As filed with the Securities and Exchange Commission on May 14, 2014
Securities Act File No. 333-191837
Investment Company Act File No. 811-22903
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 | ¨ | |||
Pre-Effective Amendment No. 2 | x | |||
Post-Effective Amendment No. | ¨ |
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 | x |
Amendment No. 2
J.P. Morgan Exchange-Traded Fund Trust
(Exact Name of Registrant as Specified in Charter)
270 Park Avenue
New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
Registrants Telephone Number, including Area Code: (800) 480-4111
Frank J. Nasta, Esq.
J.P. Morgan Investment Management Inc.
270 Park Avenue
New York, New York 10017
(Name and Address of Agent for Service)
With copies to:
Elizabeth A. Davin, Esq. JPMorgan Chase & Co. 460 Polaris Parkway Westerville, OH 43082 |
Jon S. Rand, Esq. Dechert LLP 1095 Avenue of the Americas New York, NY 10036 |
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this registration statement.
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
Prospectus
J.P. Morgan Exchange-Traded Funds
May , 2014
JPMorgan Diversified Return Global Equity ETF |
Ticker: JPGE |
Listing Exchange: NYSE Arca |
The Securities and Exchange Commission has 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.
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Shareholder Information | 11 | |||
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Risk and Reward Elements for the Fund | 14 | |||
Financial Highlights | 16 | |||
How to Reach Us | Back cover |
JPMorgan Diversified Return Global Equity ETF
Ticker: JPGE
What is the goal of the Fund?
The Fund seeks investment results that closely correspond, before fees and expenses, to the performance of the FTSE Developed Diversified Factor Index.
Fees and Expenses of the Fund
The following table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Investors purchasing Shares in the secondary market may be subject to costs (including customary brokerage commissions) charged by their broker.
ANNUAL FUND OPERATING EXPENSES
(Expenses that you pay each year as a percentage of the value
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Management Fees | 0.24 | % | ||
Other Expenses 1 | 0.40 | |||
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Total Annual Fund Operating Expenses | 0.64 | |||
Fee Waivers and Expense Reimbursements 2 | (0.26 | ) | ||
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Total Annual Fund Operating Expenses After Fee Waivers and Expense Reimbursements 2 | 0.38 |
1 | Other Expenses are based on estimated amounts for the current fiscal year. |
2 | The Funds adviser and administrator (the Service Providers) have contractually agreed to waive fees and/or reimburse expenses to the extent total annual operating expenses (excluding Acquired Fund Fees and Expenses, dividend expenses relating to short sales, interest, taxes, expenses related to litigation and potential litigation and extraordinary expenses) exceed 0.38% of the average daily net assets of the Shares. This contract cannot be terminated prior to 3/1/16, at which time the Service Providers will determine whether or not to renew or revise it. |
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. The Example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Funds operating expenses are equal to the total annual fund operating expenses after fee waivers and expense reimbursements shown in the table through 2/29/16 and total annual fund operating expenses thereafter. Your actual costs may be higher or lower.
WHETHER OR NOT YOU SELL YOUR SHARES, YOUR
COST WOULD BE |
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1 Year | 3 Years | |||||||
FUND SHARES ($) | 39 | 179 |
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example, affect the Funds performance. The Fund has not yet commenced operations as of the date of this prospectus. Therefore, there is no portfolio turnover rate for the Fund to report at this time.
What are the Funds main investment strategies?
The Fund seeks investment results that closely correspond, before fees and expenses, to the performance of the FTSE Developed Diversified Factor Index (the Underlying Index). The Fund will invest at least 80% of its Assets in securities included in the Underlying Index. Assets means net assets, plus the amount of borrowing for investment purposes. The Underlying Index is comprised of equity securities from developed global markets selected to represent a diversified set of factor characteristics, originally developed by the adviser. FTSE International Limited is the Index Provider. Holdings in the Underlying Index are selected from the constituents of the FTSE Developed Index, which is comprised of large- and mid-cap equity securities in developed markets. The rules based proprietary multi-factor selection process utilizes the following characteristics: relative valuation, price momentum, low volatility, and specific market capitalization. The equity securities in the Underlying Index will be diversified across global regions and industries. These securities will be large- and mid-cap equity securities of companies from developed countries, including common stock, preferred stock and real estate investment trusts (REITs).
The Fund, using a passive or indexing investment approach, attempts to closely correspond to the performance of the Underlying Index. The adviser expects that, over time, the correlation between the Funds performance before fees and expenses and that of the Underlying Index will be 95% or better. A figure of 100% would indicate perfect correlation. The Funds intention is to replicate the constituent securities of the Underlying Index as closely as possible. However, under various circumstances, it may not be possible or practicable to purchase all of the constituent securities in their respective weightings in the Underlying Index. In these circumstances, the Fund may utilize a representative sampling strategy whereby
MAY , 2014 | 1 |
JPMorgan Diversified Return Global Equity ETF (continued)
the Fund would hold a significant number of the component securities of the Underlying Index, but may not track the Underlying Index with the same degree of accuracy as would an investment vehicle replicating the entire Underlying Index. The Funds portfolio will be rebalanced monthly in accordance with the monthly rebalancing of the Underlying Index.
The Fund may invest up to 20% of its assets in exchange-traded futures and currency forward contracts to seek performance that corresponds to the Underlying Index.
To the extent that the securities in the Underlying Index are concentrated in one or more industries or group of industries, the Fund may concentrate in such industries or groups of industries.
The Funds Main Investment Risks
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 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.
Equity Market Risk. The price of equity securities may rise or fall because of changes in the broad market or changes in a companys financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries included in the Underlying Index or the securities market as a whole, such as changes in economic or political conditions. When the value of the Funds securities goes down, your investment in the Fund decreases in value.
General Market Risk. Economies and financial markets throughout the world are becoming increasingly interconnected, which increases the likelihood that events or conditions in one country or region will adversely impact markets or issuers in other countries or regions.
Foreign Securities Risk. Investments in foreign issuers and foreign securities (including depositary receipts) are subject to additional risks, including political and economic risks, civil conflicts and war, greater volatility, expropriation and nationalization risks, currency fluctuations, higher transaction costs, delayed settlement, possible foreign controls on investment, and less stringent investor protection and disclosure standards of foreign markets. 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 and may be subject to increased risk that the counterparty will fail to make
payments when due or default completely . 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.
Currency Risk. Changes in foreign currency exchange rates will affect the value of the Funds securities and the price of the Funds shares. Generally, when the value of the U.S. dollar rises in value relative to a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Devaluation of a currency by a countrys 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.
Index Tracking Risk. The Funds return may not track the return of the Underlying Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Underlying Index, and incurs costs in buying and selling securities, especially when rebalancing the Funds securities holdings to reflect changes in the composition of the Underlying Index.
In addition, when the Fund uses a representative sampling approach, the Fund may not be as well correlated with the return of the Underlying Index as when the Fund purchases all of the securities in the Underlying Index in the proportions in which they are represented in the Underlying Index. To the extent the Fund calculates its net asset value (NAV) based on fair value prices and the value of the Underlying Index is based on securities closing prices on local foreign markets ( i.e. , the value of the Underlying Index is not based on fair value prices), the Funds ability to track the Underlying Index may be adversely affected.
Sampling Risk. To the extent the Fund uses a representative sampling approach, it will hold a smaller number of securities than are in the Underlying Index. As a result, an adverse development respecting an issuer of securities held by the Fund could result in a greater decline in the Funds net asset value than would be the case if the Fund held all of the securities in the Underlying Index. Conversely, a positive development relating to an issuer of securities in the Underlying Index that is not held by the Fund could cause the Fund to underperform the Underlying Index. To the extent the assets in the Fund are smaller, these risks may be greater.
Derivatives Risk. Derivatives, including futures and currency forward contracts, may be riskier than other types of investments and may increase the volatility of the Fund. Derivatives may be sensitive to changes in economic and market conditions and may create leverage, which could result in losses that significantly exceed the Funds original investment. Derivatives
2 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
expose the Fund to counterparty risk, which is the risk that the derivative counterparty will not fulfill its contractual obligations (and includes credit risk associated with the counterparty). Certain derivatives are synthetic instruments that attempt to replicate the performance of certain reference assets. With regard to such derivatives, the Fund does not have a claim on the reference assets and is subject to enhanced counterparty risk. Derivatives may not perform as expected, so the Fund may not realize the intended benefits. In addition, given their complexity, derivatives expose the Fund to risks of mispricing or improper valuation.
Mid-Cap Company Risk. The Funds risks increase as it invests more heavily in mid-cap companies. Mid-cap companies may be more volatile and vulnerable to economic, market and industry changes. As a result, share price changes may be more sudden or erratic than the prices of other equity securities, especially over the short term.
Passive Management Risk . Unlike many investment companies, the Fund is not actively managed. Therefore, it would not generally sell a security because the securitys issuer was in financial trouble unless that security is removed from the Underlying Index. Therefore, the Funds performance could be lower than funds that may actively shift their portfolio assets to take advantage of market opportunities or lessen the impact of a market decline or a decline in the value of one or more issuers. The Fund will not take defensive positions under any market conditions, including in declining markets.
Premium/Discount Risk . Disruptions to creations and redemptions, the existence of extreme market volatility or potential lack of an active trading market for Shares may result in Shares trading at a significant premium or discount to NAV. If a shareholder purchases Shares at a time when the market price is at a premium to the NAV or sells Shares at a time when the market price is at a discount to the NAV, the shareholders performance may be negatively impacted.
Concentration Risk . If the Underlying Index concentrates in an industry or group of industries, the Funds investments may be concentrated accordingly. In such event, the value of the Funds Shares may rise and fall more than the value of shares of a fund that invests in securities of companies in a broader range of industries.
Investments in the Fund are not deposits or obligations of, or guaranteed or endorsed by, any bank and are not insured or guaranteed by the FDIC, the Federal Reserve Board or any other government agency.
You could lose money investing in the Fund.
The Funds Past Performance
The Fund has not commenced operations as of the date of this prospectus and therefore, has no reportable performance history. Once the Fund has operated for at least one calendar year, a bar chart and performance table will be included in the prospectus to show the performance of the Fund. When such information is included, this section will provide some indication of the risks of investing in the Fund by showing changes in the Funds performance history from year to year and showing how the Funds average annual total returns compare with those of a broad measure of market performance. Although past performance of the Fund is no guarantee of how it will perform in the future, historical performance may give you some indication of the risks of investing in the Fund.
Management
J.P. Morgan Investment Management Inc.
Portfolio Manager |
Managed the
Fund Since |
Primary Title with
Investment Adviser |
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Beltran Lastra | 2014 | Managing Director | ||
James Cook | 2014 | Vice President |
Purchase and Sale of Fund Shares
The Fund will issue and redeem Shares at NAV only in a large specified number of Shares called a Creation Unit or multiples thereof. A Creation Unit consists of 100,000 Shares. The Fund generally issues and redeems Creation Units in return for a designated portfolio of securities (and an amount of cash) that the Fund specifies each day. Except when aggregated in Creation Units, the Shares are not redeemable securities of the Fund . Individual Shares of the Fund may only be purchased and sold in secondary market transactions through brokers. Shares of the Fund are listed for trading on the NYSE Arca, Inc. (Exchange), and because Shares trade at market prices rather than NAV, Shares of the Fund may trade at a price greater than or less than NAV. Certain affiliates of the Fund and the adviser may purchase and resell Fund Shares pursuant to this prospectus.
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.
MAY , 2014 | 3 |
ADDITIONAL INFORMATION ABOUT THE FUNDS INVESTMENT STRATEGIES
Main Investment Strategies
The Fund, using a passive or indexing investment approach, attempts to closely correspond to the performance of the Underlying Index. The adviser expects that, over time, the correlation between the Funds performance before fees and expenses and that of the Underlying Index will be 95% or better. A figure of 100% would indicate perfect correlation. The Funds intention is to replicate the constituent securities of the Underlying Index as closely as possible. However, under various circumstances, it may not be possible or practicable to purchase all of the constituent securities in their respective weightings in the Underlying Index. In these circumstances, the Fund may utilize a representative sampling strategy whereby the Fund would hold a significant number of the component securities of the Underlying Index, but may not track the Underlying Index with the same degree of accuracy as would an investment vehicle replicating the entire Underlying Index. The Funds portfolio will be rebalanced in accordance with the rebalancing of the Underlying Index.
To the extent that the securities in the Underlying Index are concentrated in one or more industries or group of industries, the Fund may concentrate in such industries or groups of industries.
