Prospectus
J.P. Morgan
Exchange-Traded Funds
July 1,
2023
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|
Ticker |
Listing
Exchange |
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JPMorgan
Inflation Managed Bond ETF |
JCPI |
Cboe BZX
Exchange, Inc. |
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JPMorgan
Realty Income ETF |
JPRE |
NYSE
Arca |
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
Inflation Managed Bond ETF
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Management
Fees |
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Other
Expenses |
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Total
Annual Fund Operating Expenses |
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Fee
Waivers and/or Expense Reimbursements1 |
- |
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Total
Annual Fund Operating Expenses after Fee Waiv-
ers
and/or Expense Reimbursements4 |
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1
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1
Year |
3
Years |
5
Years |
10
Years |
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SHARES
($) |
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July
1, 2023 | 1
JPMorgan
Inflation Managed Bond ETF
(continued)
The Fund is subject
to management risk and may not achieve its objective if the adviser’s
expectations regarding particular instruments or markets are not
met.
An investment in this 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 this Fund is suitable for you.
The Fund is subject
to the main risks noted below, any of which may adversely affect the Fund’s net
asset value (NAV), market price, performance and ability to meet its investment
objective.
2 | J.P.
Morgan Exchange-Traded Funds
1Loans will typically consist of senior floating rate loans, but may also include secured and unsecured loans, second lien loans or more junior and bridge loans.
July
1, 2023 | 3
JPMorgan
Inflation Managed Bond ETF
(continued)
4 | J.P.
Morgan Exchange-Traded Funds
July
1, 2023 | 5
JPMorgan
Inflation Managed Bond ETF
(continued)
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Past
1
Year |
Past
5
Years |
Past
10
Years |
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SHARES |
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Return Before
Taxes |
-
% |
% |
% |
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Return After
Taxes on Distributions |
- |
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Return After
Taxes on Distributions and
Sale of Fund
Shares |
- |
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BLOOMBERG
1-10 YEAR U.S. TIPS
INDEX
(Reflects No
Deduction for Fees,
Expenses, or
Taxes) |
- |
|
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BLOOMBERG
U.S. INTERMEDIATE
AGGREGATE
INDEX
(Reflects No
Deduction for Fees,
Expenses, or
Taxes) |
- |
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6 | J.P.
Morgan Exchange-Traded Funds
Management
J.P. Morgan
Investment Management Inc. (the adviser)
|
Portfolio
Manager |
Managed
the
Fund
Since |
Primary
Title with
Investment
Adviser |
|
Scott E.
Grimshaw |
2022 |
Executive
Director |
|
Steven
Lear* |
2022 |
Managing
Director |
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David
Rooney |
2022 |
Executive
Director |
|
Edward
Fitzpatrick III |
2023 |
Managing
Director |
Mr. Grimshaw, Mr.
Lear and Mr. Rooney also were the predecessor fund's portfolio managers since
2010, 2013 and 2015, respectively.
*
Mr. Lear has announced his retirement
from JPMIM effective early 2024. Until his retirement, Mr. Lear will continue to
serve on the portfolio management team.
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, 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 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.
July
1, 2023 | 7
JPMorgan Realty
Income ETF
Ticker:
JPRE
What is the goal
of the Fund?
The Fund seeks to provide high total
investment return through a combination of capital appreciation and current
income.
Fees and Expenses
of the Fund
The following table describes the
fees and expenses that you may pay if you buy, hold and sell Shares of the Fund.
You may pay other fees, such as brokerage commissions and other fees to
financial intermediaries, which are not reflected in the table and example
below.
|
ANNUAL
FUND OPERATING EXPENSES
(Expenses
that you pay each year as a percentage of the value
of
your investment) | |
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Management
Fees |
0.60% |
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Other
Expenses |
0.12 |
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Total
Annual Fund Operating Expenses |
0.72 |
|
Fee
Waivers and/or Expense Reimbursements1 |
-0.22 |
|
Total
Annual Fund Operating Expenses after Fee Waiv-
ers
and/or Expense Reimbursements4 |
0.50 |
1
The Fund’s adviser and/or its
affiliates have contractually agreed to waive fees and/or reimburse expenses to
the extent Total Annual Fund Operating Expenses (excluding acquired fund fees
and expenses other than certain money market fund fees as described below,
dividend and interest expenses related to short sales, interest, taxes, expenses
related to litigation and potential litigation, costs of shareholder meetings,
and extraordinary expenses) exceed 0.50% of the average daily net assets of the
Fund. The Fund may invest in one or more money market funds advised by the
adviser or its affiliates (affiliated money market funds). The Fund’s adviser
has contractually agreed to waive fees and/or reimburse expenses in an amount
sufficient to offset the fees and expenses of the affiliated money market funds
incurred by the Fund because of the Fund’s investment in such money market
funds. These waivers are in effect through 6/30/25, at which time it will be determined
whether such waivers will be renewed or revised. To the extent that the Fund
engages in securities lending, affiliated money market fund fees and expenses
resulting from the Fund’s investment of cash received from securities lending
borrowers are not included in Total Annual Fund Operating Expenses and
therefore, the above waivers do not apply to such
investments.
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
funds. The Example does not take into account brokerage commissions that you pay
when purchasing or selling Shares of the Fund. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that your investment has a 5% return each year and that the Fund’s
operating expenses are equal to the total annual fund operating expenses after
fee waivers and expense reimbursements shown in the fee table through 6/30/25
and total annual fund operating expenses thereafter. Your actual costs may be
higher or lower.
|
WHETHER
OR NOT YOU SELL YOUR SHARES, YOUR COST
WOULD
BE: | ||||
|
|
1
Year |
3
Years |
5
Years |
10
Years |
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SHARES
($) |
51 |
185 |
356 |
852 |
Portfolio
Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. During the Fund’s most recent fiscal
year, the Fund’s portfolio turnover rate was 84% of the average value of its
portfolio.
What are the
Fund’s main investment strategies?
The Fund seeks to achieve its
objective by investing substantially all of its assets, and in any event under
normal circumstances at least 80% of its net assets (plus the amount of any
borrowings for investment purposes), in equity securities of real estate
investment trusts (REITs), including REITs with relatively small market
capitalizations. The Fund may invest in both equity REITs and mortgage REITs.
Equity REITs take ownership interests in real estate. Mortgage REITs invest in
mortgages (loans secured by interests in real estate). The Fund may also invest
up to 15% of net assets in illiquid holdings.
As investment adviser to the Fund,
J.P. Morgan Investment Management Inc. (JPMIM) manages the portfolio utilizing a
disciplined investment process that focuses on stock selection rather than
focusing on particular sectors or themes. JPMIM’s portfolio management team
continuously screens the target universe of investments, selecting companies
that exhibit superior financial strength, operating returns and attractive
growth prospects.
The REIT research team takes an
in-depth look at each company’s ability to generate earnings over a long-term
business cycle, rather than focusing solely on near-term expectations. These
research efforts allow the team to determine each company’s normalized earnings
(i.e., projected earnings adjusted to reflect what the company should earn at
the midpoint of an economic cycle) and growth potential, from which they
evaluate whether each company’s current price fully reflects its long-term
value. As part of its investment process, the adviser seeks to assess the impact
of environmental, social and governance (ESG) factors on the companies in which
the Fund invests. The adviser’s assessment is based on a proprietary analysis of
key opportunities and risks across industries to seek to identify financially
material issues with respect to the Fund’s investments in securities and
ascertain key issues that merit engagement with company management.
8 | J.P.
Morgan Exchange-Traded Funds
These assessments may not be
conclusive and securities of companies may be purchased and retained by the Fund
for reasons other than material ESG factors.
The Fund is
non-diversified.
The Fund’s Main
Investment Risks
The Fund is subject to management
risk and may not achieve its objective if the adviser’s expectations regarding
particular instruments or markets are not met.
An investment in this 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 this Fund is suitable for you.
The Fund is subject to the main
risks noted below, any of which may adversely affect the Fund’s net asset value
(NAV), market price, performance and ability to meet its investment
objective.
Real Estate
Securities Risk. The
Fund’s investments in real estate securities, including REITs, are subject to
the same risks as direct investments in real estate and mortgages, and their
value will depend on the value of the underlying real estate interests. These
risks include default, prepayments, changes in value resulting from changes in
interest rates and demand for real and rental property, decreases in real estate
values, overbuilding, increased competition and other risks related to local or
general economic conditions, increases in operating costs and property taxes,
changes in zoning laws, casualty or condemnation losses, possible environmental
liabilities, regulatory limitations on rent, possible lack of availability of
mortgage financing, market saturation, fluctuations in rental income and the
value of underlying properties and extended vacancies of properties, and the
management skill and creditworthiness of REIT issuers. 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.
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. 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 issu
ers 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, financial
system 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 negatively affected economies, markets and individual companies
throughout the world, including those in which the Fund invests. The effects of
this, or any future, pandemic to public health and business and market
conditions may have a significant negative impact on the performance of the
Fund’s investments, increase the Fund’s 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 a
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 ultimate impact of any pandemic and the
extent to which the associated conditions and governmental responses impact the
Fund will also depend on future developments, which are highly uncertain,
difficult to accurately predict and subject to frequent changes.
Smaller Company
Risk. 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.
Non-Diversified
Fund Risk. Since the
Fund is non-diversified, it may invest a greater percentage of its assets in a
particular issuer or group of issuers than a diversified fund would. This
increased investment in fewer issuers may result in the Fund’s Shares being more
sensitive to economic results of those issuing the securities. The value of the
Fund’s Shares may also be more volatile than the value of a Fund which invests
in more securities.
July
1, 2023 | 9
JPMorgan Realty
Income ETF
(continued)
Concentration
Risk. The Fund is
concentrated in securities issued by REITs. This concentration increases the
risk of loss to the Fund by increasing its exposure to economic, business,
political or regulatory developments that may be adverse to REITs.
Tax
Risk. REITs in which
the Fund will invest are subject to complicated Internal Revenue Code rules. The
tax laws that apply to these investment vehicles have the potential to create
negative tax consequences for the Fund, or for certain shareholders of the Fund,
including, in particular, charitable remainder trusts and non-U.S. taxpayers.
The Fund is subject to the risk that the issuer of the securities will fail to
comply with certain requirements of the Internal Revenue Code, which could cause
adverse tax consequences.
The Fund may distribute amounts to
shareholders in excess of its earnings, resulting in a return of capital. Such
distributions are not currently taxable to shareholders; instead, any such
distributions would reduce a shareholder’s tax basis in its Shares, resulting in
an increased gain, or decreased loss, on a later redemption or other taxable
disposition of such Shares. Should any such distributions exceed a shareholder’s
tax basis in its Shares, such excess would be treated as gain and taxable to the
shareholder in the same manner as gain from a sale of Fund Shares.
ETF Shares
Trading Risk. Shares
are listed for trading on the NYSE Arca, Inc. (the Exchange) and are bought and
sold in the secondary market at market prices. The market prices of Shares are
expected to fluctuate, in some cases materially, in response to changes in the
Fund’s NAV, the intraday value of the Fund’s holdings and supply and demand for
Shares. The adviser cannot predict whether Shares will trade above, below or at
their NAV. Disruptions to creations and redemptions, the existence of
significant market volatility or potential lack of an active trading market for
the Shares (including through a trading halt), as well as other factors, may
result in the Shares trading significantly above (at a premium) or below (at a
discount) to NAV or to the intraday value of the Fund’s holdings. During such
periods, you may incur significant losses if you sell your Shares.
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.
Investments in the
Fund are not deposits or obligations of, or guaranteed or endorsed by, any bank
and are not insured or guaranteed by the FDIC, the Federal Reserve Board or any
other government agency.
You could lose
money investing in the Fund.
The Fund’s Past
Performance
This section provides some
indication of the risks of investing in the Fund. The Fund commenced operations
after the assets of another investment company advised by the adviser, JPMorgan
Realty Income Fund (the predecessor fund), were transferred to the Fund in a
tax-free reorganization as of the close of business on May 20, 2022. The Fund
has the same investment objective and substantially similar investment
strategies as those of the predecessor fund.
The bar chart shows how the
performance of the Fund’s Shares (represented by the performance of the
predecessor fund’s Class R6 Shares) has varied from year to year for the past
ten calendar years. The table shows the Fund’s average annual total returns
(represented by the average annual total returns of the predecessor fund’s Class
R6 Shares) for the past one year, five years and ten years. The table compares the Fund’s
performance
(represented by the performance of the predecessor fund’s Class R6 Shares) to
the performance of the FTSE NAREIT All Equity REITs Index and the Morgan Stanley
Capital International (MSCI) US REIT Index. Performance shown for the
predecessor fund’s Class R6 Shares prior to their inception are based on the
performance of the predecessor fund’s Class R5 Shares. The actual returns of the
predecessor fund’s Class R6 Shares would have been different than those shown
because the predecessor fund’s Class R6 Shares had different expenses than the
predecessor fund’s Class R5 Shares. Performance for the Fund’s Shares has not
been adjusted to reflect the Fund’s Shares’ lower expenses than those of the
predecessor fund’s Class R6 Shares and Class R5 Shares. Had the predecessor fund
been structured as an exchange-traded fund (ETF), its performance may have
differed. Performance for the predecessor fund is based on the NAV per share of
the predecessor fund shares rather than on market-determined prices.
Past performance (before and after taxes)
is not necessarily an indication of how the Fund will perform in the future.
Updated
performance information is available by visiting www.jpmorganfunds.com or by calling
1-844-457-6383
(844-4JPM
ETF).
The JPMorgan Realty Income ETF (the
“JPMorgan Realty Income ETF”) has been developed solely by JPMorgan Chase Bank
N.A. The JPMorgan Realty Income ETF is not in any way connected to or sponsored,
endorsed, sold or promoted by FTSE International Limited (“FTSE”) or the London
Stock Exchange Group plc and its group undertakings (collectively, the “LSE
Group”) or Nareit. All rights in the FTSE NAREIT All Equity REITs Index (the
“Index”) vest in FTSE and Nareit. “FTSE®” is a trade mark of the LSE Group and
is used by FTSE International
10 | J.P.
