Prospectus
J.P. Morgan
Exchange-Traded Funds
September 25,
2023
|
JPMorgan
Active Bond ETF |
Ticker:
JBND |
Listing
Exchange: 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
Active Bond ETF
|
| |
|
Management
Fees |
|
|
Total
Annual Fund Operating Expenses |
|
1
|
| ||
|
|
1
Year |
3
Years |
|
SHARES
($) |
|
|
September
25, 2023 | 1
JPMorgan
Active 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
September
25, 2023 | 3
JPMorgan
Active Bond ETF
(continued)
4 | 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 |
|
Richard
Figuly |
2023 |
Managing
Director |
|
Justin
Rucker |
2023 |
Managing
Director |
|
Andrew
Melchiorre |
2023 |
Managing
Director |
|
Edward
Fitzpatrick III |
2023 |
Managing
Director |
Purchase
and Sale of Shares
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through brokers or financial intermediaries. Shares of the Fund are
listed for trading on the Exchange, and because Shares trade at market prices
rather than NAV, Shares of the Fund may trade at a price greater than NAV
(premium) or less than NAV (discount). Certain affiliates of the Fund and the
adviser may purchase and resell Shares pursuant to this prospectus.
An investor
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares of the Fund (bid) and the lowest price a
seller is willing to accept for Shares (ask) when buying or selling Shares in
the secondary market (the bid-ask spread).
Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads (when available), is included on the Fund’s
website at jpmorganfunds.com.
Tax
Information
To the extent
the Fund makes distributions, those distributions will be taxed as ordinary
income or capital gains, except when your investment is in an IRA, 401(k) plan
or other tax-advantaged investment plan, in which case you may be subject to
federal income tax upon withdrawal from the tax-advantaged investment
plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
If you
purchase Shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the adviser and its related companies may pay the
financial intermediary for the sale of Shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
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.
September
25, 2023 | 5
More
About the Fund
Additional
Information About the Fund’s Investment Strategies
The Fund is
an ETF, which is a fund that trades like other publicly-traded securities. The
Fund is not an index fund. The Fund is actively managed and does not seek to
replicate the performance of a specified index.
The name,
investment objective and policies of the Fund are similar to other funds advised
by the adviser or its affiliates. However, the investment results of the Fund
may be higher or lower than, and there is no guarantee that the investment
results of the Fund will be comparable to, any other of these funds. A new fund
or a fund with fewer assets under management may be more significantly affected
by purchases and redemptions of its Creation Units (as defined below) than a
fund with relatively greater assets under management would be affected by
purchases and redemptions of its shares. As compared to a larger fund, a new or
smaller fund is more likely to sell a comparatively large portion of its
portfolio to meet significant Creation Unit redemptions, or invest a
comparatively large amount of cash to facilitate Creation Unit purchases, in
each case when the fund otherwise would not seek to do so. Such transactions may
cause funds to make investment decisions at inopportune times or prices or miss
attractive investment opportunities. Such transactions may also accelerate the
realization of taxable income if sales of securities resulted in gains and the
fund redeems Creation Units for cash, or otherwise cause a fund to perform
differently than intended. While such risks may apply to funds of any size, such
risks are heightened in funds with fewer assets under management. In addition,
new funds may not be able to fully implement their investment strategy
immediately upon commencing investment operations, which could reduce investment
performance.
Credit
Quality. The
Fund may invest all of its investments in investment grade securities or the
unrated equivalent. While the Fund may not purchase below investment grade
securities, it may hold up to 5% 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.
For the Fund, 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 Nationally Recognized Statistical Rating Organizations (NRSROs) -
Moody’s Investors Service Inc. (Moody’s), Standard & Poor’s Corporation
(S&P), Fitch Ratings (Fitch), DBRS Morningstar, and Kroll Bond Rating Agency
(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.
Main
Investment Strategies
The Fund
seeks to outperform (based on the Fund’s total return, gross of fees) the
Benchmark over a market cycle, typically a 3-5 year time horizon.
As a matter of
non-fundamental policy, under normal circumstances, the Fund will invest at
least 80% of its Assets in bonds. For purposes of this policy, “Assets” means
net assets, plus the amount of any borrowings for investment purposes. As part
of its main investment strategy, the Fund will invest primarily in investment
grade corporate bonds, U.S. Treasury obligations, including treasury coupon
strips and treasury principal strips, other U.S. government and agency
securities, and asset-backed and mortgage-backed securities. Generally, the
Fund’s bond holdings will have intermediate to long maturities. The Fund’s
average weighted maturity will normally range between 4 and 12 years. The Fund
may have a longer or shorter average weighted maturity under certain market
conditions and the Fund may shorten or lengthen its average weighted maturity if
deemed appropriate for temporary defensive purposes. The dollar weighted average
quality of the securities in the Fund generally will be A- or higher (or the
equivalent). In addition, all securities will be U.S. dollar-denominated. The
weighted average effective duration of the Fund will typically remain within
+/-20% of the Benchmark. Duration is a measure of price sensitivity of a debt
security or a portfolio of debt securities to relative changes in interest
rates. For instance, a duration of “five years” means that a security’s or
portfolio’s price would be expected to decrease by approximately 5% with a 1%
increase in interest rates (assuming a parallel shift in yield curve). The Fund
may also invest in private placements, restricted securities and other
unregistered securities. Securities issued under Rule 144A or other private
placements are eligible investments. The Fund may invest in sub-prime
mortgage-related securities.
6 | J.P.
Morgan Exchange-Traded Funds
All securities will be rated
investment grade (or the unrated equivalent) at the time of purchase. While the
Fund may not purchase below investment grade securities, it may hold up to 5% in
below investment grade securities. In addition, all securities will be U.S.
dollar-denominated, although they may be issued by a foreign corporation or a
U.S. affiliate of a foreign corporation or a foreign government or its agencies
and instrumentalities. The adviser may invest a significant portion or all of
its assets in mortgage-related and mortgage-backed securities in the adviser’s
discretion. As part of its principal investment strategy, the Fund may invest in
debt securities structured as private placements, restricted securities and
other unregistered securities.
In addition
to direct investments in securities, derivatives, which are instruments that
have value based on another instrument, exchange rate or index, may be used as
substitutes for securities in which the Fund can invest. The Fund has
flexibility to invest in derivatives to manage duration, sector and yield curve
exposure, credit and spread volatility and to respond to volatile market
conditions. The Fund may use futures contracts, options, and swaps.
The Fund’s
Assets may be invested in foreign securities, which will be denominated in USD.
Foreign securities include securities issued by foreign governments or their
agencies and instrumentalities and companies that are incorporated outside the
United States.
Under normal
market conditions, the Fund will limit issuer concentrations to 5% of the Fund’s
Assets per issuer at the time of purchase. This limit does not apply to
investments in obligations issued or guaranteed by the U.S. government or its
agencies and instrumentalities.
Securitized
sectors (agency MBS, ABS, CMBS, and non-agency RMBS) will be a minimum of the
sector’s representation within the Benchmark plus 20%. Credit sector exposure
will be limited to the sector’s representation within the Benchmark minus
10%.
For
liquidity, as a result of cash flows due to contributions and withdrawals, and
for temporary defensive purposes in order to respond to unusual market
conditions, the Fund may invest all or any portion of its assets in cash and
cash equivalents.
As part of
its principal investment strategy and for temporary defensive purposes, any
portion of the Fund’s total assets may be invested in cash and cash equivalents,
including affiliated money market funds.
Investment Process: The PM
team 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 PM
team looks for individual fixed income investments that it believes will perform
well over market cycles. The team 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 many issuers in the universe in which the Fund invests.
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 securities
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.