The Fund seeks investment results that closely correspond, before fees and expenses, to the performance of the Underlying Index. The Fund will invest at least 80% of its Assets in securities included in the Underlying Index. Assets means net assets, plus the amount of borrowing for investment purposes. The Underlying Index is comprised of equity securities from developed global markets selected to represent a diversified set of factor characteristics, originally developed by the adviser. FTSE International Limited is the Index Provider. Holdings in the Underlying Index are selected from the constituents of the FTSE Developed Index, which is comprised of large- and mid-cap equity securities in developed markets. The rules based proprietary multi-factor selection process utilizes the following characteristics: relative valuation, price momentum, low volatility, and specific market capitalization. The equity securities in the Underlying Index will be diversified across global regions and industries. Specifically, the Underlying Index will include companies in the following countries: Australia, Austria, Belgium & Luxembourg, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Korea, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. These securities will be large- and mid-cap equity securities, including common stock, preferred stock and REITs.
The Fund may invest up to 20% of its assets in exchange-traded futures and currency forward contracts to seek performance that corresponds to the Underlying Index.
Additional Investment Strategies
In addition to purchasing the securities that are included in the Underlying Index, the Fund may utilize the following:
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Other equity securities, including U.S. or foreign equity securities which are not included in the Underlying Index. The foreign securities may be in the form of depositary receipts. |
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Exchange-traded futures contracts and currency forward contracts to seek performance that corresponds to the Underlying Index and for the efficient management of cash flows. |
The Fund will not invest in money market instruments as a part of a temporary defensive position to protect against potential stock market decline, but may purchase affiliated money market funds for cash management.
The frequency with which the Fund buys and sells securities will vary from year to year, depending on market conditions or on the composition of the Underlying Index.
The Fund has adopted a policy that requires the Fund to provide shareholders with at least 60 days notice prior to any change in its policy to invest at least 80% of its assets in securities that comprise its benchmark index. The Board of Trustees of the Trust may change the Funds investment strategy and other policies without shareholder approval, except as otherwise indicated.
NON-FUNDAMENTAL INVESTMENT OBJECTIVES |
An investment objective is fundamental if it cannot be changed without the consent of a majority of the outstanding shares of the Fund. The Funds investment objective is not fundamental and may be changed without the consent of a majority of the outstanding shares of the Fund. |
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 Risk/Return Summary at the front of this prospectus. More detailed descriptions of certain of the main risks and additional risks of the Fund are described below.
Please note that the Fund also may use strategies that are not described herein, but which are described in the Risk and Reward Elements for the Fund later in the prospectus and/or in the Statement of Additional Information.
4 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
Equity Market Risk. The price of equity securities may rise or fall because of changes in the broad market or changes in a companys financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries selected for the Funds 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 Funds securities goes down, your investment in the Fund decreases in value.
Foreign Securities Risk. To the extent the Fund invests in foreign securities, these investments are subject to special risks in addition to those of U.S. investments. These risks include political and economic risks, civil conflicts and war, greater volatility, expropriation and nationalization risks, currency fluctuations, higher transaction costs, delayed settlement, possible foreign controls on investment, and less stringent investor protection and disclosure standards of foreign markets. The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. If foreign securities are denominated and traded in a foreign currency, the value of the Funds 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 and may be subject to increased risk that the counterparty will fail to make payments when due or default completely . 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.
Currency Risk. Changes in foreign currency exchange rates will affect the value of the Funds securities and the price of the Funds shares. Generally, when the value of the U.S. dollar rises in value relative to a foreign currency, an investment in that country loses value because that currency is worth fewer 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 countrys government or banking authority also may have a significant impact on the value of any investments denominated in that currency. Currency markets generally are not as regulated as securities markets.
Index Tracking Risk. The Funds return may not track the return of the Underlying Index for a number of reasons. For example, the Fund incurs a number of operating expenses not
applicable to the Underlying Index, and incurs costs in buying and selling securities, especially when rebalancing the Funds securities holdings to reflect changes in the composition of the Underlying Index.
In addition, when the Fund uses a representative sampling approach, the Fund may not be as well correlated with the return of the Underlying Index as when the Fund purchases all of the securities in the Underlying Index in the proportions in which they are represented in the Underlying Index. To the extent the Fund calculates its net asset value (NAV) based on fair value prices and the value of the Underlying Index is based on securities closing prices on local foreign markets ( i.e. , the value of the Underlying Index is not based on fair value prices), the Funds ability to track the Underlying Index may be adversely affected.
It is also possible that the composition of the Fund may not exactly replicate the composition of the Underlying Index if the Fund has to adjust its portfolio holdings in order to continue to qualify as a regulated investment company under the U.S. Internal Revenue Code of 1986, as amended (the Internal Revenue Code).
The Fund may not be fully invested at times, either as a result of cash flows into the Fund or reserves of cash held by the Fund to meet redemptions and expenses.
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 Funds 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 Funds returns. 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.
Investing in derivatives will result in a form of leverage. Leverage involves special risks. The Fund may be more volatile than if the Fund had not been leveraged because leverage tends to exaggerate any effect of the increase or decrease in the value of the Funds portfolio securities. Registered investment companies are limited in their ability to engage in derivative transactions and are required to identify and earmark assets to provide asset coverage for derivative transactions.
MAY , 2014 | 5 |
More About the Fund (continued)
The Funds transactions in futures contracts could also affect the amount, timing and character of distributions to shareholders which may result in the Fund realizing more short-term capital gain and ordinary income subject to tax at ordinary income tax rates than it would if it did not engage in such transactions, which may adversely impact the Funds after-tax return.
WHAT IS A DERIVATIVE? |
Derivatives are securities or contracts (for example, futures) that derive their value from the performance of underlying assets or securities. |
Mid-Cap Company Risk. Investments in smaller, newer companies may be riskier than investments in larger, more established 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, share price changes may be more sudden or erratic than the prices of large capitalization companies, especially over the short term. Because mid-cap 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 Funds investments.
Fluctuation of NAV Risk. The NAV of the Funds Shares will generally fluctuate with changes in the market value of the Funds holdings. The market prices of the Shares will generally fluctuate in accordance with changes in NAV as well as the relative supply of and demand for the Shares on the Exchange. The adviser cannot predict whether the Shares will trade below, at or above their NAV. Price differences may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for the Shares will be closely related to, but not identical to, the same forces influencing the prices of the securities of the Underlying Index trading individually or in the aggregate at any point in time.
Trading Issues Risk. Trading in Shares on the Exchange may be halted due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange circuit breaker rules. If a trading halt or unanticipated early closing of the Exchange occurs, a Shareholder may be unable to purchase or sell shares of the Fund. There can be no assurance that the requirements of the
Exchange necessary to maintain the listing of the Fund will continue to be met or will remain unchanged.
Preferred Securities Risk . Preferred stock generally has a preference as to dividends and liquidation over an issuers common stock but ranks junior to debt securities in an issuers capital structure. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuers board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Real Estate Securities Risk. The value of real estate securities in general, and REITs in particular, are subject to the same risks as direct investments in real estate and mortgages which include, but are not limited to, sensitivity to changes in real estate values and property taxes, interest rate risk, tax and regulatory risk, fluctuations in rent schedules and operating expenses, adverse changes in local, regional or general economic conditions, deterioration of the real estate market and the financial circumstances of tenants and sellers, unfavorable changes in zoning, building, environmental and other laws, the need for unanticipated renovations, unexpected increases in the cost of energy, environmental factors and, in the case of mortgages, credit risk, prepayment risk and extension risk. In addition, the underlying mortgage loans may be subject to the risks of default or of prepayments that occur earlier or later than expected, and such loans may also include so-called sub-prime mortgages. The value of REITs will also rise and fall in response to the management skill and creditworthiness of the issuer. In particular, the value of these securities may decline when interest rates rise and will also be affected by the real estate market and by the management of the underlying properties. REITs may be more volatile and/or more illiquid than other types of equity securities. The Fund will indirectly bear its proportionate share of expenses, including management fees, paid by each REIT in which it invests in addition to the expenses of the Fund.
Investment Company Risk. The Fund may invest in shares of other investment companies. Shareholders bear both their proportionate share of the Funds expenses and similar expenses of the underlying investment company when a Fund invests in shares of another investment company.
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. SEI Investments Distribution Co., is the distributor of the Funds Shares (the Distributor), does not maintain a secondary market in the Shares.
For more information about risks associated with the types of investments that the Fund purchases, please read the Risk/Return Summary, the Risk and Reward Elements for the Fund later in the prospectus and the Statement of Additional Information.
6 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
FTSE Developed Diversified Factor Index
Component securities included in the Underlying Index are selected from developed equity markets strictly in accordance with guidelines and mandated procedures. The Underlying Index is derived after applying the following proprietary multi-factor criteria:
1. | Liquidity of eligible securities is considered to ensure an investable index; |
2. | Eligible securities are chosen to provide diversification across global regions and industries; |
3. | To provide diversification, securities are selected using the following factors: relative valuation, price momentum, low volatility and specific market capitalization; |
4. | Individual security weights are determined in order to ensure stock level diversification. |
The Index Provider reviews the composition of the Underlying Index and reconstitutes the Underlying Index on a monthly basis.
The JPMorgan Diversified Return Global Equity ETF (the Fund) is not in any way sponsored, endorsed, sold or promoted by
FTSE International Limited (FTSE) or the London Stock Exchange Group companies (LSEG) (together the Licensor Parties) and none of the Licensor Parties make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to (i) the results to be obtained from the use of the FTSE Developed Diversified Factor Index (the Index) (upon which the Fund is based), (ii) the figure at which the Index is said to stand at any particular time on any particular day or otherwise, or (iii) the suitability of the Index for the purpose to which it is being put in connection with the Fund. None of the Licensor Parties have provided or will provide any financial or investment advice or recommendation in relation to the Index to the adviser or to its clients. The Index is calculated by FTSE or its agent. None of the Licensor Parties shall be (a) liable (whether in negligence or otherwise) to any person for any error in the Index or (b) under any obligation to advise any person of any error therein.
All rights in the Index vest in FTSE. FTSE ® is a trade mark of LSEG and is used by FTSE under license.
DISCLOSURE OF PORTFOLIO HOLDINGS
A description of the policies and procedures with respect to the disclosure of the Funds portfolio securities is available in the Funds Statement of Additional Information.
MAY , 2014 | 7 |
The Funds Management and Administration
The Funds 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 trustees who are responsible for overseeing all business activities of the Fund.
The Funds Investment Adviser
J.P. Morgan Investment Management Inc. (JPMIM) is the investment adviser to the Fund. JPMIM is located at 270 Park Avenue, New York, NY 10017.
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.
The Fund will pay the adviser a management fee of 0.24% of average daily net assets.
A discussion of the basis the Board of Trustees of the Trust used in approving the investment advisory agreement for the Fund will be available in the first shareholder report for the Fund.
The Portfolio Managers
The management team is led by Beltran Lastra and James Cook. Mr. Lastra, a Managing Director of JPMIM and a CFA charterholder, has been a portfolio manager since 2000 and an
employee of JPMIM or its affiliates since 1996. Mr. Cook, Vice President of JPMIM, has been a portfolio manager since 2012 and an employee of JPMIM or its affiliates since 2007.
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.
The Funds Administrator
JPMorgan Funds Management, Inc. (the Administrator) provides administrative services for and oversees the other service providers of the Fund. The Administrator receives a pro-rata portion of the following annual fee on behalf of the Fund for administrative services: 0.085% of average daily net assets of the Fund.
The Funds Distributor
SEI Investments Distribution Co. (the Distributor) is the distributor of the Funds 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 Distributors principal address is One Freedom Valley Drive, Oaks, Pennsylvania 19456.
8 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
Purchase and Redemption of Shares
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 Funds 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.
The Funds Shares are issued or redeemed by the Fund at NAV per Share only in Creation Units. 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 Creation and Redemption of Creation Unit Aggregations in the Funds Statement of Additional Information.
The Depository Trust Company (DTC) serves as securities depository for the Shares. (The Shares may be held only in book-entry form; stock certificates will not be issued.) DTC, or its nominee, is the record or registered owner of all outstanding Shares. Beneficial ownership of Shares will be shown on the records of DTC or its participants (described below). Beneficial owners of Shares are not entitled to have Shares registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and are not considered the registered holder thereof. Accordingly, to exercise any rights of a holder of Shares, each beneficial owner must rely on the procedures of: (i) DTC; (ii) DTC Participants, i.e. , securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC; and (iii) Indirect Participants, i.e. , brokers, dealers, banks and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly, through which such beneficial owner holds its interests. The Trust understands that under existing industry practice, in the event the Trust requests any action of holders of Shares, or a beneficial owner desires to
take any action that DTC, as the record owner of all outstanding Shares, is entitled to take, DTC would authorize the DTC Participants to take such action and that the DTC Participants would authorize the Indirect Participants and beneficial owners acting through such DTC Participants to take such action and would otherwise act upon the instructions of beneficial owners owning through them. As described above, the Trust recognizes DTC or its nominee as the owner of all Shares for all purposes. For more detailed information, see Book Entry Only System in the Funds Statement of Additional Information.