Morgan Exchange-Traded Funds
Limited (“FTSE”) under licence.
“NAREIT®” is a trade mark of the Nareit. The Index is calculated by FTSE.
Neither FTSE, nor the LSE Group, nor Nareit accept any liability whatsoever to
any person arising out of (a) the use of, reliance on or any error in the Index
or (b) investment in or operation of the JPMorgan Realty Income ETF. FTSE, the
LSE Group, and Nareit make no claim, prediction, warranty or representation
either as to the results to be obtained from the JPMorgan Realty Income ETF or
the suitability of the Index for the purpose to which it is being put by
JPMorgan Chase Bank N.A.
Source: MSCI.
The MSCI information may only be used for your internal use, may not be
reproduced or redisseminated in any form and may not be used as a basis for or a
component of any financial instruments or products or indices. None of the MSCI
information is intended to constitute investment advice or a recommendation to
make (or refrain from making) any kind of investment decision and may not be
relied on as such. Historical data and analysis should not be taken as an
indication or guarantee of any future performance analysis, forecast, or
prediction. The MSCI information is provided on an “as is” basis and the user of
this information assumes the entire risk of any use made of this information.
MSCI, each of its affiliates and each other person involved in or related to
compiling, computing or creating any MSCI information (collectively, the “MSCI
Parties”) expressly disclaims all warranties (including, without limitation, any
warranties of originality, accuracy, completeness, timeliness, non-infringement,
merchantability and fitness for a particular purpose) with respect to this
information. Without limiting any of the foregoing, in no event shall any MSCI
Party have any liability for any direct, indirect, special, incidental,
punitive, consequential (including, without limitation, lost profits) or any
other damages. (www.msci.com)
|
YEAR-BY-YEAR
RETURNS |
|
Best
Quarter |
1st quarter,
2019 |
17.24% |
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Worst
Quarter |
1st quarter,
2020 |
-23.50% |
|
The Fund’s
year-to-date total return |
through |
3/31/23 |
was |
3.57% |
. |
|
AVERAGE
ANNUAL TOTAL RETURNS
(For
periods ended December 31, 2022) | |||
|
|
Past
1
Year |
Past
5
Years |
Past
10
Years |
|
SHARES |
|
|
|
|
Return Before
Taxes |
-24.90
% |
4.29
% |
6.25
% |
|
Return After
Taxes on Distributions |
-29.21 |
1.49 |
3.84 |
|
Return After
Taxes on Distributions and
Sale of Fund
Shares |
-12.16 |
2.92 |
4.33 |
|
MSCI
US REIT INDEX
(Reflects No
Deduction for Fees,
Expenses, or
Taxes) |
-24.51 |
3.69 |
6.48 |
|
FTSE
NAREIT ALL EQUITY REITS
INDEX1
(Reflects No
Deduction for Fees,
Expenses, or
Taxes) |
-24.95 |
4.43 |
7.10 |
1
Effective April 1, 2023, the Fund’s
primary benchmark changed from the MSCI US REIT Index to the FTSE NAREIT All
Equity REITs Index to more closely align the Fund’s primary benchmark to the
current real estate landscape.
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns
depend on the
investor’s tax situation and may differ from those shown, and the after-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as 401(k) plans or individual retirement
accounts. In some cases, the “Return After Taxes on Distributions and Sale of
Fund Shares” may exceed the “Return Before Taxes” due to an assumed benefit from
any losses on a sale of Shares at the end of the measurement
period.
Management
J.P. Morgan Investment Management
Inc. (the adviser)
|
Portfolio
Manager |
Managed
the
Fund
Since |
Primary
Title with
Investment
Adviser |
|
Scott
Blasdell |
2022 |
Managing
Director |
|
Jason Ko,
CFA |
2022 |
Executive
Director |
Mr. Blasdell and Mr. Ko also were
the predecessor fund's portfolio managers since 2017 and 2009,
respectively.
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.
July
1, 2023 | 11
JPMorgan Realty
Income ETF
(continued)
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, 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 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.
12 | J.P.
Morgan Exchange-Traded Funds
More About the
Funds
Additional
Information About the Funds’ Investment Strategies
Each Fund is an ETF, which is a fund
that trades like other publicly-traded securities. Each Fund is not an index
fund. Each Fund is actively managed and does not seek to replicate the
performance of a specified index.
The name, investment objective and
policies of a Fund are similar to other funds advised by the adviser or its
affiliates. However, the investment results of a 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 a 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 a 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.
Inflation Managed
Bond ETF
The Fund is designed
to protect the total return generated by its core fixed income holdings from
inflation risk. As used in the Fund’s goal, “total return” includes income and
capital appreciation. The Fund is not able to and does not seek to achieve its
objective primarily through investments in inflation-protected fixed income
securities. Instead, because of the limited supply of certain
inflation-protected fixed income securities, the Fund synthetically creates
inflation protection by investing in a combination of conventional (i.e.,
non-inflation-protected) fixed income securities and CPI-U swaps. The swaps are
structured so that one counterparty agrees to pay the cumulative percentage
change in the CPI-U over the duration of the swap. The other counterparty (the
Fund) pays a compounded fixed rate (zero-coupon inflation-swap rate), which is
based on the “breakeven inflation rate,” calculated as the yield difference
between a nominal U.S. Treasury security and a TIPS of equal maturity. This
strategy is intended to create the equivalent of a portfolio of
inflation-protected securities.
Secondarily, the
Fund may purchase other investments including inflation-protected fixed income
securities such as TIPS.
Under normal
circumstances, the Fund will invest at least 80% of its Assets in bonds. The
Fund will provide shareholders at least 60 days prior notice of any change in
this policy. “Assets” means net assets plus the amount of borrowings for
investment purposes. A “bond” is a debt security with a maturity of 90 days or
more at the time of its issuance. Bonds may be issued or guaranteed by the U.S.
government or its agencies and instrumentalities, a domestic or a foreign
corporation or a municipality. Bonds also include securities issued or
guaranteed by a foreign government or its agencies and instrumentalities,
securities issued by or guaranteed by domestic and supranational banks,
mortgage-related and mortgage-backed securities, including principal-only and
interest-only stripped mortgage-backed securities and collateralized mortgage
obligations, asset-backed securities, convertible bonds, stripped government
securities and zero-coupon obligations.
The Fund may use
swaps structured as credit default swaps related to individual securities or
indexes of securities. A credit default swap is an agreement between two parties
where the buyer of protection (buyer) pays the seller of protection (seller) a
fixed periodic coupon for the specified life of the agreement. The seller makes
no payment to the buyer unless a predetermined credit event occurs. The Fund may
gain (sell protection) or reduce (buy protection) exposure to both high yield
and investment grade securities or indexes of high yield and investment grade
securities using credit default swaps.
The adviser buys and sells
securities and investments for the Fund based on its view of individual
securities and market sectors. Taking a long-term approach, the adviser looks
for individual fixed income investments that it believes will perform well over
market cycles. The adviser is value oriented and makes decisions to purchase and
sell individual securities and instruments after performing a risk/reward
analysis that includes an evaluation of interest rate risk, credit risk,
duration, liquidity, legal provisions and the structure of the transaction. 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 certain issuers or
countries in the universe in which the Fund may invest. The adviser’s assessment
is based on an analysis of key opportunities and risks across industries to seek
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 or countries 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
July
1, 2023 | 13
More About the
Funds
(continued)
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.
Credit
Quality. The Fund may invest
in below investment grade securities. Below investment grade securities are also
called “high yield bonds,” “junk bonds” and “non-investment grade bonds.” These
securities generally are rated in the fifth or lower rating categories (for
example, the equivalent of BB+ or lower). These securities generally offer a
higher yield than investment grade securities, but involve a higher degree of
risk.
A security’s quality
is determined at the time of purchase and securities that are rated investment
grade or the unrated equivalent may be downgraded or decline in credit quality
such that subsequently they would be deemed to be below investment grade. The
adviser will consider such an event in determining whether the Fund should
continue to hold the security and is not required to sell a security in the
event of a downgrade. The Fund uses the methodology described below to determine
the credit quality of its investments.
Investment grade
securities are securities that have been determined to be investment grade (for
example, the equivalent of BBB- or higher) based on ratings by the following
NRSROs - Moody’s Investors Service Inc. (Moody’s), Standard & Poor’s
Corporation (S&P), Fitch Ratings (Fitch), DBRS Morningstar, and Kroll and
the following methodology. Securities that have received ratings from more than
one of these NRSROs are considered investment grade if any one of the NRSROs has
rated the security investment grade. If none of these NRSROs rate a security,
the adviser must determine that it is of comparable quality to an investment
grade security or a non-investment grade security, respectively, in order for
such security to be treated as an investment grade or a non-investment grade
security, respectively.
As indicated in the
risk/return summary, the Fund may invest in “sub-prime” mortgage-related
securities. “Sub-prime” loans, which have higher interest rates, are made to
borrowers with low credit ratings or other factors that increase the risk for
default. In generally, these borrowers have impaired or limited credit
history.
Additional
Investment Strategies
Although not part of the Funds’ main
investment strategies, the Funds may invest in shares of exchange-traded funds
(ETFs), affiliated money market funds and other investment companies. ETFs,
which are pooled investment vehicles whose ownership interests are purchased and
sold on a securities exchange, may be passively or actively managed. Passively
managed ETFs generally seek to track the performance of a particular market
index, including broad-based market indexes, as well as indexes relating to
particular sectors, markets, regions or industries. Actively managed ETFs do not
seek to track the performance of a particular market index. Ordinarily, a Fund
must limit its investments in a single ETF to 5% of its total assets and in all
ETFs and other investment companies to 10% of its total assets. The
Securities and Exchange Commission adopted an exemptive rule that allows any
fund to disregard these 5% and 10% limitations, subject to certain conditions.
ETFs that are not structured as investment companies as defined in the
Investment Company Act of 1940 are not subject to these percentage limitations.
The price movement of an index-based ETF may not track the underlying index and
may result in a loss. In addition, ETFs may trade at a price above (premium) or
below (discount) their net asset value, especially during periods of significant
market volatility or stress, causing investors to pay or receive significantly
more or less than the value of the ETF’s underlying portfolio when they purchase
or sell their ETF shares, respectively.
Realty Income
ETF
The Fund seeks to achieve its
objective by investing substantially all of its assets, and in any event under
normal circumstances at least 80% of its net assets (plus the amount of any
borrowings for investment purposes), in equity securities of real estate
investment trusts (REITs), including REITs with relatively small market
capitalizations. The Fund may invest in both equity REITs and mortgage REITs.
Equity REITs take ownership interests in real estate. Mortgage REITs invest in
mortgages (loans secured by interests in real estate). The Fund may also invest
up to 15% of net assets in illiquid holdings.
As investment adviser to the Fund,
J.P. Morgan Investment Management Inc. (JPMIM) manages the portfolio utilizing a
disciplined investment process that focuses on stock selection rather than
focusing on particular sectors or themes. JPMIM’s portfolio management team
continuously screens the target universe of investments, selecting companies
that exhibit superior financial strength, operating returns and attractive
growth prospects.
The REIT research team takes an
in-depth look at each company’s ability to generate earnings over a long-term
business cycle, rather than focusing solely on near-term expectations. These
research efforts allow the team to determine each company’s normalized earnings
(i.e., projected earnings adjusted to reflect what the company should earn at
the midpoint of an economic cycle) and growth potential, from which they
evaluate whether each company’s current price fully reflects its long-term
value. 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
14 | J.P.
Morgan Exchange-Traded Funds
investment process, the adviser
seeks to assess the impact of ESG factors on the companies in which the Fund
invests. The adviser’s assessment is based on a proprietary analysis of key
opportunities and risks across industries to seek to identify financially
material issues with respect to the Fund’s investments in securities and
ascertain key issues that merit engagement with company management. These
assessments may not be conclusive and securities of companies may be purchased
and retained by the Fund for reasons other than material ESG 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 Fund is
non-diversified.
Additional
Investment Strategies
The Fund will invest primarily in
equity securities as described above. The Fund may invest its cash in repurchase
agreements and other cash instruments pending investment in equity
securities.
The main investment strategies for
the Fund may include the following, some of which may be equity
securities:
•
common stocks
•
REITs, which are pooled vehicles
that invest primarily in income-producing real estate or loans related to real
estate
•
other investment
companies
•
ETFs
•
affiliated money market
funds
ETFs, which are pooled investment
vehicles whose ownership interests are purchased and sold on a securities
exchange, may be passively or actively managed. Passively managed ETFs generally
seek to track the performance of a particular market index, including
broad-based market indexes, as well as indexes relating to particular sectors,
markets, regions or industries. Actively managed ETFs do not seek to track the
performance of a particular market index. Ordinarily, the Fund must limit its
investments in a single ETF to 5% of its total assets and in all ETFs and other
investment companies to 10% of its total assets. The Securities and Exchange
Commission adopted an exemptive rule that allows any fund investing in such ETFs
to disregard these 5% and 10% limitations, subject to certain conditions. ETFs
that are not structured as investment companies as defined in the Investment
Company Act of 1940 are not subject to these percentage limitations. The price
movement of an index-based ETF may not track the underlying index and may result
in a loss. In addition, ETFs may trade at a price above (premium) or below
(discount) their net asset value, especially during periods of significant
market volatility or stress, causing investors to pay or receive significantly
more or less than the value of the ETF’s underlying portfolio when they purchase
or sell their ETF shares, respectively.
Although not main strategies, the
Fund may also utilize the following, some of which may be equity
securities:
•
preferred stock
•
convertible securities
•
trust or partnership
interests
•
warrants and rights to buy common
stock.
•
securities lending
The Fund may utilize these
investment strategies to a greater or lesser degree.
The Fund has an 80% investment
policy which may be changed by the Board of Trustees without shareholder
approval. However, the Fund will provide shareholders with written notice at
least 60 days prior to a change in its 80% investment policy.
