
The Fund is subject
to the main risks designated as such in the table below, any of which may
adversely affect the Fund’s net asset value (NAV), market price, performance and
ability to meet its investment objective. The Fund may also be subject to
additional risks that are noted in the table below, as well as those that are
not described herein but which are described in the Statement of Additional
Information.
|
|
Active
Small Cap
Value
ETF |
|
Authorized
Participant Concentration Risk |
• |
|
Cyber
Security Risk |
○ |
|
Derivatives
Risk |
○ |
|
Equity
Market Risk |
• |
|
General
Market Risk |
• |
|
Industry
and Sector Focus Risk |
• |
|
Market
Trading Risk |
• |
|
New Fund
Risk |
○ |
|
Preferred
Stock Risk |
○ |
|
Premium/Discount
Risk |
• |
|
Proxy
Portfolio Risk |
• |
|
Real Estate
Securities Risk |
• |
|
Regulatory
and Legal Risk |
○ |
|
Securities
Lending Risk |
○ |
|
Smaller
Company Risk |
• |
|
Tracking
Error Risk |
• |
|
Trading
Halt Risk |
• |
|
Transactions
and Liquidity Risk |
○ |
|
Value
Investing Risk |
• |
|
Volcker
Rule Risk |
○ |
•
Main
Risks
○
Additional
Risks
Proxy
Portfolio Risk. Unlike traditional
ETFs that disclose their portfolio holdings on a daily basis, the Fund discloses
a Proxy Portfolio. The goal of the Proxy Portfolio, during all market
conditions, is to track closely the daily performance of the Actual Portfolio
and minimize intra-day misalignment between the performance of the Proxy
Portfolio and the performance of the Actual Portfolio. The Proxy Portfolio is
designed to reflect the economic exposures and the risk characteristics of the
Actual Portfolio on any given trading day.
The Proxy Portfolio
is intended to provide authorized participants and other market participants
with enough information to support an effective arbitrage mechanism that keeps
the market price of the Fund at or close to the underlying net asset value (NAV)
per share of the Fund. The Proxy Portfolio methodology is novel and not yet
proven as an effective arbitrage mechanism. The effectiveness of the Proxy
Portfolio as an arbitrage mechanism is contingent upon, among other things, the
Fund’s factor model analysis creating a Proxy Portfolio that performs in a
manner substantially identical to the performance of the Actual Portfolio and
the willingness of authorized participants and other market participants to
trade based on a Proxy Portfolio. There is no guarantee that this arbitrage
mechanism will operate as intended. Further, while the Proxy Portfolio may
include some of the Fund’s holdings, it is
8 | J.P.
Morgan Exchange-Traded Funds
not the Actual
Portfolio. ETFs trading on the basis of a published Proxy Portfolio may exhibit
wider premiums and discounts, bid/ask spreads, and tracking error than other
ETFs using the same investment strategies that publish their portfolios on a
daily basis, especially during periods of market disruption or volatility.
Therefore, Shares of the Fund may cost investors more to trade than shares of a
traditional ETF.
•
Each day the Fund
calculates the Proxy Overlap and Tracking Error. If the Tracking Error becomes
large, there is a risk that the performance of the Proxy Portfolio may deviate
from the performance of the Actual Portfolio.
•
The adviser monitors
its Tracking Error, bid/ask spread and premiums/discounts on an ongoing basis.
If these items reach certain levels outlined by the Order, the adviser will call
a meeting of the Board to consider the recommendations regarding the continuing
viability of the Fund, whether shareholders are being harmed, and what, if any,
corrective measures would be appropriate. See the Statement of Additional
Information for further discussion of the Board’s monitoring
responsibilities.
•
Although the Fund
seeks to benefit from keeping its portfolio information secret, market
participants may attempt to use the Proxy Portfolio to identify the Fund’s
trading strategy, which if successful, could result in such market participants
engaging in certain predatory trading practices that may have the potential to
harm the Fund and its shareholders. The Proxy Portfolio and any related
disclosures have been designed to minimize the risk of predatory trading
practices, but they may not be successful in doing so.
Premium/Discount
Risk.
Publication of the Proxy Portfolio does not have the same level of transparency
as the publication of the Actual Portfolio by a fully transparent ETF. Although
the Proxy Portfolio is intended to provide authorized participants and other
market participants with enough information to allow for an effective arbitrage
mechanism that is intended to keep the market price of the Fund at or close to
the underlying NAV per share of the Fund, there is a risk (which may increase
during periods of market disruption or volatility) that market prices will vary
significantly from NAV per share of the Fund. This means the price paid to buy
Shares on an exchange may not match the value of the Fund’s portfolio. The same
is true when Shares are sold.
Trading
Halt Risk. If securities
representing 10% or more of the Actual Portfolio do not have readily available
market quotations, the Fund will promptly request that the listing exchange halt
trading in the Fund’s Shares which means that investors would not be able to
trade their Shares. Trading halts may have a greater impact on the Fund compared
to other ETFs due to the Fund’s structure. If the trading of a security held in
the Fund’s Actual Portfolio is halted, or otherwise does not have readily
available market quotations, and the investment adviser believes that the lack
of any such readily available market quotations may affect the reliability of
the Proxy Portfolio as an arbitrage vehicle, or otherwise determines it is in
the best interest of the Fund, the investment adviser will promptly disclose on
the Fund’s website the identity and weighting of such security for so long as
such security’s trading is halted or otherwise does not have readily available
market quotations and remains in the Actual Portfolio.
Tracking
Error Risk. Although the Proxy
Portfolio is designed to reflect the economic exposure and risk characteristics
of the Actual Portfolio on any given trading day, there is a risk that the
performance of the Proxy Portfolio will diverge from the performance of the
Actual Portfolio, potentially materially. If the Tracking Error becomes too
large, the Fund will have disclose its securities on a daily basis until it is
able to reduce its Tracking Error. This would result in the Fund losing the
protection of the Proxy Portfolio strategy for some period of time or require
the Board to consider other actions for the Fund.
Equity
Market Risk. The price of equity
securities may rise or fall because of changes in the broad market or changes in
a company’s financial condition, sometimes rapidly or unpredictably. These price
movements may result from factors affecting individual companies, sectors or
industries selected for the Fund’s portfolio or the securities market as a
whole, such as changes in economic or political conditions. Equity securities
are subject to “stock market risk” meaning that stock prices in general (or in
particular, the prices of the types of securities in which the Fund invests) may
decline over short or extended periods of time. When the value of the Fund’s
securities goes down, your investment in the Fund decreases in
value.