Shares of the Fund have not been registered for sale outside of the United States. This prospectus is not intended for distribution to prospective investors outside of the United States. The Fund does not market or sell shares to investors domiciled outside of the United States, even, with regard to individuals, if they are citizens or lawful permanent residents of the United States.
The Fund has not commenced operations as of the date of this prospectus, and, therefore, does not have information about the differences between the Funds daily market price on the Exchange and its NAV. When available, information regarding how often the Shares of the Fund traded on the Exchange at a price above ( i.e. , at a premium) or below ( i.e. , at a discount) the NAV of the Fund during the past four calendar quarters, as applicable, can be found at www.jpmorganfunds.com.
The trading price of the Funds Shares on the Exchange may differ from the Funds 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 every fifteen seconds. 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 once a day, generally at the end of the business day. 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 Exchange, which is typically 4:00 p.m. ET. On occasion, the Exchange will close before 4:00 p.m. ET. When that happens, NAV will be calculated as of the time the Exchange closes. The price at which a purchase of a Creation Unit is effected is based on the next calculation of NAV after the order is received in proper form in accordance with this prospectus. To the extent the Fund invests in securities that are primarily listed on foreign exchanges or other markets that trade on weekends or
MAY , 2014 | 9 |
Purchase and Redemption of Shares (continued)
other days when the Fund does not price its Shares, the value of the Funds Shares may change on days when you will not be able to purchase or redeem your 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 Funds NAV is calculated, may be valued at fair value in accordance with policies and procedures adopted by the Trusts 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 Funds NAV.
Generally, short-term securities, which mature in 60 days or less, are valued at amortized cost if their maturity at acquisition was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if their maturity when acquired by the Fund was more than 60 days.
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 an independent pricing service.
The value of securities listed on the NASDAQ Stock Market, Inc. is generally the NASDAQ official closing price.
Fixed income securities with a remaining maturity of 61 days or more 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. ET.
Exchange-traded futures ( e.g. , on stock indices, debt securities or commodities) are valued at the settled price, or if no settled price is available, at the last sale price as of the close of the exchanges on which they trade.
Non-listed over-the-counter options and futures are valued at the evaluated price provided by a counterparty or broker/dealer.
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 Funds shareholders when they considered that no restriction or policy was necessary. The Board considered that, unlike traditional mutual funds, the Fund issues and redeems its Shares at NAV for a basket of securities intended to mirror the Funds portfolio, plus a small amount of cash, and the Funds Shares may be purchased and sold on the Exchange at prevailing market prices.
10 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
The Fund has elected to be treated and intends to qualify each 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 Funds failure to qualify as a regulated investment company would result in corporate-level taxation and, consequently, a reduction in income available for distribution to shareholders.
The Fund can earn income and realize capital gain. The Fund deducts any expenses and then pays out the earnings, if any, to shareholders as distributions.
The Fund generally declares and distributes net investment income, if any, at least annually. The Fund will distribute net realized capital gain, if any, at least annually. For each taxable year, the Fund will distribute substantially all of its net investment income and net realized capital gain.
For federal income tax purposes, 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 rate applicable to qualified dividend income is either 15% or 20%, depending on whether the individuals 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. Dividends of net investment income that are not reported as qualified dividend income and dividends of net short-term capital gain will be taxable 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 rate applicable to long-term capital gains is generally either 15% or 20%, depending on whether the individuals 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 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 will be 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) of U.S. individuals, estates and trusts to the extent that such persons modified adjusted gross income (in the case of an individual) or adjusted gross income (in the case of an estate or trust) exceeds certain threshold amounts.
If you buy shares of the Fund just before a distribution, you will pay tax on the entire amount of the taxable distribution you receive. Distributions are taxable to you even if they are paid from income or gain earned by the Fund before your investment (and thus were included in the price you paid for your Fund shares). Any gain resulting from the sale or exchange of Fund shares generally will be taxable as long-term or short-term gain, depending upon how long you have held the shares.
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 Funds 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, if the Fund 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 it 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 shareholders 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. 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.
The Funds investment in REIT securities, derivative instruments and so called passive foreign investment companies may require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be required to liquidate other investments in its portfolio that it otherwise would have continued to hold, including at times when it is not advantageous to do so. The Funds investment in REIT securities may also result in the Funds receipt of cash in excess of the REITs earnings; if the Fund distributes such amounts, such distribution could constitute a return of capital to Fund shareholders for federal income tax purposes.
The Funds transactions in futures contracts, 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 Funds securities, and convert short-term capital losses into long-term capital losses.
MAY , 2014 | 11 |
Shareholder Information (continued)
These rules could therefore affect the amount, timing and character of distributions to shareholders. The Funds use of these types of transactions may result in the Fund realizing more short-term capital gain and ordinary income subject to tax at ordinary income tax rates than it would if it did not engage in such transactions.
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 in the preceding year and the tax status of those distributions.
The Fund is not intended for foreign shareholders. 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 exchangers aggregate basis in the securities surrendered and the Cash Component 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 exchangers basis in the Creation Units and the aggregate market value of the securities received and the Cash Redemption Amount. 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 investors tax consequences are unique, please consult your tax advisor to see how investing in the Fund and, for individuals and S corporations, selection of a particular cost method of accounting will affect your own tax situation.
AVAILABILITY OF PROXY VOTING RECORD
The Trustees have delegated the authority to vote proxies for securities owned by the Fund to JPMIM. When available, a copy of the Funds voting record for the most recent 12-month period ended June 30 is available on the SECs website at www.sec.gov or on the Funds website at www.jpmorganfunds.com no later than August 31 of each year. The Funds proxy voting record will include, among other things, a brief description of the matter voted on for each portfolio security, and will state how each vote was cast, for example, for or against the proposal.
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 net asset values. 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 principally in-kind in Creation Units at each days next calculated NAV. These arrangements are designed to protect ongoing shareholders from adverse effects on the Funds 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.
12 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
For purposes of the Investment Company Act of 1940 (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 set forth in an SEC exemptive order issued to the Trust, including that such investment companies enter into an agreement with the Fund.
MAY , 2014 | 13 |
Risk and Reward Elements for the Fund
This table discusses the main elements that may make up the Funds overall risk and reward characteristics. It also outlines the Funds policies toward various investments, including those that are designed to help the Fund manage risk.
POTENTIAL RISKS | POTENTIAL REWARDS | POLICIES TO BALANCE RISK AND REWARD | ||
Foreign and other market conditions affecting equity securities | ||||
The Funds share price and performance will fluctuate in response to stock market movements
The Fund could lose money because of foreign government actions, political instability, or lack of adequate and/or accurate information
Because the Fund employs a passive management style, it will not take defensive positions even during adverse market, economic, political or other conditions |
Stocks have generally outperformed more stable investments (such as bonds and cash equivalents) over the long term
Foreign investments, which represent a major portion of the worlds securities, offer attractive potential performance and opportunities for diversification |
Under normal circumstances the Fund plans to remain fully invested in accordance with its policies and may invest uninvested cash in affiliated money market funds
In addition to the securities described in the What are the Funds main investment strategies? section, equity securities may include U.S. and foreign common stocks, convertible securities 1 , preferred stocks 2 , depositary receipts, (such as American Depositary Receipts and European Depositary Receipts), trust or partnership interests, warrants and rights 3 and investment company securities |
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Real Estate Investment Trusts (REITs) 4 | ||||
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 will depend on the value of the underlying properties or the underlying loans or interests
The value of these securities will rise and fall in response to many factors, including economic conditions, the demand for rental property and interest rates. In particular, the value of these securities may decline when interest rates rise and will also be affected by the real estate market and by the management of the underlying properties
REITs may be more volatile and/or more illiquid than other types of equity securities
If a REIT fails to distribute its required taxable income or to satisfy the other requirements of REIT status, it would be taxed as a corporation, and amounts available for distribution to shareholders (including the Fund) would be reduced by any corporate taxes payable by the REIT |
The Fund can gain exposure to an additional asset class in order to further diversify its assets
The Fund may receive current income from its REIT investments
If a REIT meets the requirements of the Internal Revenue Code, as amended, it will not be taxed on income it distributes to its shareholders; as a result, more income can be distributed by the REIT |
The Funds adviser will carefully evaluate particular REITs before and after investment based on its investment process and will also monitor economic and real estate trends affecting the value of REITs |
1 | Convertible securities are bonds or preferred stock that can convert to common stock. |
2 | Preferred stock is 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. |
3 | Warrants and rights are securities, typically issued with preferred stock or bonds, that give the holder the right to buy a proportionate amount of common stock at a specified price. |
4 | REITs are pooled investment vehicles which invest primarily in income-producing real estate or loans related to real estate. |
14 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
POTENTIAL RISKS | POTENTIAL REWARDS | POLICIES TO BALANCE RISK AND REWARD | ||
Derivatives * | ||||
Derivatives, such as futures and forward foreign currency contracts, 1 may be used to manage cash flows and to gain exposure to particular foreign securities or markets and this could result in losses to the Fund that would not have otherwise occurred
The Fund may have difficulty exiting a derivatives position
Derivatives may not have the intended effects and may result in losses or missed opportunities
The counterparty to a derivatives contract could default
Certain types of derivatives involve costs to the Fund which can reduce returns
Segregated or earmarked assets and collateral accounts established in connection with derivatives may limit the Funds investment flexibility
Derivatives may, for tax purposes, affect the character of gain and loss realized by the Fund, accelerate recognition of income to the Fund, affect the holding period of the Funds assets and defer recognition of certain of the Funds losses |
The Fund could make money and protect against losses if managements analysis proves correct |
The Fund uses derivatives to manage cash flows and to gain exposure to particular foreign securities or markets.
The Fund segregates or earmarks liquid assets to cover its derivatives and offset a portion of the leverage risk |
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* | The Fund is not subject to registration or regulation as a commodity pool operator as defined in the Commodity Exchange Act because the Fund has claimed an exclusion from that definition. |
1 | A futures contract is an agreement to buy or sell a set quantity of an underlying instrument at a future date, or to make or receive a cash payment based on changes in the value of a securities index. A forward foreign currency contract is an obligation to buy or sell a given currency on a future date and at a set price. |
MAY , 2014 | 15 |
This section would ordinarily include Financial Highlights. The Financial Highlights table is intended to help you understand the Funds performance for the Funds periods of operations. Because the Fund has not yet commenced operations as of the date of this prospectus, no Financial Highlights are shown.
16 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
MORE INFORMATION
For investors who want more information on the Fund the following documents are available free upon request:
ANNUAL AND SEMI-ANNUAL REPORTS
The Funds annual and semi-annual reports, when available, will contain more information about the Funds investments and performance. The annual report will also include details about the market conditions and investment strategies that have a significant effect on the Funds 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
270 Park Avenue
NY1-K108
New York, NY 10017
You can write or e-mail the SECs Public Reference Room and ask them to mail you information about the Fund, including the SAI. They will charge you a copying fee for this service. You can also visit the Public Reference Room and copy the documents while you are there.
Public Reference Room of the SEC
Washington, DC 20549-1520
1-202-551-8090
Email: publicinfo@sec.gov
Reports, a copy of the SAI and other information about the Fund are also available on the EDGAR Database on the SECs website at http://www.sec.gov.
Investment Company Act File No. for the Fund is 811-22903.
© JPMorgan Chase & Co., 2014. All rights reserved. May 2014.
PR-GEETF-514 |
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Prospectus
J.P. Morgan Exchange-Traded Funds
May , 2014
JPMorgan Diversified Return International Ex-North America Equity ETF |
Ticker: JPIN |
Listing Exchange: NYSE Arca |
The Securities and Exchange Commission has 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.
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Shareholder Information | 11 | |||
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12 | ||||
13 | ||||
Risk and Reward Elements for the Fund | 14 | |||
Financial Highlights | 16 | |||
How to Reach Us | Back cover |
JPMorgan Diversified Return International Ex-North America Equity ETF
Ticker: JPIN
What is the goal of the Fund?
The Fund seeks investment results that closely correspond, before fees and expenses, to the performance of the FTSE Developed ex North America Diversified Factor Index.
Fees and Expenses of the Fund
The following table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Investors purchasing Shares in the secondary market may be subject to costs (including customary brokerage commissions) charged by their broker.
