Prospectus
J.P. Morgan
Exchange-Traded Funds
March 4,
2026, as
supplemented July 10, 2026
|
JPMorgan
Preferred and Income Securities ETF |
Ticker:
JPRF |
Listing
Exchange: NYSE Arca,
Inc. |
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
Preferred and Income Securities ETF
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Management
Fees |
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Other
Expenses1
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Acquired
Fund Fees and Expenses |
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Total
Annual Fund Operating Expenses |
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Fee
Waivers and/or Expense Reimbursements2
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Total
Annual Fund Operating Expenses after Fee Waiv-
ers
and/or Expense Reimbursements2
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1
2
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1
Year |
3
Years |
5
Years |
10
Years |
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SHARES
($) |
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March
4, 2026 | 1
JPMorgan
Preferred and Income Securities ETF
(continued)
The
Fund’s Main Investment Risks
The Fund is
subject to management risk and may not achieve its objective if the adviser’s
expectations regarding particular instruments or markets are not
met.
An
investment in this Fund or any other fund may not provide a complete investment
program. The suitability of an investment in the Fund should be considered based
on the investment objective, strategies and risks described in this prospectus,
considered in light of all of the other investments in your portfolio, as well
as your risk tolerance, financial goals and time horizons. You may want to
consult with a financial advisor to determine if this Fund is suitable for
you.
The Fund is
subject to the main risks noted below, any of which may adversely affect the
Fund’s net asset value (NAV), market price, performance and ability to meet its
investment objective.
2 | J.P.
Morgan Exchange-Traded Funds
March
4, 2026 | 3
JPMorgan
Preferred and Income Securities ETF
(continued)
4 | J.P.
Morgan Exchange-Traded Funds
March
4, 2026 | 5
JPMorgan
Preferred and Income Securities ETF
(continued)
6 | J.P.
Morgan Exchange-Traded Funds
March
4, 2026 | 7
JPMorgan
Preferred and Income Securities ETF
(continued)
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8 | J.P.
Morgan Exchange-Traded Funds
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Past |
Life
of Fund
since |
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1
Year |
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SHARES |
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Return
Before Taxes |
% |
% |
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Return
After Taxes on Distributions |
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Return
After Taxes on Distributions and Sale
of
Fund Shares |
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BLOOMBERG
U.S. AGGREGATE INDEX
(Reflects
No Deduction for Fees, Expenses, or
Taxes) |
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ICE
BOFA US ALL CAPITAL SECURITIES
INDEX
(Reflects
No Deduction for Fees, Expenses, or
Taxes) |
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75%ICE
BOFA US ALL CAPITAL SECURITIES
INDEX/25%BLOOMBERG
DEVELOPED MKT.
USD
CONTINGENT CAPITAL INDEX
(Reflects
No Deduction for Fees, Expenses, or
Taxes) |
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Management
J.P. Morgan
Investment Management Inc. (the adviser)
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Portfolio
Manager |
Managed
the
Fund
Since |
Primary
Title with
Investment
Adviser |
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Vikas
Pathani |
2026 |
Managing
Director |
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Andreas
Michalitsianos |
2026 |
Managing
Director |
Messrs.
Pathani and Michalitsianos also were the predecessor fund’s portfolio managers
since 2022 and 2022, respectively.
Purchase
and Sale of Shares
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through brokers or financial intermediaries. Shares of the Fund are
listed for trading on the Exchange, and because Shares trade at market prices
rather than NAV, Shares of the Fund may trade at a price greater than NAV
(premium) or less than NAV (discount). Certain affiliates of the Fund and the
adviser may purchase and resell Shares pursuant to this
prospectus.
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.
March
4, 2026 | 9
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 may be 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.
Main
Investment Strategies
The Fund
mainly invests in preferred and debt securities believed to be attractively
valued relative to credit quality and other investment characteristics. Under
normal circumstances, the Fund invests at least 80% of its assets in either
preferred securities and/or debt securities that produce income. These
securities are issued by U.S. and non-U.S. issuers and obligors, including
traditional preferred securities, hybrid preferred securities that have
investment and economic characteristics of both preferred securities and debt
securities, floating rate preferred securities, corporate debt securities,
convertible securities and CoCos. “Assets” means net assets plus the amount of
borrowings for investment purposes. The policy may be changed by the Board of
Trustees without shareholder approval. However, the Fund will provide
shareholders with at least 60 days prior notice of any change in this
policy.
Preferred
securities (also known as traditional preferred securities) are typically
perpetual and equity-like in nature. They may be issued by corporate or
non-corporate issuers and pay fixed or floating rate dividends. While hybrid
preferred securities have characteristics similar to preferred securities, such
securities are generally structured as debt securities that rank senior to
traditional preferred securities but subordinate to senior debt holders. Hybrid
preferred securities may be issued by corporate or non-corporate issuers and pay
fixed or floating coupon rates. The issuer may be permitted to defer interest
payment, although during the deferral period, interest may accrue on the
securities. Hybrid preferred securities also may be subject to optional or
mandatory redemption provisions.
The Fund will
invest at least 25% of its total assets in the financials sector which includes,
among other industries, banking, diversified financials, real estate (including
REITs) and insurance industries. The Fund has a fundamental policy to
concentrate its investments in an industry or group of industries which includes
the banking, diversified financials, real estate (including REITs) and insurance
industries. This means that the Fund will invest 25% or more of its total assets
in these related industries on a combined basis and may invest 25% or more of
its total assets in any one of these four industries
individually.
The Fund may
invest in securities in both U.S. and foreign markets. The Fund has discretion
to focus its investments in one or more regions or small groups of countries
including both U.S. and foreign markets including European markets. In addition,
the Fund may invest a significant amount of its assets in securities rated below
investment grade or unrated securities deemed by the adviser to be of comparable
quality (also known as junk bonds or high yield bonds) and securities
denominated in foreign currencies (some of which may be below investment grade
securities). The Fund’s investments in high yield securities may include
so-called “distressed debt.” Distressed debt includes securities of issuers
experiencing financial or operating difficulties, securities where the issuer
has defaulted in the payment of interest or principal or in the performance of
its covenants or agreements, securities of issuers that may be involved in
bankruptcy proceedings, reorganizations or financial restructurings or
securities of issuers operating in troubled industries.
As part of
the Fund’s principal investment strategy, the adviser seeks to manage
distributions throughout the year to help reduce fluctuations in monthly
dividends. As part of the Fund’s principal investment strategy, the Fund may
invest in securities structured as equity or debt securities of MLPs, private
placements, restricted securities and other unregistered securities, sovereign
obligations, trust preferreds, U.S. Government Agency Securities and
Obligations, variable and floating rate instruments, and zero-coupon,
pay-in-kind and deferred payment securities.
10 | J.P.
Morgan Exchange-Traded Funds
In addition
to direct investments in securities, derivatives, which are instruments that
have a value based on another instrument, exchange rate or index, may be used as
substitutes for securities in which the Fund can invest. The Fund may use
futures contracts, options, swaps, credit derivatives and currency derivatives
as tools in the management of portfolio assets. The Fund may use derivatives to
hedge various investments, for risk management and/or to increase income or gain
to the Fund. In particular, the Fund may invest in futures and swaps structured
as interest rate swaps and total return swaps for duration or hedging purposes
or to gain or limit exposure to securities or markets. In addition, the Fund may
use swaps structured as credit default swaps related to individual securities or
indexes of securities to gain or limit exposure to securities, to mitigate risk
exposure, and manage cash flows. The Fund may also utilize foreign currency
derivatives such as currency forwards, futures, and foreign exchange swaps to
hedge its non-dollar investments back to the U.S. dollar, but may not always do
so. Derivative instruments used by the Fund will be counted toward the Fund’s
80% policy discussed above, to the extent they provide investment exposure to
investments included within that policy or to one or more of the market risk
factors associated with investments included in that policy.
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.
Investment
Process – The adviser buys and sells investments for the Fund using a three part
process that includes determining: (1) macro credit strategy, (2) sector
strategy, and (3) security strategy. In establishing the Fund’s macro credit
strategy, the adviser evaluates fundamental, technical and valuation factors,
along with macro themes from the adviser’s broader fixed income team, to
determine the view on risk for the Fund overall. In the second component of the
process, the adviser evaluates sectors based on a blend of top down analysis,
including relative value judgments, and bottom up fundamental analysis of
companies and their respective sectors to determine sector weightings. The third
component of the process (also known as the security strategy) focuses on an
evaluation of individual companies based on fundamental credit metrics, as well
as a review of each company’s competitive environment, regulatory risks, bond
structure and credit ranking, event risk, relative value and technical factors
such as supply, liquidity of debt issued by the company and equity performance,
as applicable. As part of its security strategy, the adviser also integrates
financially material 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. In applying ESG Integration in the
evaluation of individual companies, the adviser seeks to assess the impact of
ESG factors on many issuers in the universe in which the Fund may invest. The
adviser’s assessment is based on an analysis of key opportunities and risks
across industries to seek to identify financially material issues with respect
to the Fund’s investments in issuers and ascertain key issues that merit
engagement with issuers. These assessments may not be conclusive and securities
of issuers that may be negatively impacted by such factors may be purchased and
retained by the Fund while the Fund may divest or not invest in securities of
issuers that may be positively impacted by such factors. In particular, ESG
Integration does not change the Fund’s investment objective, exclude specific
types of industries or companies or limit the Fund’s investable universe. The
Fund is not designed for investors who wish to screen out particular types of
companies or investments or are looking for a fund that meet specific ESG
goals.
Credit
Quality. The Fund
invests in both investment grade securities or the unrated equivalent, as well
as 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 this
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 NRSROs - Moody’s Investors Service Inc. (Moody’s),
S&P Global Ratings (S&P) or Fitch Ratings (Fitch) and the following
methodology. If all three of these NRSROs rate the security, the middle rating
is used to determine whether the security is investment grade. If only two of
the three NRSROs rate the security, the lower rating is used to determine
whether the security is investment grade. If only one of the three NRSROs rates
a security, that rating will be used to determine if the security is 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.