General
Market Risk. Economies and
financial markets throughout the world are becoming increasingly interconnected,
which increases the likelihood that events or conditions in one country or
region will adversely impact markets or issuers in other countries or regions.
Securities in the Fund’s portfolio may underperform in comparison to securities
in general financial markets, a particular financial market or other asset
classes due to a number of factors, including inflation (or expectations for
inflation), deflation (or expectations for deflation), interest rates, global
demand for particular products or resources, market instability, debt crises and
downgrades, embargoes, tariffs, sanctions and other trade barriers, regulatory
events, other governmental trade or market control programs and related
geopolitical events. In addition, the value of the Fund’s investments may be
negatively affected by the occurrence of global events such as war, terrorism,
environmental disasters, natural disasters or events, country instability, and
infectious disease epidemics or pandemics.
For example, the
outbreak of COVID-19 has negatively affected economies, markets and individual
companies throughout the world, including those in which the Fund invests. The
effects of this pandemic to public health and business and market conditions,
including, among other things, reduced consumer demand and economic output,
supply chain disruptions and increased government spending, may continue to have
a significant negative impact on the performance of the Fund’s investments,
increase the Fund’s
March
2, 2023 | 9
More
About the Fund
(continued)
volatility, negatively impact the
Fund’s arbitrage and pricing mechanisms, exacerbate pre-existing political,
social and economic risks to the Fund, and negatively impact broad segments of
businesses and populations. In addition, governments, their regulatory agencies,
or self-regulatory organizations have taken or may take actions in response to
the pandemic 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. 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 frequent changes.
Value
Investing Risk. Value investing
attempts to identify companies that, according to the adviser’s estimate of
their true worth, are undervalued or attractively valued. The adviser selects
stocks at prices that it believes are temporarily low relative to factors such
as the company’s earnings, cash flow or dividends. A value stock may decrease in
price or may not increase in price as anticipated by the adviser if other
investors fail to recognize the company’s value or the factors that the adviser
believes will cause the stock price to increase do not occur. The Fund’s
performance may be better or worse than the performance of equity funds that
focus on growth stocks or that have a broader investment style.
Smaller
Company Risk. (Small Cap Company
and Mid Cap Company Risks) Investments in securities of smaller companies (mid
cap and small cap companies) may be riskier, less liquid, more volatile and more
vulnerable to economic, market and industry changes than securities of larger,
more established companies. The securities of smaller companies may trade less
frequently and in smaller volumes than securities of larger companies. As a
result, changes in the price of securities issued by such companies may be more
sudden or erratic than the prices of securities of large capitalization
companies, especially over the short term. These risks are higher for small cap
companies.
Derivatives
Risk.
The Fund may use derivatives in connection with its investment strategies.
Derivatives may be riskier than other types of investments because they may be
more sensitive to changes in economic or market conditions than other types of
investments and could result in losses that significantly exceed the Fund’s
original investment. Derivatives are subject to the risk that changes in the
value of a derivative may not correlate perfectly with the underlying asset,
rate or index. The use of derivatives may not be successful, resulting in losses
to the Fund, and the cost of such strategies may reduce the Fund’s returns.
Certain derivatives also expose the Fund to counterparty risk (the risk that the
derivative counterparty will not fulfill its contractual obligations), including
credit risk of the derivative counterparty.
The Fund’s
transactions in futures contracts could also affect the amount, timing and
character of distributions to shareholders, which may result in the Fund
realizing more short-term capital gain and ordinary income subject to tax at
ordinary income tax rates than it would if it did not engage in such
transactions, which may adversely impact the Fund’s after-tax
return.
|
WHAT
IS A DERIVATIVE? |
|
Derivatives
are securities or contracts (for example, futures and options) that derive
their value from the performance of underlying
assets
or securities. |
Real
Estate Securities Risk. The value of real
estate securities in general, and REITs in particular, are subject to the same
risks as direct investments in real estate and mortgages which include, but are
not limited to, sensitivity to changes in real estate values and property taxes,
interest rate risk, tax and regulatory risk, fluctuations in rent schedules and
operating expenses, adverse changes in local, regional or general economic
conditions, deterioration of the real estate market and the financial
circumstances of tenants and sellers, unfavorable changes in zoning, building,
environmental and other laws, the need for unanticipated renovations, unexpected
increases in the cost of energy and environmental factors. Furthermore, a REIT
could fail to qualify for tax free pass-through of its income under the Internal
Revenue Code or fail to maintain its exemption from registration under the
Investment Company Act of 1940 (“1940 Act”), which could produce adverse
economic consequences for the REIT and its investors, including the
Fund.
The underlying
mortgage loans may be subject to the risks of default or of prepayments that
occur earlier or later than expected, and such loans may also include so-called
“sub-prime” mortgages. The value of REITs will also rise and fall in response to
the management skill and creditworthiness of the issuer. In particular, the
value of these securities may decline when interest rates rise and will also be
affected by the real estate market and by the management of the underlying
properties. REITs may be more volatile and/or more illiquid than other types of
equity securities. The Fund will indirectly bear its proportionate share of
expenses, including management fees, paid by each REIT in which it invests in
addition to the expenses of the Fund.
In addition, certain
of the companies in which the Fund intends to invest may have developed or
commenced development on properties and may develop additional properties in the
future. Real estate development involves significant risks in addition to those
involved in the ownership and operation of established properties, including the
risks that financing, if needed, may not be available on favorable terms for
development projects, that construction may not be completed on schedule
(resulting in increased debt
10 | J.P.
Morgan Exchange-Traded Funds
service expense and
construction costs), that estimates of the costs of construction may prove to be
inaccurate and that properties may not be leased, rented or operated on
profitable terms and therefore will fail to perform in accordance with
expectations. As a result, the value of the Fund’s investment may decrease in
value. Real estate securities have limited diversification and are, therefore,
subject to risks inherent in operating and financing a limited number of
projects. Real estate securities are also subject to heavy cash flow dependency
and defaults by borrowers or tenants.
Industry and
Sector Focus Risk. At
times, the Fund may increase the relative emphasis of its investments in a
particular industry or sector. The prices of securities of issuers in a
particular industry or sector may be more susceptible to fluctuations due to
changes in economic or business conditions, government regulations, availability
of basic resources or supplies, or other events that affect that industry or
sector more than securities of issuers in other industries and sectors. To the
extent that the Fund increases the relative emphasis of its investments in a
particular industry or sector, the value of the Fund’s Shares may fluctuate in
response to events affecting that industry or sector.