ANNUAL FUND OPERATING EXPENSES
(Expenses that you pay each year as a percentage of the value
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Management Fees | 0.24 | % | ||
Other Expenses 1 | 0.45 | |||
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Total Annual Fund Operating Expenses | 0.69 | |||
Fee Waivers and Expense Reimbursements 2 | (0.26 | ) | ||
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Total Annual Fund Operating Expenses After Fee Waivers and Expense Reimbursements 2 | 0.43 |
1 | Other Expenses are based on estimated amounts for the current fiscal year. |
2 | The Funds adviser and administrator (the Service Providers) have contractually agreed to waive fees and/or reimburse expenses to the extent total annual operating expenses (excluding Acquired Fund Fees and Expenses, dividend expenses relating to short sales, interest, taxes, expenses related to litigation and potential litigation and extraordinary expenses) exceed 0.43% of the average daily net assets of the Shares. This contract cannot be terminated prior to 3/1/16, at which time the Service Providers will determine whether or not to renew or revise it. |
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. The Example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Funds operating expenses are equal to the total annual fund operating expenses after fee waivers and expense reimbursements shown in the table through 2/29/16 and total annual fund operating expenses thereafter. Your actual costs may be higher or lower.
WHETHER OR NOT YOU SELL YOUR SHARES, YOUR
COST WOULD BE |
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1 Year | 3 Years | |||||||
FUND SHARES ($) | 44 | 195 |
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example, affect the Funds performance. The Fund has not yet commenced operations as of the date of this prospectus. Therefore, there is no portfolio turnover rate for the Fund to report at this time.
What are the Funds main investment strategies?
The Fund seeks investment results that closely correspond, before fees and expenses, to the performance of the FTSE Developed ex North America Diversified Factor Index (the Underlying Index). The Fund will invest at least 80% of its Assets in securities included in the Underlying Index. Assets means net assets, plus the amount of borrowing for investment purposes. The Underlying Index is comprised of equity securities from developed global markets (excluding North America) selected to represent a diversified set of factor characteristics, originally developed by the adviser. FTSE International Limited is the Index Provider. Holdings in the Underlying Index are selected from the constituents of the FTSE Developed ex North America Index, which is comprised of large- and mid-cap equity securities in developed markets outside of North America. The rules based proprietary multi-factor selection process utilizes the following characteristics: relative valuation, price momentum, low volatility, and specific market capitalization. The equity securities in the Underlying Index will be diversified across international regions and industries. These securities will be large- and mid-cap equity securities of companies from developed countries, including common stock, preferred stock and real estate investment trusts (REITs).
The Fund, using a passive or indexing investment approach, attempts to closely correspond to the performance of the Underlying Index. The adviser expects that, over time, the correlation between the Funds performance before fees and expenses and that of the Underlying Index will be 95% or better. A figure of 100% would indicate perfect correlation. The Funds intention is to replicate the constituent securities of the Underlying Index as closely as possible. However, under various circumstances, it may not be possible or practicable to purchase all of the constituent securities in their respective weightings in the Underlying Index. In these circumstances, the
MAY , 2014 | 1 |
JPMorgan Diversified Return International Ex-North America Equity ETF (continued)
Fund may utilize a representative sampling strategy whereby the Fund would hold a significant number of the component securities of the Underlying Index, but may not track the Underlying Index with the same degree of accuracy as would an investment vehicle replicating the entire Underlying Index. The Funds portfolio will be rebalanced monthly in accordance with the monthly rebalancing of the Underlying Index.
The Fund may invest up to 20% of its assets in exchange-traded futures and currency forward contracts to seek performance that corresponds to the Underlying Index.
To the extent that the securities in the Underlying Index are concentrated in one or more industries or group of industries, the Fund may concentrate in such industries or groups of industries.
The Funds Main Investment Risks
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 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.
Equity Market Risk. The price of equity securities may rise or fall because of changes in the broad market or changes in a companys financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries included in the Underlying Index or the securities market as a whole, such as changes in economic or political conditions. When the value of the Funds securities goes down, your investment in the Fund decreases in value.
General Market Risk. Economies and financial markets throughout the world are becoming increasingly interconnected, which increases the likelihood that events or conditions in one country or region will adversely impact markets or issuers in other countries or regions.
Foreign Securities Risk. Investments in foreign issuers and foreign securities (including depositary receipts) are subject to additional risks, including political and economic risks, civil conflicts and war, greater volatility, expropriation and nationalization risks, currency fluctuations, higher transaction costs, delayed settlement, possible foreign controls on investment, and less stringent investor protection and disclosure standards of foreign markets. 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 and may be subject to increased risk that the counterparty will fail to make
payments when due or default completely . 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.
Currency Risk. Changes in foreign currency exchange rates will affect the value of the Funds securities and the price of the Funds shares. Generally, when the value of the U.S. dollar rises in value relative to a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Devaluation of a currency by a countrys 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.
Index Tracking Risk. The Funds return may not track the return of the Underlying Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Underlying Index, and incurs costs in buying and selling securities, especially when rebalancing the Funds securities holdings to reflect changes in the composition of the Underlying Index.
In addition, when the Fund uses a representative sampling approach, the Fund may not be as well correlated with the return of the Underlying Index as when the Fund purchases all of the securities in the Underlying Index in the proportions in which they are represented in the Underlying Index. To the extent the Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on securities closing prices on local foreign markets ( i.e. , the value of the Underlying Index is not based on fair value prices), the Funds ability to track the Underlying Index may be adversely affected.
Sampling Risk. To the extent the Fund uses a representative sampling approach, it will hold a smaller number of securities than are in the Underlying Index. As a result, an adverse development respecting an issuer of securities held by the Fund could result in a greater decline in the Funds net asset value than would be the case if the Fund held all of the securities in the Underlying Index. Conversely, a positive development relating to an issuer of securities in the Underlying Index that is not held by the Fund could cause the Fund to underperform the Underlying Index. To the extent the assets in the Fund are smaller, these risks may be greater.
Derivatives Risk. Derivatives, including futures and currency forward contracts, may be riskier than other types of investments and may increase the volatility of the Fund. Derivatives may be sensitive to changes in economic and market conditions and may create leverage, which could result in losses that significantly exceed the Funds original investment. Derivatives expose the Fund to counterparty risk, which is the risk that the derivative counterparty will not fulfill its contractual obligations (and includes credit risk associated with the counterparty).
2 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
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. Derivatives may not perform as expected, so the Fund may not realize the intended benefits. In addition, given their complexity, derivatives expose the Fund to risks of mispricing or improper valuation.
Mid-Cap Company Risk. The Funds risks increase as it invests more heavily in mid-cap companies. Mid-cap companies may be more volatile and vulnerable to economic, market and industry changes. As a result, share price changes may be more sudden or erratic than the prices of other equity securities, especially over the short term.
Passive Management Risk . Unlike many investment companies, the Fund is not actively managed. Therefore, it would not generally sell a security because the securitys issuer was in financial trouble unless that security is removed from the Underlying Index. Therefore, the Funds performance could be lower than funds that may actively shift their portfolio assets to take advantage of market opportunities or lessen the impact of a market decline or a decline in the value of one or more issuers. The Fund will not take defensive positions under any market conditions, including in declining markets.
Premium/Discount Risk . Disruptions to creations and redemptions, the existence of extreme market volatility or potential lack of an active trading market for Shares may result in Shares trading at a significant premium or discount to NAV. If a shareholder purchases Shares at a time when the market price is at a premium to the net asset value (NAV) or sells Shares at a time when the market price is at a discount to the NAV, the shareholders performance may be negatively impacted.
Concentration Risk . If the Underlying Index concentrates in an industry or group of industries, the Funds investments may be concentrated accordingly. In such event, the value of the Funds Shares may rise and fall more than the value of shares of a fund that invests in securities of companies in a broader range of industries.
Investments in the Fund are not deposits or obligations of, or guaranteed or endorsed by, any bank and are not insured or guaranteed by the FDIC, the Federal Reserve Board or any other government agency.
You could lose money investing in the Fund.
The Funds Past Performance
The Fund has not commenced operations as of the date of this prospectus and therefore, has no reportable performance his-
tory. Once the Fund has operated for at least one calendar year, a bar chart and performance table will be included in the prospectus to show the performance of the Fund. When such information is included, this section will provide some indication of the risks of investing in the Fund by showing changes in the Funds performance history from year to year and showing how the Funds average annual total returns compare with those of a broad measure of market performance. Although past performance of the Fund is no guarantee of how it will perform in the future, historical performance may give you some indication of the risks of investing in the Fund.
Management
J.P. Morgan Investment Management Inc.
Portfolio Manager |
Managed the
Fund Since |
Primary Title with
Investment Adviser |
||
Beltran Lastra | 2014 | Managing Director | ||
James Cook | 2014 | Vice President |
Purchase and Sale of Fund Shares
The Fund will issue and redeem Shares at NAV only in a large specified number of Shares called a Creation Unit or multiples thereof. A Creation Unit consists of 100,000 Shares. The Fund generally issues and redeems Creation Units in return for a designated portfolio of securities (and an amount of cash) that the Fund specifies each day. Except when aggregated in Creation Units, the Shares are not redeemable securities of the Fund. Individual Shares of the Fund may only be purchased and sold in secondary market transactions through brokers. Shares of the Fund are listed for trading on the NYSE Arca, Inc. (Exchange), and because Shares trade at market prices rather than NAV, Shares of the Fund may trade at a price greater than or less than NAV. Certain affiliates of the Fund and the adviser may purchase and resell Fund Shares pursuant to this prospectus.
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.
MAY , 2014 | 3 |
ADDITIONAL INFORMATION ABOUT THE FUNDS INVESTMENT STRATEGIES
Main Investment Strategies
The Fund, using a passive or indexing investment approach, attempts to closely correspond to the performance of the Underlying Index. The adviser expects that, over time, the correlation between the Funds performance before fees and expenses and that of the Underlying Index will be 95% or better. A figure of 100% would indicate perfect correlation. The Funds intention is to replicate the constituent securities of the Underlying Index as closely as possible. However, under various circumstances, it may not be possible or practicable to purchase all of the constituent securities in their respective weightings in the Underlying Index. In these circumstances, the Fund may utilize a representative sampling strategy whereby the Fund would hold a significant number of the component securities of the Underlying Index, but may not track the Underlying Index with the same degree of accuracy as would an investment vehicle replicating the entire Underlying Index. The Funds portfolio will be rebalanced in accordance with the rebalancing of the Underlying Index.
To the extent that the securities in the Underlying Index are concentrated in one or more industries or group of industries, the Fund may concentrate in such industries or groups of industries.
The Fund seeks investment results that closely correspond, before fees and expenses, to the performance of the Underlying Index. The Fund will invest at least 80% of its Assets in securities included in the Underlying Index. Assets means net assets, plus the amount of borrowing for investment purposes. The Underlying Index is comprised of equity securities from developed global markets (excluding North America) selected to represent a diversified set of factor characteristics, originally developed by the adviser. FTSE International Limited is the Index Provider. Holdings in the Underlying Index are selected from the constituents of the FTSE Developed ex North America Index, which is comprised of large- and mid-cap equity securities in developed markets outside of North America. The rules based proprietary multi-factor selection process utilizes the following characteristics: relative valuation, price momentum, low volatility, and specific market capitalization. The equity securities in the Underlying Index will be diversified across global regions and industries. Specifically, the Underlying Index will include companies in the following countries: Australia, Austria, Belgium & Luxembourg, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Korea, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. These securities will be large- and mid-cap equity securities, including common stock, preferred stock and REITs.
The Fund may invest up to 20% of its assets in exchange-traded futures and currency forward contracts to seek performance that corresponds to the Underlying Index.
Additional Investment Strategies
In addition to purchasing the securities that are included in the Underlying Index, the Fund may utilize the following:
|
Other equity securities, including U.S. or foreign equity securities which are not included in the Underlying Index. The foreign securities may be in the form of depositary receipts. |
|
Exchange-traded futures contracts and currency forward contracts to seek performance that corresponds to the Underlying Index and for the efficient management of cash flows. |
The Fund will not invest in money market instruments as a part of a temporary defensive position to protect against potential stock market decline, but may purchase affiliated money market funds for cash management.
The frequency with which the Fund buys and sells securities will vary from year to year, depending on market conditions or on the composition of the Underlying Index.
The Fund has adopted a policy that requires the Fund to provide shareholders with at least 60 days notice prior to any change in its policy to invest at least 80% of its assets in securities that comprise its benchmark index. The Board of Trustees of the Trust may change the Funds investment strategy and other policies without shareholder approval, except as otherwise indicated.
NON-FUNDAMENTAL INVESTMENT OBJECTIVES |
An investment objective is fundamental if it cannot be changed without the consent of a majority of the outstanding shares of the Fund. The Funds investment objective is not fundamental and may be changed without the consent of a majority of the outstanding shares of the Fund. |
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 Risk/Return Summary at the front of this prospectus. More detailed descriptions of certain of the main risks and additional risks of the Fund are described below.
Please note that the Fund also may use strategies that are not described herein, but which are described in the Risk and Reward Elements for the Fund later in the prospectus and/or in the Statement of Additional Information.