March
4, 2026 | 11
More
About the Fund
(continued)
Additional
Investment Strategies
Although not
currently part of the Fund’s principal investment strategy, the Fund may invest
in asset-backed securities, bank obligations, commercial paper, common stock,
inflation-linked debt securities, inverse floating rate instruments,
mortgage-backed and mortgage-related securities, municipal securities,
obligations of supranational agencies, repurchase agreements, reverse repurchase
agreements, short-term funding agreements, structured investments, and
when-issued, delayed delivery securities, forward commitments and securities of
other open-end or exchange-traded funds (ETFs) that invest primarily in
preferred and/or debt securities. The Fund also invests in auction rate
securities as an additional strategy. To the extent that the market for auction
rate securities rebounds or develops, the Fund may use such securities as a
principal strategy.
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.
|
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. |
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 “Investment Practices” section
later in the prospectus and 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.
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Preferred
and
Income
Securities
ETF |
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Asset-Backed,
Mortgage-Related and Mortgage-Backed Securities Risk |
○ |
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Auction
Rate Securities Risk |
○ |
○
Additional
Risks
12 | J.P.
Morgan Exchange-Traded Funds
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Preferred
and
Income
Securities
ETF |
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Authorized
Participant Concentration Risk |
• |
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Cash
Transactions Risk |
• |
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Concentration
Risk |
• |
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Convertible
Securities Risk |
• |
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Credit
Risk |
• |
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Currency
Risk |
• |
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Cyber
Security Risk |
○ |
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Derivatives
Risk |
• |
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Distribution
Risk |
• |
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Equity
Market Risk |
• |
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ETF
and Other Investment Company Risk |
○ |
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European
Market Risk |
• |
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Extension
Risk |
• |
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Foreign
Issuer Risk |
• |
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Foreign
Securities and Emerging Markets Risk |
• |
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General
Market Risk |
• |
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Geographic
Focus Risk |
• |
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Government
Securities Risk |
• |
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High
Yield Securities Risk |
• |
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Hybrid
Preferred Securities Risk |
• |
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Industry
and Sector Focus Risk |
• |
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Inflation-Linked
and Inflation-Protected Security Risk |
○ |
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Interest
Rate Risk |
• |
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Inverse
Floater Risk |
○ |
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Market
Trading Risk |
• |
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MLP
Risk |
• |
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Municipal
Obligations and Securities Risk |
○ |
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Newer
Fund Risk |
○ |
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Options
Risk |
• |
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Preferred
Securities Risk |
• |
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Prepayment
Risk |
• |
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Privately
Placed Securities Risk |
• |
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Real
Estate Securities Risk |
• |
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Regulatory
and Legal Risk |
○ |
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REITs
Risk |
• |
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Risk
Associated with the Fund Holding Cash, Money Market Instruments and Other
Short-Term Investments |
• |
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Securities
Lending Risk |
○ |
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Smaller
Company Risk |
○ |
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Sovereign
Debt Risk |
• |
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Transactions
and Liquidity Risk |
○ |
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Trust
Preferred Securities Risk |
• |
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Volcker
Rule Risk |
○ |
○
Additional
Risks
●
Main
Risks
March
4, 2026 | 13
More
About the Fund
(continued)
|
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Preferred
and
Income
Securities
ETF |
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Zero-Coupon,
Pay-In-Kind and Deferred Payment Securities Risk |
• |
●
Main
Risks
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. It is difficult to accurately predict the pace at which the
Federal Reserve Board or other central bank or monetary authority will change
interest rates any further, or the timing, frequency or magnitude of any such
changes, 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.
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,
trade wars, retaliatory trade measures, sanctions and other trade barriers,
supply chain disruptions, regulatory events, other governmental trade or market
control programs and related geopolitical events.
The U.S. and
other governments may renegotiate their global trade relationships and impose or
threaten to impose significant import tariffs. The implementation of trade
restrictions, currency controls, or similar measures (including retaliatory
actions) could result in price volatility and overall declines in U.S. and
global investment markets. The economic, fiscal, monetary and foreign policies
of the U.S. government, including the imposition of tariffs changes to its
federal agencies and changes to regulatory policies, may impact the U.S. economy
and could lead to increased market volatility.
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, or the threat or potential of one or more such factors and
occurrences.
The effects
of a global event 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 global event 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 a global event 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.
Credit
Risk. There is a
risk that issuers, guarantors and/or counterparties to a security, contract,
repurchase agreement or other investment will not make payments when due or
default completely 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. 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 a 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
14 | J.P.
Morgan Exchange-Traded Funds
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.
Preferred
Securities Risk. Preferred
securities generally have a preference as to dividends and liquidation over an
issuer’s common stock but rank junior to debt securities in an issuer’s capital
structure. Unlike interest payments on debt securities, dividends on preferred
securities are payable only if declared by the issuer’s board of directors. As a
consequence, if the board of directors of an issuer does not declare dividends
or distributions for the relevant dividend or distribution periods, the issuer
will not be obligated to pay dividends or distributions on the relevant payment
date, and such dividends and distributions may be forfeited. In addition,
preferred securities are generally subject to the market and issuer risks
applicable to equity securities generally, including fluctuations in value due
to broad market or company-specific developments. Holders of preferred
securities typically do not have voting rights except in certain circumstances
where they may be given only limited voting rights. Preferred securities also
may be subject to optional or mandatory redemption provisions. Preferred shares
may carry different rights or obligations in jurisdictions outside of the United
States.
Hybrid
Preferred Securities Risk. Hybrid
preferred securities are debt instruments that have characteristics and risks
similar to those of preferred securities. As hybrid preferred securities
typically are perpetual or have long-dated maturities, they may face greater
interest rate sensitivity and may be subject to greater fluctuations in value
than securities with shorter maturity dates. Hybrid preferred securities are
generally structured as debt securities that are subordinate to senior debt
holders. In addition, the issuer of such securities may be permitted to defer
interest payment. Such securities also may be subject to prepayment risk due to
optional or mandatory redemption provisions.
Extension
Risk. The Fund
invests in securities that may be subject to the risk that a rise in interest
rates or credit spreads will extend the life of a security to a date later than
the anticipated repayment date, causing the value of the investment to
decrease.
Equity
Market Risk. The Fund’s
investments in preferred shares and convertible securities are subject to equity
market risk. The price of equity securities may rise or fall because of changes
in the broad market or changes in a company’s financial condition, sometimes
rapidly or unpredictably. These price movements may result from factors
affecting individual companies, sectors or industries selected for the Fund’s
portfolio or the securities market as a whole, such as changes in economic or
political conditions. Equity securities are subject to “stock market risk”
meaning that stock prices in general (or in particular, the prices of the types
of securities in which the Fund invests) may decline over short or extended
periods of time. When the value of the Fund’s securities goes down, your
investment in that Fund decreases in value.
Convertible
Securities Risk. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities, the dividend paid on preferred securities and
payment of principal upon maturity until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, convertible securities
generally have characteristics similar to both debt and equity securities. The
value of convertible securities tends to decline as interest rates rise and,
because of the conversion feature, tends to vary with fluctuations in the market
value of the underlying securities. Convertible securities ordinarily provide a
stream of income with generally higher yields than those of common stock of the
same or similar issuers. Convertible securities generally rank senior to common
stock in a corporation’s capital structure but are usually subordinated to
comparable nonconvertible securities. Convertible securities generally do not
participate directly in any dividend increases or decreases of the underlying
securities, although the market prices of convertible securities may be affected
by any dividend changes or other changes in the underlying securities. Certain
types of convertible securities may decline in value or lose their value
entirely if the issuer’s financial condition is significantly impaired.
Contingent convertible securities are subject to additional risk factors. A
contingent convertible security is a hybrid debt security typically issued by a
non-U.S. bank that may be convertible into equity or may be written down if a
pre-specified trigger event such as a decline in capital ratio below a
prescribed threshold occurs. If such a trigger event occurs, the Fund may lose
the principal amount invested on a permanent or temporary basis or the
contingent convertible security may be converted to equity. In addition to being
subject to a possible write-down upon the occurrence of a trigger event,
contingent convertible securities may also be subject to a permanent write-down
or conversion into equity (in whole or in part), if the applicable bank
regulator or other public administrative authority having responsibility for
managing the orderly dissolution of an institution (the resolution authority)
has determined that the issuer is not viable. Even though the Fund does not
invest in common stock as a principal investment strategy, the Fund will be
subject to increased equity market risk in the event that such securities are
converted to equity. Coupon payments on contingent convertible securities may be
discretionary and may be cancelled by the issuer. Holders of contingent
convertible securities may suffer a loss of capital when comparable equity
holders do not. As contingent convertible securities may be perpetual or have
long-dated maturities, they may face greater interest rate sensitivity and may
be subject to greater fluctuations in value than securities with shorter
maturity dates. Such securities also may be subject to prepayment risk due to
optional or mandatory redemption provisions.
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About the Fund
(continued)
High
Yield Securities Risk. The Fund may
invest in high yield, high risk securities (also known as junk bonds) which are
considered to be speculative. These investments may be issued by companies which
are highly leveraged, less credit-worthy or financially distressed.
Non-investment grade debt securities can be more sensitive to short-term
corporate, economic and market developments. During periods of economic
uncertainty and change, the market price of the Fund’s investments and the
Fund’s NAV may be volatile. Furthermore, though these investments generally
provide a higher yield than higher-rated debt securities, the high degree of
risk involved in these investments can result in substantial or total losses.
These securities are subject to greater risk of loss, greater sensitivity to
economic changes, valuation difficulties, and a potential lack of a secondary or
public market for securities. The market price of these securities can change
suddenly and unexpectedly. As a result, the Fund is intended for investors who
are able and willing to assume a high degree of risk.
In recent
years, there has been a broad trend of weaker or less restrictive covenant
protections in the high yield market. Among other things, under such weaker or
less restrictive covenants, borrowers might be able to exercise more flexibility
with respect to certain activities than borrowers who are subject to stronger or
more protective covenants. For example, borrowers might be able to incur more
debt, including secured debt, return more capital to shareholders, remove or
reduce assets that are designated as collateral securing high yield securities,
increase the claims against assets that are permitted against collateral
securing high yield securities or otherwise manage their business in ways that
could impact creditors negatively. In addition, certain privately held borrowers
might be permitted to file less frequent, less detailed or less timely financial
reporting or other information, which could negatively impact the value of the
high yield securities issued by such borrowers. Each of these factors might
negatively impact the high yield instruments held by the
Fund.