Average
Weighted Maturity. Average weighted maturity is
the average of all the current maturities (that is, the term of the securities)
of the individual bonds in the Fund calculated so as to count most heavily those
securities with the highest dollar value. Average weighted maturity is important
to investors as an indication of the Fund’s sensitivity to changes in interest
rates. Usually, the longer the average weighted maturity, the more fluctuation
in share price you can expect. Mortgage-related securities are subject to
prepayment of principal, which can shorten the average weighted maturity of the
Fund’s portfolio. Therefore, in the case of the Fund holding mortgage-backed
securities, asset-backed securities and similar types of securities, the average
weighted maturity is equivalent to its weighted average life. Weighted average
life is the average weighted maturity of the cash flows in the securities held
by the Fund given certain prepayment assumptions.
Additional
Investment Strategies
Although not part of its
principal investment strategy, the Fund may invest in adjustable rate mortgage
loans, non-government foreign debt securities, mortgage dollar rolls, variable
and floating rate securities, when-issued, delayed delivery securities and
forward commitments, zero-coupon securities, pay-in-kind and deferred payment
securities.
September
25, 2023 | 7
More
About the Fund
(continued)
|
NON-FUNDAMENTAL
INVESTMENT OBJECTIVE |
|
An
investment objective is fundamental if it cannot be changed without the
consent of a majority of the outstanding Shares of the
Fund.
The Fund’s investment objective is not fundamental and may be changed
without the consent of a majority of the outstanding
Shares
of the Fund. |
Securities
Lending. The Fund may
engage in securities lending to increase its income. Securities lending involves
the lending of securities owned by the Fund to financial institutions such as
certain broker-dealers in exchange for cash collateral. The Fund will invest
cash collateral in one or more money market funds advised by the adviser or its
affiliates. The adviser or its affiliates will receive additional compensation
from the affiliated money market funds on the Fund’s investment in such money
market funds. During the term of the loan, the Fund is entitled to receive
amounts equivalent to distributions paid on the loaned securities as well as the
return on the cash collateral investments. Upon termination of the loan, the
Fund is required to return the cash collateral to the borrower plus any agreed
upon rebate. Cash collateral investments will be subject to market depreciation
or appreciation, and the Fund will be responsible for any loss that might result
from its investment of cash collateral. If the adviser determines to make
securities loans, the value of the securities loaned may not exceed
33 1∕3% of the
value of total assets of the Fund. Loan collateral (including any investment of
that collateral) is not subject to the percentage limitations regarding the
Fund’s investments described elsewhere in this prospectus. Securities
lending is not a principal strategy of the Fund.
Please note
that the Fund also may use other non-principal strategies that are not described
in this section, but which are described in the Statement of Additional
Information.
Investment
Risks
There can be
no assurance that the Fund will achieve its investment objective.
The main
risks associated with investing in the Fund are summarized in the “Risk/Return
Summary” at the front of this prospectus. In addition to the Fund’s main risks,
the Fund may be subject to additional risks in connection with investments and
strategies used by the Fund from time to time. The table below identifies main
risks and some of the additional risks for the Fund.
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 the Fund or any other fund may not provide a complete investment program. The suitability of an investment in the Fund should be considered based on the investment objective, strategies and risks described in this prospectus, considered in light of all of the other investments in your portfolio, as well as your risk tolerance, financial goals and time horizons. You may want to consult with a financial advisor to determine if the Fund is suitable for you.
The Fund is
subject to the main risks designated as such in the table below, any of which
may adversely affect the Fund’s net asset value (NAV), market price, performance
and ability to meet its investment objective. The Fund may also be subject to
additional risks that are noted in the table below, as well as those that are
not described herein but which are described in the Statement of Additional
Information.
|
|
Active
Bond ETF |
|
Asset-Backed,
Mortgage-Related and Mortgage-Backed Securities Risk |
• |
|
Authorized
Participant Concentration Risk |
• |
|
Cash
Transactions Risk |
○ |
|
Credit
Risk |
• |
|
Cyber
Security Risk |
○ |
|
Debt
Securities and Other Callable Securities Risk |
○ |
|
Derivatives
Risk |
• |
|
Exchange-Traded
Fund (ETF) and Other Investment Company Risk |
○ |
|
Floating
and Variable Rate Securities Risk |
○ |
|
Foreign
Issuer Risk |
○
|
•
Main
Risks
○
Additional
Risks
8 | J.P.
Morgan Exchange-Traded Funds
|
|
Active
Bond ETF |
|
Foreign
Securities and Emerging Markets Risk |
• |
|
General
Market Risk |
• |
|
Geographic
Focus Risk |
• |
|
Government
Securities Risk |
• |
|
High
Portfolio Turnover Risk |
○ |
|
Industry
and Sector Focus Risk |
• |
|
Inflation-Linked
and Inflation-Protected Security Risk |
○ |
|
Interest
Rate Risk |
• |
|
Inverse
Floater Risk |
○ |
|
Loan
Risk |
○ |
|
Market
Trading Risk |
• |
|
Mortgage
Dollar Roll Risk |
○ |
|
Municipal
Securities Risk |
○ |
|
New
Fund Risk |
○ |
|
Prepayment
Risk |
• |
|
Privately
Placed Securities Risk |
• |
|
Regulatory
and Legal Risk |
○ |
|
Repurchase
Agreement Risk |
○ |
|
Risk
Associated with the Fund Holding Cash, Money Market Instruments and Other
Short-Term Investments |
○ |
|
Securities
Lending Risk |
○ |
|
Sovereign
Debt Risk |
• |
|
Structured
Investment Risk |
○ |
|
Transactions
and Liquidity Risk |
○ |
|
Volcker
Rule Risk |
○ |
|
When-Issued,
Delayed Settlement and Forward Commitment Transactions
Risk |
○ |
|
Zero-Coupon,
Pay-In-Kind and Deferred Payment Securities 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 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.
September
25, 2023 | 9
More
About the Fund
(continued)
Interest
Rate Risk. The Fund
invests 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
Fund 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 Fund may face a heightened level of interest rate risk due to
certain changes or uncertainty in monetary policy.
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 the 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 the Fund. In addition, the
credit quality of securities held by the 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 the Fund. Lower
credit quality also may affect liquidity and make it difficult for the Fund to
sell the security. The Fund 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 Fund’s 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 Fund’s 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.
Government
Securities Risk. The Fund
invests 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 the 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.
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 the 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, the Fund may be subject
to extension risk, and may receive principal later than expected. In periods of
rising interest rates, the 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
10 | J.P.
Morgan Exchange-Traded Funds
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 Real Estate Mortgage Investment Conduits (REMICs)
that include Fannie Mae mortgages) are not considered as government securities
for purposes of the Fund’s investment strategies or policies. There is no
government or government-sponsored guarantee for such privately issued
investments.
The Fund 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
the 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.
Foreign
Securities and Emerging Markets Risk. Because the
Fund invests in U.S. dollar denominated foreign securities, it is subject to
special risks in addition to those applicable to U.S. investments. These risks
include political and economic risks, unstable government, 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.
September
25, 2023 | 11
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About the Fund
(continued)
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 the 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. The
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, the 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. The Fund’s investments in
foreign and emerging market securities may also be subject to foreign
withholding taxes and/or 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.
Geographic
Focus Risk. In addition
to the more general Foreign
Securities and Emerging Markets Risk above, the
Fund may focus its investments in one or more foreign regions or small groups of
countries. As a result, the Fund’s performance may be subject to greater
volatility than a more geographically diversified fund and may be subject to the
risks facing certain regions.
Sovereign
Debt Risk. The
Fund may invest in sovereign debt securities. These securities are issued or
guaranteed by foreign governmental entities. These investments are subject to
the risk that a governmental entity may delay or refuse to pay interest or repay
principal on its sovereign debt, due, for example, to cash flow problems,
insufficient foreign currency reserves, political considerations, the relative
size of the governmental entity’s debt position in relation to the economy or
other failure to put in place economic reforms required by the International
Monetary Fund or other multilateral agencies. If a governmental entity defaults,
it may ask for more time in which to pay or further loans. There is no legal
process for collecting sovereign debts that a government does not pay nor are
there bankruptcy proceedings through which all or part of the sovereign debt
that a governmental entity has not repaid may be collected.
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, the Fund may have to reinvest in securities with a lower
yield. The Fund also may fail to recover additional amounts (i.e., premiums)
paid for securities with higher coupons, resulting in an unexpected capital
loss.