The frequency with which the Fund
buys and sells securities will vary from year to year, depending on market
conditions.
|
NON-FUNDAMENTAL
INVESTMENT OBJECTIVES |
|
An
investment objective is fundamental if it cannot be changed without the
consent of a majority of the outstanding Shares of each
Fund. Each
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. Each Fund may engage in securities
lending to increase its income. Securities lending involves the lending of
securities owned by a Fund to financial institutions such as certain
broker-dealers in exchange for cash collateral. A 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 a Fund’s investment in such money
market funds. During the term of the loan, each Fund is entitled to receive
amounts equivalent to distributions paid on the loaned securities as well as the
July
1, 2023 | 15
More About the
Funds
(continued)
return on the cash collateral
investments. Upon termination of the loan, each 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
a
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 a
Fund. Loan collateral (including any investment of that collateral) is not
subject to the percentage limitations regarding a Fund’s investments described
elsewhere in this prospectus. Securities
lending is not a principal strategy of the Funds.
Please note that the Funds also may
use other non-principal strategies that are not described in this section, but
which are described in the “Investment Practices” section later in the
prospectus and in the Statement of Additional Information.
Investment
Risks
There can be no assurance that each
Fund will achieve its investment objective.
The main risks associated with
investing in each Fund are summarized in the “Risk/Return Summary” at the front
of this prospectus. In addition to each Fund’s main risks, each Fund may be
subject to additional risks in connection with investments and strategies used
by each Fund from time to time. The table below identifies main risks and some
of the additional risks for each Fund.
Each Fund is subject to management
risk and may not achieve its objective if the adviser’s expectations regarding
particular instruments or markets are not met.
An investment in a Fund or any other fund may not provide a complete investment program. The suitability of an investment in a 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 a Fund is suitable for you.
The Funds are subject to the main
risks designated as such in the table below, any of which may adversely affect a
Fund’s net asset value (NAV), market price, performance and ability to meet its
investment objective. Each 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.
|
|
Inflation
Managed
Bond
ETF |
Realty
Income ETF |
|
Asset-Backed,
Mortgage-Related and Mortgage-Backed Securities Risk |
• |
|
|
Authorized
Participant Concentration Risk |
• |
• |
|
Cash
Transactions Risk |
• |
|
|
CFTC
Regulation Risk |
○ |
|
|
Concentration
Risk |
|
• |
|
Convertible
Securities Risk |
|
○ |
|
CPI-U
Strategy Risk |
• |
|
|
Credit
Risk |
• |
|
|
Currency
Risk |
• |
|
|
Cyber
Security Risk |
○ |
○ |
|
Derivatives
Risk |
• |
|
|
Equity
Market Risk |
|
• |
|
Exchange-Traded
Fund (ETF) and Investment Company Risk |
○ |
○ |
|
Foreign
Issuer Risk |
• |
|
|
Foreign
Securities and Emerging Markets Risk |
• |
|
|
General
Market Risk |
• |
• |
|
Geographic
Focus Risk |
• |
|
|
Government
Securities Risk |
• |
|
|
High
Portfolio Turnover Risk |
• |
|
•
Main
Risks
○
Additional
Risks
16 | J.P.
Morgan Exchange-Traded Funds
|
|
Inflation
Managed
Bond
ETF |
Realty
Income ETF |
|
High Yield
Securities Risk |
• |
|
|
Industry
and Sector Focus Risk |
• |
|
|
Inflation-Linked
and Inflation-Protected Security Risk |
• |
|
|
Interest
Rate Risk |
• |
|
|
Inverse
Floater Risk |
○ |
|
|
Loan
Risk |
• |
|
|
Market
Trading Risk |
• |
• |
|
Non-Diversified
Fund Risk |
|
• |
|
Preferred
Stock Risk |
|
○ |
|
Prepayment
Risk |
• |
|
|
Real Estate
Securities Risk |
○ |
• |
|
Regulatory
and Legal Risk |
○ |
○ |
|
Securities
Lending Risk |
○ |
○ |
|
Smaller
Company Risk |
○ |
• |
|
Strategy
Risk |
• |
|
|
Tax
Risk |
|
• |
|
Transactions
and Liquidity Risk |
○ |
○ |
|
Volcker
Rule Risk |
○ |
○ |
•
Main
Risks
○
Additional
Risks
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 a 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, financial system
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 a 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 negatively affected economies, markets and individual companies
throughout the world, including those in which a Fund invests. The effects of
this, or any future, pandemic to public
health and business and market conditions may have a significant negative
impact on the performance of a Fund’s investments, increase a Fund’s volatility,
negatively impact a Fund’s arbitrage and pricing mechanisms, exacerbate
pre-existing political, social and economic risks to a 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 a pandemic that affect the instruments in which a
Fund invests, or the issuers of such instruments, in ways that could have a
significant negative impact on a Fund’s investment performance. The ultimate
impact of any pandemic and the extent to which the associated conditions and
governmental responses impact a Fund will also depend on future developments,
which are highly uncertain, difficult to accurately predict and subject to
frequent changes.
Interest Rate
Risk. Each Fund invest in debt securities
that change in value based on changes in interest rates. If rates increase, the
value of these investments generally declines. On the other hand, if rates fall,
the value of these investments generally increases. Your investment will decline
in value if the value of these investments decreases. Securities with greater
interest rate sensitivity and longer maturities generally are subject to greater
fluctuations in value. The Funds may invest in variable and floating rate
securities. Although these instruments are generally less sensitive to interest
rate changes than fixed rate instruments, the value of variable and floating
rate securities may decline if their interest rates do not rise as quickly or as
much as general interest rates. Many factors can cause interest rates to rise.
Some examples include central bank monetary policy, rising inflation rates and
general economic conditions. The Funds may face a heightened level of interest
rate risk due to certain changes or uncertainty in monetary policy.
July
1, 2023 | 17
More About the
Funds
(continued)
Debt market
conditions are highly unpredictable and some parts of the market are subject to
dislocations. Beginning in March 2022, the Federal Reserve Board began
increasing interest rates and has signaled the possibility of further increases.
It is difficult to accurately predict the pace at which the Federal Reserve
Board will increase interest rates any further, or the timing, frequency or
magnitude of any such increases, and the evaluation of macro-economic and other
conditions could cause a change in approach in the future. Any such changes
could be sudden and could expose debt markets to significant volatility and
reduced liquidity for Fund investments.
Credit
Risk. There is a risk
that issuers and/or counterparties will not make payments on securities,
repurchase agreements or other investments held by a Fund. The risk of defaults
across issuers and/or counterparties increases in adverse market and economic
conditions, including the conditions resulting from the COVID-19 pandemic. Such
defaults could result in losses to a Fund. In addition, the credit quality of
securities held by a Fund may be lowered if an issuer’s or counterparty’s
financial condition changes. Lower credit quality may lead to greater volatility
in the price of a security and in Shares of a Fund. Lower credit quality also
may affect liquidity and make it difficult for the Fund to sell the security.
The Funds may invest in securities that are rated in the lowest investment grade
category. Such securities also are considered to have speculative
characteristics similar to high yield securities, and issuers or counterparties
of such securities are more vulnerable to changes in economic conditions than
issuers or counterparties of higher grade securities. Prices of the Funds’
investments may be adversely affected if any of the issuers or counterparties it
is invested in are subject to an actual or perceived deterioration in their
credit quality. Credit spreads may increase, which may reduce the market values
of the Funds’ securities. Credit spread risk is the risk that economic and
market conditions or any actual or perceived credit deterioration may lead to an
increase in the credit spreads (i.e., the difference in yield between two
securities of similar maturity but different credit quality) and a decline in
price of the issuer’s securities.
Strategy
Risk.
The Fund’s investment strategies may not work to generate inflation-protected
return. There is no guarantee that the use of derivatives and debt securities
will mimic a portfolio of inflation-protected bonds.
Derivatives
Risk. Certain Funds may use derivatives in connection with their 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
a 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 a Fund, and the cost of such strategies may reduce a Fund’s returns.
Certain derivatives also expose a Fund to counterparty risk, which is the risk
that the derivative counterparty will not fulfill its contractual obligations,
(and includes credit risk associated with the counterparty). Certain derivatives
are synthetic instruments that attempt to replicate the performance of certain
reference assets. With regard to such derivatives, a Fund does not have a claim
on the reference assets and is subject to enhanced counterparty risk. In
addition, a Fund may use derivatives for non-hedging purposes, which increases a
Fund’s potential for loss.
Certain of a Fund’s transactions in
futures, swaps, foreign currency derivatives and other derivatives could also
affect the amount, timing and character of distributions to shareholders which
may result in a 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 returns.
Derivatives may not perform as expected, so a Fund may not realize the intended
benefits. When used for hedging, the change in value of a derivative may not
correlate as expected with the currency, security or other risk being hedged. In
addition, given their complexity, derivatives expose a Fund to risks of
mispricing or improper valuations.
The possible lack of a liquid
secondary market for derivatives and the resulting inability of a Fund to sell
or otherwise close a derivatives position could expose the Fund to losses and
could make derivatives more difficult for the Fund to value accurately.
Derivatives can also expose a Fund to liquidity risk relating to the payment
obligations created thereunder and legal and operational risk.
Investing in derivatives will result
in a form of leverage. Leverage involves special risks. A Fund may be more
volatile than if the Fund had not been leveraged because leverage tends to
exaggerate any effect of the value of the Fund’s portfolio securities. A Fund
cannot assure you that the use of leverage will result in a higher return on
your investment, and using leverage could result in a net loss on your
investment. Registered investment companies such as the Funds are limited in
their ability to engage in derivative transactions.
In addition to the risks associated
with derivatives in general, a Fund will also be subject to risks related to
swap agreements. Because swap agreements are not exchange-traded, but are
private contracts into which a Fund and a swap counterparty enter as principals,
a Fund may experience a loss or delay in recovering assets if the counterparty
defaults on its obligations.
|
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. |
18 | J.P.
Morgan Exchange-Traded Funds
High Yield
Securities Risk. Some of the Funds may invest in high
yield, high risk securities (also known as junk bonds) which are considered to
be speculative. These investments may be issued by companies which are highly
leveraged, less credit-worthy or financially distressed. Non-investment grade
debt securities can be more sensitive to short-term corporate, economic and
market developments. During periods of economic uncertainty and change, the
market price of a Fund’s investments and a Fund’s NAV may be volatile.
Furthermore, though these investments generally provide a higher yield than
higher-rated debt securities, the high degree of risk involved in these
investments can result in substantial or total losses. These securities are
subject to greater risk of loss, greater sensitivity to economic changes,
valuation difficulties, and a potential lack of a secondary or public market for
securities. The market price of these securities can change suddenly and
unexpectedly. As a result, certain Funds are intended for investors who are able
and willing to assume a high degree of risk.
In recent years, there has been a
broad trend of weaker or less restrictive covenant protections in the high yield
market. Among other things, under such weaker or less restrictive covenants,
borrowers might be able to exercise more flexibility with respect to certain
activities than borrowers who are subject to stronger or more protective
covenants. For example, borrowers might be able to incur more debt, including
secured debt, return more capital to shareholders, remove or reduce assets that
are designated as collateral securing high yield securities, increase the claims
against assets that are permitted against collateral securing high yield
securities or otherwise manage their business in ways that could impact
creditors negatively. In addition, certain privately held borrowers might be
permitted to file less frequent, less detailed or less timely financial
reporting or other information, which could negatively impact the value of the
high yield securities issued by such borrowers. Each of these factors might
negatively impact the high yield instruments held by a Fund.
As part of its high yield strategy,
a Fund may invest in debt securities of smaller, newer companies. A Fund’s risks
increase as it invests more heavily in smaller companies (mid cap and small cap
companies). The securities of smaller companies may trade less frequently and in
smaller volumes than securities of larger companies. In addition, smaller
companies may be more vulnerable to economic, market and industry changes. As a
result, the changes in value of their debt securities may be more sudden or
erratic than in large capitalization companies, especially over the short term.
Because smaller companies may have limited product lines, markets or financial
resources or may depend on a few key employees, they may be more susceptible to
particular economic events or competitive factors than large capitalization
companies. This may cause unexpected and frequent decreases in the value of
a
Fund’s
investments.
Inflation-Linked
and Inflation-Protected Security Risk. Inflation-linked debt securities
are subject to the effects of changes in market interest rates caused by factors
other than inflation (real interest rates). In general, the price of an
inflation-linked security tends to decrease when real interest rates increase
and can increase when real interest rates decrease. Interest payments on
inflation-linked securities are unpredictable and will fluctuate as the
principal and interest are adjusted for inflation. Any increase in the principal
amount of an inflation-linked debt security will be considered taxable ordinary
income, even though a Fund will not receive the principal until
maturity.
There can also be no assurance that
the inflation index used will accurately measure the real rate of inflation in
the prices of goods and services. A Fund’s investments in inflation-linked
securities may lose value in the event that the actual rate of inflation is
different than the rate of the inflation index. In addition, inflation-linked
securities are subject to the risk that the CPI-U or other relevant pricing
index may be discontinued, fundamentally altered in a manner materially adverse
to the interests of an investor in the securities, altered by legislation or
Executive Order in a materially adverse manner to the interests of an investor
in the securities or substituted with an alternative index.
CPI-U Strategy
Risk. A Fund may use CPI-U swaps to hedge
inflation risk associated with certain debt securities. There is no guarantee
that such strategy will be effective in protecting the return from such
securities from inflation risks. In addition, CPI-U swaps are subject to
“Derivatives
Risk.”
Government
Securities Risk. Certain Funds invest in securities
issued or guaranteed by the U.S. government or its agencies and
instrumentalities (such as securities issued by Ginnie Mae, Fannie Mae, or
Freddie Mac). U.S. government securities are subject to market risk, interest
rate risk and credit risk. Securities, such as those issued or guaranteed by
Ginnie Mae or the U.S. Treasury, that are backed by the full faith and credit of
the United States are guaranteed only as to the timely payment of interest and
principal when held to maturity and the market prices for such securities will
fluctuate. Notwithstanding that these securities are backed by the full faith
and credit of the United States, circumstances could arise that would prevent
the payment of interest or principal. This would result in losses to a Fund.