As part of
its high yield strategy, the Fund may invest in debt securities of smaller,
newer companies. The Fund’s risks increase as it invests more heavily in smaller
companies (mid cap and small cap companies). The securities of smaller companies
may trade less frequently and in smaller volumes than securities of larger
companies. In addition, smaller companies may be more vulnerable to economic,
market and industry changes. As a result, the changes in value of their debt
securities may be more sudden or erratic than in large capitalization companies,
especially over the short term. Because smaller companies may have limited
product lines, markets or financial resources or may depend on a few key
employees, they may be more susceptible to particular economic events or
competitive factors than large capitalization companies. This may cause
unexpected and frequent decreases in the value of the Fund’s
investments.
REITs
Risk. Investments
in REITs are subject to the same risks as direct investments in real estate and
mortgages. Real estate values rise and fall in response to many factors,
including local, regional and national economic conditions, the demand for
rental property, and interest rates. When economic growth is slowing, demand for
property decreases and prices may fall. Rising interest rates, which drive up
mortgage and financing costs, can affect the profitability and liquidity of
properties in the real estate market. Property values may also decrease because
of overbuilding, extended vacancies, increase in property taxes and operating
expenses, zoning laws, environmental regulations, clean-up of and liability for
environmental hazards, uninsured casualty or condemnation losses or a general
decline in neighborhood values. The Fund’s investments and your investment may
decline in value in response to declines in property values or other adverse
changes to the real estate market. In addition, federal and state laws may
restrict the remedies that a lender of underlying REIT assets has when a
borrower defaults on loans. The performance of real estate securities is also
largely dependent on the organization, skill and capital funding of the managers
and operators of the underlying real estate. Debt securities of REITs are
subject to the risks of debt securities in general. For example, such securities
are more sensitive to interest rates than equity securities of
REITs.
Real
Estate Securities Risk. The value of
real estate securities in general, and REITs in particular, are subject to the
same risks as direct investments in real estate and mortgages which include, but
are not limited to, sensitivity to changes in real estate values and property
taxes, interest rate risk, tax and regulatory risk, fluctuations in rent
schedules and operating expenses, adverse changes in local, regional or general
economic conditions, including reduced demand for commercial and office space as
well as increased maintenance or tenant improvement costs to convert properties
for other uses, default risk of tenants and borrowers, the financial condition
of tenants, buyers and sellers, and the inability to re-lease space on
attractive terms or to obtain mortgage financing on a timely basis or at all,
unfavorable changes in zoning, building, environmental and other laws, the need
for unanticipated renovations, unexpected increases in the cost of energy and
environmental factors. Furthermore, a REIT could fail to qualify for tax free
pass-through of its income under the Internal Revenue Code or fail to maintain
its exemption from registration under the Investment Company Act of 1940 (1940
Act), which could produce adverse economic consequences for the REIT and its
investors, including the Fund.
The
underlying mortgage loans may be subject to the risks of default or of
prepayments that occur earlier or later than expected, and such loans may also
include so-called “sub-prime” mortgages. The value of REITs will also rise and
fall in response to the management skill and creditworthiness of the issuer. In
particular, the value of these securities may decline when interest rates rise
16 | J.P.
Morgan Exchange-Traded Funds
and will also
be affected by the real estate market and by the management of the underlying
properties. REITs may be more volatile and/or more illiquid than other types of
equity securities. The Fund will indirectly bear its proportionate share of
expenses, including management fees, paid by each REIT in which it invests in
addition to the expenses of the Fund.
In addition,
certain of the companies in which the Fund intends to invest may have developed
or commenced development on properties and may develop additional properties in
the future. Real estate development involves significant risks in addition to
those involved in the ownership and operation of established properties,
including the risks that financing, if needed, may not be available on favorable
terms for development projects, that construction may not be completed on
schedule (resulting in increased debt service expense and construction costs),
that estimates of the costs of construction may prove to be inaccurate and that
properties may not be leased, rented or operated on profitable terms and
therefore will fail to perform in accordance with expectations. As a result, the
value of the Fund’s investment may decrease in value. Real estate securities
have limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. Real estate securities are
also subject to heavy cash flow dependency and defaults by borrowers or
tenants.
Foreign
Securities and Emerging Markets Risk. Investments
in foreign securities (including depositary receipts) are subject to special
risks in addition to those of U.S. investments. These risks include political
and economic risks, unstable governments, civil conflicts and war, greater
volatility, decreased market liquidity, expropriation and nationalization risks,
sanctions or other measures by the United States or other governments, currency
fluctuations, higher transaction costs, delayed settlement, possible foreign
controls on investment, and less stringent investor protection and disclosure
standards of foreign markets. The securities markets of many foreign countries
are relatively small, with a limited number of companies representing a small
number of industries. The Fund may also invest in non-dollar denominated
securities. Investments in non-dollar denominated securities are subject to
risks in addition to those summarized above including currency fluctuations,
higher transaction costs, delayed settlement, possible foreign controls on
investment, and less stringent investor protection and disclosure standards of
foreign markets. In addition, the Fund is limited in its ability to exercise its
legal rights or enforce a counterparty’s legal obligations in certain
jurisdictions outside of the United States. If foreign securities are
denominated and traded in a foreign currency, the value of the Fund’s foreign
holdings can be affected by currency exchange rates and exchange control
regulations. In certain markets where securities and other instruments are not
traded “delivery versus payment,” the Fund may not receive timely payment for
securities or other instruments it has delivered or receive delivery of
securities paid for and may be subject to increased risk that the counterparty
will fail to make payments or delivery when due or default
completely.
Foreign
market trading hours, clearance and settlement procedures, and holiday schedules
may limit the Fund's ability to buy and sell securities. Investments in foreign
markets may also be adversely affected by governmental actions such as the
imposition of capital controls, nationalization of companies or industries,
expropriation of assets or the imposition of punitive taxes. The governments of
certain countries may prohibit or impose substantial restrictions on foreign
investing in their capital markets or in certain sectors or industries. In
addition, a foreign government may limit or cause delay in the convertibility or
repatriation of its currency which would adversely affect the U.S. dollar value
and/or liquidity of investments denominated in that currency. Certain foreign
investments may become less liquid in response to market developments or adverse
investor perceptions, or become illiquid after purchase by the Fund,
particularly during periods of market turmoil. Moreover, the growing
interconnectivity of global economies and financial markets has increased the
probability that adverse developments and conditions in one country or region
will affect the stability of economies and financial markets in other countries
or regions. A reduction in trading in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners may have an
adverse impact on the Fund’s investments.
Securities
registration, custody, and settlement may in some instances be subject to delays
and legal and administrative uncertainties. Foreign investment in the securities
markets of certain foreign countries is restricted or controlled to varying
degrees. These restrictions or controls may at times limit or preclude
investment in certain securities and may increase the costs and expenses of 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. Many
emerging market countries are heavily dependent on international trade and have
fewer trading partners, which makes them more sensitive to
March
4, 2026 | 17
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About the Fund
(continued)
world
commodity prices and economic downturns in other countries. Some emerging market
countries may have hostile relations with other countries. 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.
In addition, the Fund is limited in its ability to exercise its legal rights or
enforce a counterparty’s legal obligations in certain jurisdictions outside of
the United States, in particular, in emerging market countries which can
increase the risk of loss. From time to time, certain companies in which the
Fund invests may operate in, or have dealings with, countries subject to
sanctions or embargoes imposed by the U.S. government and the United Nations
and/or in countries the U.S. government identified as state sponsors of
terrorism. One or more of these companies may be subject to constraints under
U.S. law or regulations that could negatively affect the company's performance.
Additionally, one or more of these companies could suffer damage to its
reputation if the market identifies it as a company that invests or deals with
countries that the U.S. government identifies as state sponsors of terrorism or
subjects to sanctions. In addition, due to jurisdictional limitations, U.S.
regulators may be limited in their ability to enforce regulatory or legal
obligations in emerging market countries. The Fund’s investments in foreign and
emerging market securities may also be subject to foreign withholding and/or
other taxes, which would decrease the Fund’s yield on those securities. Emerging
markets are more likely than developed markets to experience problems with the
clearing and settling of trades, as well as the holding of securities by local
banks, agents and depositories.
Currency
Risk. Changes in
foreign currency exchange rates will affect the value of the Fund’s securities
and may affect the price of the Fund’s Shares. Generally, when the value of the
U.S. dollar rises in value relative to a foreign currency, an investment
impacted by that currency loses value because that currency is worth less in
U.S. dollars. Currency exchange rates may fluctuate significantly over short
periods of time for a number of reasons, including changes in interest rates.
Devaluation of a currency by a country’s government or banking authority also
will have a significant impact on the value of any investments denominated in
that currency. Currency markets generally are not as regulated as securities
markets, may be riskier than other types of investments and may increase the
volatility of the Fund. The Fund may engage in various strategies to hedge
against currency risk. These strategies may consist of use of forward currency
contracts including non-deliverable forward contracts and foreign currency
futures contracts. To the extent the Fund enters into such transactions in
markets other than in the United States, the Fund may be subject to certain
currency, settlement, liquidity, trading and other risks similar to those
described in this prospectus with respect to the Fund’s investments in foreign
securities. There can be no assurance that the Fund’s hedging activities will be
effective, including due to delays in placing trades and other operational
limitations, and the Fund will incur costs in connection with the hedging. In
addition, the Fund may incur costs in connection with conversions between U.S.
dollars and foreign currencies. Currency hedging may limit the Fund’s return if
the relative values of currencies change. Furthermore, the Fund may only engage
in hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in currency exchange rates
occur.
Distribution
Risk. The Fund is
not designed to provide a predictable level of dividend income. The income
payable on debt securities in general and the availability of investment
opportunities varies based on market conditions. In addition, the Fund may not
be effective in identifying income producing securities and managing
distributions; as a result, the level of dividend income will fluctuate. The
Fund’s investments are subject to various risks including the risk that the
counterparty will not pay income when due which may adversely impact the level
and volatility of dividend income paid by the Fund. The Fund does not guarantee
that distributions will always be paid or that such dividends will not
fluctuate.