Derivatives
Risk. The Fund may
use derivatives in connection with its investment strategies. Derivatives may be
riskier than other types of investments because they may be more sensitive to
changes in economic or market conditions than other types of investments and
could result in losses that significantly exceed the Fund’s original investment.
Derivatives are subject to the risk that changes in the value of a derivative
may not correlate perfectly with the underlying asset, rate or index. The use of
derivatives may not be successful, resulting in losses to the Fund and the cost
of such strategies may reduce the Fund’s returns. Certain derivatives also
expose the Fund to counterparty risk (the risk that the derivative counterparty
will not fulfill its contractual obligations), including credit risk of the
derivative counterparty. Certain derivatives are synthetic instruments that
attempt to replicate the performance of certain reference assets. With regard to
such derivatives, the Fund does not have a claim on the reference assets and is
subject to enhanced counterparty risk. In addition, the Fund may use derivatives
for non-hedging purposes, which increases that Fund’s potential for
loss.
Investing in
derivatives will result in a form of leverage. Leverage involves special risks.
The Fund may be more volatile than if the Fund had not been leveraged because
leverage tends to exaggerate any effect on the value of the Fund’s portfolio
securities. The 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 are limited in their ability
to engage in derivative transactions.
12 | J.P.
Morgan Exchange-Traded Funds
The possible lack of a liquid
secondary market for derivatives and the resulting inability of the 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 also can expose the Fund to derivative liquidity risk relating to
the payment obligations created thereunder and legal and operational
risk.
The Fund
transactions in futures contracts, swaps, foreign currency derivatives and other
derivatives could also affect the amount, timing and character of distributions
to shareholders which may result in the Fund realizing more short-term capital
gain and ordinary income subject to tax at ordinary income tax rates than it
would if it did not engage in such transactions, which may adversely impact the
Fund’s after-tax return. Derivatives may not perform as expected, so the 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 the Fund to risks of mispricing or improper valuations.
|
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. |
Privately
Placed Securities Risk. Privately
placed securities generally are less liquid than publicly traded securities and
the Fund may not always be able to sell such securities without experiencing
delays in finding buyers or reducing the sale price for such securities. The
disposition of some of the securities held by the Fund may be restricted under
federal securities laws or by the relevant exchange or by a governmental or
supervisory authority. As a result, the Fund may not be able to dispose of such
investments at a time when, or at a price at which, it desires to do so and may
have to bear expenses of registering these securities, if necessary. These
securities may also be difficult to value.
Industry
and Sector Focus Risk. Because the Fund may invest
a significant portion of its assets in securities of companies in the banking
industry, developments affecting the banking industry may have a
disproportionate impact on the Fund. At times the Fund may increase the relative
emphasis of its investments in a particular industry or sector. The prices of
securities of issuers in a particular industry or sector may be more susceptible
to fluctuations due to changes in economic or business conditions, government
regulations, availability of basic resources or supplies, 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 the Fund increases the relative
emphasis of its investments in a particular industry or sector, the value of the
Fund’s Shares may fluctuate in response to events affecting that industry or
sector. These risks generally include interest rate risk, credit risk and risk
associated with regulatory changes in the banking industry. The profitability of
banks depends largely on the availability and cost of funds, which can change
depending on economic conditions.
Repurchase
Agreement Risk.
Repurchase agreements are subject to “Credit
Risk.” In
addition, in the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities would not be
owned by the Fund, but would only constitute collateral for the seller’s
obligation to pay the repurchase price. Therefore, the Fund may suffer time
delays and incur costs in connection with the disposition of the collateral.
These risks may be magnified to the extent that a repurchase agreement is
secured by collateral other than cash and government securities (Non-Traditional
Collateral). For example, repurchase agreements secured by below investment
grade securities and equity securities may or may not be subject to an automatic
stay in bankruptcy proceedings. As a result of the automatic stay, to the extent
applicable, the Fund could be prohibited from selling the collateral in the
event of a counterparty’s bankruptcy unless the Fund is able to obtain the
approval of the bankruptcy court. In addition, the value of Non-Traditional
Collateral may be more volatile or less liquid thereby increasing the risk that
the Fund will be unable to recover fully in the event of a counterparty’s
default. Below investment grade securities are considered to be speculative and
are subject to greater risk of loss, greater sensitivity to interest rate and
economic changes, valuation difficulties and potential illiquidity. Equity
securities are subject to stock market risk and the price of such securities may
rise or fall, sometimes rapidly or unpredictably.
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.
September
25, 2023 | 13
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About the Fund
(continued)
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
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 the Fund through a broker, you will likely incur a brokerage
commission or other charges imposed by brokers. In addition, the market price of
Shares, like the price of any exchange-traded security, includes a “bid-ask
spread” charged by the market makers or other participants that trade the
particular security. The spread of the Fund’s Shares varies over time based on
the Fund’s trading volume and market liquidity and may increase if the Fund’s
trading volume, the spread of the Fund’s underlying securities, or market
liquidity decrease. In times of severe market disruption, including when trading
of the Fund’s holdings may be halted, the bid-ask spread may increase
significantly. This means that Shares may trade at a discount to the Fund’s NAV,
and the discount is likely to be greatest during significant market
volatility.
No
Guarantee of Active Trading Market Risk. While Shares
are listed on the Exchange, there can be no assurance that active trading
markets for the Shares will be maintained by market makers or by authorized
participants. JPMorgan Distribution Services, Inc., the distributor of the
Fund’s Shares (the Distributor), does not maintain a secondary market in the
Shares.
Trading
Issues Risk. Trading in
Shares on the Exchange may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in Shares inadvisable. In
addition, trading in Shares on the Exchange is subject to trading halts caused
by extraordinary market volatility pursuant to the Exchange “circuit breaker”
rules. If a trading halt or unanticipated early closing of the Exchange occurs,
a shareholder may be unable to purchase or sell Shares of the Fund.
There can be
no assurance that the requirements of the Exchange necessary to maintain the
listing of the Fund will continue to be met or will remain
unchanged.
Authorized
Participant Concentration Risk. Only an
authorized participant may engage in creation or redemption transactions
directly with the Fund. The Fund has a limited number of intermediaries that act
as authorized participants and none of these authorized participants is or will
be obligated to engage in creation or redemption transactions. To the extent
that these intermediaries exit the business or are unable to or choose not to
proceed with creation and/or redemption orders with respect to the Fund and no
other authorized participant creates or redeems, Shares may trade at a discount
to NAV and possibly face trading halts and/or delisting.
Risk
Associated with the Fund Holding Cash, Money Market Instruments and Other
Short-Term Investments. The Fund will, at times, hold
assets in cash, money market instruments and other short-term investments, which
may hurt the Fund’s performance. These positions may also subject the Fund to
additional risks and costs.
Cash
Transactions Risk. Unlike
certain ETFs, the Fund may effect its creations and redemptions in cash or
partially in cash. As a result, an investment in the 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 the 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 the Fund recognizes gain on these
sales, this generally will cause the 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. The Fund
generally intends to distribute these gains to shareholders to avoid being taxed
on this gain at the 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.
Exchange-Traded
Fund (ETF) and/or Other Investment Company Risk. The Fund may
invest in shares of other investment companies and ETFs. Shareholders bear both
their proportionate share of the 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. The Fund is subject to the risks associated with the
ETF’s or investment company’s investments. ETFs and companies that invest in
commodities or currencies are subject to the risks associated with direct
investments in commodities or currencies. The price and movement of an ETF or
14 | J.P.
Morgan Exchange-Traded Funds
closed-end
fund designed to track an index may not track the index and may result in a
loss. In addition, closed-end funds that trade on an exchange often trade at a
price below their NAV (also known as a discount). Certain ETFs or closed-end
funds 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.