Securities issued or guaranteed by U.S. government-related organizations, such
as Fannie Mae and Freddie Mac, are not backed by the full faith and credit of
the U.S. government and no assurance can be given that the U.S. government will
provide financial support. Therefore, U.S. government-related organizations may
not have the funds to meet their payment obligations in the future. U.S.
government securities include zero-coupon securities, which tend to be subject
to greater market risk than interest-paying securities of similar
maturities.
July
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More About the
Funds
(continued)
Asset-Backed,
Mortgage-Related and Mortgage-Backed Securities Risk. Asset-backed, mortgage-related and
mortgage-backed securities differ from conventional debt securities and are
subject to certain additional risks because principal is paid back over the life
of the security rather than at maturity. The value of these securities will be
influenced by the factors affecting the housing market and the assets underlying
such securities. As a result, during periods of difficult or frozen credit
markets, swings in interest rates, or deteriorating economic conditions,
mortgage-related and asset-backed securities may decline in value, face
valuation difficulties, become more volatile and/or become illiquid.
Additionally, during such periods and also under normal conditions, these
securities are also subject to prepayment and call risk. Gains and losses
associated with prepayments will increase or decrease a fund’s yield and the
income available for distribution by a Fund. When mortgages and other
obligations are prepaid and when securities are called, the Fund may have to
reinvest in securities with a lower yield or fail to recover additional amounts
(i.e., premiums) paid for securities with higher interest rates, resulting in an
unexpected capital loss and/or a decrease in the amount of dividends and yield.
In periods of either rising or declining interest rates, a Fund may be subject
to extension risk, and may receive principal later than expected. In periods of
rising interest rates, a Fund may exhibit additional volatility. Some of these
securities may receive little or no collateral protection from the underlying
assets and are thus subject to the risk of default described under “Credit
Risk.” The risk of such
defaults is generally higher in the case of asset-backed, mortgage-backed and
mortgage-related investments that include so-called “sub-prime” mortgages (which
are loans made to borrowers with low credit ratings or other factors that
increase the risk of default), credit risk transfer securities and credit-linked
notes issued by government-related organizations and private issuers. The
structure of some of these securities may be complex and there may be less
available information than other types of debt securities. Additionally,
asset-backed, mortgage-related and mortgage-backed securities are subject to
risks associated with their structure and the nature of the assets underlying
the securities and the servicing of those assets. Certain asset-backed,
mortgage-related and mortgage-backed securities may face valuation difficulties
and may be less liquid than other types of asset-backed, mortgage-related and
mortgage-backed securities, or debt securities.
The mortgage loans underlying
privately issued mortgage-related securities may not be subject to the same
underwriting requirements for the underlying mortgages that are applicable to
those mortgage-related securities that have government or government-sponsored
entity guarantees. As a result, the mortgage loans underlying privately issued
mortgage-related securities may have less favorable collateral, credit risk or
other underwriting characteristics than government or government-sponsored
mortgage-related securities that have wider variances in a number of terms
including interest rate, term, size, purpose and borrower characteristics. In
addition, certain mortgage-related securities which may include loans that
originally qualified under standards established by government-sponsored
entities (for example, certain REMICs that include Fannie Mae mortgages) are not
considered as government securities for purposes of a Fund’s investment
strategies or policies. There is no government or government-sponsored guarantee
for such privately issued investments.
Certain Funds may invest in CMOs.
CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. CMOs are issued in multiple classes, and each class may
have its own interest rate and/or final payment date. A class with an earlier
final payment date may have certain preferences in receiving principal payments
or earning interest. As a result, the value of some classes in which a Fund
invests may be more volatile and may be subject to higher risk of
non-payment.
Credit risk transfer
securities and credit-linked notes are general obligations issued by a
government-related organization or special purpose vehicle (SPV), respectively,
and are unguaranteed. Unlike mortgage-backed securities, investors in credit
risk transfer securities and credit-linked notes issued by a government-related
organization have no recourse to the underlying mortgage loans. In addition,
some or all of the mortgage default risk associated with the underlying mortgage
loans is transferred to the noteholder. There can be no assurance that losses
will not occur on an investment. These investments are also subject to the risks
described under “Prepayment
Risk,”
below.
The values of IO and PO
mortgage-backed securities are more volatile than other types of
mortgage-related securities. They are very sensitive not only to changes in
interest rates, but also to the rate of prepayments. A rapid or unexpected
increase in prepayments can significantly depress the price of IO securities,
while a rapid or unexpected decrease could have the same effect on PO
securities. In addition, because there may be a drop in trading volume, an
inability to find a ready buyer, or the imposition of legal restrictions on the
resale of securities, these instruments may be illiquid.
Prepayment
Risk. The issuer of
certain securities may repay principal in advance, especially when yields fall.
Changes in the rate at which prepayments occur can affect the return on
investment of these securities. When debt obligations are prepaid or when
securities are called, a Fund may have to reinvest in securities with a lower
yield. A Fund also may fail to recover additional amounts (i.e., premiums) paid
for securities with higher coupons, resulting in an unexpected capital
loss.
High Portfolio
Turnover Risk. A Fund will likely engage in active
and frequent trading leading to increased portfolio turnover, higher transaction
costs, and the possibility that the recognition of capital gains will be
accelerated, including short-term capital gains that will generally be taxable
to shareholders as ordinary income.
20 | J.P.
Morgan Exchange-Traded Funds
Industry and
Sector Focus Risk. At
times, certain Funds 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, contagion risk within a particular industry or
sector or to other industries or sectors, or other events that affect that
industry or sector more than securities of issuers in other industries and
sectors. To the extent that a Fund increases the relative emphasis of its
investments in a particular industry or sector, the value of a Fund’s Shares may
fluctuate in response to events affecting that industry or sector.
Foreign
Securities and Emerging Markets Risk. Investments in foreign
securities (including depositary
receipts) are subject to special risks in addition
to those of U.S. investments. These risks include political and economic risks,
unstable governments, civil conflicts and war, greater volatility, decreased
market liquidity, expropriation and nationalization risks, sanctions or other
measures by the United States or other governments, currency fluctuations,
higher transaction costs, delayed settlement, possible foreign controls on
investment, and less stringent investor protection and disclosure standards of
foreign markets. The securities markets of many foreign countries are relatively
small, with a limited number of companies representing a small number of
industries. If foreign securities are denominated and traded in a foreign
currency, the value of the Fund’s foreign holdings can be affected by currency
exchange rates and exchange control regulations. In certain markets where
securities and other instruments are not traded “delivery versus payment,” the
Fund may not receive timely payment for securities or other instruments it has
delivered or receive delivery of securities paid for and may be subject to
increased risk that the counterparty will fail to make payments or delivery when
due or default completely.
Foreign market trading hours,
clearance and settlement procedures, and holiday schedules may limit the Fund's
ability to buy and sell securities. Investments in foreign markets may also be
adversely affected by governmental actions such as the imposition of capital
controls, nationalization of companies or industries, expropriation of assets or
the imposition of punitive taxes. The governments of certain countries may
prohibit or impose substantial restrictions on foreign investing in their
capital markets or in certain sectors or industries. In addition, a foreign
government may limit or cause delay in the convertibility or repatriation of its
currency which would adversely affect the U.S. dollar value and/or liquidity of
investments denominated in that currency. Certain foreign investments may become
less liquid in response to market developments or adverse investor perceptions,
or become illiquid after purchase by the Fund, particularly during periods of
market turmoil. Moreover, the growing interconnectivity of global economies and
financial markets has increased the probability that adverse developments and
conditions in one country or region will affect the stability of economies and
financial markets in other countries or regions. A reduction in trading in
securities of issuers located in countries whose economies are heavily dependent
upon trading with key partners may have an adverse impact on the Fund’s
investments.
Securities registration, custody,
and settlement may in some instances be subject to delays and legal and
administrative uncertainties. Foreign investment in the securities markets of
certain foreign countries is restricted or controlled to varying degrees. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the costs and expenses of a Fund. In addition, the repatriation
of investment income, capital or the proceeds of sales of securities from
certain of the countries is controlled under regulations, including in some
cases the need for certain advance government notification or authority, and if
a deterioration occurs in a country’s balance of payments, the country could
impose temporary restrictions on foreign capital remittances. A Fund also could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation, as well as by the application to it of other restrictions on
investment.
Events and evolving conditions in
certain economies or markets may alter the risks associated with investments
tied to countries or regions that historically were perceived as comparatively
stable becoming riskier and more volatile. The risks associated with foreign
securities are magnified in countries in “emerging markets.” These countries may
have relatively unstable governments and less-established market economies than
developed countries. Emerging markets may face greater social, economic,
regulatory and political uncertainties. These risks make emerging market securities more
volatile and less liquid than securities issued in more developed countries and
you may sustain sudden, and sometimes
substantial, fluctuations in the value of your
investments. Certain emerging market countries may be subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping and therefore, material information related to an investment may not be
available or reliable. Additionally, a Fund may have substantial difficulties
exercising its legal rights or enforcing a counterparty’s legal obligations in
certain jurisdictions outside of the United States, in particular in emerging
markets countries, which can increase the risks of loss. A Fund’s investments in foreign and
emerging market securities may also be subject to foreign withholding taxes
and/or other taxes, which would decrease the Fund’s yield on those securities.
Emerging markets are more likely than developed markets to experience problems
with the clearing and settling of trades, as well as the holding of securities
by local banks, agents, and depositories.
July
1, 2023 | 21
More About the
Funds
(continued)
Foreign Issuer
Risk. Some of the Funds invest in U.S.
dollar-denominated securities of foreign issuers or U.S. affiliates of foreign
issuers. Although these securities are not subject to all of the risks
summarized in “Foreign
Securities and Emerging Markets Risk,” they may be subject to additional
risks not faced by domestic issuers. These risks include political and economic
risks, civil conflicts and war, greater volatility, expropriation and
nationalization risks, and regulatory issuers facing issuers in such foreign
countries.
Geographic Focus
Risk. The Funds may
focus their investments in one or more regions or small groups of countries. As
a result, the Funds’ performance may be subject to greater volatility than a
more geographically diversified fund and may be subject to the risks facing
certain regions.
Cash Transactions
Risk. Unlike certain
ETFs, a Fund may effect its creations and redemptions in cash or partially in
cash. As a result, an investment in a Fund may be less tax-efficient than an
investment in such ETFs. Other ETFs generally are able to make in-kind
redemptions and avoid realizing gains in connection with transactions designed
to raise cash to meet redemption requests. If a Fund effects a portion of
redemptions for cash, it may be required to sell portfolio securities in order
to obtain the cash needed to distribute redemption proceeds, which also involves
transaction costs. If a Fund recognizes gain on these sales, this generally will
cause a Fund to recognize gain it might not otherwise have recognized if it were
to distribute portfolio securities in-kind, or to recognize such gain sooner
than would otherwise be required. A Fund generally intends to distribute these
gains to shareholders to avoid being taxed on this gain at a Fund level and
otherwise comply with the special tax rules that apply to it. This strategy may
cause shareholders to be subject to tax on gains they would not otherwise be
subject to, or at an earlier date than, if they had made an investment in a
different ETF.
Currency
Risk.
Changes in foreign currency exchange rates will affect the value of the Fund’s
securities and may affect the price of the Fund’s shares. Generally, when the
value of the U.S. dollar rises in value relative to a foreign currency, an
investment in that country loses value because that currency is worth less in
U.S. dollars. Currency exchange rates may fluctuate significantly over short
periods of time for a number of reasons, including changes in interest rates.
Devaluation of a currency by a country’s government or banking authority also
will have a significant impact on the value of any investments denominated in
that currency. Currency markets generally are not as regulated as securities
markets, may be riskier than other types of investments and may increase the
volatility of the Fund. The Fund may engage in various strategies to hedge
against currency risk. These strategies may consist of use of forward currency
contracts including non-deliverable forward contracts and foreign currency
futures contracts. To the extent the Fund enters into such transactions in
markets other than in the United States, the Fund may be subject to certain
currency, settlement, liquidity, trading and other risks similar to those
described in this prospectus with respect to the Fund’s investments in foreign
securities. In addition, the Fund may engage in such transactions as a
substitute for securities in which the Fund invests, to increase exposure to a
foreign currency, to shift exposure from one foreign currency to another or for
risk management purposes or to increase income or gain to the Fund. While the
Fund’s use of hedging strategies is intended to reduce the volatility of the net
asset value of Fund shares, the net asset value of the Fund will fluctuate.
There can be no assurance that the Fund’s hedging activities will be effective,
and the Fund will incur costs in connection with the hedging. Currency hedging
may limit the Fund’s return if the relative values of currencies change.
Furthermore, the Fund may only engage in hedging activities from time to time
and may not necessarily be engaging in hedging activities when movements in
currency exchange rates occur.
Loan
Risk. Some of the Funds may invest in
Loans including Loans that are rated below investment grade or the unrated
equivalent. Like other high yield, corporate debt instruments, such Loans are
subject to an increased risk of default in the payment of principal and interest
as well as the other risks described under “Interest Rate
Risk,” “Credit Risk,” “High Yield Securities Risk,” and “Foreign
Securities and Emerging Markets Risk.” Although certain Loans are secured
by collateral, a Fund could experience delays or limitations in realizing on
such collateral or have its interest subordinated to other indebtedness of the
obligor. Loans are vulnerable to market sentiment such that economic conditions
or other events may reduce the demand for Loans and cause their value to decline
rapidly and unpredictably. Although the Fund limits its investments in illiquid
securities to no more than 15% of the Fund’s net assets at the time of purchase,
Loans that are deemed to be liquid at the time of purchase may become
illiquid.
In recent years, there has been a
broad trend of weaker or less restrictive covenant protections in the Loan
market. Among other things, under such weaker or less restrictive covenants,
borrowers might be able to exercise more flexibility with respect to certain
activities than borrowers who are subject to stronger or more protective
covenants. For example, borrowers might be able to incur more debt, including
secured debt, return more capital to shareholders, remove or reduce assets that
are designated as collateral securing Loans, increase the claims against assets
that are permitted against collateral securing Loans or otherwise manage their
business in ways that could impact creditors negatively. In addition, certain
privately held borrowers might be permitted to file less frequent, less detailed
or less timely financial reporting or other information, which could negatively
impact the value of the Loans issued by such borrowers. Each of these factors
might negatively impact the Loans held by a Fund.