Concentration
Risk. Because the
Fund will, under ordinary circumstances, invest a significant portion of its
assets in securities of companies in the financials sector including securities
in the banking, diversified financials, real estate (including REITs) and
insurance industries, developments affecting the financials and these four
industries within this sector may have a disproportionate impact on the Fund.
These risks generally include interest rate risk, credit risk and risk
associated with regulatory changes in the financials sector. In addition,
companies in the financial sectors are highly dependent on the supply of
short-term financing.
Industry
and Sector Focus Risk. At times,
the Fund may increase the relative emphasis of its investments in a particular
industry or sector. The prices of securities of issuers in a particular industry
or sector may be more susceptible to fluctuations due to changes in economic or
business conditions, government regulations, availability of basic resources or
supplies, 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.
MLP
Risk. MLPs may
trade infrequently and in limited volume and they may be subject to more abrupt
or erratic price movements than securities of larger or more broadly-based
companies. The managing general partner of an MLP may receive an incentive
allocation based on increases in the amount and growth of cash distributions to
investors in the MLP. This method of compensation may create an incentive for
the managing general partner to make investments that are riskier or more
speculative than would be the case in the absence of such compensation
arrangements. Debt securities of MLPs are subject to the risks of debt
securities in general. For example, such securities are more sensitive to
interest rates than equity securities of MLPs. Certain MLPs may operate
18 | J.P.
Morgan Exchange-Traded Funds
in, or have
exposure to, the energy sector. The energy sector can be significantly affected
by changes in the prices and supplies of oil and other energy fuels, energy
conservation, the success of exploration projects, and tax and other government
regulations, policies of the Organization of Petroleum Exporting Countries
(OPEC) and relationships among OPEC members and between OPEC and oil importing
nations.
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 interest-paying securities, and is more
sensitive 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 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.
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.
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.
Trust
Preferred Securities Risk. Trust
preferred securities, also known as “trust preferreds,” are preferred securities
issued by a special purpose trust subsidiary backed by subordinated debt of the
corporate parent. An issuer creates trust preferred securities by creating a
trust and issuing debt to the trust. The trust in turn issues trust preferred
securities. As a result, under this structure, the trust preferred securities
are not a direct obligation of the issuer. Trust preferred securities are hybrid
securities with characteristics of both subordinated debt and preferred
securities. Such characteristics include long maturities (typically 30 years or
more), early redemption by the issuer, periodic fixed or variable interest
payments, and maturities at face value. In addition, trust preferred securities
issued by a bank holding company may allow deferral of interest payments for up
to 5 years. Holders of trust preferred securities have limited voting rights to
control the activities of the trust and no voting rights with respect to the
parent company. The market for trust preferred securities may be limited due to
restrictions on resale, and the market value may be more volatile than those of
conventional debt securities. Although trust preferred securities are often
deemed to be a close substitute for traditional preferred securities, trust
preferred securities also possess many of the typical characteristics of equity
securities due to their subordinated position in an issuer’s capital structure
and because their quality and value are heavily dependent on the issuer’s
profitability as opposed to any legal claims to specific assets or cash flows.
As a result, the value of trust preferred securities may fluctuate for several
reasons, including changes in the financial condition of an issuer, investors’
perception of the financial condition of an issuer, or the general economic
condition of the market for trust preferred securities.
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 the Fund’s potential for
loss.
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About the Fund
(continued)
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
the 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.
The Fund's
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.
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,
which includes risks involving the liquidity demands that derivatives can create
to make payments of margin, collateral, or settlement payments to
counterparties, legal risk, which includes the risk of loss resulting from
insufficient or unenforceable contractual documentation, insufficient capacity
or authority of the Fund’s counterparty and operational risk, which includes
documentation or settlement issues, system failures, inadequate controls and
human error.
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. |
Options
Risk. There are
several risks associated with transactions in options, such as exchange-listed,
over-the-counter and index options. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events. There can be no assurance that a liquid secondary market will
exist for any particular option at a particular time, especially when the Fund
seeks to close out an option position; as a result, it may be costly to
liquidate options. There is no assurance that a liquid market will exist for any
particular option contract at any particular time even if the contract is traded
on an exchange. Exchanges may establish daily price fluctuation limits for
options contracts and may halt trading if a contract’s price moves up or down
more than the limit in a given day, making it impossible for the Fund to enter
into new positions or close out existing positions. As a result, the Fund’s
access to other assets held to cover its options positions could also be
impaired. Although the Fund will attempt to enter into option transactions with
creditworthy parties, the Fund may be at risk that the counterparties entering
into the option transaction will not fulfill their obligations, particularly
when the Fund utilizes over-the-counter options. Because option premiums paid or
received by the Fund are small in relation to the market value of the
investments underlying the options, buying and selling put and call options can
be more volatile than investing directly in the underlying
investment.
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 issues
facing issuers in such foreign countries. 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. Foreign issuers may not be subject to
uniform accounting, auditing and financial reporting standards and there may be
less reliable and publicly available financial and other information about such
issuers as compared to domestic issuers.
Geographic
Focus Risk. The Fund may
focus its investments in one or more 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, including where a sovereign issuer lacks the willingness to
make timely payments, due, for example, to cash flow problems, insufficient
foreign currency reserves, political considerations, the relative size of the
governmental
20 | J.P.
Morgan Exchange-Traded Funds
entity’s debt
position in relation to the economy or the 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 for 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.
European
Market Risk. The Fund’s
performance will be affected by political, social and economic conditions in the
various countries in which it invests in Europe, such as growth of the economic
output (the gross national product), the rate of inflation, the rate at which
capital is reinvested into European economies, the success of governmental
actions to reduce budget deficits, the resource self-sufficiency of European
countries and interest and monetary exchange rates between European countries.
European financial markets may experience volatility due to concerns about high
government debt levels, credit rating downgrades, rising unemployment, the
future of the euro as a common currency, possible restructuring of government
debt and other government measures responding to those concerns, and fiscal and
monetary controls imposed on member countries of the European
Union.
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. The income generated by investments may not keep pace
with inflation. Actions by governments and central banking authorities could
result in changes in interest rates. Periods of higher inflation could cause
such authorities to raise interest rates, which may adversely affect the Fund
and its investments. 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.
Prepayment
Risk. The issuer
of certain securities may repay principal in advance, especially when yields
fall. Changes in the rate at which prepayments or redemptions occur can affect
the return on investment of these securities. When debt obligations are prepaid
or when securities are redeemed, 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.
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.
Market
Trading Risk
Risk
that Shares of the Fund May Trade at Prices Other Than NAV. Shares of the
Fund may trade on the Exchange at prices above, below or at their most recent
NAV. The NAV of the Fund’s Shares, which is calculated at the end of each
business day, will generally fluctuate with changes in the market value of the
Fund’s holdings. The market prices of the Shares will also fluctuate, in some
cases materially, in accordance with changes in NAV and the intraday value of
the Fund’s holdings, as well as the relative supply of and demand for the Shares
on the Exchange. Differences between secondary market prices of Shares and the
intraday value of the Fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the same forces as those
influencing prices for securities held by the Fund at a particular
time.
Given the
fact that Shares can be created and redeemed by authorized participants in
Creation Units, the adviser believes that large discounts or premiums to the NAV
of Shares should not be sustained in the long-term. While the
creation/redemption feature is designed to make it likely that Shares normally
will trade close to the value of the Fund’s holdings, market prices are not
expected to correlate exactly to the Fund’s NAV due to timing reasons, supply
and demand imbalances and other factors. In addition, disruptions to creations
and redemptions, adverse developments impacting market makers, authorized
participants or other market participants, or high market volatility may result
in market prices for Shares of the Fund that differ significantly from its NAV
or to the intraday value of the Fund’s holdings. As
a result of these factors, among others, the Fund’s Shares may trade at a
premium or discount to NAV, especially during periods of significant market
volatility.
Given the
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. In addition, the securities held by the Fund may be traded in
markets that close at a different time than the Exchange. Liquidity in those
securities may be reduced after the applicable closing times. Accordingly,
during the time when the Exchange is open but after the applicable market
closing, fixing or settlement times, bid/ask spreads and the resulting premium
or discount to the Shares’ NAV may widen.
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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 as a result of a
decrease in the Fund’s trading volume, the spread of the Fund’s underlying
securities, or reduced market liquidity. 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. Such discount is likely to be greatest during significant market
volatility.
Short
Selling Risk. Shares of the
Fund, similar to shares of other issuers listed on a stock exchange, may be sold
short and are therefore subject to the risk of increased volatility and price
decreases associated with being sold short.
No
Guarantee of Active Trading Market Risk. While Shares
are listed on the Exchange, there can be no assurance that active trading
markets for the Shares will be maintained by market makers or by authorized
participants. JPMorgan Distribution Services, Inc., the distributor of the
Fund’s Shares, 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. Under such
circumstances, the Fund may be unable to buy or sell certain portfolio
securities or financial instruments, may be unable to rebalance its portfolio,
may be unable to accurately price its investments, and may experience
disruptions to the Fund’s creation/redemption process which means the Fund may
be unable to achieve its investment objective and it may incur substantial
losses.
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 the authorized participants is or will be
obligated to engage in creation or redemption transactions. The Fund has a
limited number of institutions that may act as authorized participants on an
agency basis (i.e., on behalf of other market participants). 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. Authorized participant
concentration risk may be heightened for ETFs that invest in securities issued
by non-U.S. issuers.
Cash
Transactions Risk. Unlike
certain ETFs, the Fund expects to generally effect its creations and redemptions
entirely or partially in cash, rather than in-kind securities. As a result, an
investment in the Fund may be less tax-efficient than an investment in an ETF
that distributes portfolio securities entirely in-kind. 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. Because the
Fund may effect a portion of redemptions for cash, rather than in-kind
distributions, 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 a gain on these sales, this generally
will cause the Fund to recognize a 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.