Transactions
and Liquidity Risk. The Fund could
experience a loss when selling securities to meet redemption requests and its
liquidity may be negatively impacted. The risk of loss increases if the
redemption requests are large or frequent, occur in times of overall market
turmoil or declining prices for the securities sold, or when the securities the
Fund wishes to or is required to sell are illiquid. To the extent a large
proportion of Shares are held by a small number of shareholders (or a single
shareholder), including funds or accounts over which the adviser or its
affiliates have investment discretion, the Fund is subject to the risk that
these shareholders will purchase or redeem Shares in large amounts rapidly or
unexpectedly, including as a result of an asset allocation decision made by the
adviser or its affiliates. To the extent these larger shareholders transact in
the secondary market, such transactions may account for a large percentage of
the Fund’s trading volume on the Exchange, which may have a material effect
(upward or downward) on the market price of Shares. In addition to the other
risks described in this section, these transactions could adversely affect the
ability of the Fund to conduct its investment program. The Fund may be unable to
sell illiquid securities at its desired time or price or the price at which the
securities have been valued for purposes of the Fund’s NAV. Illiquidity can be
caused by a drop in overall market trading volume, an inability to find a ready
buyer, or legal restrictions on the securities’ resale. Certain securities that
were liquid when purchased may later become illiquid, particularly in times of
overall economic distress.
Similarly, large
purchases of Shares 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. Large redemptions also could
accelerate the realization of capital gains, increase the Fund’s transaction
costs and impact the Fund’s performance. To the extent redemptions are effected
in cash, an investment in the Fund may be less tax-efficient than an investment
in an ETF that distributes portfolio securities entirely in-kind.
Market
Trading Risk
Risk
that Shares of the Fund May Trade at Prices Other Than NAV. Shares of the Fund
may trade on the Exchange at prices above, below or at their most recent NAV.
The NAV of the Fund’s Shares, which is calculated at the end of each business
day, will generally fluctuate with changes in the market value of the Fund’s
holdings. The market prices of the Shares will also fluctuate, in some cases
materially, in accordance with changes in NAV and the intraday value of the
Fund’s holdings, as well as the relative supply of and demand for the Shares on
the Exchange. Differences between secondary market prices of Shares and the
intraday value of the Fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the same forces as those
influencing prices for securities held by the Fund at a particular time. In
addition, due to the Fund’s novel and unique structure, Shares of the Fund may
trade at a larger premium or discount to the NAV of shares of traditional ETFs
that disclose their portfolio holdings daily.
Given the fact that
Shares can be created and redeemed by authorized participants in Creation Units,
the adviser believes that large discounts or premiums to the NAV of Shares
should not be sustained in the long-term. While the creation/ redemption feature
is designed to make it likely that Shares normally will trade close to the value
of the Fund’s holdings, market prices are not expected to correlate exactly to
the Fund’s NAV due to timing reasons, supply and demand imbalances and other
factors. In addition, disruptions to creations and redemptions, adverse
developments impacting market makers, authorized participants or other market
participants, or high market volatility may result in market prices for Shares
of the Fund that differ significantly from its NAV or to the intraday value of
the Fund’s holdings. As
a result of these factors, among others, the Fund’s Shares may trade at a
premium or discount to NAV, especially during periods of significant market
volatility.
Cost
of Buying or Selling Shares. When you buy or sell
Shares of the Fund through a broker, you will likely incur a brokerage
commission or other charges imposed by brokers. In addition, the market price of
Shares, like the price of any exchange-traded security, includes a “bid-ask
spread” charged by the market makers or other participants that trade the
particular security. The spread of the Fund’s Shares varies over time based on
the Fund’s trading volume and market liquidity and may increase if the Fund’s
trading volume, the spread of the Fund’s underlying securities, or market
liquidity decrease. In times of severe market disruption, including when trading
of the Fund’s holdings may be halted, the bid-ask spread may increase
significantly. This means that Shares may trade at a discount to the Fund’s NAV,
and the discount is likely to be greatest during significant market
volatility.
March
2, 2023 | 11
More
About the Fund
(continued)
Short
Selling Risk. Shares of the Fund,
similar to shares of other issuers listed on a stock exchange, may be sold short
and are therefore subject to the risk of increased volatility and price
decreases associated with being sold short.
No
Guarantee of Active Trading Market Risk. While Shares are
listed on the Exchange, there can be no assurance that active trading markets
for the Shares will be maintained by market makers or by authorized
participants. JPMorgan Distribution Services, Inc., the distributor of the
Fund’s Shares (the Distributor), does not maintain a secondary market in the
Shares.
Trading
Issues Risk. Trading in Shares on
the Exchange may be halted due to market conditions or for reasons that, in the
view of the Exchange, make trading in Shares inadvisable. In addition, trading
in Shares on the Exchange is subject to trading halts caused by extraordinary
market volatility pursuant to the Exchange “circuit breaker” rules. If a trading
halt or unanticipated early closing of the Exchange occurs, a shareholder may be
unable to purchase or sell Shares of the Fund.
There can be no
assurance that the requirements of the Exchange 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 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. The fact that the Fund is
offering a novel and unique structure may affect the number of entities willing
to act as authorized participants.
Preferred Stock
Risk. Preferred stock
generally has a preference as to dividends and liquidation over an issuer’s
common stock but ranks junior to debt securities in an issuer’s capital
structure. Unlike interest payments on debt securities, dividends on preferred
stock are payable only if declared by the issuer’s board of directors. As a
consequence, if the board of directors of an issuer does not declare dividends
or distributions for the relevant dividend or distribution periods, the issuer
will not be obligated to pay dividends or distributions on the relevant payment
date, and such dividends and distributions may be forfeited. Holders of
preferred stock typically do not have voting rights except in certain
circumstances where they may be given only limited voting rights. Preferred
stock also may be subject to optional or mandatory redemption provisions.
Preferred shares may carry different rights or obligations in jurisdictions
outside of the United States.
Securities
Lending Risk. The Fund may engage
in securities lending. Securities lending involves counterparty risk, including
the risk that the loaned securities may not be returned or returned in a timely
manner and/or a loss of rights in the collateral if the borrower or the lending
agent defaults. This risk is increased when the Fund’s loans are concentrated
with a single or limited number of borrowers. In addition, the Fund bears the
risk of loss in connection with its investments of the cash collateral it
receives from the borrower. To the extent that the value or return of the Fund’s
investments of the cash collateral declines below the amount owed to a borrower,
the Fund may incur losses that exceed the amount it earned on lending the
security. In situations where the adviser does not believe that it is prudent to
sell the cash collateral investments in the market, the Fund may borrow money to
repay the borrower the amount of cash collateral owed to the borrower upon
return of the loaned securities. This will result in financial leverage, which
may cause the Fund to be more volatile because financial leverage tends to
exaggerate the effect of any increase or decrease in the value of the Fund’s
portfolio securities.