Mortgage
Dollar Roll Risk. The Fund may
enter into mortgage dollar rolls involving mortgage pass-through securities
including mortgage securities eligible to be sold in the “to-be-announced” or
TBA market (Mortgage TBAs). Mortgage TBAs provide for the forward or delayed
delivery of the underlying instrument with settlement up to 180 days. The term
TBA comes from the fact that the actual mortgage-backed security that will be
delivered to fulfill a TBA trade is not designated at the time the trade is
made, but rather is announced 48 hours before the settlement date. During the
period between the sale and repurchase in a mortgage dollar roll transaction,
the Fund will not be entitled to receive interest and principal payments on the
securities sold. Losses may arise due to changes in the value of the securities
or if the counterparty does not perform under the terms of the agreement. If the
counterparty files for bankruptcy or becomes insolvent, the Fund’s right to
repurchase or sell securities may be limited. Short sales of Mortgage TBAs and
engaging in mortgage dollar rolls may be subject to leverage risks as described
under “Derivatives Risk.” In addition, mortgage dollar rolls may increase
interest rate risk and result in an increased portfolio turnover rate which
increases costs and may increase taxable gains.
Structured
Investment Risk. Certain
structured investments are synthetic instruments that attempt to replicate the
performance of certain reference assets. With regard to such instruments, the
Fund does not have a claim on the reference assets and is subject to enhanced
counterparty risk.
Foreign
Issuer Risk.
The Fund invests
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. Events and evolving conditions in certain economies or markets alter
the risks associated with investments tied to countries or regions that
historically were perceived as comparatively stable becoming riskier and more
volatile.
Zero-Coupon,
Pay-In-Kind and Deferred Payment Securities Risk. The market
value of a zero-coupon, pay-in-kind or deferred payment security is generally
more volatile than the market value of, and is more likely to respond to a
greater degree to changes in interest rates and credit quality than, other fixed
income securities with similar maturities and credit quality that pay interest
periodically. In addition, federal income tax law requires that the holder of a
zero-coupon security accrue a portion of the discount at which the security was
purchased as taxable income each year even though the holder receives no
interest payments on the note during the year. The Fund must distribute
substantially all of its net income (including non-cash income attributable to
zero-coupon securities) to its share holders each year to maintain its status as
a regulated investment company and to eliminate tax at the Fund level.
Accordingly, such accrued discount must be taken into account in determining the
amount of taxable distributions to shareholders. The Fund may consequently have
to dispose of portfolio securities under disadvantageous circumstances to
generate cash to satisfy such distribution requirements. These actions may
reduce the assets to which the Fund’s expenses could otherwise be allocated and
may reduce the Fund’s rate of return.
In addition,
(1) the higher yields and interest rates on certain pay-in-kind securities (PIK)
reflect the payment deferral and increased credit risk associated with such
instruments and such investments may represent a significantly higher credit
risk than coupon loans; (2) PIK securities may have higher price volatility
because their continuing accruals require continuing judgments about the
collectability of the deferred payments and the value of any associated
collateral; (3) PIK interest has the effect of generating investment income; and
(4) the deferral of PIK interest may also reduce the loan-to-value ratio at a
compounding rate.
Floating
and Variable Rate Securities Risk. Floating and
variable rate securities provide for a periodic adjustment in the interest rate
paid on the securities. The rate adjustment intervals may be regular and range
from daily up to annually, or may be based on an event, such as a change in the
prime rate. Floating and variable rate securities may be subject to greater
liquidity risk than other debt securities, meaning that there may be limitations
on the Fund’s ability to sell the securities at any given time. Such securities
also may lose value.
High
Portfolio Turnover Risk. The 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.
Municipal
Securities Risk. Changes in a
municipality’s financial health may make it difficult for the municipality to
make interest and principal payments when due. A number of municipalities have
had significant financial problems recently, and these and other municipalities
could, potentially, continue to experience significant financial problems
resulting from lower tax revenues and/or decreased aid from state and local
governments in the event of an economic downturn. This could decrease the Fund’s
income or hurt the ability to preserve capital and liquidity.
September
25, 2023 | 15
More
About the Fund
(continued)
Under some
circumstances, municipal securities might not pay interest unless the state
legislature or municipality authorizes money for that purpose. Some securities,
including municipal lease obligations, carry additional risks. For example, they
may be difficult to trade or interest payments may be tied only to a specific
stream of revenue.
Since some
municipal securities may be secured or guaranteed by banks and other
institutions, the risk to the Fund could increase if the banking or financial
sector suffers an economic downturn and/or if the credit ratings of the
institutions issuing the guarantee are downgraded or at risk of being downgraded
by a national rating organization. If such events were to occur, the value of
the security could decrease or the value could be lost entirely, and it may be
difficult or impossible for the Fund to sell the security at the time and the
price that normally prevails in the market. Interest on municipal obligations,
while generally exempt from federal income tax, may not be exempt from federal
alternative minimum tax.
Inverse
Floater Risk. Inverse
floaters and inverse 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, the Fund could lose all or substantially all of its
investment in inverse IOs.
Debt
Securities and Other Callable Securities Risk. As part of
its main investment strategy, the Fund invests in debt securities. The issuers
of these securities and other callable securities may be able to repay principal
in advance, especially when interest rates fall. Changes in prepayment rates can
affect the return on investment and yield of these securities. When debt
obligations are prepaid and when securities are called, the Fund may have to
reinvest in securities with a lower yield. The Fund also may fail to recover
additional amounts (i.e., premiums) paid for securities with higher interest
rates, resulting in an unexpected capital loss.
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 the 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. The 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.
Loan
Risk. The Fund 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, the 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 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 the Fund.
16 | J.P.
Morgan Exchange-Traded Funds
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 the 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. Because some
Loans that the Fund invests in may have a more limited secondary market,
liquidity and valuation risk is more pronounced for the 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 the 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, the Fund may be more dependent
upon the analytical ability of its adviser.
When the 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, the Fund may have no direct rights to
enforce the terms of the loan against the borrower. The 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 the 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. The 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 the Fund’s yield and the income available for distribution
by the Fund. When Loans are prepaid, the 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.
When-Issued,
Delayed Settlement and Forward Commitment Transactions Risk. The Fund may
purchase or sell securities which it is eligible to purchase or sell on a
when-issued basis, may purchase and sell such securities for delayed delivery
and may make contracts to purchase or sell such securities for a fixed price at
a future date beyond normal settlement time (forward commitments). When-issued
transactions, delayed delivery purchases and forward commitments involve the
risk that the security the Fund buys will lose value prior to its delivery.
There also is the risk that the security will not be issued or that the other
party to the transaction will not meet its obligation. If this occurs, the Fund
loses both the investment opportunity for the assets it set aside to pay for the
security and any gain in the security’s price.
Securities
Lending Risk. The Fund may
engage in securities lending. Securities lending involves counterparty risk,
including the risk that the loaned securities may not be returned or returned in
a timely manner and/or a loss of rights in the collateral if the borrower or the
lending agent defaults. This risk is increased when the Fund’s loans are
concentrated with a single or limited number of borrowers. In addition, the Fund
bears the risk of loss in connection with its investments of the cash collateral
it receives from the borrower. To the extent that the value or return of the
Fund’s investments of the cash collateral declines below the amount owed to a
borrower, the Fund may incur losses that exceed the amount it earned on lending
the security. In situations where the adviser does not believe that it is
prudent to sell the cash collateral investments in the market, the Fund may
borrow money to repay the borrower the amount of cash collateral owed to the
borrower upon return of the loaned securities. This will result in financial
leverage, which may cause the Fund to be more volatile because financial
leverage tends to exaggerate the effect of any increase or decrease in the value
of the Fund’s portfolio securities.