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
property or housing market and the assets underlying such securities. As a
result, during periods of difficult or frozen credit markets, changes 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 the 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 contraction risk, which is
the risk that borrowers will increase the rate at which they prepay the maturity
value of mortgages and other obligations. In periods of either rising or
declining interest rates, the Fund may be subject to extension risk, and may
receive principal later than expected. As a
22 | J.P.
Morgan Exchange-Traded Funds
result, 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-related and mortgage-backed 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. 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 and have wider variances in a
number of terms including interest rate, term, size, purpose and borrower
characteristics. To the extent the Fund invests in asset-backed or
mortgage-related securities issued by non-governmental issuers, such as
commercial banks, savings and loan institutions, and other secondary market
issuers, the Fund will be exposed to additional risks because, among other
things, there are no direct or indirect government or agency guarantees of
payments in the pools underlying the securities. 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. REMICs are a type of collateralized
mortgage obligation which are federally tax-exempt entities that may be
organized as trusts, partnerships, corporations or other types of associations.
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. 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.
Credit risk
transfer securities and credit-linked notes are general obligations issued by a
government-related organization or 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,” above.
Auction
Rate Securities Risk. Auction rate
securities consist of auction rate municipal securities and auction rate
preferred securities sold through an auction process issued by closed-end
investment companies, municipalities and governmental agencies. Provided that
the auction mechanism is successful, auction rate securities usually permit the
holder to sell the securities in an auction at par value at specified intervals.
The dividend is reset by “Dutch” auction in which bids are made by
broker-dealers and other institutions for a certain amount of securities at a
specified minimum yield. The dividend rate set by the auction is the lowest
interest or dividend rate that covers all securities offered for sale. While
this process is designed to permit auction rate securities to be traded at par
value, there is the risk that an auction will fail due to insufficient demand
for the securities and, due to auction failures in 2008, the auction market is
limited. Failed auctions may adversely impact the liquidity of auction rate
securities investments. There is no guarantee that a liquid market will exist
for the Fund’s investments in auction rate securities at a time when the Fund
wishes to dispose of such securities.
ETF
and Other Investment Company Risk. The Fund may
invest in ETFs and other investment companies, including common shares and
preferred shares of closed-end funds. 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 price movement of an ETF or closed end fund designed to track an index
may not track the index and may result in a loss. Certain ETFs and other
underlying funds may not be actively managed. Securities may be purchased, held
and sold by such funds when an actively managed fund would not do so. In
addition, ETFs and closed-end investment companies may trade at a price above
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(continued)
(premium) or
below (discount) their net asset value, especially during periods of significant
market volatility or stress, causing investors to pay significantly more or less
than the value of the ETF’s underlying portfolio. If the Fund invests in
closed-end investment companies, it may incur added expenses such as additional
management fees and trading costs.
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.
Inverse
Floater Risk. Inverse
floaters and inverse interest-only (IOs) are debt securities structured with
interest rates that reset in the opposite direction from the market rate to
which the security is indexed. Generally, interest rates on these securities
vary inversely with a short-term floating rate (which may be reset
periodically). They are more volatile and more sensitive to interest rate
changes than other types of debt securities. Interest rates on inverse floaters
and inverse IOs will decrease when the rate to which they are indexed increases,
and will increase when the rate to which they are indexed decreases. In response
to changes in market interest rates or other market conditions, the value of an
inverse floater or inverse IO may increase or decrease at a multiple of the
increase or decrease in the value of the underlying securities. If interest
rates move in a manner not anticipated by the adviser, the Fund could lose all
or substantially all of its investment in inverse IOs.
Municipal
Obligations and Securities Risk. Because the
Fund may invest in municipal obligations, including municipal securities, the
Fund may be susceptible to political, legislative, economic, regulatory, tax or
other factors affecting issuers of these municipal obligations, such as state
and local governments and their agencies. The risk of a municipal obligation
generally depends on the financial and credit status of the issuer. Changes in a
municipality’s financial health may make it difficult for the municipality to
make interest and principal payments when due. This could decrease the Fund’s
income or hurt the ability to preserve capital and liquidity. In addition,
budgetary constraints of state and local governments may lead to reduced tax
revenues and may further limit their ability to service municipal
obligations.
Under some
circumstances, municipal obligations might not pay interest unless the state
legislature or municipality authorizes money for that
purpose.
The amount of
public information available about municipal obligations is generally less than
for corporate equities or bonds, meaning that the investment performance of
municipal obligations may be more dependent on the analytical abilities of the
investment adviser than stock or corporate bond investments. The secondary
market for municipal obligations also tends to be less well-developed and less
liquid than many other securities markets, which may limit the Fund’s ability to
sell its municipal obligations at attractive prices. The differences between the
price at which an obligation can be purchased and the price at which it can be
sold may widen during periods of market distress. Less liquid obligations can
become more difficult to value and be subject to erratic price movements. In
addition, changes in U.S. federal tax laws or the activity of an issuer may
adversely affect the tax-exempt status of municipal obligations. Loss of
tax-exempt status may result in a significant decline in the values of such
municipal obligations.
Municipal
obligations may be more susceptible to downgrades or defaults during recessions
or similar periods of economic stress. In addition, since some municipal
obligations 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. Such a downward revision or risk of being downgraded may have an
adverse effect on the market prices of the bonds and thus the value of the
Fund’s investments. While interest earned on municipal obligations is generally
not subject to federal income tax, any interest earned on taxable municipal
obligations is fully taxable at the federal level and may be subject to state
and/or local income tax.
In addition
to being downgraded, an insolvent municipality may file for bankruptcy. The
reorganization of a municipality’s debts may significantly affect the rights of
creditors and the value of the securities issued by the municipality and the
value of the Fund’s investments. Interest on municipal obligations, while
generally exempt from federal income tax, may be subject to state and/or local
income tax and may not be exempt from federal alternative minimum
tax.
24 | J.P.
Morgan Exchange-Traded Funds
Smaller
Company Risk. Investments
in smaller companies may be riskier, less liquid, more volatile and more
vulnerable to economic, market and industry changes than investment in larger,
more established companies. The securities of smaller companies may trade less
frequently and in smaller volumes than securities of larger companies. As a
result, changes in the price of debt or equity issued by such companies may be
more sudden or erratic than the prices of securities of larger companies,
especially over the short term. Because smaller companies may have limited
product lines, markets or financial resources or may depend on a few key
employees, they may be more susceptible to particular economic events or
competitive factors than large capitalization companies. This may cause
unexpected and frequent decreases in the value of the Fund’s
investments.
Newer
Fund Risk. The Fund is
new with limited operating history. As a result, prospective investors have a
limited 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. In addition, there can be no assurance
that the Fund will grow to or maintain an economically viable
size.
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 buyer,
or legal restrictions on the securities’ resale. Disruption to the activities of
market makers and a limited pool of authorized participants could also
contribute to decreased liquidity. Other market participants may be attempting
to sell debt securities at the same time as the Fund, causing downward pricing
pressure and 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, including cloud-based technology, has become more prevalent and
interconnected in the course of business, the Fund has become more susceptible
to operational and financial risks associated with cyber security, including:
theft, loss, misuse, fraud, improper release, corruption and destruction of, or
unauthorized access to, confidential, personal 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
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(continued)
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. The Fund and its service providers’ use of
internet, technology and information systems may expose the Fund to potential
risks linked to processing and human errors, inadequate or failed internal or
external processes, failures in systems and technology, errors in algorithms
used with respect to the Funds, changes in personnel, errors caused by third
parties or trading counterparties, cyberattacks, and similar events. Recently,
geopolitical tensions may have increased the scale and sophistication of
deliberate cybersecurity attacks, particularly those from nation-states or from
entities with nation-state backing. While the Fund and its service providers may
establish business continuity and other plans and processes that seek to address
the possibility of and fallout from such events, there are inherent limitations
to these plans and systems, and certain risks may not yet be identified. 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. There can be
no assurance that a Fund will not suffer losses relating to cyberattacks or
other information security breaches in the future.
Regulatory
and Legal Risk. U.S. and
non-U.S. governmental agencies and other regulators regularly implement
additional regulations or amend 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 5% 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, with permissible extensions
under certain circumstances. 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.
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 “Investment Practices” section later in the prospectus, and the Statement of
Additional Information.
Conflicts
of Interest
An investment
in a Fund is subject to a number of actual or potential conflicts of interest.
For example, the Adviser and/or its affiliates provide a variety of different
services to a Fund, for which the Fund compensates them. As a result, the
Adviser and/or its affiliates have an incentive to enter into arrangements with
a Fund, and face conflicts of interest when balancing that incentive against the
best interests of a Fund. The Adviser and/or its affiliates also face conflicts
of interest in their service as investment adviser to other clients, and, from
time to time, make investment decisions that differ from and/or negatively
impact those made by the Adviser on behalf of a Fund. In addition, affiliates of
the Adviser provide a broad range of services and products to their clients and
are major participants in the global currency, equity, commodity, fixed income
and other markets in which a Fund invests or will invest. In certain
circumstances by providing services and products to their clients, these
affiliates’ activities will disadvantage or restrict the Funds and/or benefit
these affiliates. The Adviser may also acquire material non-public information
which would negatively affect the Adviser’s ability to transact in securities
for a Fund. JPMorgan and the Funds have adopted policies and procedures
reasonably designed to appropriately prevent, limit or mitigate conflicts of
interest. In addition, many of the activities that create these conflicts of
interest are limited and/or prohibited by law, unless an exception is available.
For more information about conflicts of interest, see the Potential
Conflicts of Interest section in
the Statement of Additional Information.
Temporary
Defensive and Cash Positions
For liquidity
and to respond to unusual market conditions, the Fund may invest all or most of
its total assets in cash and cash
equivalents for
temporary defensive purposes. These investments may result in a lower yield than
lower-quality or longer-term investments.
26 | J.P.
Morgan Exchange-Traded Funds
|
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.