Cyber
Security Risk. As the use of
technology has become more prevalent in the course of business, the Fund has
become more susceptible to operational and financial risks associated with cyber
security, including: theft, loss, misuse, improper release, corruption and
destruction of, or unauthorized access to, confidential or highly restricted
data relating to the Fund and its shareholders; and compromises or failures to
systems, networks, devices and applications relating to the operations of the
Fund and its service providers. Cyber security risks may result in financial
losses to the Fund and its shareholders; the inability of the Fund to transact
business with its shareholders; delays or mistakes in the calculation of the
Fund’s NAV or other materials provided to shareholders; the inability to process
transactions with shareholders or other parties; violations of privacy and other
laws; regulatory fines, penalties and reputational damage; and compliance and
remediation costs, legal fees and other expenses. The Fund’s service providers
(including, but not limited to, the adviser, any sub-advisers, administrator,
transfer agent, and custodian or their agents), financial intermediaries,
companies in which the Fund invests and parties with which the Fund engages in
portfolio or other transactions also may be adversely impacted by cyber security
risks in their own businesses, which could result in losses to the Fund or its
shareholders. While measures have been developed which are designed to reduce
the risks associated with cyber security, there is no guarantee that those
measures will be effective, particularly since the Fund does not directly
control the cyber security defenses or plans of its service providers, financial
intermediaries and companies in which it invests or with which it does
business.
12 | J.P.
Morgan Exchange-Traded Funds
Regulatory and
Legal Risk. U.S. and
non-U.S. governmental agencies and other regulators regularly implement
additional regulations and legislators pass new laws that affect the investments
held by the Fund, the strategies used by the Fund or the level of regulation or
taxation applying to the Fund (such as regulations related to investments in
derivatives and other transactions). These regulations and laws may adversely
impact the investment strategies, performance, costs and operations of the Fund
or taxation of shareholders.
Volcker
Rule Risk. Pursuant to Section
619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and certain
rules promulgated thereunder known as the Volcker Rule, if the adviser and/or
its affiliates own 25% or more of the outstanding ownership interests of the
Fund after the permitted seeding period from the implementation of the Fund’s
investment strategy, the Fund could be subject to restrictions on trading that
would adversely impact the Fund’s ability to execute its investment strategy.
Generally, the permitted seeding period is three years from the implementation
of the Fund’s investment strategy. As a result, the adviser and/or its
affiliates may be required to reduce their ownership interests in the Fund at a
time that is sooner than would otherwise be desirable, which may result in the
Fund’s liquidation or, if the Fund is able to continue operating, may result in
losses, increased transaction costs and adverse tax consequences as a result of
the sale of portfolio securities.
New Fund
Risk. The Fund is new
with no operating history. As a result, prospective investors have no track
record or history on which to base their investment decisions. In addition,
until the Fund achieves a certain size, the performance of certain of its
investments may disproportionately impact the performance of the Fund, which may
be subject to heightened volatility. As a new fund, the Fund also may be subject
to a “ramp-up” period during which it may not be fully invested or able to meet
its investment objective or investment policies. In addition, there can be no
assurance that the Fund will grow to or maintain an economically viable
size.
For more information
about risks associated with the types of investments that the Fund purchases,
please read the “Risk/Return Summary” at the front of this prospectus and the
Statement of Additional Information.
Conflicts
of Interest
An investment in a
Fund is subject to a number of actual or potential conflicts of interest. For
example, the Adviser and/or its affiliates provide a variety of different
services to a Fund, for which the Fund compensates them. As a result, the
Adviser and/or its affiliates have an incentive to enter into arrangements with
a Fund, and face conflicts of interest when balancing that incentive against the
best interests of a Fund. The Adviser and/or its affiliates also face conflicts
of interest in their service as investment adviser to other clients, and, from
time to time, make investment decisions that differ from and/or negatively
impact those made by the Adviser on behalf of a Fund. In addition, affiliates of
the Adviser provide a broad range of services and products to their clients and
are major participants in the global currency, equity, commodity, fixed income
and other markets in which a Fund invests or will invest. In certain
circumstances by providing services and products to their clients, these
affiliates’ activities will disadvantage or restrict the Funds and/or benefit
these affiliates. The Adviser may also acquire material non-public information
which would negatively affect the Adviser’s ability to transact in securities
for a Fund. JPMorgan and the Funds have adopted policies and procedures
reasonably designed to appropriately prevent, limit or mitigate conflicts of
interest. In addition, many of the activities that create these conflicts of
interest are limited and/or prohibited by law, unless an exception is available.
For more information about conflicts of interest, see the Potential
Conflicts of Interest section in the
Statement of Additional Information.
Temporary
Defensive and Cash Positions
For liquidity and to
respond to unusual market conditions, the Fund may invest all or most of its
total assets in cash and cash equivalents for temporary defensive purposes.
These investments may result in a lower yield than lower-quality or longer-term
investments.
|
WHAT
IS A CASH EQUIVALENT? |
|
Cash
equivalents are highly liquid, high-quality instruments with maturities of
three months or less on the date they are purchased.
They
include securities issued by the U.S. government, repurchase agreements,
and government money market mutual
funds. |
While the Fund is
engaged in a temporary defensive position, it may not meet its investment
objective. These investments may also be inconsistent with the Fund’s main
investment strategies. Therefore, the Fund will pursue a temporary defensive
position only when market conditions warrant.
Proxy
Portfolio and Proxy Overlap
Unlike traditional
ETFs, this Fund does not disclose its Actual Portfolio daily. The Fund instead
posts a Proxy Portfolio on its website each day, including the following
information for each portfolio holding in the Proxy Portfolio: (1) ticker
symbol; (2) other identifier; (3) description of holdings; (4) quantity of each
security or other asset held; and (5) percentage weight of the holdings in the
Proxy
March
2, 2023 | 13
More
About the Fund
(continued)
Portfolio. The Proxy
Portfolio is designed to reflect the economic exposures and risk characteristics
of the Fund’s actual holdings on each trading day, but it is not the same as the
Actual Portfolio. The Fund will disclose its Actual Portfolio quarterly with a
60-day lag via periodic filings with the SEC and as described in Portfolio
Holdings Disclosure below. The Proxy
Portfolio disclosures will enable arbitrageurs and market participants to use
the component securities and their weightings in the Proxy Portfolio to
calculate intra-day values that approximate the value of the securities in the
Actual Portfolio and, based thereon, assess whether the market price of the
Shares is higher or lower than the approximate contemporaneous value of the
Actual Portfolio and engage in arbitrage and hedging activities. These
activities are intended to ensure that Fund market prices remain close to the
Fund’s NAV per share. At the end of each trading day, the Fund will calculate
the Proxy Overlap and the Tracking Error and publish such information before the
opening of trading each Business Day. The Proxy Overlap and Tracking Error will
provide additional information to the market making community. In particular,
this information will help market participants evaluate the risk that the
performance of the Proxy Portfolio may deviate from the performance of the
portfolio holdings of the Fund. The Board monitors its Tracking Error, bid/ask
spread and premiums/discounts. If deviations become too large, the Board will
consider the continuing viability of the Fund, whether shareholders are being
harmed, and what, if any, corrective measures would be appropriate. See below
for further discussion of the Board’s monitoring responsibilities.