4 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
Equity Market Risk. The price of equity securities may rise or fall because of changes in the broad market or changes in a companys financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries selected for the Funds 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 Funds securities goes down, your investment in the Fund decreases in value.
Foreign Securities Risk. To the extent the Fund invests in foreign securities, these investments are subject to special risks in addition to those of U.S. investments. These risks include political and economic risks, civil conflicts and war, greater volatility, expropriation and nationalization risks, currency fluctuations, higher transaction costs, delayed settlement, possible foreign controls on investment, and less stringent investor protection and disclosure standards of foreign markets. The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. If foreign securities are denominated and traded in a foreign currency, the value of the Funds 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 and may be subject to increased risk that the counterparty will fail to make payments when due or default completely . 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.
Currency Risk. Changes in foreign currency exchange rates will affect the value of the Funds securities and the price of the Funds shares. Generally, when the value of the U.S. dollar rises in value relative to a foreign currency, an investment in that country loses value because that currency is worth fewer 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 countrys government or banking authority also may have a significant impact on the value of any investments denominated in that currency. Currency markets generally are not as regulated as securities markets.
Index Tracking Risk. The Funds return may not track the return of the Underlying Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Underlying Index, and incurs costs in buying
and selling securities, especially when rebalancing the Funds securities holdings to reflect changes in the composition of the Underlying Index.
In addition, when the Fund uses a representative sampling approach, the Fund may not be as well correlated with the return of the Underlying Index as when the Fund purchases all of the securities in the Underlying Index in the proportions in which they are represented in the Underlying Index. To the extent the Fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on securities closing prices on local foreign markets ( i.e. , the value of the Underlying Index is not based on fair value prices), the Funds ability to track the Underlying Index may be adversely affected.
It is also possible that the composition of the Fund may not exactly replicate the composition of the Underlying Index if the Fund has to adjust its portfolio holdings in order to continue to qualify as a regulated investment company under the U.S. Internal Revenue Code of 1986, as amended (the Internal Revenue Code).
The Fund may not be fully invested at times, either as a result of cash flows into the Fund or reserves of cash held by the Fund to meet redemptions and expenses.
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 Funds 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 Funds returns. 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.
Investing in derivatives will result in a form of leverage. Leverage involves special risks. The Fund may be more volatile than if the Fund had not been leveraged because leverage tends to exaggerate any effect of the increase or decrease in the value of the Funds portfolio securities. Registered investment companies are limited in their ability to engage in derivative transactions and are required to identify and earmark assets to provide asset coverage for derivative transactions.
The Funds transactions in futures contracts could also affect the amount, timing and character of distributions to shareholders which may result in the Fund realizing more short-term capital
MAY , 2014 | 5 |
More About the Fund (continued)
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 Funds after-tax return.
WHAT IS A DERIVATIVE? |
Derivatives are securities or contracts (for example, futures) that derive their value from the performance of underlying assets or securities. |
Mid-Cap Company Risk. Investments in smaller, newer companies may be riskier than investments in larger, more established 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, share price changes may be more sudden or erratic than the prices of large capitalization companies, especially over the short term. Because mid-cap 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 Funds investments.
Fluctuation of NAV Risk. The NAV of the Funds Shares will generally fluctuate with changes in the market value of the Funds holdings. The market prices of the Shares will generally fluctuate in accordance with changes in NAV as well as the relative supply of and demand for the Shares on the Exchange. The adviser cannot predict whether the Shares will trade below, at or above their NAV. Price differences may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for the Shares will be closely related to, but not identical to, the same forces influencing the prices of the securities of the Underlying Index trading individually or in the aggregate at any point in time.
Trading Issues Risk. Trading in Shares on the Exchange may be halted due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange circuit breaker rules. If a trading halt or unanticipated early closing of the Exchange occurs, a Shareholder may be unable to purchase or sell shares of the Fund. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will continue to be met or will remain unchanged.
Preferred Securities Risk . Preferred stock generally has a preference as to dividends and liquidation over an issuers common stock but ranks junior to debt securities in an issuers
capital structure. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuers board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Real Estate Securities Risk. The value of real estate securities in general, and REITs in particular, are subject to the same risks as direct investments in real estate and mortgages which include, but are not limited to, sensitivity to changes in real estate values and property taxes, interest rate risk, tax and regulatory risk, fluctuations in rent schedules and operating expenses, adverse changes in local, regional or general economic conditions, deterioration of the real estate market and the financial circumstances of tenants and sellers, unfavorable changes in zoning, building, environmental and other laws, the need for unanticipated renovations, unexpected increases in the cost of energy, environmental factors and, in the case of mortgages, credit risk, prepayment risk and extension risk. In addition, the underlying mortgage loans may be subject to the risks of default or of prepayments that occur earlier or later than expected, and such loans may also include so-called sub-prime mortgages. The value of REITs will also rise and fall in response to the management skill and creditworthiness of the issuer. In particular, the value of these securities may decline when interest rates rise and will also be affected by the real estate market and by the management of the underlying properties. REITs may be more volatile and/or more illiquid than other types of equity securities. The Fund will indirectly bear its proportionate share of expenses, including management fees, paid by each REIT in which it invests in addition to the expenses of the Fund.
Investment Company Risk. The Fund may invest in shares of other investment companies. Shareholders bear both their proportionate share of the Funds expenses and similar expenses of the underlying investment company when a Fund invests in shares of another investment company.
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. SEI Investments Distribution Co., is the distributor of the Funds Shares (the Distributor), does not maintain a secondary market in the Shares.
For more information about risks associated with the types of investments that the Fund purchases, please read the Risk/Return Summary, the Risk and Reward Elements for the Fund later in the prospectus and the Statement of Additional Information.
6 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
FTSE Developed ex North America Diversified Factor Index
Component securities included in the Underlying Index are selected from developed equity markets outside North America strictly in accordance with guidelines and mandated procedures. The Underlying Index is derived after applying the following proprietary multi-factor criteria:
1. | Liquidity of eligible securities is considered to ensure an investable index; |
2. | Eligible securities are chosen to provide diversification across international regions and industries; |
3. | To provide diversification, securities are selected using the following factors: relative valuation, price momentum, low volatility and specific market capitalization; |
4. | Individual security weights are determined in order to ensure stock level diversification. |
The Index Provider reviews the composition of the Underlying Index and reconstitutes the Underlying Index on a monthly basis.
The JPMorgan Diversified Return International Ex-North America Equity ETF (the Fund) is not in any way sponsored,
endorsed, sold or promoted by FTSE International Limited (FTSE) or the London Stock Exchange Group companies (LSEG) (together the Licensor Parties) and none of the Licensor Parties make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to (i) the results to be obtained from the use of the FTSE Developed ex North America Diversified Factor Index (the Index) (upon which the Fund is based), (ii) the figure at which the Index is said to stand at any particular time on any particular day or otherwise, or (iii) the suitability of the Index for the purpose to which it is being put in connection with the Fund. None of the Licensor Parties have provided or will provide any financial or investment advice or recommendation in relation to the Index to the adviser or to its clients. The Index is calculated by FTSE or its agent. None of the Licensor Parties shall be (a) liable (whether in negligence or otherwise) to any person for any error in the Index or (b) under any obligation to advise any person of any error therein.
All rights in the Index vest in FTSE. FTSE ® is a trade mark of LSEG and is used by FTSE under license.
DISCLOSURE OF PORTFOLIO HOLDINGS
A description of the policies and procedures with respect to the disclosure of the Funds portfolio securities is available in the Funds Statement of Additional Information.
MAY , 2014 | 7 |
The Funds Management and Administration
The Funds 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 trustees who are responsible for overseeing all business activities of the Fund.
The Funds Investment Adviser
J.P. Morgan Investment Management Inc. (JPMIM) is the investment adviser to the Fund. JPMIM is located at 270 Park Avenue, New York, NY 10017.
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.
The Fund will pay the adviser a management fee of 0.24% of average daily net assets.
A discussion of the basis the Board of Trustees of the Trust used in approving the investment advisory agreement for the Fund will be available in the first shareholder report for the Fund.
The Portfolio Managers
The management team is led by Beltran Lastra and James Cook. Mr. Lastra, a Managing Director of JPMIM and a CFA charterholder, has been a portfolio manager since 2000 and an employee of JPMIM or its affiliates since 1996. Mr. Cook, Vice President of JPMIM, has been a portfolio manager since 2012 and an employee of JPMIM or its affiliates since 2007.
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.
The Funds Administrator
JPMorgan Funds Management, Inc. (the Administrator) provides administrative services for and oversees the other service providers of the Fund. The Administrator receives a pro-rata portion of the following annual fee on behalf of the Fund for administrative services: 0.085% of average daily net assets of the Fund.
The Funds Distributor
SEI Investments Distribution Co. (the Distributor) is the distributor of the Funds 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 Distributors principal address is One Freedom Valley Drive, Oaks, Pennsylvania 19456.
8 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
Purchase and Redemption of Shares
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 Funds 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.
The Funds Shares are issued or redeemed by the Fund at NAV per Share only in Creation Units. 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 Creation and Redemption of Creation Unit Aggregations in the Funds Statement of Additional Information.
The Depository Trust Company (DTC) serves as securities depository for the Shares. (The Shares may be held only in book-entry form; stock certificates will not be issued.) DTC, or its nominee, is the record or registered owner of all outstanding Shares. Beneficial ownership of Shares will be shown on the records of DTC or its participants (described below). Beneficial owners of Shares are not entitled to have Shares registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and are not considered the registered holder thereof. Accordingly, to exercise any rights of a holder of Shares, each beneficial owner must rely on the procedures of: (i) DTC; (ii) DTC Participants, i.e. , securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC; and (iii) Indirect Participants, i.e. , brokers, dealers, banks and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly, through which such beneficial owner holds its interests. The Trust understands that under existing industry practice, in the event the Trust requests any action of holders of Shares, or a beneficial owner desires to
take any action that DTC, as the record owner of all outstanding Shares, is entitled to take, DTC would authorize the DTC Participants to take such action and that the DTC Participants would authorize the Indirect Participants and beneficial owners acting through such DTC Participants to take such action and would otherwise act upon the instructions of beneficial owners owning through them. As described above, the Trust recognizes DTC or its nominee as the owner of all Shares for all purposes. For more detailed information, see Book Entry Only System in the Funds Statement of Additional Information.
Shares of the Fund have not been registered for sale outside of the United States. This prospectus is not intended for distribution to prospective investors outside of the United States. The Fund does not market or sell shares to investors domiciled outside of the United States, even, with regard to individuals, if they are citizens or lawful permanent residents of the United States.
The Fund has not commenced operations as of the date of this prospectus, and, therefore, does not have information about the differences between the Funds daily market price on the Exchange and its NAV. When available, information regarding how often the Shares of the Fund traded on the Exchange at a price above ( i.e. , at a premium) or below ( i.e. , at a discount) the NAV of the Fund during the past four calendar quarters, as applicable, can be found at www.jpmorganfunds.com.
The trading price of the Funds Shares on the Exchange may differ from the Funds 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 every fifteen seconds. 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 once a day, generally at the end of the business day. 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 Exchange, which is typically 4:00 p.m. ET. On occasion, the Exchange will close before 4:00 p.m. ET. When that happens, NAV will be calculated as of the time the Exchange closes. The price at which a purchase of a Creation Unit is effected is based on the next calculation of NAV after the order is received in proper form in accordance with this prospectus. To the extent the Fund invests in securities that are primarily listed on foreign exchanges or other markets that trade on weekends or
MAY , 2014 | 9 |
Purchase and Redemption of Shares (continued)
other days when the Fund does not price its Shares, the value of the Funds Shares may change on days when you will not be able to purchase or redeem your 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 Funds NAV is calculated, may be valued at fair value in accordance with policies and procedures adopted by the Trusts 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 Funds NAV.
Generally, short-term securities, which mature in 60 days or less, are valued at amortized cost if their maturity at acquisition was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if their maturity when acquired by the Fund was more than 60 days.
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 an independent pricing service. The value of securities listed on the NASDAQ Stock Market, Inc. is generally the NASDAQ official closing price.
Fixed income securities with a remaining maturity of 61 days or more 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. ET.
Exchange-traded futures ( e.g. , on stock indices, debt securities or commodities) are valued at the settled price, or if no settled price is available, at the last sale price as of the close of the exchanges on which they trade.
Non-listed over-the-counter options and futures are valued at the evaluated price provided by a counterparty or broker/dealer.
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 Funds shareholders when they considered that no restriction or policy was necessary. The Board considered that, unlike traditional mutual funds, the Fund issues and redeems its Shares at NAV for a basket of securities intended to mirror the Funds portfolio, plus a small amount of cash, and the Funds Shares may be purchased and sold on the Exchange at prevailing market prices.