Bloomberg
Disclaimer
Source:
Bloomberg Index Services Limited. BLOOMBERG®
is a trademark and service mark of Bloomberg Finance L.P. and its affiliates
(collectively “Bloomberg”). Bloomberg or Bloomberg's licensors own all
proprietary rights in the Bloomberg Indices. Bloomberg does not approve or
endorse this material, or guarantee the accuracy or completeness of any
information herein, or make any warranty, express or implied, as to the results
to be obtained therefrom and, to the maximum extent allowed by law, shall not
have any liability or responsibility for injury or damages arising in connection
therewith.
ICE
Data Indices, LLC Disclaimer
SOURCE ICE
DATA INDICES, LLC (“ICE DATA”), IS USED WITH PERMISSION. ICE® IS A REGISTERED
TRADEMARK OF ICE DATA OR ITS AFFILIATES AND BOFA® IS A REGISTERED TRADEMARK OF
BANK OF AMERICA CORPORATION LICENSED BY BANK OF AMERICA CORPORATION AND ITS
AFFILIATES (“BOFA”) AND MAY NOT BE USED WITHOUT BOFA’S PRIOR WRITTEN APPROVAL.
ICE DATA, ITS AFFILIATES AND THEIR RESPECTIVE THIRD PARTY SUPPLIERS DISCLAIM ANY
AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS AND/OR IMPLIED, INCLUDING ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE,
INCLUDING THE INDICES, INDEX DATA AND ANY DATA INCLUDED IN, RELATED TO, OR
DERIVED THEREFROM. NEITHER ICE DATA, ITS AFFILIATES NOR THEIR RESPECTIVE THIRD
PARTY SUPPLIERS SHALL BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE
ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES OR THE INDEX DATA
OR ANY COMPONENT THEREOF, AND THE INDICES AND INDEX DATA AND ALL COMPONENTS
THEREOF ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK. ICE
DATA, ITS AFFILIATES AND THEIR RESPECTIVE THIRD PARTY SUPPLIERS DO NOT SPONSOR,
ENDORSE, OR RECOMMEND THE ADVISER, OR ANY OF ITS PRODUCTS OR
SERVICES.
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 (as was the case for the predecessor fund) may, from time
to time, voluntarily waive all or a portion of any fees to which they are
entitled and/or reimburse certain expenses as they may determine from time to
time. 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 (and performance for the predecessor fund reflects) the voluntary
waiver of fees and/or the reimbursement of expenses, if any. Without these
voluntary waivers and/or expense reimbursements, performance would be less
favorable.
March
4, 2026 | 27
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
J.P. Morgan
Investment Management Inc. (JPMIM or the adviser) is the investment adviser to
the Fund. JPMIM is located at 270 Park Avenue, New York, NY 10017. JPMIM also
served as the investment adviser to the predecessor fund.
JPMIM is a
wholly-owned subsidiary of JPMorgan Asset Management Holdings Inc., which is a
wholly-owned subsidiary of JPMorgan Chase & Co. (JPMorgan Chase), a bank
holding company.
In rendering
investment advisory services to 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.
The Fund will
pay the adviser a management fee of 0.50% of average daily net
assets.
The effective
management fee of the predecessor fund (after waivers) for the fiscal year ended
June 30, 2025 was 0.47%.
A discussion
of the basis the Board of Trustees of the Trust used in approving the investment
advisory agreement for the Fund will be in the financial statements and other
information filed with the SEC on Form N-CSR (Financial Statements and Other
Information), which will be available online at
www.jpmorganfunds.com.
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
multiple sector and research teams who help formulate duration and allocation
recommendations and support the strategies of the Fund within the parameters
established by the portfolio managers.
The portfolio
management team for the Fund consists of Andreas Michalitsianos, Managing
Director and CFA charterholder, and Vikas Pathani, Managing Director. Mr.
Michalitsianos has been a portfolio manager of the Fund since its inception and
an employee of JPMIM since 2002. He is the Head of Global Credit within the
Global Fixed Income, Currency & Commodities (GFICC) group. Mr. Pathani has
been a portfolio manager for the Fund since its inception and an employee of
JPMIM or its affiliates since 2004. He is the Head of U.S. Credit within the
GFICC group.
Messrs.
Pathani and Michalitsianos also were the predecessor fund’s portfolio managers
since 2022 and 2022, respectively.
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 Administrator
JPMIM
provides administration services for and oversees the other service providers of
the Fund. JPMIM receives the following annual fee on behalf of the Fund for
administration services: 0.075% of the first $10 billion of average daily net
assets of the Fund, plus 0.050% of average daily net assets of the Fund between
$10 billion and $20 billion, plus 0.025% of average daily net assets of the Fund
between $20 billion and $25 billion, plus 0.010% of the average daily net assets
of the Fund over $25 billion.
The
Fund’s Distributor
JPMorgan
Distribution Services, Inc. (the Distributor) is the distributor of the Fund’s
Shares. The Distributor or its agent distributes Creation Units for the Fund on
an agency basis. The Distributor does not maintain a secondary market in Shares
of the Fund. The Distributor has no role in determining the investment policies
of the Fund or the securities that are purchased or sold by the Fund. The
Distributor’s principal address is 1111 Polaris Parkway, Columbus, OH
43240.
Payments
to Financial Intermediaries
JPMIM and,
from time to time, other affiliates of JPMorgan Chase may, at their own expense
and out of their own legitimate profits, provide cash payments to Financial
Intermediaries whose customers invest in Shares of the Fund. For this purpose,
Financial Intermediaries include financial advisors, investment advisers,
brokers, financial planners, banks, insurance companies, retirement or 401(k)
plan administrators and others, including various affiliates of JPMorgan Chase,
that may enter into agreements with JPMIM and/or its affiliates. These cash
payments may relate to marketing activities and presentations, educational
training programs, the
28 | J.P.
Morgan Exchange-Traded Funds
support of
technology platforms and/or reporting systems, or the Financial Intermediaries’
making Shares of the Fund available to their customers. Such compensation may
provide such Financial Intermediaries with an incentive to favor sales of Shares
of the Fund over other investment options they make available to their
customers. See the Statement of Additional Information for more
information.
March
4, 2026 | 29
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 effective date of the reorganization
of the predecessor fund into 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
30 | 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. There may be changes in the value of
securities listed on a foreign exchange during the period between the last quote
from the Fund’s closed foreign markets and times during the Fund’s domestic
trading day. During the time when Fund Shares are trading but a foreign exchange
is closed, there may be bid/ask spreads and the resulting premium or discount to
the Fund Shares’ NAV may widen. 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.
Swaps and
structured notes are valued at the price provided 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.
March
4, 2026 | 31
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. In connection with the Fund’s strategy of managing distributions
throughout the year to help minimize fluctuations in monthly dividends, the Fund
may not distribute all of its net investment income on a monthly basis. 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. However, in connection with the Fund’s
strategy of managing distributions, the Fund may carry over a portion of
undistributed income from one calendar year to the next, which may be subject to
an excise tax in accordance with Internal Revenue Code. The Fund intends to make
distributions sufficient to avoid imposition of an excise tax, although the Fund
reserves the right to pay an excise tax in certain
circumstances.
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 preferential rates. The maximum individual federal income tax
rate applicable to “qualified dividend income” is either 15% or 20%, depending
on whether the individual’s income exceeds certain threshold amounts. The amount
of dividend income that may be so reported by the Fund generally will be limited
to the aggregate of the eligible dividends received by the Fund. In addition,
the Fund must meet certain holding period and other requirements with respect to
the shares on which the Fund received the eligible dividends, and the
non-corporate U.S. shareholder must meet certain holding period and other
requirements with respect to the Fund. The amount of the Fund’s distributions
that would otherwise qualify for this favorable tax treatment 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 either
qualified dividend income or exempt-interest dividend income and dividends of
net short-term capital gain will be taxable to a U.S. shareholder as ordinary
income.
Distributions
of net capital gain (that is, the excess of the net gains from the sale of
investments that the Fund owned for more than one year over the net losses from
investments that the Fund owned for one year or less) that are properly reported
by the Fund as capital gain dividends will be taxable as long-term capital gain,
regardless of how long you have held your Shares in the Fund. The maximum
individual federal income tax rate applicable to long-term capital gains is
generally either 15% or 20%, depending on whether the individual’s income
exceeds certain threshold amounts. Distributions of net short-term capital gain
(that is, the excess of any net short-term capital gain over net long-term
capital loss), if any, will be taxable to U.S. shareholders as ordinary income.
Capital gain of a corporate shareholder is taxed at the same rate as ordinary
income.
An additional
3.8% Medicare tax is imposed on certain net investment income (including
ordinary dividends and capital gain distributions received from the Fund and net
gains from redemptions or other taxable dispositions of Fund Shares, but
excluding any exempt-interest dividends received from the Fund) 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 gains earned by the Fund
before your investment (and thus were included in the price you paid for your
Shares). To avoid buying a dividend, please check the Fund’s Dividend and
Capital Gains Schedule on the Fund’s website before you
invest.
The Fund is
generally subject to foreign withholding or other foreign taxes, which in some
cases can be significant on any income or gain from investments in foreign
stocks or securities. In that case, the Fund’s total return on those securities
would be decreased.
The Fund may
generally deduct these taxes in computing its taxable income. Rather than
deducting these foreign taxes, the Fund that invests more than 50% of its assets
in the stock or securities of foreign corporations or foreign governments at the
end of its taxable year may make an election to treat a proportionate amount of
eligible foreign taxes as constituting a taxable distribution to each
shareholder, which would, subject to certain limitations, generally allow the
shareholder to either (i) credit that proportionate amount of taxes against U.S.
Federal income tax liability as a foreign tax credit or (ii) take that amount as
an itemized deduction. Any foreign tax withheld on payments made "in lieu of"
dividends or interest with respect to loaned securities will not qualify for the
pass-through of foreign tax credits to shareholders. Although in some cases the
Fund may be able to apply for a refund of a portion of such taxes, the ability
to successfully obtain such a refund may be uncertain.
32 | J.P.
Morgan Exchange-Traded Funds
The Fund’s
investments in certain debt obligations, derivative instruments and so-called
“passive foreign investment companies” may require such 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
investments in 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 to shareholders. The Fund’s use of these types of
transactions may result in the Fund realizing more short-term capital gain and
ordinary income subject to tax at ordinary income tax rates than it would if it
did not engage in such transactions.