No active trading market may exist
for some of the Loans and certain Loans may be subject to restrictions on
resale. The inability to dispose of Loans in a timely fashion could result in
losses to a Fund. In addition, the settlement period for Loans is uncertain as
there is no standardized settlement schedule applicable to such investments.
Certain Loans may take more than seven days to settle.
22 | J.P.
Morgan Exchange-Traded Funds
Because some Loans that a Fund
invests in may have a more limited secondary market, liquidity and valuation
risk is more pronounced for a Fund than for funds that invest primarily in other
types of fixed income instruments or equity securities. Typically, Loans are not
registered securities and are not listed on any national securities exchange.
Consequently, there may be less public information available about a Fund’s
investments and the market for certain Loans may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement periods. As a
result, a Fund may be more dependent upon the analytical ability of its
adviser.
When a Fund acquires a loan
participation, the Fund typically enters into a contractual relationship with
the lender or third party selling such participations, but not the borrower. As
a result, the Fund assumes the credit risk of the seller of the loan
participation and any other parties interpositioned between the Fund and the
borrower. Under a loan participation, a Fund may have no direct rights to
enforce the terms of the loan against the borrower. A Fund may not benefit
directly from the collateral supporting the load in which it has purchased the
loan participations or assignments.
Affiliates of the adviser may
participate in the primary and secondary market for Loans. Because of
limitations imposed by applicable law, the presence of the adviser’s affiliates
in the Loan market may restrict a Fund’s ability to acquire some Loans, affect
the timing of such acquisition or affect the price at which the Loan is
acquired. Also, because the adviser may wish to invest in the publicly traded
securities of an obligor, it may not have access to material non-public
information regarding the obligor to which other investors have access. A Fund
will not have direct recourse against the issuer of a loan
participation.
Loans are subject to prepayment
risks. Gains and losses associated with prepayments will increase or decrease a
Fund’s yield and the income available for distribution by a Fund. When Loans are
prepaid, a Fund may have to reinvest in securities with a lower yield or fail to
recover additional amounts (i.e., premiums) paid for Loans, resulting in an
unexpected capital loss and/or a decrease in the amount of dividends and
yield.
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.
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.
Given the global
nature of the relevant markets for certain of the securities for the Fund,
Shares may trade at a larger premium or discount to NAV than shares of other
kinds of ETFs.
Cost of Buying
or Selling Shares. When
you buy or sell Shares of a 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 a Fund’s Shares varies over time based on
the Fund’s trading volume and market liquidity and may increase if the Fund’s
trading volume, the spread of the Fund’s underlying securities, or market
liquidity decrease. In times of severe market disruption, including when trading
of a Fund’s holdings may be halted, the bid-ask spread may increase
significantly. This means that Shares may trade at a discount to a Fund’s NAV,
and the discount is likely to be greatest during significant market
volatility.
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 a Fund’s Shares (the
Distributor), does not maintain a secondary market in the Shares.
July
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More About the
Funds
(continued)
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 a Fund.
There can be no assurance that the
requirements of the Exchange necessary to maintain the listing of a 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 a Fund. Each 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 a 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.
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 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 “subprime” 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 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.
Equity Market
Risk. The price of
equity securities may rise or fall, sometimes rapidly or unpredictably, because
of changes in the broad market or changes in a company’s financial condition.
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.
Smaller Company
Risk. 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.
Non-Diversified
Fund Risk. Since the
Fund is non-diversified, it may invest a greater percentage of its assets in a
particular issuer or group of issuers than a diversified fund would. This
increased investment in fewer issuers may result in the Fund’s Shares being more
sensitive to economic results of those issuing the securities. The value of the
Fund’s Shares may also be more volatile than the value of a Fund which invests
in more securities.
Concentration
Risk. The Fund is
concentrated in securities issued by REITs. This concentration increases the
risk of loss to the Fund by increasing its exposure to economic, business,
political or regulatory developments that may be adverse to REITs.
24 | J.P.
Morgan Exchange-Traded Funds
Tax
Risk. REITs in which
the Fund will invest are subject to complicated Internal Revenue Code rules. The
tax laws that apply to these investment vehicles have the potential to create
negative tax consequences for the Fund, or for certain shareholders of the Fund,
including, in particular, charitable remainder trusts and non-U.S. taxpayers.
The Fund is subject to the risk that the issuer of the securities will fail to
comply with certain requirements of the Internal Revenue Code, which could cause
adverse tax consequences.
The Fund may distribute amounts to
shareholders in excess of its earnings, resulting in a return of capital. Such
distributions are not currently taxable to shareholders; instead, any such
distributions would reduce a shareholder’s tax basis in its Shares, resulting in
an increased gain, or decreased loss, on a later redemption or other taxable
disposition of such Shares. Should any such distributions exceed a shareholder’s
tax basis in its Shares, such excess would be treated as gain and taxable to the
shareholder in the same manner as gain from a sale of Fund Shares.
Inverse Floater
Risk. Inverse floaters
and inverse interest-only (IOs) are debt securities structured with interest
rates that reset in the opposite direction from the market rate to which the
security is indexed. Generally, interest rates on these securities vary
inversely with a short-term floating rate (which may be reset periodically).
They are more volatile and more sensitive to interest rate changes than other
types of debt securities. Interest rates on inverse floaters and inverse IOs
will decrease when the rate to which they are indexed increases, and will
increase when the rate to which they are indexed decreases. In response to
changes in market interest rates or other market conditions, the value of an
inverse floater or inverse IO may increase or decrease at a multiple of the
increase or decrease in the value of the underlying securities. If interest
rates move in a manner not anticipated by the adviser, a Fund could lose all or substantially
all of its investment in inverse IOs.
CFTC Regulation
Risk. The Funds are
subject to regulation by the Commodity Futures Trading Commission (CFTC) as a
“commodity pool” and the adviser is subject to regulation as a “commodity pool
operator” with respect to the Funds. As a result, the Funds are subject to various CFTC
requirements, including certain registration, disclosure and operational
requirements. Compliance with these requirements may increase Fund
expenses.
Exchange-Traded
Fund (ETF) and Other Investment Company Risk. A Fund may invest in shares of other
investment companies and ETFs. Shareholders bear both their proportionate share
of a Fund’s expenses and similar expenses of the underlying investment company
or ETF when the Fund invests in shares of another investment company or ETF. A
Fund is subject to the risks associated with the ETF or investment company’s
investments. The price movement of an index-based ETF may not track the
underlying index and may result in a loss. In addition, ETFs may trade at a
price above (premium) or below (discount) their NAV, especially during periods
of significant market volatility or stress, causing investors to pay or receive
significantly more or less than the value of the ETF’s underlying portfolio when
they purchase or sell their ETF shares, respectively. Certain ETFs traded on
exchanges may be thinly traded and experience large spreads between the “ask”
price quoted by a seller and the “bid” price offered by a buyer.
Convertible
Securities Risk. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred securities until
the convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation’s
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying securities, although the
market prices of convertible securities may be affected by any dividend changes
or other changes in the underlying securities.
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, preferred stock
dividends are payable only if declared by the issuer’s board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions. Because preferred stocks generally pay dividends only after the
issuing company makes required payments to holders of its bonds and other debt,
the value of preferred stocks generally is more sensitive than bonds and other
debt to actual or perceived changes in the company’s financial condition or
prospects.
Securities
Lending Risk. Each 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 a Fund’s loans are concentrated with a
single or limited number of borrowers. In addition, a 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 a 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, a Fund may borrow money to repay the
borrower the amount of
July
1, 2023 | 25
More About the
Funds
(continued)
cash collateral owed to the borrower
upon return of the loaned securities. This will result in financial leverage,
which may cause a 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.
Transactions and
Liquidity Risk. A 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 a 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, a
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 a 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 a Fund to conduct its
investment program. A 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 a 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 a 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 a Fund’s transaction costs and impact the Fund’s
performance. To the extent redemptions are effected in cash, an investment in a
Fund may be less tax-efficient than an investment in an ETF that distributes
portfolio securities entirely in-kind.
Cyber Security
Risk. As the use of
technology has become more prevalent in the course of business, the Funds have
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 a Fund and its shareholders; and compromises or failures to
systems, networks, devices and applications relating to the operations of a Fund
and its service providers. Cyber security risks may result in financial losses
to a Fund and its shareholders; the inability of a Fund to transact business
with its shareholders; delays or mistakes in the calculation of a 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. A 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 a Fund invests and parties with which a 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 a 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 Funds do not directly control
the cyber security defenses or plans of their service providers, financial
intermediaries and companies in which they invest or with which they do
business.
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 a Fund, the strategies used by a Fund or the level of regulation or
taxation applying to a 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 a 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
a Fund after the permitted seeding period from the implementation of a Fund’s
investment strategy, a Fund could be subject to restrictions on trading that
would adversely impact a 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 a Fund at a
time that is sooner than would otherwise be desirable, which may result in a
Fund’s liquidation or, if a 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.
For more information about risks
associated with the types of investments that a Fund purchases, please read the
“Risk/Return Summary” at the front of this prospectus and “Investment Practices”
section later in the prospectus, and the Statement of Additional
Information.
26 | J.P.
Morgan Exchange-Traded Funds
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 Funds may invest all or most of their 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, its agencies and
instrumentalities, repurchase agreements, certificates of
deposit,
bankers’ acceptances, commercial paper, money market mutual funds, and
bank deposit accounts. |
While a Fund is engaged in a
temporary defensive position, it may not meet its investment objective. These
investments may also be inconsistent with a Fund’s main investment strategies.
Therefore, a Fund will pursue a temporary defensive position only when market
conditions warrant.
Bloomberg
Disclaimer
Source:
Bloomberg Index Services Limited. BLOOMBERG® is a trademark
and service mark of Bloomberg Finance L.P. and its affiliates (collectively
“Bloomberg”). Bloomberg or Bloomberg's licensors
own
all proprietary rights in the Bloomberg Indices. Bloomberg does not approve or
endorse this material, or guarantee the accuracy or completeness of any
information herein, or make any warranty, express or implied, as to the results
to be obtained therefrom and, to the maximum extent allowed by law, shall have
any liability or responsibility for injury or damages arising in connection
therewith.
FTSE
Disclaimer
The JPMorgan Realty Income ETF (the
“JPMorgan Realty Income ETF”) has been developed solely by JPMorgan Chase Bank
N.A. The JPMorgan Realty Income ETF is not in any way connected to or sponsored,
endorsed, sold or promoted by FTSE International Limited (“FTSE”) or the London
Stock Exchange Group plc and its group undertakings (collectively, the “LSE
Group”) or Nareit. All rights in the FTSE NAREIT All Equity REITs Index (the
“Index”) vest in FTSE and Nareit. “FTSE®” is a trade mark of the LSE Group and
is used by FTSE International Limited (“FTSE”) under licence. “NAREIT®” is a
trade mark of the Nareit. The Index is calculated by FTSE. Neither FTSE, nor the
LSE Group, nor Nareit accept any liability whatsoever to any person arising out
of (a) the use of, reliance on or any error in the Index or (b) investment in or
operation of the JPMorgan Realty Income ETF. FTSE, the LSE Group, and Nareit
make no claim, prediction, warranty or representation either as to the results
to be obtained from the JPMorgan Realty Income ETF or the suitability of the
Index for the purpose to which it is being put by JPMorgan Chase Bank
N.A.
MSCI
Disclaimer
Source: MSCI.
The MSCI information may only be used for your internal use, may not be
reproduced or redisseminated in any form and may not be used as a basis for or a
component of any financial instruments or products or indices. None of the MSCI
information is intended to constitute investment advice or a recommendation to
make (or refrain from making) any kind of investment decision and may not be
relied on as such. Historical data and analysis should not be taken as an
indication or guarantee of any future performance analysis, forecast, or
prediction. The MSCI information is provided on an “as is” basis and the user of
this information assumes the entire
July
1, 2023 | 27
More About the
Funds
(continued)
risk of any use
made of this information. MSCI, each of its affiliates and each other person
involved in or related to compiling, computing or creating any MSCI information
(collectively, the “MSCI Parties”) expressly disclaims all warranties
(including, without limitation, any warranties of originality, accuracy,
completeness, timeliness, non-infringement, merchantability and fitness for a
particular purpose) with respect to this information. Without limiting any of
the foregoing, in no event shall any MSCI Party have any liability for any
direct, indirect, special, incidental, punitive, consequential (including,
without limitation, lost profits) or any other damages.
(www.msci.com)
Disclosure
of Portfolio Holdings
A description of the policies and
procedures with respect to the disclosure of the Funds’ portfolio securities is
available in the Funds’ Statement of Additional
Information.
Additional
Fee Waiver and/or Expense Reimbursement
Service providers to a Fund (as was
the case for the predecessor 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. A Fund’s service providers may
discontinue or modify these voluntary actions at any time without notice.
Performance for a Fund will reflect (and performance for
the predecessor fund reflects) 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.
28 | J.P.
Morgan Exchange-Traded Funds
The Funds’
Management and Administration
Each 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 Funds.
The Funds’
Investment Adviser
J.P. Morgan Investment Management
Inc. (JPMIM or the adviser) is the investment adviser to the Funds. JPMIM is
located at 383 Madison Avenue, New York, NY 10179. JPMIM also served as the
investment adviser to the predecessor 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 certain Funds, JPMIM uses the portfolio management, research and
other resources of a foreign (non-U.S.) affiliate of JPMIM and may provide
services to a 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.
Pursuant to each Fund’s management
agreement, JPMIM is entitled to a management
fee,
incurred daily and paid
monthly of a Fund’s average daily net assets.