10 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
The Fund has elected to be treated and intends to qualify each 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 Funds failure to qualify as a regulated investment company would result in corporate-level taxation and, consequently, a reduction in income available for distribution to shareholders.
The Fund can earn income and realize capital gain. The Fund deducts any expenses and then pays out the earnings, if any, to shareholders as distributions.
The Fund generally declares and distributes net investment income, if any, at least annually. The Fund will distribute net realized capital gain, if any, at least annually. For each taxable year, the Fund will distribute substantially all of its net investment income and net realized capital gain.
For federal income tax purposes, 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 rate applicable to qualified dividend income is either 15% or 20%, depending on whether the individuals 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. Dividends of net investment income that are not reported as qualified dividend income and dividends of net short-term capital gain will be taxable 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 rate applicable to long-term capital gains is generally either 15% or 20%, depending on whether the individuals 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 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 will be 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) of U.S. individuals, estates and trusts to the extent that such persons modified adjusted gross income (in the case of an individual) or adjusted gross income (in the case of an estate or trust) exceeds certain threshold amounts.
If you buy shares of the Fund just before a distribution, you will pay tax on the entire amount of the taxable distribution you receive. Distributions are taxable to you even if they are paid from income or gain earned by the Fund before your investment (and thus were included in the price you paid for your Fund shares). Any gain resulting from the sale or exchange of Fund shares generally will be taxable as long-term or short-term gain, depending upon how long you have held the shares.
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 Funds 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, if the Fund 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 it 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 shareholders 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. 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.
The Funds investment in REIT securities, derivative instruments and so called passive foreign investment companies may require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be required to liquidate other investments in its portfolio that it otherwise would have continued to hold, including at times when it is not advantageous to do so. The Funds investment in REIT securities may also result in the Funds receipt of cash in excess of the REITs earnings; if the Fund distributes such amounts, such distribution could constitute a return of capital to Fund shareholders for federal income tax purposes.
The Funds transactions in futures contracts, 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 Funds securities, and
MAY , 2014 | 11 |
Shareholder Information (continued)
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 Funds use of these types of transactions may result in the Fund realizing more short-term capital gain and ordinary income subject to tax at ordinary income tax rates than it would if it did not engage in such transactions.
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 in the preceding year and the tax status of those distributions.
The Fund is not intended for foreign shareholders. 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 exchangers aggregate basis in the securities surrendered and the Cash Component 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 exchangers basis in the Creation Units and the aggregate market value of the securities received and the Cash Redemption Amount. 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 investors tax consequences are unique, please consult your tax advisor to see how investing in the Fund and, for individuals and S corporations, selection of a particular cost method of accounting will affect your own tax situation.
AVAILABILITY OF PROXY VOTING RECORD
The Trustees have delegated the authority to vote proxies for securities owned by the Fund to JPMIM. When available, a copy of the Funds voting record for the most recent 12-month period ended June 30 is available on the SECs website at www.sec.gov or on the Funds website at www.jpmorganfunds.com no later than August 31 of each year. The Funds proxy voting record will include, among other things, a brief description of the matter voted on for each portfolio security, and will state how each vote was cast, for example, for or against the proposal.
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 net asset values. 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 principally in-kind in Creation Units at each days next calculated NAV. These arrangements are designed to protect ongoing shareholders from adverse effects on the Funds 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.
12 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
For purposes of the Investment Company Act of 1940 (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 set forth in an SEC exemptive order issued to the Trust, including that such investment companies enter into an agreement with the Fund.
MAY , 2014 | 13 |
Risk and Reward Elements for the Fund
This table discusses the main elements that may make up the Funds overall risk and reward characteristics. It also outlines the Funds policies toward various investments, including those that are designed to help the Fund manage risk.
POTENTIAL RISKS | POTENTIAL REWARDS | POLICIES TO BALANCE RISK AND REWARD | ||
Foreign and other market conditions affecting equity securities | ||||
The Funds share price and performance will fluctuate in response to stock market movements
The Fund could lose money because of foreign government actions, political instability, or lack of adequate and/or accurate information
Because the Fund employs a passive management style, it will not take defensive positions even during adverse market, economic, political or other conditions |
Stocks have generally outperformed more stable investments (such as bonds and cash equivalents) over the long term
Foreign investments, which represent a major portion of the worlds securities, offer attractive potential performance and opportunities for diversification |
Under normal circumstances the Fund plans to remain fully invested in accordance with its policies and may invest uninvested cash in affiliated money market funds
In addition to the securities described in the What are the Funds main investment strategies? section, equity securities may include U.S. and foreign common stocks, convertible securities 1 , preferred stocks 2 , depositary receipts, (such as American Depositary Receipts and European Depositary Receipts), trust or partnership interests, warrants and rights 3 and investment company securities |
||
Real Estate Investment Trusts (REITs) 4 | ||||
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 will depend on the value of the underlying properties or the underlying loans or interests
The value of these securities will rise and fall in response to many factors, including economic conditions, the demand for rental property and interest rates. In particular, the value of these securities may decline when interest rates rise and will also be affected by the real estate market and by the management of the underlying properties
REITs may be more volatile and/or more illiquid than other types of equity securities
If a REIT fails to distribute its required taxable income or to satisfy the other requirements of REIT status, it would be taxed as a corporation, and amounts available for distribution to shareholders (including the Fund) would be reduced by any corporate taxes payable by the REIT |
The Fund can gain exposure to an additional asset class in order to further diversify its assets
The Fund may receive current income from its REIT investments
If a REIT meets the requirements of the Internal Revenue Code, as amended, it will not be taxed on income it distributes to its shareholders; as a result, more income can be distributed by the REIT |
The Funds adviser will carefully evaluate particular REITs before and after investment based on its investment process and will also monitor economic and real estate trends affecting the value of REITs |
1 | Convertible securities are bonds or preferred stock that can convert to common stock. |
2 | Preferred stock is 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. |
3 | Warrants and rights are securities, typically issued with preferred stock or bonds, that give the holder the right to buy a proportionate amount of common stock at a specified price. |
4 | REITs are pooled investment vehicles which invest primarily in income-producing real estate or loans related to real estate. |
14 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
POTENTIAL RISKS | POTENTIAL REWARDS | POLICIES TO BALANCE RISK AND REWARD | ||
Derivatives * | ||||
Derivatives, such as futures and forward foreign currency contracts, 1 may be used to manage cash flows and to gain exposure to particular foreign securities or markets and this could result in losses to the Fund that would not have otherwise occurred
The Fund may have difficulty exiting a derivatives position
Derivatives may not have the intended effects and may result in losses or missed opportunities
The counterparty to a derivatives contract could default
Certain types of derivatives involve costs to the Fund which can reduce returns
Segregated or earmarked assets and collateral accounts established in connection with derivatives may limit the Funds investment flexibility
Derivatives may, for tax purposes, affect the character of gain and loss realized by the Fund, accelerate recognition of income to the Fund, affect the holding period of the Funds assets and defer recognition of certain of the Funds losses |
The Fund could make money and protect against losses if managements analysis proves correct |
The Fund uses derivatives to manage cash flows and to gain exposure to particular foreign securities or markets.
The Fund segregates or earmarks liquid assets to cover its derivatives and offset a portion of the leverage risk |
||
* | The Fund is not subject to registration or regulation as a commodity pool operator as defined in the Commodity Exchange Act because the Fund has claimed an exclusion from that definition. |
1 | A futures contract is an agreement to buy or sell a set quantity of an underlying instrument at a future date, or to make or receive a cash payment based on changes in the value of a securities index. A forward foreign currency contract is an obligation to buy or sell a given currency on a future date and at a set price. |
MAY , 2014 | 15 |
This section would ordinarily include Financial Highlights. The Financial Highlights table is intended to help you understand the Funds performance for the Funds periods of operations. Because the Fund has not yet commenced operations as of the date of this prospectus, no Financial Highlights are shown.
16 | J.P. MORGAN EXCHANGE-TRADED FUNDS |
MORE INFORMATION
For investors who want more information on the Fund the following documents are available free upon request:
ANNUAL AND SEMI-ANNUAL REPORTS
The Funds annual and semi-annual reports, when available, will contain more information about the Funds investments and performance. The annual report will also include details about the market conditions and investment strategies that have a significant effect on the Funds 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
270 Park Avenue
NY1-K108
New York, NY 10017
You can write or e-mail the SECs Public Reference Room and ask them to mail you information about the Fund, including the SAI. They will charge you a copying fee for this service. You can also visit the Public Reference Room and copy the documents while you are there.
Public Reference Room of the SEC
Washington, DC 20549-1520
1-202-551-8090
Email: publicinfo@sec.gov
Reports, a copy of the SAI and other information about the Fund are also available on the EDGAR Database on the SECs website at http://www.sec.gov.
Investment Company Act File No. for the Fund is 811-22903.
© JPMorgan Chase & Co., 2014. All rights reserved. May 2014.
PR-IENAEETF-514 |
|
STATEMENT OF ADDITIONAL INFORMATION
PART I
May , 2014
J.P. MORGAN EXCHANGE-TRADED FUND TRUST (the Trust)
Fund Name |
Ticker |
Listing
Exchange |
||
JPMorgan Diversified Return Global Equity ETF (the Global Equity ETF) |
JPGE | NYSE Arca | ||
JPMorgan Diversified Return International Ex-North America Equity ETF (the International Ex-North America Equity ETF) |
JPIN | NYSE Arca |
(each a Fund and collectively, the Funds)
This Statement of Additional Information (SAI) is not a prospectus, but contains additional information which should be read in conjunction with the applicable prospectuses for the Funds, each dated May , 2014, as supplemented from time to time (Prospectus). The Prospectuses are available without charge upon request by contacting SEI Investments Distribution Co. (the Distributor), the Funds distributor, at One Freedom Valley Drive, Oaks, Pennsylvania 19456.
This SAI is divided into two Parts Part I and Part II. Part I of this SAI contains information that is particular to the Funds. Part II of this SAI contains additional information that more generally applies to the Funds.
For more information about the Funds, simply write or call:
J.P. Morgan Exchange-Traded Funds
270 Park Ave
NY1-K108
New York, NY 10017
1-844-457-6383 (844-4JPM ETF)
SAI-ETF-514
TABLE OF CONTENTS
PART I
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PLEASE SEE PART II OF THIS SAI FOR ITS TABLE OF CONTENTS
Part I - i
Each Fund is a series of J.P. Morgan Exchange-Traded Fund Trust (the Trust), an open-end, management investment company formed as a statutory trust under the laws of the State of Delaware on February 25, 2010, pursuant to a Declaration of Trust dated October 21, 2013, as amended and restated on February 19, 2014.
Each Fund will offer and issue shares at net asset value (NAV) only in aggregations of a specified number of shares (each a Creation Unit or a Creation Unit Aggregation). The shares of the Fund are collectively referred to as the Shares in this SAI. Each Funds Shares will be listed and traded on the NYSE Arca, Inc. (the Exchange). Fund Shares will trade on the Exchange at market prices that may be below, at or above NAV. Shares are redeemable only in Creation Unit Aggregations and, generally, in exchange for portfolio securities held by a Fund and/or a specified cash payment. The amount of Shares in a Creation Unit for each Fund is 100,000 Shares.
In the event of the liquidation of a Fund, the Trust may lower the number of Shares in a Creation Unit. The Trust reserves the right to offer a full or partial cash option for creations and/or redemptions of Fund Shares. Fund Shares may be issued in advance of receipt of a basket of equity securities and other investments (Deposit Instruments) included in each Funds index (Underlying Index) subject to various conditions including a requirement to maintain on deposit with the Trust cash at least equal to 105% of the market value of the missing Deposit Instruments. See the Creation and Redemption of Creation Units section in Appendix A. In each instance of such cash creations or redemptions, transaction fees may be imposed that will be higher than the transaction fees associated with in-kind creations or redemptions. In all cases, such fees will be limited in accordance with the requirements of the Securities and Exchange Commission (the SEC) applicable to management investment companies offering redeemable securities.
This SAI describes the financial history, investment strategies and policies, management and operation of each Fund in order to enable investors to determine whether the particular Fund best suits their needs.
This SAI provides additional information with respect to the Funds and should be read in conjunction with each Funds current Prospectus. Capitalized terms not otherwise defined herein have the meanings accorded to them in the Prospectus. The Funds executive offices are located at 270 Park Avenue, New York, NY 10017.
The Trusts Board of Trustees is referred to herein as the Board of Trustees, and each trustee is referred to as a Trustee.
J.P. Morgan Investment Management Inc. (JPMIM or Adviser) is the investment adviser to the Funds.
Investments in a Fund are not deposits or obligations of, nor guaranteed or endorsed by, JPMorgan Chase Bank, N.A. (JPMorgan Chase Bank), an affiliate of the Adviser, or any other bank. Shares of a Fund are not federally insured or guaranteed by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other governmental agency. An investment in a Fund is subject to risks that may cause the value of the investment to fluctuate, and when the investment is redeemed, the value may be higher or lower than the amount originally invested by the investor.