Please see
the Statement of Additional Information for additional discussion of the tax
consequences of the above-described and other investments to the Fund and its
shareholders.
The dates on
which dividends and capital gain, if any, will be distributed are available
online at www.jpmorganfunds.com.
Early in each
calendar year, you will receive a notice showing the amount of distributions you
received during the preceding calendar year and the tax status of those
distributions.
Any foreign
shareholder would generally be subject to U.S. tax-withholding on distributions
by the Fund, as discussed in the Statement of Additional
Information.
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.
March
4, 2026 | 33
Shareholder
Information
(continued)
Tax-Advantaged
Product Structure
Unlike
interests in many conventional mutual funds, the Shares are traded throughout
the day on a national securities exchange, whereas mutual fund interests are
typically only bought and sold at closing NAVs. The Shares have been designed to
be tradable in the secondary market on a national securities exchange on an
intra-day basis, and to be created and redeemed in Creation Units at each day’s
next calculated NAV. Shares are created and redeemed principally in-kind. The
in-kind arrangements are designed to protect ongoing shareholders from adverse
effects on the Fund’s portfolio that could arise from frequent cash creation and
redemption transactions. In a conventional mutual fund, redemptions can have an
adverse tax impact on taxable shareholders because the mutual fund may need to
sell portfolio securities to obtain cash to meet fund redemptions. These sales
may generate taxable gains for the shareholders of the mutual fund, whereas the
Shares’ in-kind redemption mechanism generally will not lead to a tax event for
the Fund or its ongoing shareholders.
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.
34 | 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 |
|
Asset-Backed
Securities:
Securities secured by company receivables, home equity loans, truck and
auto
loans,
leases and credit card receivables or other securities backed by other
types of receivables or other
assets. |
Credit
Interest
Rate
Liquidity
Market
Political
Prepayment
Valuation |
|
Auction
Rate Securities:
Auction rate municipal securities and auction rate preferred securities
issued by
closed-end
investment companies. |
Credit
Interest
Rate
Liquidity
Market |
|
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.
|
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 |
|
Common
Stock:
Shares of ownership of a company. |
Market |
|
Convertible
Securities:
Bonds or preferred securities that can convert to common stock including
contingent
convertible
securities. |
Credit
Currency
Interest
Rate
Liquidity
Market
Political
Valuation |
March
4, 2026 | 35
Investment
Practices
(continued)
|
INSTRUMENT |
RISK
TYPE |
|
Corporate
Debt Securities:
May include bonds and other debt securities of domestic and foreign
issuers,
including
obligations of industrial, utility, banking and other corporate
issuers. |
Credit
Currency
Interest
Rate
Liquidity
Market
Political
Prepayment
Valuation |
|
Credit
Default Swaps (CDSs):
A swap agreement between two parties pursuant to which one party pays the
other
a fixed periodic coupon for the specified life of the agreement. The other
party makes no payment
unless
a credit event, relating to a predetermined reference asset, occurs. If
such an event occurs, the party
will
then make a payment to the first party, and the swap will
terminate. |
Credit
Currency
Interest
Rate
Leverage
Liquidity
Management
Market
Political
Valuation |
|
Emerging
Market Securities:
Securities issued by issuers or governments in countries with emerging
economies
or securities markets which may be undergoing significant evolution and
rapid developments. |
Foreign
Investment |
|
Exchange-Traded
Funds (ETFs):
Ownership interest in unit investment trusts, depositary receipts, and
other
pooled
investment vehicles that hold a portfolio of securities or stocks designed
to track the price
performance
and dividend yield of a particular broad-based, sector or international
index. ETFs include a
wide
range of investments such as iShares, S&P’s Depositary Receipts
(SPDRs) and NASDAQ 100s. |
Investment
Company
Market |
|
Foreign
Currency Transactions:
Strategies used to hedge against currency risks, for other risk management
or
operational purposes or to increase income or gain to the Fund. These
strategies may consist of use of
any
of the following: options on currencies, financial and currency futures,
options on such futures, forward
foreign
currency transactions (including non-deliverable forwards (NDFs)), forward
rate agreements and
currency
swaps, caps and floors. Certain Funds may engage in such transactions in
both U.S. and non-U.S.
markets. |
Credit
Foreign
Investment
Leverage
Liquidity
Management
Market
Prepayment |
|
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. |
Foreign
Investment
Liquidity
Market
Political
Prepayment
Valuation |
|
High
Yield/High Risk Securities/Junk Bonds:
Securities that are generally rated below investment grade by
the
primary rating agencies or are unrated but are deemed by the Fund’s
adviser to be of comparable
quality. |
Credit
Currency
High
Yield Securities
Interest
Rate
Liquidity
Market
Political
Portfolio
Quality
Valuation |
|
Inflation-Linked
Debt Securities:
Includes fixed and floating rate debt securities of varying maturities
issued
by
the U.S. government as well as securities issued by other entities such as
corporations, foreign
governments
and foreign issuers. |
Credit
Currency
Interest
Rate
Political |
|
Initial
Public Offerings (IPOs):
A transaction in which a previously private company makes its first sale
of
stock
to the public. |
Market |
36 | J.P.
Morgan Exchange-Traded Funds
|
INSTRUMENT |
RISK
TYPE |
|
Interfund
Lending:
Involves lending money and borrowing money for temporary purposes through
a credit
facility. |
Credit
Interest
Rate
Market |
|
Inverse
Floating Rate Instruments:
Leveraged variable debt instruments with interest rates that reset in the
opposite
direction from the market rate of interest to which the inverse floater is
indexed. |
Credit
Leverage
Market |
|
Investment
Company Securities:
Shares of other investment companies, including money market funds for
which
the adviser and/or its affiliates serve as investment adviser or
administrator. The adviser will waive
certain
fees when investing in funds for which it serves as investment adviser, to
the extent required by law
or
contract. |
Investment
Company
Market |
|
Master
Limited Partnerships (MLPs):
Limited partnerships that are publicly traded on a securities
exchange |
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 |
|
Municipal
Securities:
Securities issued by a state or political subdivision to obtain funds for
various public
purposes.
Municipal securities include, among others, private activity bonds and
industrial development
bonds,
as well as general obligation notes, tax anticipation notes, bond
anticipation notes, revenue
anticipation
notes, other short-term tax-exempt obligations, municipal leases,
obligations of municipal
housing
authorities and single family revenue bonds. |
Credit
Interest
Rate
Market
Natural
Event
Political
Prepayment
Tax
Valuation |
|
New
Financial Products:
New options and futures contracts and other financial products continue to
be
developed
and the Fund may invest in such options, contracts and
products. |
Credit
Liquidity
Management
Market |
|
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, indexes
of
securities, interest rate futures contracts and interest rate swaps and
(b) futures contracts on securities
and
indexes of securities. |
Credit
Leverage
Liquidity
Management
Market |
|
Preferred
Securities:
A class of stock that generally pays a dividend at a specified rate and
has preference
over
common stock in the payment of dividends and in
liquidation. |
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 |
March
4, 2026 | 37
Investment
Practices
(continued)
|
INSTRUMENT |
RISK
TYPE |
|
Real
Estate Investment Trusts (REITs):
Pooled investment vehicles which invest primarily in income
producing
real estate or real estate related loans or
interest. |
Credit
Interest
Rate
Liquidity
Management
Market
Political
Prepayment
Tax
Valuation |
|
Repurchase
Agreements:
The purchase of a security and the simultaneous commitment to return the
security
to the seller at an agreed upon price on an agreed upon date. This is
treated as a loan. |
Credit
Liquidity
Market |
|
Reverse
Repurchase Agreements1
:
The sale of a security and the simultaneous commitment to buy the
security
back at an agreed upon price on an agreed upon date. |
Credit
Leverage
Market |
|
Securities
Issued in Connection with Reorganization and Corporate
Restructuring:
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. |
Credit
Leverage
Market |
|
Short-Term
Funding Agreements:
Agreements issued by banks and highly rated U.S. insurance companies
such
as Guaranteed Investment Contracts (GICs) and Bank Investment Contracts
(BICs). |
Credit
Liquidity
Market |
|
Sovereign
Obligations:
Investments in debt obligations issued or guaranteed by a foreign
sovereign
government
or its agencies, authorities or political
subdivisions. |
Credit
Foreign
Investment
Liquidity
Political
Valuation |
|
Structured
Investments:
A security having a return tied to an underlying index or other security
or asset
class.
Structured investments generally are individually negotiated agreements
and may be traded over-
the-counter.
Structured investments are organized and operated to restructure the
investment
characteristics
of the underlying security. |
Credit
Foreign
Investment
Liquidity
Management
Market
Valuation |
|
Swaps
and Related Swap Products:
Swaps involve an exchange of obligations by two parties. Caps and floors
entitle
a purchaser to a principal amount from the seller of the cap or floor to
the extent that a specified
index
exceeds or falls below a predetermined interest rate or amount. The Fund
may enter into these
transactions
to manage its exposure to changing interest rates and other
factors. |
Credit
Currency
Interest
Rate
Leverage
Liquidity
Management
Market
Political
Valuation |
|
Synthetic
Variable Rate Instruments:
Instruments that generally involve the deposit of a long-term tax
exempt
bond in a custody or trust arrangement and the creation of a mechanism to
adjust the long-term
interest
rate on the bond to a variable short-term rate and a right (subject to
certain conditions) on the part
of
the purchaser to tender it periodically to a third party at
par. |
Credit
Liquidity
Market |
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.
38 | J.P.
Morgan Exchange-Traded Funds
|
INSTRUMENT |
RISK
TYPE |
|
Temporary
Defensive Positions:
To respond to unusual circumstances the Fund may invest in cash and cash
equivalents
for temporary defensive purposes. |
Credit
Interest
Rate
Liquidity
Market |
|
Treasury
Receipts:
The Fund may purchase interests in separately traded interest and
principal component
parts
of U.S. Treasury obligations that are issued by banks or brokerage firms
and that are created by
depositing
U.S. Treasury notes and U.S. Treasury bonds into a special account at a
custodian bank. Receipts
include
Treasury Receipts (TRs), Treasury Investment Growth Receipts (TIGRs), and
Certificates of Accrual
on
Treasury Securities (CATS). |
Market |
|
Trust
Preferreds:
Securities with characteristics of both subordinated debt and preferred
securities. Trust
preferreds
are generally long term securities that make periodic fixed or variable
interest payments. |
Credit
Currency
Interest
Rate
Liquidity
Market
Political
Valuation |
|
U.S.