During the most recent fiscal year ended
2/28/23, JPMIM was paid management fees, as shown below, as a percentage of a
Fund’s average daily net assets:
|
JPMorgan
Inflation Managed Bond ETF |
0.31% |
|
JPMorgan
Realty Income ETF |
0.59 |
A discussion of the basis the Board
of Trustees of the Trust used in approving the management agreement for the
Funds is available in the semi-annual report dated August 31, 2022.
The
Portfolio Managers
Inflation Managed
Bond ETF
The portfolio management team
consists of Scott E. Grimshaw, Executive Director and CFA charterholder, Steven
Lear, Managing Director and CFA charterholder, David Rooney, Executive Director and
CFA charterholder, and Edward Fitzpatrick III, Managing Director and CFA
charterholder. Mr. Grimshaw is responsible for the day-to-day management of the
Fund’s portfolio of securities, whereas Mr. Rooney is responsible for
implementing the inflation-managed strategy. Mr. Grimshaw, an employee since
1988 and portfolio manager of the Fund since its inception, is responsible for
managing institutional taxable bond portfolios. Mr. Lear is the U.S. Chief
Investment Officer within the Global Fixed Income, Currency and Commodities
Group (GFICC) and is responsible for setting macro strategies for the Fund and
for overseeing the day-to-day management of the Fund’s portfolio of securities.
An employee since 2008 and a portfolio manager for the Fund since its inception,
Mr. Lear is responsible for overseeing fixed income investment strategies in the
U.S. Mr. Rooney, an employee since 2012 and portfolio manager of the Fund since
its inception, is responsible for rates and inflation strategy and portfolio
management, with an emphasis on inflation-linked sectors. Mr. Rooney is
responsible for day-to-day management of the Fund’s inflation overlay. An
employee of JPMIM since 2013 and a portfolio manager of the Fund since 2023, Mr.
Fitzpatrick, Managing Director and CFA charterholder, is the head of GFICC’s
U.S. Rates Team, responsible for managing government bond portfolios for
institutional clients, as well as recommending U.S. rates & derivatives
strategies across GFICC portfolios. The portfolio managers are assisted by
multiple sector and research teams who help formulate duration and allocation
recommendations and support the strategies of the Fund within the parameters
established by the portfolio managers. Mr. Grimshaw, Mr. Lear and Mr. Rooney
also were the predecessor fund’s portfolio managers since 2010, 2013 and 2015,
respectively.
Realty Income
ETF
Scott Blasdell, Managing Director of
JPMIM and a CFA charterholder, is the lead portfolio manager on the Fund and is
a senior member of the U.S. Equity Value portfolio management team. Jason Ko,
Executive Director of JPMIM and a CFA charterholder, is co-portfolio manager of
the Fund and a senior member of the U.S. Equity Value portfolio management team.
As part of the team’s investment process. Messrs. Blasdell and Ko meet, along
with other portfolio managers and research analysts, to discuss the economic
outlook, industry trends, and the merits and risks of investment ideas for the
Fund. Messrs. Blasdell and Ko follow the same investment process, philosophy and
research resources. Mr. Blasdell has been a portfolio manager in the U.S. Equity
Group since 2001 and has managed REIT, large cap core, and value strategies. An
employee since 1999, he started as a research analyst covering REITs. An
employee since 2002, Mr. Ko covers REITs for the U.S. Equity Group. Previously,
he worked as a research associate focusing on REITs and cyclicals sectors and as
an investment assistant in the U.S. Equity Group. Mr. Blasdell and Mr. Ko also
were the predecessor fund's portfolio managers since 2017 and 2009,
respectively.
July
1, 2023 | 29
The Funds’
Management and Administration
(continued)
The Statement of Additional
Information provides additional information about the portfolio managers’
compensation, other accounts managed by the portfolio managers and the portfolio
managers’ ownership of securities in the Funds.
The Funds’
Administrator
JPMIM provides administration
services for and oversees the other service providers of each Fund. JPMIM
receives the following annual fee on behalf of each Fund for administration
services: 0.075% of the first $10 billion of average daily net assets of the
Fund, plus 0.050% of average daily net assets of the Fund between $10 billion
and $20 billion, plus 0.025% of average daily net assets of the Fund between $20
billion and $25 billion, plus 0.010% of the average daily net assets of the Fund
over $25 billion.
The Funds’
Distributor
JPMorgan Distribution Services, Inc.
(the Distributor) is the distributor of the Funds’ Shares. The Distributor or
its agent distributes Creation Units for the Funds on an agency basis. The
Distributor does not maintain a secondary market in Shares of the Funds. The
Distributor has no role in determining the investment policies of the Funds or
the securities that are purchased or sold by the Funds. 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 Funds. 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 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 Funds available to their
customers. Such compensation may provide such Financial Intermediaries with an
incentive to favor sales of Shares of the Funds over other investment options
they make available to their customers. See the Statement of Additional
Information for more information.
30 | J.P.
Morgan Exchange-Traded Funds
Purchase
and Redemption of Shares
Buying
and Selling Shares
In the Secondary
Market. Most investors
will buy and sell Shares of the Funds in secondary market transactions through
brokers. Shares of the Funds 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 each 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 Funds trade on the
Exchange at prices that may differ to varying degrees from the daily NAV of the
Shares.
Directly with
the Fund. Each 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
Funds’ 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 Funds’ Statement of Additional
Information.
Premium/Discount
Information
Information about the differences
between the daily market price on the Exchange for Shares of a Fund and the
Fund’s NAV can be found on the Fund’s website, www.jpmorganfunds.com. NAV is the
price at which a Fund issues and redeems Shares. It is calculated in accordance
with a Fund’s pricing and valuation policies. The market price (Market Price) is
generally the official closing price of a Fund’s Shares on the Exchange. A
Fund’s Market Price may be at, above (at a premium) or below (at a discount) its
NAV. The NAV of a Fund will fluctuate with changes in
the value of its portfolio holdings. The Market Price of a Fund will fluctuate
in accordance with changes in its NAV, as well as market supply and demand.
Shareholders may pay more than NAV when they buy Fund Shares and receive less
than NAV when they sell those Shares because Shares are bought and sold at
current Market Price. The Market Price is also used to calculate market returns
of a Fund.
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 Exchange disseminates the
approximate value of Shares of each 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 Funds are not
involved in, or responsible for, the calculation or dissemination of the
approximate value and the Funds do not make any representation or warranty as to
its accuracy.
July
1, 2023 | 31
Purchase
and Redemption of Shares
(continued)
NAV is calculated each business day
as of the close of the New York Stock Exchange (NYSE) or Cboe BZX Exchange, Inc.
(Cboe), as applicable, which is typically 4:00 p.m. E.T. On occasion, the NYSE
or the Cboe will close before 4:00 p.m. E.T. When that happens, NAV will be
calculated as of the time the NYSE or the Cboe closes, as applicable. The Funds
will not treat an intraday unscheduled disruption or closure in the NYSE or the
Cboe trading as a closure of the NYSE or the Cboe, as applicable, and will
calculate NAV as of 4:00 p.m. E.T. if the particular disruption or closure
directly affects only the NYSE or the Cboe. 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 a 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 each 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. Other foreign equity securities are
fair valued using quotations from independent pricing services, as applicable.
The value of securities listed on the NASDAQ Stock Market, Inc. is generally the
NASDAQ official closing price.
Fixed income
securities are valued using prices supplied by an approved independent third
party or affiliated pricing services or broker/dealers. Those prices are
determined using a variety of inputs and factors as more fully described in the
Statement of Additional Information.
Assets and
liabilities initially expressed in foreign currencies are converted into U.S.
dollars at the prevailing market rates from an approved independent pricing
service as of 4:00 p.m. E.T.
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.
Options traded on
U.S. securities exchanges are valued at the composite mean price, using the
National Best Bid and Offer quotes.
Options traded on
foreign exchanges are valued at the settled price, or if no settled price is
available, at the last sale price available prior to the calculation of the
Fund’s NAV and will be fair valued by applying fair value factors provided by
independent pricing services, as applicable, for any options involving equity
reference obligations listed on exchanges other than North American, Central
American, South American or Caribbean securities exchanges.
Exchange traded
futures are valued at the last sale price available prior to the calculation of
the Fund’s NAV. Any futures involving equity reference obligations listed on
exchanges other than North American, Central American, South American or
Caribbean securities exchanges will be fair valued by applying fair value
factors provided by independent pricing services, as applicable.
Non-listed
over-the-counter futures are valued utilizing market quotations provided by
approved pricing services.
Swaps and structured
notes are priced generally by an approved independent third party or affiliated
pricing service or at an evaluated price provided by a counterparty or
broker/dealer.
Any derivatives
involving equity reference obligations listed on exchanges other than North
American, Central American, South American or Caribbean securities exchanges
will be fair valued by applying fair value factors provided by independent
pricing services, as applicable.
Frequent
Purchases and Redemptions
The Funds impose no restrictions on
the frequency of purchases and redemptions. The Board of Trustees evaluated the
risks of market timing activities by the Funds’ shareholders when they
considered that no restriction or policy was necessary. The Board considered
that, unlike mutual funds, each 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.
32 | J.P.
Morgan Exchange-Traded Funds
Shareholder
Information
Taxes
on Distributions
Each Fund has elected to be treated
and intends 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. A 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.
Each Fund can earn income and
realize capital gain. Each Fund deducts any expenses and then pays out the
earnings, if any, to shareholders as distributions.
Inflation Managed Bond ETF generally
distributes net investment income, if any, at least monthly. Realty Income ETF
generally declares and distributes net investment income, if any, at least
quarterly. Each Fund will distribute net realized capital gain, if any, at least
annually. For each taxable year, the Funds will generally distribute
substantially all of their net investment income and net realized capital
gains.
Distributions of net investment
income generally are taxable as ordinary income from dividends. 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 a Fund generally will be limited to the
aggregate of the eligible dividends received by that Fund. In addition, a 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 a Fund’s distributions that would otherwise
qualify for this favorable tax treatment may be reduced as a result of a 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. Given the investment strategies of the Fund, it is not
anticipated that a significant portion of the distributions paid by the Fund
will be eligible to be designated as qualified dividend income.
Distributions of net capital gain
(that is, the excess of the net gains from the sale of investments that a 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 a 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 a 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 a 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 a 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 Inflation managed Bond ETF is
generally subject to foreign withholding or other foreign taxes, which in some
cases can be significant, on any income or gain from investments in foreign
stocks or securities. In that case, the Fund’s total return on those securities
would be decreased. The Fund may generally deduct these taxes in computing its
taxable income.
The Inflation Managed Bond ETF may
invest a significant portion of its net assets in below investment grade
instruments. Investments in these types of instruments may present special tax
issues for the Fund. U.S. federal income tax rules are not entirely clear about
issues such as when the Fund may cease to accrue interest, original issue
discount or market discount, when and to what extent deductions may be taken for
bad debts or worthless instruments, how payments received on obligations in
default should be allocated between principal and income and whether exchanges
of debt obligations in a bankruptcy or workout context are taxable. These and
other issues will be addressed by the Fund to the extent necessary in order to
seek to ensure that it distributes sufficient income that it does not become
subject to U.S. federal income or excise tax.
The Inflation Managed Bond ETF’s
investment in certain debt obligations and derivatives 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.
July
1, 2023 | 33
Shareholder
Information
(continued)
The Inflation Managed Bond ETF’s
transactions in futures contracts, swaps and other 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.
The Realty Income ETF’s investment
in REIT securities, derivative instruments and so called “passive foreign
investment companies” 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 investment in REIT securities
may also result in the Fund’s receipt of cash in excess of the REIT’s earnings;
if the Fund distributes such amounts, such distribution could constitute a
return of capital to Fund shareholders for federal income tax
purposes.
The Realty Income ETF’s investments
in other investment companies could affect the amount, timing, and character of
distributions from the Fund, and, therefore, may increase the amount of taxes
payable by shareholders.
Individuals and certain other
noncorporate entities are generally eligible for a 20% deduction with respect to
ordinary dividends received from REITs (qualified REIT dividends). Applicable
Treasury regulation permit a regulated investment company to pass through to its
shareholders qualified REIT dividends eligible for the 20%
deduction.
Please see the Statement of
Additional Information for additional discussion of the tax consequences of the
above-described and other investments to a 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 a Fund, as
discussed in the Statement of Additional Information.
Any investor for whom a 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 Funds. Because each investor’s tax
consequences are unique, please consult your tax advisor to see how investing in
a Fund and, for individuals and S corporations, selection of a particular cost
method of accounting will affect your own tax situation.
34 | J.P.
Morgan Exchange-Traded Funds
Availability
of Proxy Voting Record
The Trustees have delegated the
authority to vote proxies for securities owned by the Funds to JPMIM. A copy of
each Fund’s voting record for the most recent 12-month period ended June 30 is
available on the SEC’s website at www.sec.gov or on the Funds’ website at
www.jpmorganfunds.com no later than August 31 of each year. Each 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.
Other
Information
For purposes of the Investment
Company Act of 1940 (1940 Act), each 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 Funds. Registered investment companies are permitted to invest in a Fund
beyond the limits set forth in Section 12(d)(1), subject to certain terms and
conditions.
July
1, 2023 | 35
Investment
Practices
The table discusses the types of
investments which can be held by the Inflation Managed Bond ETF. In each case,
the related types of risk are also listed.
|
INSTRUMENT |
RISK
TYPE |
|
Adjustable
Rate Mortgage Loans (ARMs):
Loans in a mortgage pool which provide for a fixed initial
mortgage
interest rate for a specified period of time, after which the rate may be
subject to periodic
adjustments. |
Credit
Interest
Rate
Liquidity
Market
Political
Prepayment
Valuation |
|
Asset-Backed
Securities:
Securities secured by company receivables, home equity loans, truck and
auto
loans, leases and credit card receivables or other securities backed by
other types of
receivables
or other assets. |
Credit
Interest
Rate
Liquidity
Market
Political
Prepayment
Valuation |
|
Bank
Obligations:
Bankers’ acceptances, certificates of deposit and time deposits. Bankers’
acceptances
are bills of exchange or time drafts drawn on and accepted by a commercial
bank.