Transactions
and Liquidity Risk. The Fund
could experience a loss when selling securities to meet redemption requests and
its liquidity may be negatively impacted. The risk of loss increases if the
redemption requests are large or frequent, occur in times of overall market
turmoil or declining prices for the securities sold, or when the securities the
Fund wishes to, or is required to, sell are illiquid. To the extent a large
proportion of Shares are held by a small number of shareholders (or a single
shareholder) including funds or accounts over which the adviser or its
affiliates have investment discretion, the Fund is subject to the risk that
these shareholders will purchase or redeem Shares in large amounts rapidly or
unexpectedly, including as a result of an asset allocation decision made by the
adviser or its affiliates. To the extent these larger shareholders transact in
the secondary market, such transactions may account for a large percentage of
the Fund’s trading volume on the Exchange, which may have a material effect
(upward or downward) on the market price of Shares. In addition to the other
risks described in this section, these transactions could adversely affect the
ability of the Fund to conduct its investment program. The Fund may be unable to
sell illiquid securities at its desired time or price or the price at which the
securities have been valued for purposes of the Fund’s NAV. Illiquidity can be
caused by a drop in overall market trading volume, an inability to find a ready
buyer, or legal restrictions on the securities’ resale. Other market
participants may be attempting to sell debt securities at the same time as the
Fund, causing downward pricing pressure and
September
25, 2023 | 17
More
About the Fund
(continued)
contributing
to illiquidity. The capacity for bond dealers to engage in trading or “make a
market” in debt securities has not kept pace with the growth of bond markets.
Liquidity and valuation risk may be magnified in a rising interest rate
environment, when credit quality is deteriorating or in other circumstances
where investor redemptions from fixed income funds may be higher than normal.
Certain securities that were liquid when purchased may later become illiquid,
particularly in times of overall economic distress. Similarly, large purchases
of Shares may adversely affect the Fund’s performance to the extent that the
Fund is delayed in investing new cash and is required to maintain a larger cash
position than it ordinarily would. Large redemptions also could accelerate the
realization of capital gains, increase the Fund’s transaction costs and impact
the Fund’s performance. To the extent redemptions are effected in cash, an
investment in the Fund may be less tax-efficient than an investment in an ETF
that distributes portfolio securities entirely in-kind.
Cyber
Security Risk. As the use
of technology has become more prevalent in the course of business, the Fund has
become more susceptible to operational and financial risks associated with cyber
security, including: theft, loss, misuse, improper release, corruption and
destruction of, or unauthorized access to, confidential or highly restricted
data relating to the Fund and its shareholders; and compromises or failures to
systems, networks, devices and applications relating to the operations of the
Fund and its service providers. Cyber security risks may result in financial
losses to the Fund and its shareholders; the inability of the Fund to transact
business with its shareholders; delays or mistakes in the calculation of the
Fund’s NAV or other materials provided to shareholders; the inability to process
transactions with shareholders or other parties; violations of privacy and other
laws; regulatory fines, penalties and reputational damage; and compliance and
remediation costs, legal fees and other expenses. The Fund’s service providers
(including, but not limited to, the adviser, any sub-advisers, administrator,
transfer agent, and custodian or their agents), financial intermediaries,
companies in which the Fund invests and parties with which the Fund engages in
portfolio or other transactions also may be adversely impacted by cyber security
risks in their own businesses, which could result in losses to the Fund or its
shareholders. While measures have been developed which are designed to reduce
the risks associated with cyber security, there is no guarantee that those
measures will be effective, particularly since the Fund does not directly
control the cyber security defenses or plans of its service providers, financial
intermediaries and companies in which it invests or with which it does
business.
Regulatory
and Legal Risk. U.S. and
non-U.S. governmental agencies and other regulators regularly implement
additional regulations and legislators pass new laws that affect the investments
held by the Fund, the strategies used by the Fund or the level of regulation or
taxation applying to the Fund (such as regulations related to investments in
derivatives and other transactions). These regulations and laws may adversely
impact the investment strategies, performance, costs and operations of the Fund
or taxation of shareholders.
Volcker
Rule Risk. Pursuant to
Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and
certain rules promulgated thereunder known as the Volcker Rule, if the adviser
and/or its affiliates own 25% or more of the outstanding ownership interests of
the Fund after the permitted seeding period from the implementation of the
Fund’s investment strategy, the Fund could be subject to restrictions on trading
that would adversely impact the Fund’s ability to execute its investment
strategy. Generally, the permitted seeding period is three years from the
implementation of the Fund’s investment strategy. As a result, the adviser
and/or its affiliates may be required to reduce their ownership interests in the
Fund at a time that is sooner than would otherwise be desirable, which may
result in the Fund’s liquidation or, if the Fund is able to continue operating,
may result in losses, increased transaction costs and adverse tax consequences
as a result of the sale of portfolio securities.
New
Fund Risk. The Fund is
new with no operating history. As a result, prospective investors have no track
record or history on which to base their investment decisions. In addition,
until the Fund achieves a certain size, the performance of certain of its
investments may disproportionately impact the performance of the Fund, which may
be subject to heightened volatility. As a new fund, the Fund also may be subject
to a “ramp-up” period during which it may not be fully invested or able to meet
its investment objective or investment policies. In addition, there can be no
assurance that the Fund will grow to or maintain an economically viable
size.
For more
information about risks associated with the types of investments that the Fund
purchases, please read the “Risk/Return Summary” at the front of this prospectus
and the Statement of Additional Information.
Conflicts
of Interest
An investment
in a Fund is subject to a number of actual or potential conflicts of interest.
For example, the Adviser and/or its affiliates provide a variety of different
services to a Fund, for which the Fund compensates them. As a result, the
Adviser and/or its affiliates have an incentive to enter into arrangements with
a Fund, and face conflicts of interest when balancing that incentive against the
best interests of a Fund. The Adviser and/or its affiliates also face conflicts
of interest in their service as investment adviser to other clients, and, from
time to time, make investment decisions that differ from and/or negatively
impact those made by the Adviser on behalf of a Fund. In addition, affiliates of
the Adviser provide a broad range of services and products to their clients and
are major participants in the global currency, equity, commodity, fixed income
and other markets in which a Fund invests or will invest. In certain
circumstances by providing services and products to their clients, these
affiliates’ activities will disadvantage or restrict the Funds and/or benefit
these affiliates. The Adviser may also acquire material non-public information
which would negatively affect the
18 | J.P.
Morgan Exchange-Traded Funds
Adviser’s
ability to transact in securities for a Fund. JPMorgan and the Funds have
adopted policies and procedures reasonably designed to appropriately prevent,
limit or mitigate conflicts of interest. In addition, many of the activities
that create these conflicts of interest are limited and/or prohibited by law,
unless an exception is available. For more information about conflicts of
interest, see the Potential
Conflicts of Interest section in
the Statement of Additional Information.
Temporary
Defensive and Cash Positions
For liquidity
and to respond to unusual market conditions, the Fund may invest all or most of
its total assets in cash and cash
equivalents for
temporary defensive purposes. These investments may result in a lower yield than
lower-quality or longer-term investments.
|
WHAT
IS A CASH EQUIVALENT? |
|
Cash
equivalents are highly liquid, high-quality instruments with maturities of
three months or less on the date they are purchased.
They
include securities issued by the U.S. government, its agencies and
instrumentalities, repurchase agreements, certificates of
deposit,
bankers’ acceptances, commercial paper, money market mutual funds, and
bank deposit accounts. |
While the
Fund is engaged in a temporary defensive position, it may not meet its
investment objective. These investments may also be inconsistent with the Fund’s
main investment strategies. Therefore, the Fund will pursue a temporary
defensive position only when market conditions warrant.
Disclosure
of Portfolio Holdings
A description
of the policies and procedures with respect to the disclosure of the Fund’s
portfolio securities is available in the Fund’s Statement of Additional
Information.
Additional
Fee Waiver and/or Expense Reimbursement
Service
providers to the Fund may, from time to time, voluntarily waive all or a portion
of any fees to which they are entitled and/or reimburse certain expenses as they
may determine from time to time. The Fund’s service providers may discontinue or
modify these voluntary actions at any time without notice. Performance for the
Fund, when available, will reflect the voluntary waiver of fees and/or the
reimbursement of expenses, if any. Without these voluntary waivers and/or
expense reimbursements, performance would be less favorable.
September
25, 2023 | 19
The
Fund’s Management and Administration
The Fund is a
series of J.P. Morgan Exchange-Traded Fund Trust, a Delaware statutory trust
(the Trust). The Trust is governed by the Board of Trustees, which is
responsible for overseeing all business activities of the Fund.