Government Agency Securities:
Securities issued or guaranteed by agencies and instrumentalities of the
U.S.
government. These include all types of securities issued by Ginnie Mae,
Fannie Mae and Freddie Mac,
including
funding notes, subordinated benchmark notes, CMOs and
REMICs. |
Credit
Government
Securities
Interest
Rate
Market |
|
U.S.
Government Obligations:
May include direct obligations of the U.S. Treasury, including Treasury
bills,
notes
and bonds, all of which are backed as to principal and interest payments
by the full faith and credit of
the
United States, and separately traded principal and interest component
parts of such obligations that
are
transferable through the Federal book-entry system known as Separate
Trading of Registered Interest
and
Principal of Securities (STRIPS) and Coupons Under Book Entry Safekeeping
(CUBES). |
Interest
Rate
Market |
|
Variable
and Floating Rate Instruments:
Obligations with interest rates which are reset daily, weekly,
quarterly
or some other frequency and which may be payable to the Fund on demand or
at the expiration
of
a specified term. |
Credit
Liquidity
Market
Valuation |
|
When-Issued
Securities, Delayed Delivery Securities and Forward
Commitments:
Purchase or contract to
purchase
securities at a fixed price for delivery at a future
date. |
Credit
Leverage
Liquidity
Market
Valuation |
|
Zero-Coupon,
Pay-in-Kind and Deferred Payment Securities:
Zero-coupon securities are securities that are
sold
at a discount to par value and on which interest payments are not made
during the life of the security.
Pay-in-kind
securities are securities that have interest payable by delivery of
additional securities. Deferred
payment
securities are zero-coupon debt securities which convert on a specified
date to interest bearing
debt
securities. |
Credit
Currency
Interest
Rate
Liquidity
Market
Political
Valuation
Zero-Coupon
Securities |
Risk
related to certain investments held by the 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.
Environmental
risk The risk that
an owner or operator of real estate may be liable for the costs associated with
hazardous or toxic substances located on the property.
Extension
risk The risk that
a rise in interest rates will extend the life of a security to a date later than
the anticipated prepayment date, causing the value of the investment to
fall.
Foreign
investment risk The risk
associated with higher transaction costs, delayed settlements, currency
controls, adverse economic developments, and exchange rate volatility. These
risks are increased in emerging markets.
Government
securities risk U.S.
government securities are subject to market risk, interest rate risk and credit
risk. Securities, such as those issued or guaranteed by Ginnie Mae or the U.S.
Treasury, that are backed by the full faith and credit of the United States are
guaranteed only as to the timely payment of
March
4, 2026 | 39
Investment
Practices
(continued)
interest and
principal when held to maturity and the market prices for such securities will
fluctuate. Circumstances could arise that would prevent the payment of interest
or principal. Securities issued or guaranteed by certain U.S. government-related
organizations, such as Fannie Mae and Freddie Mac, are not backed by the full
faith and credit of the U.S. government and no assurance can be given that the
U.S. government will provide financial support.
High
yield securities risk High yield,
high risk securities (also known as junk bonds) which are considered to be
speculative and these investments are subject to greater risk of loss, greater
sensitivity to economic changes, valuation difficulties and a potential lack of
a secondary or public market for securities.
Interest
rate risk The risk that
a change in interest rates will adversely affect the value of an investment. The
value of fixed income securities generally moves in the opposite direction of
interest rates (decreases when interest rates rise and increases when interest
rates fall). The Fund may face a heightened level of interest rate risk due to
certain changes in monetary policy.
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.
Portfolio
quality risk The risks
associated with below investment grade securities including greater risk of
default, greater sensitivity to interest rates and economic changes, potential
valuation difficulties, and sudden and unexpected changes in credit
quality.
Prepayment
risk The risk that
declining interest rates or other factors will result in unexpected prepayments,
causing the value of the investment to fall.
Tax
risk The risk that
the issuer of the securities will fail to comply with certain requirements of
the Internal Revenue Code of 1986, as amended, which could cause adverse tax
consequences. Also the risk that the tax treatment of municipal or other
securities could be changed by Congress thereby affecting the value of
outstanding securities.
Valuation
risk The risk that
the estimated value of a security does not match the actual amount that can be
realized if the security is sold.
Zero-Coupon
securities risk The market
value of these securities are generally more volatile than the market value of,
and is more likely to respond to a greater degree to changes in interest rates
than, other fixed income securities with similar maturities and credit quality
that pay interest periodically. Actions required by federal income tax law may
reduce the assets to which the Fund’s expenses could otherwise be allocated and
may reduce the Fund’s rate of return.
40 | J.P.
Morgan Exchange-Traded Funds
Financial
Highlights
The Financial
Highlights table is intended to help you understand the Fund’s financial
performance for the period of the Fund’s operations. The Financial Highlights
information in the following table for the Fund’s Shares represents the
Financial Highlights of the predecessor fund’s Class R6 Shares for the fiscal
periods indicated. The Fund commenced operations after the assets of the
predecessor fund were transferred to the Fund in a tax-free reorganization as of
the close of business on July 10, 2026.
Certain
information reflects financial results for a single predecessor fund share. The
total returns in the table represent the rate that an investor would have earned
or lost on an investment in the predecessor fund’s Class R6 Shares (assuming
reinvestment of all dividends and distributions).
The
information for the six months ended December 31, 2025, which has been derived
from the predecessor fund’s semi-annual financial statements included in the
predecessor fund’s semi-annual report, has not been audited. The other
information below has been audited by PricewaterhouseCoopers LLP, the
independent registered public accounting firm for the predecessor fund and the
Fund, whose report, along with the predecessor fund’s financial statements, are
included in the predecessor fund’s Financial Statements and Other Information,
which is available online at www.jpmorganfunds.com or upon request by calling
J.P. Morgan Funds Services at 1-844-457-6383 (844-4JPM ETF). No information is
provided for the Fund’s Shares, which were not offered as of March 4,
2026.
|
|
|
Per
share operating performance | ||||
|
|
|
Investment
operations |
Distributions |
| ||
|
|
Net
asset
value,
beginning
of
period |
Net
investment
income
(loss)(b) |
Net
realized
and
unrealized
gains
(losses)
on
investments |
Total
from
investment
operations |
Net
investment
income |
Net
asset
value,
end
of
period |
|
JPMorgan
Preferred and Income Securities Fund |
|
|
|
|
|
|
|
Class
R6 |
|
|
|
|
|
|
|
Six
Months Ended December 31, 2025 (Unaudited) |
$9.75 |
$0.27 |
$0.17 |
$0.44 |
$(0.29) |
$9.90 |
|
Year
Ended June 30, 2025 |
9.45 |
0.55 |
0.29 |
0.84 |
(0.54) |
9.75 |
|
Year
Ended June 30, 2024 |
8.78 |
0.52 |
0.68 |
1.20 |
(0.53) |
9.45 |
|
March
1, 2023 through June 30, 2023 (e) |
9.28 |
0.17 |
(0.53) |
(0.36) |
(0.14) |
8.78 |
|
March
31, 2022 (g) through February 28, 2023 |
10.00 |
0.43 |
(0.78) |
(0.35) |
(0.37) |
9.28 |
(a)
Annualized for
periods less than one year, unless otherwise noted.
(b)
Calculated
based upon average shares outstanding.
(c)
Not annualized
for periods less than one year.
(d)
Includes
adjustments in accordance with accounting principles generally accepted in the
United States of America and as such, the net asset values for financial
reporting purposes and the returns based upon those net asset values may differ
from the net asset values and returns for shareholder
transactions.
(e)
The Fund
changed its fiscal year end from the last day of February to June
30th.
(f)
Certain
non-recurring expenses incurred by the Fund were not annualized for the period
indicated.
(g)
Commencement
of operations.
42 | J.P.
Morgan Exchange-Traded Funds
|
Ratios/Supplemental
data | |||||
|
|
|
Ratios
to average net assets (a) | |||
|
Total
return
(excludes
sales charge)(c)(d) |
Net
assets,
end
of
period
(000’s) |
Net
expenses |
Net
investment
income
(loss) |
Expenses
without
waivers
and
reimbursements |
Portfolio
turnover
rate
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.53% |
$1,034,650 |
0.55% |
5.53% |
0.60% |
10% |
|
9.13 |
751,692 |
0.55 |
5.68 |
0.60 |
32 |
|
14.01 |
560,045 |
0.55 |
5.71 |
0.64 |
36 |
|
(3.83) |
299,020 |
0.55(f) |
5.73(f) |
0.67(f) |
14 |
|
(3.34) |
355,264 |
0.55(f) |
5.21(f) |
0.70(f) |
29 |
March
4, 2026 | 43
How
to Reach Us
MORE
INFORMATION
For investors
who want more information on the Fund, the following documents are available
free upon request:
ANNUAL
REPORTS, SEMI-ANNUAL REPORTS, AND FINANCIAL STATEMENTS AND OTHER
INFORMATION
The Fund’s
annual reports, semi-annual reports, and Financial Statements and Other
Information, when available, will contain more information about the Fund’s
investments and performance. The annual report will also include details about
the market conditions and investment strategies that have a significant effect
on the Fund’s performance.
STATEMENT
OF ADDITIONAL INFORMATION (SAI)
The SAI
contains more detailed information about the Fund and its policies. It is
incorporated by reference into this prospectus. This means, by law, it is
considered to be part of this prospectus.
You can get a
free copy of these documents and other information, or ask us any questions, by
calling us at 1-844-457-6383 (844-4JPM ETF) or writing to:
J.P.
Morgan Exchange-Traded Funds
390 Madison Avenue
New York, NY 10017
390 Madison Avenue
New York, NY 10017
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 the Financial Statements 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.:
J.P. Morgan
Exchange-Traded Fund Trust……………………………………811-22903
©JPMorgan
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