Maturities
are generally six months or less. Certificates of deposit are negotiable
certificates issued
by
a bank for a specified period of time and earning a specified return. Time
deposits are non-
negotiable
receipts issued by a bank in exchange for the deposit of
funds |
Credit
Currency
Interest
Rate
Liquidity
Market
Political |
|
Borrowings:
The Fund may borrow for temporary purposes and/or for investment purposes.
Such a
practice
will result in leveraging of the Fund’s assets and may cause the Fund to
liquidate portfolio
positions
when it would not be advantageous to do so. The Fund must maintain
continuous asset
coverage
of 300% of the amount borrowed, with the exception for borrowings not in
excess of 5% of
the
Fund’s total assets made for temporary administrative
purposes. |
Credit
Interest
Rate
Market |
|
Call
and Put Options:
A call option gives the buyer the right to buy, and obligates the seller
of the
option
to sell a security at a specified price at a future date. A put option
gives the buyer the right to
sell,
and obligates the seller of the option to buy a security at a specified
price at a future date. The
Fund
will sell only covered call and secured put options. |
Credit
Leverage
Liquidity
Management
Market |
|
Commercial
Paper:
Secured and unsecured short-term promissory notes issued by corporations
and
other
entities. Maturities generally vary from a few days to nine
months. |
Credit
Currency
Interest
Rate
Liquidity
Market
Political
Valuation |
|
Convertible
Securities:
Bonds or preferred stock that can convert to common stock including
contingent
convertible securities. |
Credit
Currency
Foreign
Investments
Interest
Rate
Liquidity
Market
Political
Valuation
|
36 | J.P.
Morgan Exchange-Traded Funds
|
INSTRUMENT |
RISK
TYPE |
|
Corporate
Debt Securities:
May include bonds and other debt securities of domestic and foreign
issuers,
including obligations of industrial, utility, banking and other corporate
issuers. |
Credit
Currency
Interest
Rate
Liquidity
Market
Political
Valuation |
|
Credit
Default Swaps (CDSs):
A swap agreement between two parties pursuant to which one party
pays
the other a fixed periodic coupon for the specified life of the agreement.
The other party makes
no
payment unless a credit event, relating to a predetermined reference
asset, occurs. If such an
event
occurs, the party will then make a payment to the first party, and the
swap will terminate. |
Credit
Currency
Interest
Rate
Leverage
Liquidity
Management
Market
Political
Valuation |
|
Custodial
Receipts:
The Fund may acquire securities in the form of custodial receipts that
evidence
ownership
of future interest payments, principal payments or both on certain U.S.
Treasury notes or
bonds
in connection with programs sponsored by banks and brokerage firms. These
are not
considered
to be U.S. government securities. These notes and bonds are held in
custody by a bank on
behalf
of the owners of the receipts. |
Foreign
Investment
Credit
Currency
Interest
Rate
Market
Liquidity
Political |
|
Demand
Features:
Securities that are subject to puts and standby commitments to purchase
the
securities
at a fixed price (usually with accrued interest) within a fixed period of
time following
demand
by the Fund. |
Liquidity
Management
Market |
|
Emerging
Market Securities:
Securities issued by issuers or governments in countries with emerging
economies
or securities markets which may be undergoing significant evolution and
rapid
development. |
Foreign
Investment |
|
Exchange-Traded
Funds (ETFs):
Ownership interest in unit investment trusts, depositary receipts, and
other
pooled investment vehicles that hold a portfolio of securities or stocks
designed to track the
price
performance and dividend yield of a particular broad-based, sector or
international index. ETFs
include
a wide range of investments. |
Investment
Company
Market |
|
Foreign
Investments:
Equity and debt securities (e.g., bonds and commercial paper) of foreign
entities
and obligations of foreign branches of U.S. banks and foreign banks.
Foreign securities may
also
include American Depositary Receipts (ADRs), Global Depositary Receipts
(GDRs), European
Depositary
Receipts (EDRs) and American Depositary Securities
(ADSs). |
Foreign
Investment
Liquidity
Market
Political
Prepayment |
|
High
Yield/High Risk Securities/Junk Bonds:
Securities that are generally rated below investment
grade
by the primary rating agencies or are unrated but are deemed by the Fund’s
adviser to be of
comparable
quality. |
Credit
Currency
High
Yield Securities
Interest
Rate
Liquidity
Market
Political
Portfolio
Quality
Valuation |
|
Inflation-Linked
Debt Securities:
Includes fixed and floating rate debt securities of varying maturities
issued
by the U.S. government as well as securities issued by other entities such
as corporations,
foreign
governments and foreign issuers. |
Credit
Currency
Interest
Rate
Political
|
July
1, 2023 | 37
Investment
Practices
(continued)
|
INSTRUMENT |
RISK
TYPE |
|
Interfund
Lending: Involves
lending money and borrowing money for temporary purposes through a
credit
facility. |
Credit
Interest
Rate
Market |
|
Inverse
Floating Rate Instruments: Leveraged
variable debt instruments with interest rates that reset
in the
opposite direction from the market rate of interest to which the inverse
floater is indexed. |
Credit
Leverage
Market |
|
Investment
Company Securities: Shares of
other investment companies, including money market
funds for
which the adviser and/or its affiliates serve as investment adviser or
administrator. The
adviser
will waive certain fees when investing in funds for which it serves as
investment adviser, to
the extent
required by law or by contract. |
Investment
Company
Market |
|
Loan
Assignments and Participations:
Assignments of, or participations in, all or a portion of loans to
corporations
or to governments, including governments of less developed
countries. |
Credit
Currency
Extension
Foreign
Investment
Interest
Rate
Liquidity
Market
Political
Prepayment |
|
Mortgages
(Directly Held): Debt
instruments secured by real property. |
Credit
Environmental
Extension
Interest
Rate
Liquidity
Market
Natural
Event
Political
Prepayment
Valuation |
|
Mortgage-Backed
Securities: Debt
obligations secured by real estate loans and pools of loans such as
collateralized
mortgage obligations (CMOs), commercial mortgage-backed securities (CMBSs)
and
other
asset-backed structures. |
Credit
Currency
Extension
Interest
Rate
Leverage
Liquidity
Market
Political
Prepayment
Tax
Valuation |
|
Mortgage
Dollar Rolls1: A
transaction in which the Fund sells securities for delivery in a current
month
and
simultaneously contracts with the same party to repurchase similar but not
identical securities
on a
specified future date. |
Currency
Extension
Interest
Rate
Leverage
Liquidity
Market
Political
Prepayment
|
1
All forms of
borrowing (including mortgage dollar rolls) are limited in the aggregate and may
not exceed 33 1∕3% of the Fund’s total
assets except as permitted by
law.
38 | J.P.
Morgan Exchange-Traded Funds
|
INSTRUMENT |
RISK
TYPE |
|
Municipal
Securities:
Securities issued by a state or political subdivision to obtain funds for
various
public
purposes. Municipal securities include, among others, private activity
bonds and industrial
development
bonds, as well as general obligation notes, tax anticipation notes, bond
anticipation
notes,
revenue anticipation notes, other short-term tax-exempt obligations,
municipal leases,
obligations
of municipal housing authorities and single family revenue
bonds. |
Credit
Interest
Rate
Market
Natural
Event
Political
Prepayment
Tax |
|
New
Financial Products:
New options and futures contracts and other financial products continue to
be
developed and the Fund may invest in such options, contracts and
products. |
Credit
Liquidity
Management
Market |
|
Options
and Futures Transactions:
The Fund may purchase and sell (a) exchange traded and over the
counter
put and call options on securities, indexes of securities and futures
contracts on securities,
indexes
of securities, interest rate futures contracts and interest rate swaps and
(b) futures contracts
on
securities and indexes of securities. |
Credit
Leverage
Liquidity
Management
Market |
|
Private
Placements, Restricted Securities and Other Unregistered
Securities:
Securities not registered
under
the Securities Act of 1933, such as privately placed commercial paper and
Rule 144A
securities. |
Liquidity
Market
Valuation |
|
Real
Estate Investment Trusts (REITs):
Pooled investment vehicles which invest primarily in income
producing
real estate or real estate related loans or
interest. |
Credit
Interest
Rate
Liquidity
Management Market
Political
Prepayment
Tax
Valuation |
|
Repurchase
Agreements:
The purchase of a security and the simultaneous commitment to return the
security
to the seller at an agreed upon price on an agreed upon date. This is
treated as a loan. |
Credit
Liquidity
Market |
|
Reverse
Repurchase Agreements1:
The sale of a security and the simultaneous commitment to buy
the
security back at an agreed upon price on an agreed upon date. This is
treated as a borrowing by
the
Fund. |
Credit
Liquidity
Market |
|
Securities
Issued in Connection with Reorganizations and Corporate
Restructurings:
In connection with
reorganizing
or restructuring of an issuer, an issuer may issue common stock or other
securities to
holders
of its debt securities. |
Market |
|
Securities
Lending:
The lending of up to 33 1∕3%
of the Fund’s total assets. In return, the Fund will
receive
cash, other securities, and/or letters of credit as
collateral. |
Credit
Leverage
Market |
|
Short-Term
Funding Agreements:
Agreements issued by banks and highly rated U.S. insurance
companies
such as Guaranteed Investment Contracts (GICs) and Bank Investment
Contracts (BICs). |
Credit
Liquidity
Market |
|
Sovereign
Obligations:
Investments in debt obligations issued or guaranteed by a foreign
sovereign
government
or its agencies, authorities or political
subdivisions. |
Credit
Foreign
Investment
Liquidity
Political
Valuation
|
July
1, 2023 | 39
Investment
Practices
(continued)
|
INSTRUMENT |
RISK
TYPE |
|
Stripped
Mortgage-Backed Securities:
Derivative multi-class mortgage securities which are usually
structured
with two classes of shares that receive different proportions of the
interest and principal
from
a pool of mortgage assets. These include Interest-Only (IO) and
Principal-Only (PO) securities
issued
outside a Real Estate Mortgage Investment Conduit (REMIC) or CMO
structure. |
Credit
Liquidity
Market
Political
Prepayment
Valuation |
|
Structured
Investments:
A security having a return tied to an underlying index or other security
or
asset
class. Structured investments generally are individually negotiated
agreements and may be
traded
over-the-counter. Structured investments are organized and operated to
restructure the
investment
characteristics of the underlying security. |
Credit
Foreign
Investment
Liquidity
Management
Market
Valuation |
|
Swaps
and Related Swap Products:
Swaps involve an exchange of obligations by two parties. Caps and
floors
entitle a purchaser to a principal amount from the seller of the cap or
floor to the extent that a
specified
index exceeds or falls below a predetermined interest rate or amount. The
Fund may enter
into
these transactions to manage its exposure to changing interest rates and
other factors. |
Credit
Currency
Interest
Rate
Leverage
Liquidity
Management
Market
Political
Valuation |
|
Temporary
Defensive Positions:
To respond to unusual circumstances the Fund may invest in cash and
cash
equivalents for temporary defensive purposes. |
Credit
Interest
Rate
Liquidity
Market |
|
Treasury
Receipts:
The Fund may purchase interests in separately traded interest and
principal
component
parts of U.S. Treasury obligations that are issued by banks or brokerage
firms and that
are
created by depositing U.S. Treasury notes and U.S. Treasury bonds into a
special account at a
custodian
bank. Receipts include Treasury Receipts (TRs), Treasury Investment Growth
Receipts
(TIGRs),
and Certificates of Accrual on Treasury Securities
(CATS). |
Market |
|
Trust
Preferred:
Securities with characteristics of both subordinated debt and preferred
stock. Trust
preferreds
are generally long term securities that make periodic fixed or variable
interest payments. |
Credit
Currency
Interest
Rate
Liquidity
Market
Political
Valuation |
|
U.S.
Government Agency Securities:
Securities issued or guaranteed by agencies and
instrumentalities
of the U.S. government. These include all types of securities issued by
Ginnie Mae,
Fannie
Mae and Freddie Mac, including funding notes, subordinated benchmark
notes, CMOs and
REMICs. |
Credit
Government
Securities
Interest
Rate
Market |
|
U.S.
Government Obligations:
May include direct obligations of the U.S. Treasury, including Treasury
bills,
notes and bonds, all of which are backed as to principal and interest
payments by the full faith
and
credit of the United States, and separately traded principal and interest
component parts of such
obligations
that are transferable through the Federal book-entry system known as
Separate Trading
of
Registered Interest and Principal of Securities (STRIPS) and Coupons Under
Book Entry
Safekeeping
(CUBES). |
Interest
Rate
Market
|
40 | J.P.
Morgan Exchange-Traded Funds
|
INSTRUMENT |
RISK
TYPE |
|
Variable
and Floating Rate Instruments:
Obligations with interest rates which are reset daily, weekly,
quarterly
or some other frequency and which may be payable to the Fund on demand or
at the
expiration
of a specified term. |
Credit
Liquidity
Market
Valuation |
|
When-Issued
Securities, Delayed Delivery Securities and Forward
Commitments:
Purchase or contract
to
purchase securities at a fixed price for delivery at a future
date. |
Credit
Leverage
Liquidity
Market
Valuation |
|
Zero-Coupon,
Pay-in-Kind and Deferred Payment Securities:
Zero-coupon securities are securities that
are
sold at a discount to par value and on which interest payments are not
made during the life of
the
security. Pay-in-kind securities are securities that have interest payable
by delivery of additional
securities.
Deferred payment securities are zero-coupon debt securities which convert
on a specified
date
to interest bearing debt securities. |
Credit
Currency
Interest
Rate
Liquidity
Market
Political
Valuation
Zero-Coupon
Securities |
Risk related to
certain investments held by the Funds:
Credit
risk The
risk that a financial obligation will not be met by the issuer of a security or
the counterparty to a contract, resulting in a loss to the
purchaser.
Currency
risk The
risk that currency exchange rate fluctuations may reduce gains or increase
losses on foreign investments.
Environmental
risk The
risk that an owner or operator of real estate may be liable for the costs
associated with hazardous or toxic substances located on the
property.
Extension
risk The
risk that a rise in interest rates will extend the life of a security to a date
later than the anticipated prepayment date, causing the value of the investment
to fall.