The
Fund’s Investment Adviser and Administrator
J.P. Morgan
Investment Management Inc. (JPMIM or the adviser) is the investment adviser and
administrator to the Fund. JPMIM is located at 383 Madison Avenue, New York, NY
10179. In addition to managing the Fund’s portfolio, JPMIM also provides
administrative services for and oversees the other service providers of the
Fund.
JPMIM is a
wholly-owned subsidiary of JPMorgan Asset Management Holdings Inc., which is a
wholly-owned subsidiary of JPMorgan Chase & Co. (JPMorgan Chase), a bank
holding company.
In rendering
investment advisory services to the Fund, JPMIM uses the portfolio management,
research and other resources of a foreign (non-U.S.) affiliate of JPMIM and may
provide services to the Fund through a “participating affiliate” arrangement, as
that term is used in relief granted by the staff of the SEC. Under this relief,
U.S. registered investment advisers are allowed to use portfolio management or
research resources of advisory affiliates subject to the regulatory supervision
of the registered investment adviser.
A discussion
of the basis the Board of Trustees of the Trust used in approving the management
agreement for the Fund will be available in the first shareholder report for the
Fund.
Management
Fee and Other Expenses
Pursuant to the Fund’s
management agreement, JPMIM is entitled to a management fee, incurred daily and
paid monthly of the Fund’s average daily net assets at the rate of 0.30%. Under
the management agreement, JPMIM is responsible for substantially all the
expenses of the Fund (including expenses of the Trust relating to the Fund),
except for the management fees, payments under the Fund’s 12b-1 plan (if any),
interest expenses, dividend and interest expenses related to short sales, taxes,
acquired fund fees and expenses (other than fees for funds advised by the
adviser and/ or its affiliates), costs of holding shareholder meetings, and
litigation and potential litigation and other extraordinary expenses not
incurred in the ordinary course of the Fund’s business. Additionally, the Fund
shall be responsible for its non-operating expenses, including brokerage
commissions and fees and expenses associated with the Fund’s securities lending
program, if applicable.
The
Portfolio Managers
The lead
portfolio managers who are primarily responsible for the day-to-day management
of the Fund are listed below. As part of that responsibility, the portfolio
managers establish and monitor the overall duration, yield curve, and sector
allocation strategies for the Fund. The portfolio managers are assisted by
research teams who provide individual security and sector recommendations
regarding their area of focus, while the portfolio managers select and allocate
individual securities in a manner designed to meet the investment objective of
the Fund.
The lead
portfolio managers are Richard Figuly, Managing Director, Justin Rucker,
Managing Director, Andrew Melchiorre, Managing Director, and Edward Fitzpatrick
III, Managing Director. An employee of JPMIM or predecessor firms since 1993,
Mr. Figuly is a member of JPMIM’s Global Fixed Income, Currency and Commodities
Group (GFICC) and head of GFICC’s Core Bond team with responsibility for
managing certain J.P. Morgan Funds and institutional taxable bond portfolios. An
employee of JPMIM since 2006, Mr. Rucker, is a member of GFICC and a portfolio
manager responsible for managing Long Duration and Core Bond institutional
taxable bond portfolios. An employee of JPMIM since 2012, Mr. Melchiorre, is a
member of the GFICC group and is a portfolio manager for the U.S. Value Driven
team responsible for managing institutional taxable bond portfolios and a named
portfolio manager for the JPM Mortgage-Backed Securities Fund. An employee of
JPMIM since 2013, 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 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 Fund.
The
Fund’s Distributor
JPMorgan
Distribution Services, Inc. (the Distributor) is the distributor of the Fund’s
Shares. The Distributor or its agent distributes Creation Units for the Fund on
an agency basis. The Distributor does not maintain a secondary market in Shares
of the Fund. The Distributor has no role in determining the investment policies
of the Fund or the securities that are purchased or sold by the Fund. The
Distributor’s principal address is 1111 Polaris Parkway, Columbus, OH
43240.
20 | J.P.
Morgan Exchange-Traded Funds
Payments
to Financial Intermediaries
JPMIM and,
from time to time, other affiliates of JPMorgan Chase may, at their own expense
and out of their own legitimate profits, provide cash payments to Financial
Intermediaries whose customers invest in Shares of the Fund. For this purpose,
Financial Intermediaries include financial advisors, investment advisers,
brokers, financial planners, banks, insurance companies, retirement or 401(k)
plan administrators and others, including various affiliates of JPMorgan Chase,
that may enter into agreements with JPMIM and/or its affiliates. These cash
payments may relate to marketing activities and presentations, educational
training programs, the support of technology platforms and/or reporting systems,
or the Financial Intermediaries’ making Shares of the Fund available to their
customers. Such compensation may provide such Financial Intermediaries with an
incentive to favor sales of Shares of the Fund over other investment options
they make available to their customers. See the Statement of Additional
Information for more information.
September
25, 2023 | 21
Purchase
and Redemption of Shares
Buying
and Selling Shares
In
the Secondary Market. Most
investors will buy and sell Shares of the Fund in secondary market transactions
through brokers. Shares of the Fund are listed and traded on the secondary
market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although
Shares are generally purchased and sold in “round lots” of 100 Shares, brokerage
firms typically permit investors to purchase or sell Shares in smaller “odd
lots,” at no per-Share price differential. When buying or selling Shares through
a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the
secondary market on each leg of a round trip (purchase and sale) transaction.
The spread varies over time for Shares of the Fund based on the Fund’s trading
volume and market liquidity, and is generally lower if the Fund has a lot of
trading volume and market liquidity.
Shares of the
Fund trade on the Exchange at prices that may differ to varying degrees from the
daily NAV of the Shares.
Directly
with the Fund. The Fund’s
Shares are issued or redeemed by the Fund at NAV per Share only in a large
specified number of Shares called a “Creation Unit” or multiples thereof.
Investors such as market makers, large investors and institutions who wish to
deal in Creation Units directly with the Fund must have entered into an
authorized participant agreement with the Distributor, or purchase through a
dealer that has entered into such an agreement. Set forth below is a brief
description of the procedures applicable to purchases and redemptions of
Creation Units. For more detailed information, see “Appendix A - Purchases and
Redemptions” in the Fund’s Statement of Additional Information.
Beneficial
Ownership. The
Depository Trust Company (DTC) serves as securities depository for the Shares.
(The Shares may be held only in book-entry form; stock certificates will not be
issued.) DTC, or its nominee, is the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on the records
of DTC or its participants (described below). Beneficial owners of Shares are
not entitled to have Shares registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form and are
not considered the registered holder thereof. Accordingly, to exercise any
rights of a holder of Shares, each beneficial owner must rely on the procedures
of: (i) DTC; (ii) “DTC Participants” (i.e., securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations),
some of whom (and/or their representatives) own DTC; and (iii) “Indirect
Participants” (i.e., brokers, dealers, banks and trust companies that clear
through or maintain a custodial relationship with a DTC Participant, either
directly or indirectly, through which such beneficial owner holds its
interests). The Trust understands that under existing industry practice, in the
event the Trust requests any action of holders of Shares, or a beneficial owner
desires to take any action that DTC, as the record owner of all outstanding
Shares, is entitled to take, DTC would authorize the DTC Participants to take
such action and that the DTC Participants would authorize the Indirect
Participants and beneficial owners acting through such DTC Participants to take
such action and would otherwise act upon the instructions of beneficial owners
owning through them. As described above, the Trust recognizes DTC or its nominee
as the owner of all Shares for all purposes. For more detailed information, see
“Book Entry Only System” in the Fund’s Statement of Additional
Information.
Premium/Discount
Information
The Fund has
not commenced operations as of the date of this prospectus and, therefore, does
not have information about the differences between the Fund’s daily market price
on the Exchange (Market Price) and its NAV. When available, information
regarding how often the Shares of the Fund traded on the Exchange at a price
above (i.e., at a premium) or below (i.e., at a discount) the NAV of the Fund
for the most recently completed calendar year and the most recently completed
calendar quarters since that year (or the life of the Fund, if shorter) can be
found at www.jpmorganfunds.com.