The Fund may buy or
sell certain securities, in connection with effecting in-kind purchases or
redemptions in exchange for the Proxy Portfolio to the extent the composition of
the Proxy Portfolio differs from the Actual Portfolio. Any such transactions may
incur additional transaction costs, which will be borne by the Fund, and may
generate taxable gain or loss.
The Proxy Portfolio is designed to
recreate the daily performance of the Actual Portfolio. This is achieved by
performing a “Factor Model” analysis of the Actual Portfolio. The Factor Model
is comprised of three sets of factors or analytical metrics: market-based
factors, fundamental factors, and industry/sector factors. The Fund uses a
“Model Universe” to generate its Proxy Portfolio. The Model Universe is
comprised of securities that the Fund can purchase and from which Fund
investments will be selected. The results of the Factor Model analysis are then
applied to the Model Universe. The Proxy Portfolio is then generated as a result
of this Model Universe analysis with the Proxy Portfolio being a sub-set of the
Model Universe based on holdings and/or percentage weight. The Factor Model is
applied to both the Actual Portfolio and the Model Universe to construct the
Fund’s Proxy Portfolio that performs in a manner substantially similar to the
performance of its Actual Portfolio. The Proxy Portfolio will only include
investments the Fund is permitted to hold. The Fund’s SAI contains more
information on the Proxy Portfolio and its construction. Proxy Portfolio and
Proxy Overlap information regarding the contents of the Proxy Portfolio, and the
percentage weight overlap between the holdings of the Proxy Portfolio and the
Actual Portfolio holdings that formed the basis for its calculation of NAV at
the end of the prior Business Day, is available by visiting the Fund’s website
www.jpmorganfunds.com.
Board
Responsibilities under The Order
In addition to the
Board’s general responsibilities of overseeing the management and operations of
the Fund on behalf of the Fund’s shareholders, the Board also has additional
oversight responsibilities under the Order. Given that this structure is unlike
other J.P. Morgan ETFs, the adviser will monitor on an on-going basis how Shares
trade, including the level of any premium/discount to NAV and the bid/ask
spreads on market transactions. For at least the first three years after the
launch of the Fund, the adviser will promptly call a meeting of the Board (and
will present to the Board for its consideration, recommendations for appropriate
remedial measures) and the Board will promptly meet (1) if the Tracking Error
exceeds 1%; (2) if, for 30 or more days in any quarter or 15 days in a row (a)
the absolute difference between either the closing price or the bid/ask price,
on one hand, and NAV, on the other, exceeds 2%; or (b) the bid/ask spread
exceeds 2%; or (3) as otherwise deemed necessary or appropriate by the adviser.
In such a circumstance, the Board will consider the continuing viability of the
Fund, whether shareholders are being harmed, and what, if any, corrective
measures would be appropriate to, among other things, narrow the Tracking Error,
premium/discount, or bid/ask spread, as applicable. The Board will then decide
whether to take any such action. Potential actions may include, but are not
limited to: (a) changing lead market makers; (b) listing the Fund on a different
exchange; (c) changing the size of Creation Units; (d) changing the Fund’s
investment objective or strategy; (e) publicly disclosing additional information
regarding the Proxy Portfolio and/or Actual Portfolio; and (f) revising the
algorithms and model universe used as part of the NYSE Proxy Portfolio
Methodology. Should the adviser conclude that the premium/discount between the
market price and NAV of the Shares remains persistently high, it could recommend
to the Board that it liquidate the Fund or authorize the adviser to pursue the
potential conversion of the Fund to a fully-transparent, active ETF or a mutual
fund. The Board will also regularly review the Fund’s historical
premiums/discounts and bid-ask spreads following the three-year period after the
Fund’s launch, under the same standards as applied during the first three years
of the Fund’s life, and determine if any corrective measures may be appropriate.
For at least the first three years after launch of the Fund, the Board will also
undertake these considerations on an annual basis regardless of whether the
Fund’s preset thresholds have been crossed.
14 | J.P.
Morgan Exchange-Traded Funds
Additional
Fee Waiver and/or Expense Reimbursement
Service providers to
the Fund may, from time to time, voluntarily waive all or a portion of any fees
to which they are entitled and/or reimburse certain expenses as they may
determine from time to time. The Fund’s service providers may discontinue or
modify these voluntary actions at any time without notice. Performance for the
Fund, when available, will reflect the voluntary waiver of fees and/or the
reimbursement of expenses, if any. Without these voluntary waivers and/or
expense reimbursements, performance would be less favorable.
March
2, 2023 | 15
The Fund’s
Management and Administration
The Fund’s
Management and Administration
The Fund is a series
of J.P. Morgan Exchange-Traded Fund Trust, a Delaware statutory trust (the
Trust). The Trust is governed by the Board of Trustees, which is responsible for
overseeing all business activities of the Fund.
The Fund’s
Investment Adviser and Administrator
J.P. Morgan Investment Management
Inc. (JPMIM or the adviser) is the investment adviser and administrator to the
Fund. JPMIM is located at 383 Madison Avenue, New York, NY 10179. In addition to
managing the Fund’s portfolio, JPMIM also provides administrative services for
and oversees the other service providers of the Fund.
JPMIM is a
wholly-owned subsidiary of JPMorgan Asset Management Holdings Inc., which is a
wholly-owned subsidiary of JPMorgan Chase & Co. (JPMorgan Chase), a bank
holding company.
In rendering
investment advisory services to the Fund, JPMIM uses the portfolio management,
research and other resources of a foreign (non-U.S.) affiliate of JPMIM and may
provide services to the Fund through a “participating affiliate” arrangement, as
that term is used in relief granted by the staff of the SEC. Under this relief,
U.S. registered investment advisers are allowed to use portfolio management or
research resources of advisory affiliates subject to the regulatory supervision
of the registered investment adviser.