The following investment policies have been adopted by the Trust with respect to the Funds. The investment policies listed below under the heading Fundamental Investment Policies are fundamental policies which, under the Investment Company Act of 1940, as amended (the 1940 Act), may not be changed without the vote of a majority of the outstanding voting securities of a Fund, as such term is defined in the Additional Information section in Part II of this SAI. All other investment policies of a Fund (including its investment objective) are non-fundamental, unless otherwise designated in the Prospectus or herein, and may be changed by the Trustees of the Funds without shareholder approval.
Except for each of the restrictions on borrowings set forth in the fundamental investment policies below, the percentage limitations contained in the policies below apply at the time of purchase of the securities. If a percentage or rating restriction on investment or use of assets set forth in a fundamental investment policy or a non-fundamental investment policy or in the Prospectus is adhered to at the time of investment, later changes in percentage resulting from any cause other than actions by a Fund will not be considered a violation. If the value of
Part I - 1
a Funds holdings of illiquid securities at any time exceeds the percentage limitation applicable at the time of acquisition due to subsequent fluctuations in value or other reasons, the Board of Trustees, or persons designated by the Board to make such determination, will consider what actions, if any, are appropriate to maintain adequate liquidity. With respect to each fundamental investment policy on borrowing, the 1940 Act generally limits a Funds ability to borrow money on a non-temporary basis if such borrowings constitute senior securities. As noted in Investment Strategies and Policies Miscellaneous Investment Strategies and Risks Borrowings in SAI Part II, in addition to temporary borrowing, a Fund may borrow from any bank, provided that immediately after any such borrowing there is an asset coverage of at least 300% for all borrowings by the Fund and provided further, that in the event that such asset coverage shall at any time fall below 300%, the Fund shall, within three days (not including Sundays or holidays) thereafter or such longer period as the SEC may prescribe by rules and regulations, reduce the amount of its borrowings to such an extent that the asset coverage of such borrowing shall be at least 300%. A Fund may also borrow money or engage in economically similar transactions if those transactions do not constitute senior securities under the 1940 Act. Under current pronouncements, certain Fund positions ( e.g. , reverse repurchase agreements) are excluded from the definition of senior security so long as the Fund maintains adequate cover, segregation of assets or otherwise. Similarly, a short sale will not be considered a senior security if the Fund takes certain steps contemplated by SEC staff pronouncements, such as ensuring the short sale transaction is adequately covered.
For purposes of a Funds fundamental investment policies regarding industry concentration, to concentrate generally means to invest 25% or more of the Funds assets, taken at market value at the time of investment.
In addition, each Fund has an 80% investment policy which is described in the Funds Prospectus. In calculating Assets for the purposes of each Funds 80% investment policy, Assets are net assets plus the amount of any borrowings for investment purposes. This policy may be changed by the Board of Trustees without shareholder approval. However, a Fund will provide shareholders with written notice at least 60 days prior to a change in its policy to invest at least 80% of its Assets in securities that comprise its benchmark index.
Finally, each Fund is subject to the fundamental and non-fundamental investment policies and investment restrictions applicable to the Fund that are described herein and by any restrictions imposed by applicable law.
Fundamental Investment Policies.
Each Fund:
(1) May purchase any security which would cause the Fund to concentrate 25% or more of its investments in the securities of issuers primarily engaged in any particular industry or group of industries to the extent the index which the Fund replicates and which may be changed is concentrated in the securities of issuers primarily engaged in any particular industry or group of industries, but will not concentrate in the securities of issuers primarily engaged in any particular industry or group of industries at any time when the Funds index is not concentrated. This policy does not apply to investments in securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, or repurchase agreements secured thereby, and futures and options transactions issued or guaranteed by the U.S. government or any of its agencies or instrumentalities;
(2) May not issue senior securities, except as permitted under the 1940 Act or any rule, order or interpretation thereunder;
(3) May not borrow money, except to the extent permitted by applicable law;
(4) May not underwrite securities of other issuers, except to the extent that the Fund, in disposing of portfolio securities, may be deemed an underwriter under certain securities laws;
(5) May not invest directly in real estate unless it is acquired as a result of ownership of securities or other instruments. This restriction shall not prevent the Fund from investing in securities or other instruments (a) issued by companies that invest, deal or otherwise engage in transactions in real estate, or (b) backed or secured by real estate or interests in real estate;
(6) May not purchase or sell commodities or commodity contracts except as may be permitted by the 1940 Act or unless acquired as a result of ownership of securities or other instruments issued by persons that purchase or sell commodities or commodities contracts; but this shall not prevent the Fund from purchasing, selling and entering into financial futures contracts (including futures contracts on indices of securities, interest rates and currencies), options on financial futures contracts (including futures contracts on indices of securities, interest rates and currencies), warrants, swaps, forward contracts, foreign currency spot and forward contracts or other derivative instruments including derivatives related to physical commodities;
Part I - 2
(7) May make loans to other persons, in accordance with the Funds investment objective and policies and to the extent permitted by applicable law;
(8) May not make any investment inconsistent with its classification as a diversified investment company under the 1940 Act.
Each Fund may invest in types of investments and engage in transactions that are considered lending transactions. The types of investments and strategies that a Fund may use are described in further detail in the Prospectus and this SAI.
Non-Fundamental Investment Policies .
Each Fund:
(1) May not acquire any illiquid securities, such as repurchase agreements with more than seven days to maturity or fixed time deposits with a duration of over seven days, if as a result thereof, more than 15% of the market value of the Funds net assets would be in investments which are illiquid; and
(2) May not acquire the securities of registered open-end investment companies or registered unit investment trusts in reliance on Section 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
The Funds invest in a variety of securities and employ a number of investment techniques. What follows is a list of some of the securities and techniques which may be utilized by the Funds. For a more complete discussion, see the Investment Strategies and Policies section in Part II of this SAI.
FUND NAME | FUND CODE | |||
Global Equity ETF |
1 | |||
International Ex-North America Equity ETF |
2 |
Instrument | Fund Code |
Part II Section Reference |
||
Borrowings: A Fund may borrow for temporary purposes and/or for investment purposes. Such a practice will result in leveraging of a Funds assets and may cause a Fund to liquidate portfolio positions when it would not be advantageous to do so. A Fund must maintain continuous asset coverage of 300% of the amount borrowed, with the exception for borrowings not in excess of 5% of the Funds total assets made for temporary administrative purposes. |
1-2 |
Miscellaneous Investment Strategies and Risks | ||
Common Stock: Shares of ownership of a company. |
1-2 |
Equity Securities, Warrants and Rights | ||
Common Stock Warrants and Rights: Securities, typically issued with preferred stock or bonds, that give the holder the right to buy a proportionate amount of common stock at a specified price. |
1-2 |
Equity Securities, Warrants and Rights | ||
Convertible Securities: Bonds or preferred stock that can convert to common stock. |
1-2 |
Convertible Securities | ||
Foreign Investments: Equity securities of foreign entities and obligations of foreign branches of U.S. banks and foreign banks. Foreign securities may also include American Depositary Receipts (ADR), Global Depositary Receipts (GDR), European Depositary Receipts (EDR) and American Depositary Securities (ADS) |
1-2 |
Foreign Investments (including Foreign Currencies) | ||
Futures Transactions: A Fund may purchase and sell futures contracts on securities and indexes of securities. |
1-2 |
Futures Transactions |
Part I - 3
Instrument | Fund Code |
Part II Section Reference |
||
Initial Public Offerings (IPO): A transaction in which a previously private company makes its first sale of stock to the public. |
1-2 |
Equity Securities, Warrants and Rights | ||
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. |
1-2 |
Investment Company Securities and Exchange Traded Funds | ||
Preferred Stock: 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. |
1-2 |
Equity Securities, Warrants and Rights | ||
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. |
1-2 |
Miscellaneous Investment Strategies and Risks | ||
Real Estate Investment Trusts (REITs): Pooled investment vehicles which invest primarily in income producing real estate or real estate related loans or interest. |
1-2 |
Real Estate Investment Trusts | ||
Securities Issued in Connection with Reorganizations and Corporate Restructurings: In connection with reorganizing or restructuring of an issuer, an issuer may issue common stock or other securities to holders of its debt securities. |
1-2 |
Miscellaneous Investment Strategies and Risks |
The Trust is a registered management investment company. Each Fund is a diversified series of the Trust. Each Fund intends to meet the diversification requirements of the 1940 Act. For a more complete discussion, see the Diversification section in Part II of this SAI.
A portfolio turnover rate is, in summary, the percentage computed by dividing the lesser of a Funds purchases or sales of securities (excluding short-term securities) by the average market value of the Fund. The Adviser intends to manage each Funds assets by buying and selling securities to help attain its investment objective. A rate of 100% indicates that the equivalent of all of a Funds assets have been sold and reinvested in a year. High portfolio turnover may affect the amount, timing and character of distributions, and, as a result, may increase the amount of taxes payable by shareholders. Higher portfolio turnover also results in higher transaction costs. To the extent that net short-term capital gains are realized by a Fund, any distributions resulting from such gains are considered ordinary income for federal income tax purposes. For a more complete discussion, see the Distributions and Tax Matters section in Part II of this SAI. The Funds have not commenced operations as of the date of this SAI. Therefore, there is no portfolio turnover rate for the Funds to report at this time.
Part I - 4
There is one standing committee of the Board of Trustees: the Audit and Valuation Committee. As of May 7, 2014, the Audit and Valuation Committee met two times. For a more complete discussion, see the Trustees section in Part II of this SAI.
Because the Funds and the Trust have not commenced operations, there are no securities of the Funds or Trust that the Trustees could own.
As of December 1, 2013, none of the independent Trustees or their immediate family members owned securities of the Adviser or Distributor or a person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with the Adviser or Distributor.
Since the Trust has not yet completed a fiscal year as of the date of the SAI, there is not any Trustee compensation to report.
See TRUSTEES Trustee Compensation in Part II of this SAI for more information.
Since the Funds have not commenced operations as of the date of this SAI, the Funds have not paid any investment advisory fees. For more information about the Adviser, see the Investment Adviser section in Part II of this SAI.
Portfolio Managers Other Accounts Managed
The following table shows information regarding all of the other accounts for which advisory fees are not based on the performance of the accounts that are managed by each Funds portfolio managers as of January 31, 2014 (amounts in thousands):
Non-Performance Based Fee Advisory Accounts | ||||||||||||||||||||||||
Registered Investment
Companies |
Other Pooled Investment
Vehicles |
Other Accounts | ||||||||||||||||||||||
Number
of Accounts |
Total Assets
($ thousands) |
Number
of Accounts |
Total Assets
($ thousands) |
Number
of Accounts |
Total Assets
($ thousands) |
|||||||||||||||||||
Global Equity ETF |
||||||||||||||||||||||||
Beltran Lastra |
2 | $ | 2,598,449 | 9 | $ | 2,424,120 | 16 | $ | 3,135,914 | |||||||||||||||
James Cook |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
International Ex-North America Equity ETF |
||||||||||||||||||||||||
Beltran Lastra |
2 | 2,598,449 | 9 | 2,424,120 | 16 | 3,135,914 | ||||||||||||||||||
James Cook |
0 | 0 | 0 | 0 | 0 | 0 |
Part I - 5
The following table shows information on the other accounts managed by each Funds portfolio managers that have advisory fees wholly or partly based on performance as of January 31, 2014:
Performance Based Fee Advisory Accounts | ||||||||||||||||||||||||
Registered Investment
Companies |
Other Pooled Investment
Vehicles |
Other Accounts | ||||||||||||||||||||||
Number
of Accounts |
Total Assets
($ thousands) |
Number
of Accounts |
Total Assets
($ thousands) |
Number
of Accounts |
Total Assets
($ thousands) |
|||||||||||||||||||
Global Equity ETF |
||||||||||||||||||||||||
Beltran Lastra |
0 | $ | 0 | 5 | $ | 521,089 | 3 | $ | 1,521,938 | |||||||||||||||
James Cook |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
International Ex-North America Equity ETF |
||||||||||||||||||||||||
Beltran Lastra |
0 | 0 | 5 | 521,089 | 3 | 1,521,938 | ||||||||||||||||||
James Cook |
0 | 0 | 0 | 0 | 0 | 0 |
Portfolio Managers Ownership of Securities
Since the Funds have not commenced operations as of the date of this SAI, the portfolio managers do not own any Shares of the Funds. For a discussion of the portfolio managers compensation, see the Portfolio Manager Compensation section in Part II of this SAI.
Since the Funds have not commenced operations as of the date of this SAI, the Funds have not paid any administrator fees. For more information about the Administrator, see the Administrator section in Part II of this SAI.