Pricing
Shares
Investors
that purchase or sell Shares on the secondary market transact at the Market
Price on the Exchange. The Market Price may differ from the Fund’s daily NAV and
can be affected by market forces of supply and demand, economic conditions and
other factors.
The Exchange
disseminates the approximate value of Shares of the Fund periodically throughout
the trading day. This approximate value should not be viewed as a “real-time”
update of the NAV per Share of the Fund because the approximate value may not be
calculated in the same manner as the NAV, which is computed only once a day. The
approximate value is generally determined by using both current market
quotations and/or price quotations obtained from broker-dealers and other market
intermediaries that may trade in the portfolio securities held by the Fund. The
Fund is not involved in, or responsible for, the calculation or dissemination of
the approximate value and the Fund does not make any representation or warranty
as to its accuracy.
NAV is calculated each
business day as of the close of the New York Stock Exchange (NYSE), which is
typically 4:00 p.m. E.T. On occasion, the NYSE will close before 4:00 p.m. E.T.
When that happens, NAV will be calculated as of the time the NYSE closes. The
Fund will not treat an intraday unscheduled disruption or closure in the NYSE
trading as a closure of the NYSE, and will calculate NAV as of 4:00 p.m. E.T. if
the particular disruption or closure directly affects only the NYSE. The price
at which a purchase of a Creation Unit is effected is based on the next
calculation of NAV after the order is received in proper form in accordance with
this prospectus. To the
22 | J.P.
Morgan Exchange-Traded Funds
extent the
Fund invests in securities that are primarily listed on foreign exchanges or
other markets that trade on weekends or other days when the Fund does not price
its Shares, the value of the Fund’s Shares may change on days when you will not
be able to purchase or redeem your Shares. The NAV per share of the Fund is
equal to the value of all its assets minus its liabilities, divided by the
number of outstanding Shares.
Securities
for which market quotations are readily available are generally valued at their
current market value. Other securities and assets, including securities for
which market quotations are not readily available, market quotations are
determined not to be reliable, or their value has been materially affected by
events occurring after the close of trading on the exchange or market on which
the security is principally traded but before the Fund’s NAV is calculated, may
be valued at fair value in accordance with policies and procedures adopted by
the Trust’s Board of Trustees. Fair value represents a good faith determination
of the value of a security or other asset based upon specifically applied
procedures. Fair valuation may require subjective determinations. There can be
no assurance that the fair value of an asset is the price at which the asset
could have been sold during the period in which the particular fair value was
used in determining the Fund’s NAV.
Equity
securities listed on a North American, Central American, South American or
Caribbean securities exchange are generally valued at the last sale price on the
exchange on which the security is principally traded. 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 Fund
imposes no restrictions on the frequency of purchases and redemptions. The Board
of Trustees evaluated the risks of market timing activities by the Fund’s
shareholders when they considered that no restriction or policy was necessary.
The Board considered that, unlike mutual funds, the Fund issues and redeems its
Shares at NAV only in Creation Units, and the Fund’s Shares may be purchased and
sold on the Exchange at prevailing Market Prices.
September
25, 2023 | 23
Shareholder
Information
Taxes
on Distributions
The Fund
intends to elect 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. The Fund’s failure to qualify as a regulated
investment company would result in corporate-level taxation and, consequently, a
reduction in income available for distribution to shareholders.
The Fund can
earn income and realize capital gain. The Fund deducts any expenses and then
pays out the earnings, if any, to shareholders as distributions.
The Fund generally declares
and distributes net investment income, if any, at least monthly. The Fund will
distribute net realized capital gain, if any, at least annually. For each
taxable year, the Fund will distribute substantially all of its net investment
income and net realized capital gain.
Distributions
of net investment income generally are taxable as ordinary income. Dividends of
net investment income paid to a non-corporate U.S. shareholder that are properly
reported as qualified dividend income generally will be taxable to such
shareholder at a maximum individual federal income tax rate applicable to
“qualified dividend income” of either 15% or 20%, depending on whether the
individual’s income exceeds certain threshold amounts. The amount of dividend
income that may be so reported by the Fund generally will be limited to the
aggregate of the eligible dividends received by that Fund. In addition, the Fund
must meet certain holding period and other requirements with respect to the
shares on which the Fund received the eligible dividends, and the non-corporate
U.S. shareholder must meet certain holding period and other requirements with
respect to the Fund. The amount of the Fund’s distributions that would otherwise
qualify for this favorable tax treatment may be reduced as a result of the
Fund’s securities lending activities or high portfolio turnover rate. Dividends
of net investment income that are not reported as qualified dividend income and
dividends of net short-term capital gain will be taxable to a U.S. shareholder
as ordinary income. 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 the Fund owned for more than one year over the net losses from
investments that the Fund owned for one year or less) that are properly reported
by the Fund as capital gain dividends will be taxable as long-term capital gain,
regardless of how long you have held your Shares in the Fund. The maximum
individual federal income tax rate applicable to long-term capital gains is
generally either 15% or 20%, depending on whether the individual’s income
exceeds certain threshold amounts. Distributions of net short-term capital gain
(that is, the excess of any net short-term capital gain over net long-term
capital loss), if any, will be taxable to U.S. shareholders as ordinary income.
Capital gain of a corporate shareholder is taxed at the same rate as ordinary
income.
An additional
3.8% Medicare tax is imposed on certain net investment income (including
ordinary dividends and capital gain distributions received from the Fund and net
gains from redemptions or other taxable dispositions of Shares) of U.S.
individuals, estates and trusts to the extent that such person’s “modified
adjusted gross income” (in the case of an individual) or “adjusted gross income”
(in the case of an estate or trust) exceeds certain threshold
amounts.
Except when your investment
is in an IRA, 401(k) plan or other tax-advantaged investment plan,
or you are a
tax-exempt investor, if you buy Shares of the Fund before a distribution, you
will be subject to tax on the entire amount of the taxable distribution you
receive. This is known as “buying a dividend”. Distributions are taxable to you
even if they are paid from income or gain earned by the Fund before your
investment (and thus were included in the price you paid for your Shares). Any
gain resulting from the sale or exchange of Shares generally will be taxable as
long-term or short-term gain, depending upon how long you have held the Shares.
To avoid buying a dividend, please check the Fund’s Dividend and Capital Gain
Schedule before you invest.
The Fund’s
investment in foreign securities may be subject to foreign withholding taxes or
other taxes. In that case, the Fund’s yield on those securities would be
decreased. In addition, the Fund’s investment in certain foreign securities or
foreign currencies may increase or accelerate the Fund’s recognition of ordinary
income and may affect the timing or amount of the distributions.
The Fund’s
investments in certain derivative instruments may cause 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 when it is not advantageous to do so. The Fund’s investment in real
estate investment trust (REIT) securities also may result in the Fund’s receipt
of cash in excess of the REIT’s earnings; if the Fund distributes such amounts,
such distributions could constitute a return of capital to Fund shareholders for
federal income tax purposes.
The Fund’s
transactions in futures contracts, short sales, 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 from the Fund, and, therefore, may increase the
amount of taxes payable by shareholders. The Fund’s
24 | J.P.
Morgan Exchange-Traded Funds
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 extent to
which the Fund can invest in master limited partnerships is limited by the
Fund’s intention to qualify as a regulated investment company under the Internal
Revenue Code.
Please see
the Statement of Additional Information for additional discussion of the tax
consequences of the above-described and other investments to the Fund and its
shareholders.
The dates on
which dividends and capital gain, if any, will be distributed are available
online at www.jpmorganfunds.com.
Early in each
calendar year, you will receive a notice showing the amount of distributions you
received during the preceding calendar year and the tax status of those
distributions.
Any foreign
shareholder would generally be subject to U.S. tax-withholding on distributions
by the Fund, as discussed in the Statement of Additional
Information.