A discussion of the
basis the Board of Trustees of the Trust used in approving the management
agreement for the Fund will be available in the first shareholder report for the
Fund.
Management
Fee and Other Expenses
Pursuant to the
Fund’s management agreement, JPMIM is entitled to a management fee, incurred
daily and paid monthly of the Fund’s average daily net assets at the following
rate of 0.74%. Under the management agreement, JPMIM is responsible for
substantially all the expenses of the Fund (including expenses of the Trust
relating to the Fund), except for the management fees, payments under the Fund’s
12b-1 plan (if any), interest expenses, dividend and interest expenses related
to short sales, taxes, acquired fund fees and expenses (other than fees for
funds advised by the adviser and/ or its affiliates), costs of holding
shareholder meetings, and litigation and potential litigation and other
extraordinary expenses not incurred in the ordinary course of the Fund’s
business. Additionally, the Fund shall be responsible for its non-operating
expenses, including brokerage commissions and fees and expenses associated with
the Fund’s securities lending program, if applicable.
The
Portfolio Managers
The portfolio management team is led
by Lawrence E. Playford, Managing Director of JPMIM, Jeremy C. Miller, Executive
Director of JPMIM and Ryan N. Jones, Executive Director of JPMIM. Mr. Playford,
a CFA charterholder, is the lead portfolio manager on the Fund and is a senior
member of the U.S. Equity Value team. He joined the U.S. Equity Value team as a
research analyst in 2003 and became a portfolio manager in 2004. As portfolio
managers, Messrs. Miller and Jones share authority in the day-to-day management
of the Fund. An employee of the firm since 2016, Mr. Miller has been an
investment analyst on the U.S. Equity Value team since 2016, currently covering
industrials and materials, and a portfolio manager since 2023. Before joining
the firm, Mr. Miller was an industrial and materials specialist at Vertical
Research Partners and an institutional equity salesperson at several other
firms. An employee since 2016, Mr. Jones has been an investment analyst on the
U.S. Equity Value team since 2016, currently covering technology &
communication services, and a portfolio manager since 2023. Before joining the
firm, Mr. Jones was in technology equity research at several other
firms.
The Statement of
Additional Information provides additional information about the portfolio
manager's compensation, other accounts managed by the portfolio manager and the
portfolio manager's ownership of securities in the Fund.
The Fund’s
Distributor
JPMorgan Distribution Services, Inc.
(the Distributor) is the distributor of the Fund’s Shares. 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 1111 Polaris Parkway, Columbus, OH 43240.
Payments
to Financial Intermediaries
JPMIM and, from time
to time, other affiliates of JPMorgan Chase may, at their own expense and out of
their own legitimate profits, provide cash payments to Financial Intermediaries
whose customers invest in Shares of the Fund. For this purpose, Financial
Intermediaries include financial advisors, investment advisers, brokers,
financial planners, banks, insurance companies, retirement or 401(k) plan
administrators and others, including various affiliates of JPMorgan Chase, that
may enter into agreements with JPMIM
16 | J.P.
Morgan Exchange-Traded Funds
and/or its
affiliates. These cash payments may relate to marketing activities and
presentations, educational training programs, the support of technology
platforms and/or reporting systems, or the Financial Intermediaries’ making
Shares of the Fund available to their customers. Such compensation may provide
such Financial Intermediaries with an incentive to favor sales of Shares of the
Fund over other investment options they make available to their customers. See
the Statement of Additional Information for more information.
March
2, 2023 | 17
Purchase
and Redemption of Shares
Buying
and Selling Shares
In
the Secondary Market. Most investors will
buy and sell Shares of the Fund in secondary market transactions through
brokers. Shares of the Fund are listed and traded on the secondary market on the
Exchange. Shares can be bought and sold throughout the trading day like other
publicly traded shares. There is no minimum investment. Although Shares are
generally purchased and sold in “round lots” of 100 Shares, brokerage firms
typically permit investors to purchase or sell Shares in smaller “odd lots,” at
no per-Share price differential. When buying or selling Shares through a broker,
you will incur customary brokerage commissions and charges, and you may pay some
or all of the spread between the bid and the offered price in the secondary
market on each leg of a round trip (purchase and sale) transaction. The spread
varies over time for Shares of the Fund based on the Fund’s trading volume and
market liquidity, and is generally lower if the Fund has a lot of trading volume
and market liquidity.
Shares of the Fund
trade on the Exchange at prices that may differ to varying degrees from the
daily NAV of the Shares.
Directly with
the Fund. The Fund’s
Shares are issued or redeemed by the Fund at NAV per Share only in a large
specified number of Shares called a “Creation Unit” or multiples thereof.
Investors such as market makers, large investors and institutions who wish to
deal in Creation Units directly with the Fund must have entered into an
authorized participant agreement with the Distributor, or purchase through a
dealer that has entered into such an agreement. Set forth below is a brief
description of the procedures applicable to purchases and redemptions of
Creation Units. For more detailed information, see “Appendix A - Purchases and Redemptions” in the
Fund’s Statement of Additional Information.
Beneficial
Ownership. 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 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. For more detailed information, see
“Book Entry Only System” in the Fund’s Statement of Additional
Information.
Premium/Discount
Information
The Fund has not
commenced operations as of the date of this prospectus and, therefore, does not
have information about the differences between the Fund’s daily market price on
the Exchange and its NAV. When available, information regarding how often the
Shares of the Fund traded on the Exchange at a price 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 quarters since
that year (or the life of the Fund, if shorter) can be found at
www.jpmorganfunds.com.
Pricing
Shares
Investors that
purchase or sell Shares on the secondary market transact at the market price on
the Exchange. The market price may differ from the Fund’s daily NAV and can be
affected by market forces of supply and demand, economic conditions and other
factors. The price you pay or receive when you buy or sell your Shares in the
secondary market may be at a premium or discount. Although the Proxy Portfolio
is intended to provide authorized participants and other market participants
with enough information to allow for an effective arbitrage mechanism that is
intended to keep the market price of the Fund at or close to the underlying NAV
per share of the Fund, there is a risk (which may increase during periods of
market disruption or volatility) that market prices will vary significantly from
the underlying NAV of the Fund. It is possible that the Fund will trade with a
larger premium/discount and/or wider bid/ask spreads because of its
non-transparent structure, especially during periods of market disruption or
volatility, and therefore, may cost investors more to trade. Although the Fund
seeks to benefit from keeping its portfolio information secret, market
participants may attempt to use the Proxy Portfolio to identify the Fund’s
trading strategy, which if successful, could result in such market participants
engaging in certain predatory trading practices that may have the potential to
harm the Fund and its shareholders.