Foreign
investment risk The risk associated
with higher transaction costs, delayed settlements, currency controls, adverse
economic developments, and exchange rate volatility. These risks are increased
in emerging markets.
Government
securities risk U.S. government
securities are subject to market risk, interest rate risk and credit risk.
Securities, such as those issued or guaranteed by Ginnie Mae or the U.S.
Treasury, that are backed by the full faith and credit of the United States are
guaranteed only as to the timely payment of interest and principal when held to
maturity and the market prices for such securities will fluctuate. Circumstances
could arise that would prevent the payment of interest or principal. Securities
issued or guaranteed by certain U.S. government-related organizations, such as
Fannie Mae and Freddie Mac, are not backed by the full faith and credit of the
U.S. government and no assurance can be given that the U.S. government will
provide financial support.
High
yield securities risk High yield, high
risk securities (also known as junk bonds) which are considered to be
speculative and these investments are subject to greater risk of loss, greater
sensitivity to economic changes, valuation difficulties and a potential lack of
a secondary or public market for securities.
Interest rate
risk The risk that a
change in interest rates will adversely affect the value of an investment. The
value of fixed income securities generally moves in the opposite direction of
interest rates (decreases when interest rates rise and increases when interest
rates fall). A Fund may face a heightened level of interest rate risk due to
certain changes in monetary policy, such as an interest rate increase by the
Federal Reserve.
Investment company
risk If a Fund invests
in shares of another investment company, shareholders would bear not only their
proportionate share of the Fund’s expenses, but also similar expenses of the
investment company. The price movement of an investment company that is an ETF
may not track the underlying index and may result in a loss.
Leverage
risk The
risk that gains or losses will be disproportionately higher than the amount
invested.
Liquidity
risk The
risk that the holder may not be able to sell the security at the time or price
it desires.
Management
risk The risk that a
strategy used by a Fund’s management may fail to produce the intended result.
This includes the risk that changes in the value of a hedging instrument will
not match those of the asset being hedged. Incomplete matching can result in
unanticipated risks.
Market
risk The
risk that when the market as a whole declines, the value of a specific
investment will decline proportionately. This systematic risk is common to all
investments and the mutual funds that purchase them.
Natural
event risk The risk that a
natural disaster, such as a hurricane or similar event, will cause severe
economic losses and default in payments by the issuer of the
security.
Political
risk The
risk that governmental policies or other political actions will negatively
impact the value of the investment.
Portfolio
quality risk The risks associated
with below investment grade securities including greater risk of default,
greater sensitivity to interest rates and economic changes, potential valuation
difficulties, and sudden and unexpected changes in credit quality.
Prepayment
risk The
risk that declining interest rates or other factors will result in unexpected
prepayments, causing the value of the investment to fall.
Tax
risk The
risk that the issuer of the securities will fail to comply with certain
requirements of the Internal Revenue Code, which could cause adverse tax
consequences. Also the risk that the tax treatment of municipal or other
securities could be changed by Congress thereby affecting the value of
outstanding securities.
Valuation
risk The
risk that the estimated value of a security does not match the actual amount
that can be realized if the security is sold.
Zero-Coupon
securities risk The
market value of these securities are generally more volatile than the market
value of, and is more likely to respond to a greater degree to changes in
interest rates than, other fixed income securities with similar maturities and
credit quality that pay interest periodically. Actions required by federal
income tax law may reduce the assets to which a Fund’s expenses could otherwise
be allocated and may reduce a Fund’s rate of return.
July
1, 2023 | 41
Financial
Highlights
The Financial Highlights table is
intended to help you understand a Fund’s financial performance for the period of
a Fund’s operations. The Funds commenced operations after the assets of the
predecessor funds were transferred to the Funds in a tax-free reorganization as
of the close of business on April 8, 2022 for Inflation Managed Bond ETF and May
20, 2022 for Realty Income ETF. For periods prior to the close of business on
April 8, 2022 for Inflation Managed Bond ETF and May 20, 2022 for Realty Income
ETF, the Financial Highlights information in the following table for a Fund’s
Shares represents the Financial Highlights of a predecessor fund’s Class R6
Shares for the fiscal periods indicated.
Certain information reflects
financial results for a single Fund or predecessor fund share. The total returns
in the table represent the rate that an investor would have earned or lost on an
investment in a Fund’s Shares or a predecessor fund’s Class R6 Shares (assuming
reinvestment of all dividends and distributions).
The information below has been
audited by PricewaterhouseCoopers LLP, the independent registered public
accounting firm for a Fund, whose reports, along with a Fund’s financial
statements, are included in a Fund’s annual report, which is available upon
request.
|
|
|
Per share
operating performance (a) | ||||
|
|
|
Investment
operations |
Distributions | |||
|
|
Net
asset
value,
beginning of
period |
Net investment
income
(loss)
(c) |
Net realized
and unrealized
gains
(losses) on
investments |
Total
from
investment
operations |
Net
investment
income |
Net
realized
gain |
|
JPMorgan
Inflation Managed Bond ETF
(g) |
|
|
|
|
|
|
|
Year
Ended February 28, 2023 |
$51.43 |
$1.63 |
$(5.05) |
$(3.42) |
$(1.58) |
$(0.14) |
|
Year
Ended February 28, 2022 |
50.58 |
1.27 |
0.85 |
2.12 |
(1.27) |
— |
|
Year
Ended February 28, 2021 |
49.26 |
0.94 |
1.32 |
2.26 |
(0.94) |
— |
|
Year
Ended February 29, 2020 |
47.33 |
1.27 |
1.93 |
3.20 |
(1.27) |
— |
|
Year
Ended February 28, 2019 |
47.85 |
1.18 |
(0.52) |
0.66 |
(1.18) |
— |
(a)Per share amounts reflect the conversion of the JPMorgan Inflation Managed Bond Fund into the JPMorgan Inflation Managed Bond ETF as of the close of business on April 8, 2022.
(b)
Annualized for periods less than one
year, unless otherwise noted.
(c)
Calculated based upon average shares
outstanding.
(d)
Includes adjustments in accordance
with accounting principles generally accepted in the United States of America
and as such, the net asset values for financial reporting purposes and the
returns based upon those net asset values may differ from the net asset values
and returns for shareholder transactions.
(e)
JPMorgan Inflation Managed Bond ETF
acquired all of the assets and liabilities of the JPMorgan Inflation Managed
Bond Fund (“Predecessor Fund”) in a reorganization that occurred as of the close
of business on April 8, 2022. Market price returns are calculated using the
official closing price of the JPMorgan Inflation Managed Bond ETF on the listing
exchange as of the time that the JPMorgan Inflation Managed Bond ETF's NAV is
calculated. Prior to the JPMorgan Inflation Managed Bond ETF's listing on April
11, 2022, the NAV performance of the Class R6 Shares of the Predecessor Fund are
used as proxy market price returns.
(f)
Not annualized for periods less than
one year.
(g)
JPMorgan Inflation Managed Bond ETF
(the “Fund”) acquired all of the assets and liabilities of the JPMorgan
Inflation Managed Bond Fund (“Predecessor Fund”) in a reorganization that
occurred as of the close of business on April 8, 2022. Performance and financial
history of the Predecessor Fund’s Class R6 Shares have been adopted by the Fund
and will be used going forward. As a result, the financial highlight information
reflects that of the Predecessor Fund’s Class R6 Shares for the period March 1,
2017 up through the reorganization.
42 | J.P.
Morgan Exchange-Traded Funds
|
|
|
|
Ratios/Supplemental
data | ||||||||
|
|
|
|
|
|
|
Ratios to
average net assets (b) |
| ||||
|
Total
distributions |
Net asset
value,
end of
period |
Market
price,
end of
period |
Total
Return
(d) |
Market
price
total
return
(e) |
Net asset,
end of
period |
Net
expenses |
Net
investment
income
(loss) |
Expenses
without waivers,
and
reimbursements |
Portfolio
turnover
rate
(f) | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
$(1.72) |
$46.29 |
$46.36 |
(6.73)% |
(6.59)% |
$904,606,857 |
0.26% |
3.38% |
0.41% |
107% | ||
|
(1.27) |
51.43 |
51.43 |
4.23 |
4.23 |
897,545,065 |
0.34 |
2.49 |
0.39 |
159 | ||
|
(0.94) |
50.58 |
50.58 |
4.70 |
4.70 |
1,172,320,983 |
0.34 |
1.93 |
0.38 |
89 | ||
|
(1.27) |
49.26 |
49.26 |
6.84 |
6.84 |
1,169,195,274 |
0.42 |
2.62 |
0.44 |
146 | ||
|
(1.18) |
47.33 |
47.33 |
1.41 |
1.41 |
859,081,298 |
0.47 |
2.46 |
0.47 |
74 | ||
July
1, 2023 | 43
Financial
Highlights
(continued)
|
|
|
Per share
operating performance (a) | ||||
|
|
|
Investment
operations |
Distributions | |||
|
|
Net
asset
value,
beginning
of period |
Net
investment
income
(loss)
(c) |
Net
realized
and unrealized
gains (losses)
on
investments |
Total
from
investment
operations |
Net
investment
income |
Net
realized
gain |
|
JPMorgan
Realty Income ETF
(g) |
|
|
|
|
|
|
|
Year
Ended February 28, 2023 |
$62.71 |
$0.98(i) |
$(9.14) |
$(8.16) |
$(0.76) |
$(10.60) |
|
Year
Ended February 28, 2022 |
54.76 |
0.64 |
13.05 |
13.69 |
(0.80) |
(4.94) |
|
Year
Ended February 28, 2021 |
54.40 |
0.84 |
1.89 |
2.73 |
(0.72) |
(1.65) |
|
Year
Ended February 29, 2020 |
54.92 |
1.12 |
3.53 |
4.65 |
(1.20) |
(3.97) |
|
September
1, 2018 (h) through February 28, 2019 |
54.44 |
0.52 |
0.60 |
1.12 |
(0.64) |
— |
|
Year
Ended August 31, 2018 |
53.24 |
1.20 |
1.24 |
2.44 |
(1.24) |
— |
(a)Per share amounts reflect the conversion of the JPMorgan Realty Income Fund into the JPMorgan Realty Income ETF as of the close of business on May 20, 2022.
(b)
Annualized for periods less than one
year, unless otherwise noted.
(c)
Calculated based upon average shares
outstanding.
(d)
Includes adjustments in accordance
with accounting principles generally accepted in the United States of America
and as such, the net asset values for financial reporting purposes and the
returns based upon those net asset values may differ from the net asset values
and returns for shareholder transactions.
(e)
JPMorgan Realty Income ETF acquired
all of the assets and liabilities of the JPMorgan Realty Income Fund
(“Predecessor Fund”) in a reorganization that occurred as of the close of
business on May 20, 2022. Market price returns are calculated
using the official closing price of the JPMorgan Realty Income ETF on the
listing exchange as of the time that the JPMorgan Realty Income ETF's NAV is
calculated. Prior to the JPMorgan Realty Income ETF's listing on May 23,
2022,
the NAV performance of
the Class R6 Shares of the Predecessor Fund are used as
proxy market price returns.
(f)
Not annualized for periods less than
one year.
(g)
JPMorgan Realty Income ETF (the
“Fund”) acquired all of the assets and liabilities of the JPMorgan Realty Income
Fund (“Predecessor Fund”) in a reorganization that occurred as of the close of
business on May 20, 2022. Performance and financial history of the Predecessor
Fund’s Class R6 Shares have been adopted by the Fund and will be used going
forward. As a result, the financial highlight information reflects that of the
Predecessor Fund’s Class R6 Shares for the period September 1, 2017 up through
the reorganization.
(h)
The Fund changed its fiscal year end
from August 31st to the last day of February.
(i)
Reflects special dividends paid out
during the period by several of the Fund’s holdings. Had the Fund not received
the special dividends, the net investment income (loss) per share would have
been $0.81 and the net investment income (loss) ratio would have been
1.59%.
44 | J.P.
Morgan Exchange-Traded Funds
|
|
|
|
Ratios/Supplemental
data | ||||||||
|
|
|
|
|
|
|
Ratios to
average net assets (b) |
| ||||
|
Total
distributions |
Net asset
value,
end of
period |
Market
price,
end of
period |
Total
Return
(d) |
Market
price
total
return
(e) |
Net asset,
end of
period |
Net
expenses |
Net
investment
income
(loss) |
Expenses
without waivers,
and
reimbursements |
Portfolio
turnover
rate
(f) | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
$(11.36) |
$43.19 |
$43.25 |
(13.43)% |
(13.31)% |
$509,554,235 |
0.55% |
1.93(i)% |
0.72% |
84% | ||
|
(5.74) |
62.71 |
62.71 |
24.69 |
24.69 |
1,450,453,154 |
0.68 |
0.98 |
0.70 |
59 | ||
|
(2.37) |
54.76 |
54.76 |
5.38 |
5.38 |
1,663,701,422 |
0.68 |
1.67 |
0.70 |
90 | ||
|
(5.17) |
54.40 |
54.40 |
8.23 |
8.23 |
1,289,280,883 |
0.68 |
1.92 |
0.76 |
71 | ||
|
(0.64) |
54.92 |
54.92 |
2.13 |
2.13 |
2,238,096,452 |
0.67 |
1.99 |
0.85 |
50 | ||
|
(1.24) |
54.44 |
54.44 |
4.79 |
4.79 |
2,325,640,388 |
0.68 |
2.34 |
0.85 |
107 | ||
July
1, 2023 | 45
How
to Reach Us
MORE
INFORMATION
For investors who want more
information on the Funds, the following documents are available free upon
request:
ANNUAL
AND SEMI-ANNUAL REPORTS
The Funds’ annual and semi-annual
reports contain more information about each Fund’s investments and performance.
The annual report also includes details about the market conditions and
investment strategies that have a significant effect on each Fund’s
performance.
STATEMENT
OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed
information about the Funds and their 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 Funds 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 Funds is 811-22903.
©JPMorgan Chase & Co., 2023. All
rights reserved. July 2023.
PR-CONVETF-723