Any investor
for whom the Fund does not have a valid Taxpayer Identification Number may be
subject to backup withholding.
The tax
considerations described in this section do not apply to tax-deferred accounts
or other non-taxable entities.
Taxes
on Exchange-Listed Shares Sales
Currently,
any capital gain or loss realized upon a sale of Shares is generally treated as
long-term capital gain or loss if the Shares have been held for more than one
year and as short-term capital gain or loss if the Shares have been held for one
year or less. Capital loss realized on the sale or exchange of Shares held for
six months or less will be treated as long-term capital loss to the extent of
any capital gain dividends received by the shareholder. The ability to deduct
capital losses may be limited.
Taxes
on Purchase and Redemption of Creation Units
At the time
of purchase, an Authorized Participant who exchanges equity securities for
Creation Units generally will recognize a gain or loss. The gain or loss will be
equal to the difference between the market value of the Creation Units at the
time and the exchanger’s aggregate basis in the securities surrendered and the
cash paid. At redemption, a person who exchanges Creation Units for equity
securities will generally recognize a gain or loss equal to the difference
between the exchanger’s basis in the Creation Units and the aggregate market
value of the securities received and the cash received in connection with the
redemption. The Internal Revenue Service, however, may assert that a loss
realized upon an exchange of securities for Creation Units cannot be deducted
currently under the rules governing “wash sales” on the basis that there has
been no significant change in economic position. Persons exchanging securities
should consult their own tax advisor with respect to whether the wash sale rules
apply and when a loss might be deductible.
Under current
federal tax laws, any capital gain or loss realized upon redemption of Creation
Units is generally treated as long-term capital gain or loss if the Shares have
been held for more than one year and as a short-term capital gain or loss if the
Shares have been held for one year or less.
If you
purchase or redeem Creation Units, you will be sent a confirmation statement
showing how many and at what price you purchased or sold Shares.
The above is
a general summary of tax implications of investing in the Fund. Because each
investor’s tax consequences are unique, please consult your tax advisor to see
how investing in the Fund and, for individuals and S corporations, selection of
a particular cost method of accounting will affect your own tax
situation.
Availability
of Proxy Voting Record
The Trustees have delegated
the authority to vote proxies for securities owned by the Fund to JPMIM. When
available, a copy of the Fund’s voting record for the most recent 12-month
period ended June 30 is available on the SEC’s website at www.sec.gov or on the
Fund’s website at www.jpmorganfunds.com no later than August 31 of each year.
The Fund’s proxy voting record will include, among other things, a brief
description of the matter voted on for each portfolio security, and will state
how each vote was cast, for example, for or against the proposal.
September
25, 2023 | 25
Shareholder
Information
(continued)
Other
Information
For purposes of the 1940 Act,
the Fund is treated as a registered investment company. Section 12(d)(1) of the
1940 Act restricts investments by investment companies in the securities of
other investment companies, including Shares of the Fund. Registered investment
companies are permitted to invest in the Fund beyond the limits set forth in
Section 12(d)(1), subject to certain terms and conditions.
26 | J.P.
Morgan Exchange-Traded Funds
Investment
Practices
The table
discusses the types of investments which can be held by the Fund. 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
and pools of loans, such as collateralized loan
obligations. |
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 |
|
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
Prepayment
Valuation
|
September
25, 2023 | 27
Investment
Practices
(continued)
|
INSTRUMENT |
RISK
TYPE |
|
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 |
|
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
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 |
|
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 |
|
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
|
28 | J.P.
Morgan Exchange-Traded Funds
|
INSTRUMENT |
RISK
TYPE |
|
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 |
|
Municipal
Securities: Securities
issued by a state or political subdivision (including securities issued by
a
foreign
state or 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
Valuation |
|
Obligations
of Supranational Agencies:
Obligations which are chartered to promote economic development
and
are supported by various governments and governmental
agencies. |
Credit
Foreign
Investment
Liquidity
Political
Valuation |
|
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 and indexes of
securities,
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 |
|
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
as
collateral. |
Securities
Lending
|
1
All forms of
borrowing (including mortgage dollar-rolls and reverse repurchase agreements)
are limited in the aggregate and may not exceed 33 1∕3% of the
Fund’s
total assets
except as permitted by law.
September
25, 2023 | 29
Investment
Practices
(continued)
|
INSTRUMENT |
RISK
TYPE |
|
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 |
|
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
REMIC
or CMO structure. |
Credit
Liquidity
Market
Political
Prepayment
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 |
|
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 the Government
National Mortgage
Association
(Ginnie Mae), the Federal National Mortgage Association (Fannie Mae) and
the Federal Home
Loan
Mortgage Corporation (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 |
|
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
|
30 | J.P.
Morgan Exchange-Traded Funds
|
INSTRUMENT |
RISK
TYPE |
|
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
Bond |
September
25, 2023 | 31
Investment
Practices
(continued)
Risk
related to certain investments held by the Fund:
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.
Extension
risk The risk that
a rise in interest rates will extend the life of a mortgage-backed 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
and adverse economic developments. This also includes the risk that fluctuations
in the exchange rates between the U.S. dollar and foreign currencies may
negatively affect an investment. Adverse changes in exchange rates may erode or
reverse any gains produced by foreign currency-denominated investments and may
widen any losses. Exchange rate volatility also may affect the ability of an
issuer to repay U.S. dollar-denominated debt, thereby increasing credit
risk.
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.
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). The 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 the 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 the 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.
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
Bond risk The
risk that the market value of a zero-coupon bond is generally more volatile than
the market value of other fixed income securities with similar maturities that
pay interest periodically. In addition, federal income tax law requires that the
holder of a zero-coupon bond accrue a portion of the discount at which the bond
was purchased as taxable income each year, even though the holder receives no
interest payment on the bond during the year. The Fund must distribute
substantially all of its net income (including non-cash income attributable to
zero-coupon bonds) to its shareholders each year to maintain its status as a
regulated investment company and to eliminate tax at the Fund level.
Accordingly, such accrued discount must be taken into account in determining the
amount of taxable distributions to shareholders. The Fund may consequently have
to dispose of portfolio securities under disadvantageous circumstances to
generate cash to satisfy such distribution requirements. These actions may
reduce the assets to which the Fund’s expenses could otherwise be allocated and
may reduce the Fund’s rate of return.
32 | J.P.
Morgan Exchange-Traded Funds
Financial
Highlights
This section
would ordinarily include Financial Highlights. The Financial Highlights table is
intended to help you understand the Fund’s performance for the Fund’s periods of
operations. Because the Fund has not yet commenced operations as of the date of
this prospectus, no Financial Highlights are shown.
34 | J.P.
Morgan Exchange-Traded Funds
How
to Reach Us
MORE
INFORMATION
For investors
who want more information on the Fund, the following documents are available
free upon request:
ANNUAL
AND SEMI-ANNUAL REPORTS
The Fund’s
annual and semi-annual reports, when available, will contain more information
about the Fund’s investments and performance. The annual report will also
include details about the market conditions and investment strategies that have
a significant effect on the Fund’s performance.
STATEMENT
OF ADDITIONAL INFORMATION (SAI)
The SAI
contains more detailed information about the Fund and its policies. It is
incorporated by reference into this prospectus. This means, by law, it is
considered to be part of this prospectus.
You can get a free copy of
these documents and other information, or ask us any questions, by calling us at
1-844-457-6383 (844-4JPMETF) or writing to:
J.P.
Morgan Exchange-Traded Funds
277 Park Avenue
New York, NY 10172
277 Park Avenue
New York, NY 10172
If you buy
your Shares through a Financial Intermediary, you should contact that Financial
Intermediary directly for more information. You can also find information online
at www.jpmorganfunds.com.
Reports, a
copy of the SAI, and other information about the Fund are also available on the
EDGAR Database on the Commission’s Internet site at http://www.sec.gov, and
copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following E-mail address:
[email protected].
Investment
Company Act File No. for the Fund is 811-22903.
©JPMorgan Chase & Co.,
2023. All rights reserved.
September
2023.
PR-ABETF-923