18 | J.P.
Morgan Exchange-Traded Funds
Because the Shares
are traded in the secondary market, a broker may charge a commission to execute
a transaction in Shares, and an investor also may incur the cost of the spread
between the price at which a dealer will buy Shares and the somewhat higher
price at which a dealer will sell Shares.
The Exchange
disseminates the approximate value of Shares of the Fund periodically throughout
the trading day. This approximate value should not be viewed as a “real-time”
update of the NAV per Share of the Fund because the approximate value may not be
calculated in the same manner as the NAV, which is computed only once a day. The
approximate value is generally determined by using both current market
quotations and/or price quotations obtained from broker-dealers and other market
intermediaries that may trade in the portfolio securities held by the Fund. The
Fund is not involved in, or responsible for, the calculation or dissemination of
the approximate value and the Fund does not make any representation or warranty
as to its accuracy.
NAV is calculated
each business day as of the close of the New York Stock Exchange (NYSE), which
is typically 4:00 p.m. E.T. On occasion, the NYSE will close before 4:00 p.m.
E.T. When that happens, NAV will be calculated as of the time the NYSE closes.
The Fund will not treat an intraday unscheduled disruption or closure in NYSE
trading as a closure of the NYSE and will calculate NAV as of 4:00 p.m. E.T. if
the particular disruption or closure directly affects only the NYSE. The price
at which a purchase of a Creation Unit is effected is based on the next
calculation of NAV after the order is received in proper form in accordance with
this prospectus. To the extent the Fund invests in securities that are primarily
listed on foreign exchanges or other markets that trade on weekends or other
days when the Fund does not price its Shares, the value of the Fund’s Shares may
change on days when you will not be able to purchase or redeem your Shares. The
NAV per share of the Fund is equal to the value of all its assets minus its
liabilities, divided by the number of outstanding shares.
Securities for which
market quotations are readily available are generally valued at their current
market value. Other securities and assets, including securities for which market
quotations are not readily available, market quotations are determined not to be
reliable, or, their value has been materially affected by events occurring after
the close of trading on the exchange or market on which the security is
principally traded but before the Fund’s NAV is calculated, may be valued at
fair value in accordance with policies and procedures adopted by the Trust’s
Board of Trustees. Fair value represents a good faith determination of the value
of a security or other asset based upon specifically applied procedures. Fair
valuation may require subjective determinations. There can be no assurance that
the fair value of an asset is the price at which the asset could have been sold
during the period in which the particular fair value was used in determining the
Fund’s NAV.
Equity securities
listed on a North American, Central American, South American or Caribbean
securities exchange are generally valued at the last sale price on the exchange
on which the security is principally traded. The value of securities listed on
the NASDAQ Stock Market, Inc. is generally the NASDAQ official closing
price.
Shares of ETFs are
generally valued at the last sale price on the exchange on which the ETF is
principally traded. Shares of other open-end investment companies are valued at
their respective NAVs.
Exchange traded
futures are valued at the last sale price available prior to the calculation of
the Fund’s NAV.
Frequent
Purchases and Redemptions
The Fund imposes no restrictions on
the frequency of purchases and redemptions. The Board of Trustees evaluated the
risks of market timing activities by the Fund’s shareholders when they
considered that no restriction or policy was necessary. The Board considered
that, unlike mutual funds, the Fund issues and redeems its Shares at NAV only in
Creation Units, and the Fund’s Shares may be purchased and sold on the Exchange
at prevailing market prices.
March
2, 2023 | 19
Shareholder
Information
Taxes
on Distributions
The Fund intends to
elect to be treated and to qualify each taxable year as a regulated investment
company. A regulated investment company is not subject to tax at the corporate
level on income and gains from investments that are distributed to shareholders.
The Fund’s failure to qualify as a regulated investment company would result in
corporate-level taxation and, consequently, a reduction in income available for
distribution to shareholders.
The Fund can earn
income and realize capital gain. The Fund deducts any expenses and then pays out
the earnings, if any, to shareholders as distributions.
The Fund generally declares and
distributes net investment income, if any, at least annually. The Fund will
distribute net realized capital gain, if any, at least annually. For each
taxable year, the Fund will distribute substantially all of its net investment
income and net realized capital gain. The amounts of the Fund’s distributions
are driven by federal tax requirements. Such required taxable distributions to
shareholders may be significant even if the Fund’s overall performance for the
applicable taxable year is negative.
Distributions of net investment
income generally are taxable as ordinary income. Dividends of net investment
income paid to a non-corporate U.S. shareholder that are properly reported as
qualified dividend income generally will be taxable to such shareholder at a
maximum individual federal income tax rate applicable to “qualified dividend
income” of either 15% or 20%, depending on whether the individual’s income
exceeds certain threshold amounts. The amount of dividend income that may be so
reported by the Fund generally will be limited to the aggregate of the eligible
dividends received by the Fund. In addition, the Fund must meet certain holding
period and other requirements with respect to the shares on which the Fund
received the eligible dividends, and the non-corporate U.S. shareholder must
meet certain holding period and other requirements with respect to the Fund. The
amount of the Fund’s distributions that would otherwise qualify for this
favorable tax treatment will be reduced as a result of the Fund’s securities
lending activities or high portfolio turnover-rate. Dividends of net investment
income that are not reported as qualified dividend income and dividends of net
short-term capital gain will be taxable to a U.S. shareholder as ordinary
income.
Distributions of net
capital gain (that is, the excess of the net gains from the sale of investments
that the Fund owned for more than one year over the net losses from investments
that the Fund owned for one year or less) that are properly reported by the Fund
as capital gain dividends will be taxable as long-term capital gain, regardless
of how long you have held your Shares in the Fund. The maximum individual
federal income tax rate applicable to long-term capital gains is generally
either 15% or 20%, depending on whether the individual’s income exceeds certain
threshold amounts. Distributions of net short-term capital gain (that is, the
excess of any net short-term capital gain over net long-term capital loss), if
any, will be taxable to U.S. shareholders as ordinary income. Capital gain of a
corporate shareholder is taxed at the same rate as ordinary income.
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 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.
If you buy Shares of
the Fund just before a distribution, you will 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 Shares). Any
gain resulting from the sale or exchange of Shares generally will be taxable as
long-term or short-term gain, depending upon how long you have held the
Shares.
The Fund’s
investment in derivative instruments may require the Fund to accrue and
distribute income not yet received. In order to generate sufficient cash to make
the requisite distributions, the Fund may be required to liquidate other
investments in its portfolio that it otherwise would have continued to hold,
including at times when it is not advantageous to do so.
The Fund’s
transactions in derivatives will be subject to special tax rules, the effect of
which may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund’s securities, and convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders. The Fund’s use of these types of transactions may result in the
Fund realizing more short-term capital gain and ordinary income subject to tax
at ordinary income tax rates than it would if it did not engage in such
transactions.
Please see the
Statement of Additional Information for additional discussion of the tax
consequences of the above-described and other investments to the Fund and its
shareholders.
The dates on which
dividends and capital gain, if any, will be distributed are available online at
www.jpmorganfunds.com.
Early in each
calendar year, you will receive a notice showing the amount of distributions you
received during the preceding calendar year and the tax status of those
distributions.
Any foreign
shareholder would generally be subject to U.S. tax-withholding on distributions
by the Fund, as discussed in the Statement of Additional
Information.
20 | J.P.
Morgan Exchange-Traded Funds
Any investor for
whom the Fund does not have a valid Taxpayer Identification Number may be
subject to backup withholding. The tax considerations described in this section
do not apply to tax-deferred accounts or other non-taxable
entities.
Taxes
on Exchange-Listed Shares Sales
Currently, any
capital gain or loss realized upon a sale of Shares is generally treated as
long-term capital gain or loss if the Shares have been held for more than one
year and as short-term capital gain or loss if the Shares have been held for one
year or less. Capital loss realized on the sale or exchange of Shares held for
six months or less will be treated as long-term capital loss to the extent of
any capital gain dividends received by the shareholder. The ability to deduct
capital losses may be limited.
Taxes
on Purchase and Redemption of Creation Units
At the time of
purchase, an Authorized Participant who exchanges equity 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 and
the exchanger’s aggregate basis in the securities surrendered and the cash paid.
At redemption, a person who exchanges Creation Units for equity securities will
generally recognize a gain or loss equal to the difference between the
exchanger’s basis in the Creation Units and the aggregate market value of the
securities received and the cash received in connection with the redemption. The
Internal Revenue Service, however, may assert that a loss realized upon an
exchange of securities for Creation Units cannot be deducted currently under the
rules governing “wash sales” on the basis that there has been no significant
change in economic position. Persons exchanging securities should consult their
own tax advisor with respect to whether the wash sale rules apply and when a
loss might be deductible.
Under current
federal tax laws, any capital gain or loss realized upon redemption of Creation
Units is generally treated as long-term capital gain or loss if the Shares have
been held for more than one year and as a short-term capital gain or loss if the
Shares have been held for one year or less.
If you purchase or
redeem Creation Units, you will be sent a confirmation statement showing how
many and at what price you purchased or sold Shares.
The above is a
general summary of tax implications of investing in the Fund. Because each
investor’s tax consequences are unique, please consult your tax advisor to see
how investing in the Fund and, for individuals and S corporations, selection of
a particular cost method of accounting will affect your own tax
situation.
Availability
of Proxy Voting Record
The Trustees have delegated the
authority to vote proxies for securities owned by the Fund to JPMIM. When
available, a copy of the Fund’s voting record for the most recent 12-month
period ended June 30 will be available on the SEC’s website at www.sec.gov or on
the Fund’s website at www.jpmorganfunds.com no later than August 31 of each
year. The Fund’s proxy voting record will include, among other things, a brief
description of the matter voted on for each portfolio security, and will state
how each vote was cast, for example, for or against the proposal.
Portfolio
Holdings Disclosure
No sooner than 15
days after the end of each month, the Fund will make available upon request the
uncertified, complete schedule of its portfolio holdings as of the last day of
that month.
Not later than 60
days after the end of each fiscal quarter, the Fund will make available upon
request a complete schedule of its portfolio holdings as of the last day of that
quarter.
The Fund will post these quarterly
schedules on the J.P. Morgan Funds’ website at www.jpmorganfunds.com and on the
SEC’s website at www.sec.gov.
In addition, from
time to time, the Fund may post portfolio holdings on the J.P. Morgan Funds’
website on a more frequent basis.
The Fund may disclose the Fund’s 10
largest portfolio holdings and the percentage that each of these 10 holdings
represent of the Fund’s portfolio as of the most recent month’s end, online at
www.jpmorganfunds.com, no sooner than 5 calendar days after month’s
end.
In addition, the top five holdings
that contributed to Fund performance and top five holdings that detracted from
Fund performance may be posted on the J.P. Morgan Funds’ website at
www.jpmorganfunds.com no sooner than 5 calendar days after month
end.
March
2, 2023 | 21
Shareholder
Information
(continued)
Other
Information
For purposes of the 1940 Act, the
Fund is treated as a registered investment company. Section 12(d)(1) of the 1940
Act restricts investments by investment companies in the securities of other
investment companies, including Shares of the Fund. 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.
22 | J.P.
Morgan Exchange-Traded Funds
Financial
Highlights
This section would
ordinarily include Financial Highlights. The Financial Highlights table is
intended to help you understand the Fund’s performance for the Fund’s periods of
operations. Because the Fund has not yet commenced operations as of the date of
this prospectus, no Financial Highlights are shown.
24 | J.P.
Morgan Exchange-Traded Funds
How
to Reach Us
MORE
INFORMATION
For investors who
want more information on the Fund the following documents are available free
upon request:
ANNUAL
AND SEMI-ANNUAL REPORTS
The Fund’s annual and semi-annual
reports, when available, will contain more information about the Fund’s
investments and performance. The annual report will also include details about
the market conditions and investment strategies that have a significant effect
on the Fund’s performance.
STATEMENT
OF ADDITIONAL INFORMATION (SAI)
The SAI contains
more detailed information about the Fund and its policies. It is incorporated by
reference into this prospectus. This means, by law, it is considered to be part
of this prospectus.
You can get a free
copy of these documents and other information, or ask us any questions, by
calling us at 1-844-457-6383 (844-4JPM ETF) or writing to:
J.P.
Morgan Exchange-Traded Funds
277 Park Avenue
New York, NY 10172
277 Park Avenue
New York, NY 10172
If you buy your
Shares through a Financial Intermediary, you should contact that Financial
Intermediary directly for more information. You can also find information online
at www.jpmorganfunds.com.
Reports, a copy of
the SAI, and other information about the Fund are also available on the EDGAR
Database on the Commission’s Internet site 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].
Investment Company
Act File No. for the Fund is 811-22903.
©JPMorgan Chase & Co., 2023. All
rights reserved. March 2023.
PR-ASCVETF-323