Since the Funds have not commenced operations as of the date of this SAI, the Funds have not paid any brokerage commissions. For more information concerning brokerage commissions, see the Portfolio Transactions section in Part II of this SAI.
PURCHASE AND REDEMPTION OF CREATION UNITS
The Trust will issue and sell its Shares only in Creation Units on a continuous basis through the Distributor, without a sales load, at the NAV next determined after receipt of an order in proper form as described in Placement of Creation Orders Outside NSCC Clearing Process-Foreign Funds in Appendix A to Part II of this SAI.
FUND |
CREATION* | REDEMPTION* | ||||||
Global Equity ETF |
100,000 | 100,000 | ||||||
International Ex-North America Equity ETF |
100,000 | 100,000 |
* | May be revised at any time without notice. |
CREATION AND REDEMPTION TRANSACTION FEES. A transaction fee, as set forth in the table below, is imposed for the transfer and other transaction costs associated with the purchase or redemption of Creation Units, as applicable. Investors who are authorized to deal in Creation Units (Authorized Participants) will be required to pay a fixed creation transaction fee and/or a fixed redemption transaction fee, as applicable, on a given day regardless of the number of Creation Units created or redeemed on that day. The Funds may adjust the transaction fee from time to time. An additional charge or a variable charge (discussed below) will be applied to certain creation and redemption transactions, including non-standard orders and whole or partial cash purchases or redemptions. With respect to creation orders, Authorized Participants are responsible for the costs of transferring the securities constituting the Deposit Instruments to the account of the Trust and with respect to redemption orders, Authorized Participants are responsible for the costs of transferring the Redemption Instruments from the Trust to their account or on their order. Investors who use the services of a broker or other such intermediary may also be charged a fee for such services.
Part I - 6
FUND |
TRANSACTION
FEE*, ** |
|||||
Global Equity ETF |
8,000 | |||||
International Ex-North America Equity ETF |
10,000 |
* | From time to time, a Fund may waive all or a portion of its applicable transaction fee(s). |
** | In addition to the transaction fees listed above, a Fund may charge an additional variable fee for creations and redemptions in cash of up to 3% of the amount of a creation transaction and of up to 2% of the amount of a redemption transaction to offset brokerage and impact expenses associated with the cash transaction. The variable transaction fee will be calculated based on the actual transaction costs associated with the cash transaction up to the maximum transaction fee. |
Other Cash Compensation Payments
Since the Funds have not commenced operations as of the date of this SAI, JPMIM and the Distributor have not made any other cash compensation arrangements with respect to the Funds.
Since the Funds have not commenced operations as of the date of this SAI, the Funds have not had any capital loss carryforwards. For more information on tax matters, see the Distributions and Tax Matters section in Part II of this SAI.
Since the Funds have not commenced operations as of the date of this SAI, the officers and Trustees do not own any Shares of the Funds.
Since the Funds have not been offered to the public as of the date of this SAI, the initial shareholder owns all of the Shares of the Global Equity ETF. No Shares of the International Ex-North America Equity ETF have been issued as of the date of this SAI.
Following is the Statement of assets and liabilities for the Global Equity ETF dated May 9, 2014, which has been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm, as set forth in their report thereon appearing herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
Part I - 7
J.P. Morgan Exchange Traded Fund Trust
May 9, 2014
JPMorgan Diversified Return Global Equity ETF
Part I - 8
J.P. Morgan Exchange Traded Fund Trust
May 9, 2014
Contents
1 |
||
2 |
||
4 |
Part I - 9
STATEMENT OF ASSETS AND LIABILITIE S
As of May 9, 2014
JPMorgan
Diversified Return Global Equity ETF |
||||
ASSETS: |
||||
Cash |
$ | 100,000 | ||
Deferred Offering Costs |
25,906 | |||
Prepaid Insurance |
29,161 | |||
|
|
|||
Total Assets |
$ | 155,067 | ||
|
|
|||
LIABILITIES: |
||||
Due to Affiliate |
$ | 55,067 | ||
|
|
|||
Total Liabilities |
55,067 | |||
|
|
|||
|
|
|||
Net Assets |
$ | 100,000 | ||
|
|
|||
COMPONENTS OF NET ASSETS: |
||||
Paid in Capital |
$ | 100,000 | ||
|
|
|||
Net Assets |
$ | 100,000 | ||
|
|
|||
Shares Issued and Outstanding |
2,000 | |||
|
|
|||
Net Asset Value Per Share |
$ | 50.00 | ||
|
|
The accompanying notes are an integral part of this Statement of Assets and Liabilities
Part I - 10
As of May 9, 2014
1. Organization of the Trust
JPMorgan Diversified Return Global Equity ETF (the Fund) is a series of J.P.Morgan Exchange-Traded Fund Trust (the Trust), a Delaware statutory trust, registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company. As of May 9, 2014, the Fund had no significant operations other than matters relating to the organization and registration of the Trust and the issuance of 2,000 shares to the Adviser, J.P. Morgan Investment Management Inc. (JPMIM), an indirect, wholly-owned subsidiary of JPMorgan Chase & Co. (JPMorgan).
The investment objective of the Fund is to seek investment results that closely correspond, before fees and expenses, to the performance of the FTSE Developed Diversified Factor Index.
Shares of the Fund will be listed and traded on the NYSE Arca, Inc. Market prices for the Funds shares may be different from their net asset value (NAV). The Fund will issue and redeem its shares on a continuous basis, through SEI Investments Distribution Co. (the Distributor), at NAV in large blocks of shares, typically 100,000 shares, referred to as Creation Units. Creation Units will be issued and redeemed principally in-kind for a basket of securities and a cash amount. Shares will generally trade in the secondary market in amounts less than a Creation Unit at market prices that change throughout the day. Only individuals or institutions that have entered into an authorized participant agreement with the Distributor may do business directly with the Fund.
2. Fees and Other Transactions with Affiliates
A. Investment Advisory Fee Pursuant to the Investment Advisory Agreements, the Adviser, an indirect, wholly-owned subsidiary of JPMorgan, supervises the investments of the Fund and for such services is paid a fee. The fee is accrued daily and paid monthly based on the Funds average daily net assets, at an annual rate of 0.24%.
B. Administration Fee JPMorgan Funds Management, Inc. (Administrator), an indirect, wholly-owned subsidiary of JPMorgan, provides certain administration services to the Fund pursuant to an administration agreement between the Administrator and the Fund (Administration Agreement). In consideration of these services, the Administrator receives a fee accrued daily and paid monthly at an annual rate of 0.085% of the average daily net assets of all funds in the Trust covered by the Administration Agreement.
C. Custodian and Transfer Agency Fees JPMorgan Chase Bank, N.A. (JPMCB), a wholly-owned subsidiary of JPMorgan, provides portfolio custody and transfer agency services to the Fund.
D. Waivers and Reimbursements The Adviser and Administrator have contractually agreed to waive fees and/or reimburse the Fund to the extent that total annual operating expenses (excluding acquired fund fees and expenses, dividend expenses relating to short sales, interest, taxes, expenses related to litigation and potential litigation and extraordinary expenses) exceed 0.38% of the Funds average daily net assets.
The expense limitation agreements were in effect as of May 9, 2014 and are in place until at least February 29, 2016.
As of May 9, 2014, the Fund has not commenced operations and the Funds service providers have not waived any fees.
3. Offering and Organization Costs Total offering costs of approximately $26,000 incurred in connection with the offering of shares of the Fund will be amortized on a straight line basis over 12 months from the date the Fund commences operations. Organizational expenses of the Trust of approximately $460,000 incurred prior to the offering of the Funds shares will be paid by the Adviser.
4. Creation and Redemption of Creation Units The Trust issues and redeems shares of the Fund only in Creation Units on a continuous basis through the Distributor, without an initial sales load, at NAV next determined after receipt, on any Business Day (as defined in the Statement of Additional Information), of an order in proper
Part I - 11
NOTES TO FINANCIAL STATEMENTS
As of May 9, 2014 (continued)
form. Shares of the Fund may only be purchased or redeemed by certain financial institutions (each an Authorized Participant). An Authorized Participant is either (1) a Participating Party or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC); or (2) a DTC Participant; which, in either case, must have executed an agreement with the Distributor. Retail investors will typically not qualify as an Authorized Participant or have the resources to buy and sell whole Creation Units. Therefore, they will be unable to purchase or redeem the shares directly from the Fund. Rather, most retail investors will purchase shares in the secondary market with the assistance of a broker and will be subject to customary brokerage commissions or fees.
5. Related Parties Certain officers of the Trust are also employees of JPMorgan.
6. Other In the normal course of business, the Funds enters into contracts that contain a variety of representations which provide general indemnifications. The Funds maximum exposure under these arrangements is unknown. The amount of exposure would depend on future claims that may be made against the Fund have not occurred. However, based on experience, the Fund expects the risk of loss to be remote.
Part I - 12
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of J.P. Morgan Exchange-Traded Fund Trust and Shareholders of JPMorgan Diversified Return Global Equity ETF:
In our opinion, the accompanying statement of assets and liabilities presents fairly, in all material respects, the financial position of the JPMorgan Diversified Return Global Equity ETF (the Fund) at May 9, 2014, in conformity with accounting principles generally accepted in the United States of America. This financial statement is the responsibility of the Funds management; our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this financial statement in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
May 13, 2014
Part I - 13
J.P. Morgan Exchange-Traded Fund Trust
STATEMENT OF ADDITIONAL INFORMATION
PART II
Part II of this SAI describes policies and practices that apply to JPMorgan Diversified Return Global Equity ETF and JPMorgan Diversified Return International Ex-North America Equity ETF, for which Part I precedes this Part II. Part II is not a standalone document and must be read in conjunction with Part I. References in this Part II to a Fund mean each of JPMorgan Diversified Return Global Equity ETF and JPMorgan Diversified Return International Ex-North America Equity ETF, unless noted otherwise. Capitalized terms used and not otherwise defined in this Part II have the meanings given to them in Part I of this SAI.
PART II
TABLE OF CONTENTS
1 | ||||
1 | ||||
1 | ||||
2 | ||||
5 | ||||
7 | ||||
8 | ||||
10 | ||||
10 | ||||
11 | ||||
11 | ||||
11 | ||||
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13 | ||||
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17 | ||||
18 | ||||
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20 | ||||
21 | ||||
21 | ||||
22 | ||||
22 | ||||
22 | ||||
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25 | ||||
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25 | ||||
27 | ||||
27 | ||||
28 | ||||
30 | ||||
30 | ||||
31 | ||||
31 | ||||
31 | ||||
33 | ||||
34 | ||||
34 | ||||
34 | ||||
34 | ||||
35 | ||||
35 | ||||
35 | ||||
35 | ||||
35 |
Part II - i
35 | ||||
36 | ||||
37 | ||||
38 | ||||
38 | ||||
41 | ||||
A-1 |
Part II - ii
INVESTMENT STRATEGIES AND POLICIES
As noted in the Prospectus for each of the Funds, in addition to the main investment strategy and the main investment risks described in the Prospectus, each Fund may employ other investment strategies and may be subject to other risks, which are described below. The Funds may engage in the practices described below to the extent consistent with their investment objectives, strategies, policies and restrictions. Because the following is a combined description of investment strategies of all of the Funds, certain matters described herein may not apply to particular Funds.
For a list of investment strategies and policies employed by the Fund, see INVESTMENT PRACTICES in Part I of this SAI.
To the extent permitted in Part I of this SAI, a Fund may invest in convertible securities. Convertible securities include any debt securities or preferred stock which may be converted into common stock or which carry the right to purchase common stock. Generally, convertible securities entitle the holder to exchange the securities for a specified number of shares of common stock, usually of the same company, at specified prices within a certain period of time.
The terms of any convertible security determine its ranking in a companys capital structure. In the case of subordinated convertible debentures, the holders claims on assets and earnings are subordinated to the claims of other creditors, and are senior to the claims of preferred and common shareholders. In the case of convertible preferred stock, the holders claims on assets and earnings are subordinated to the claims of all creditors and are senior to the claims of common shareholders.
Convertible securities have characteristics similar to both debt and equity securities. Due to the conversion feature, the market value of convertible securities tends to move together with the market value of the underlying common stock. As a result, selection of convertible securities, to a great extent, is based on the potential for capital appreciation that may exist in the underlying stock. The value of convertible securities is also affected by prevailing interest rates, the credit quality of the issuer, and any call provisions. In some cases, the issuer may cause a convertible security to convert to common stock. In other situations, it may be advantageous for a Fund to cause the conversion of convertible securities to common stock. If a convertible security converts to common stock, a Fund may hold such common stock in its portfolio even if it does not ordinarily invest in common stock.
Equity Securities, Warrants and Rights
Common Stock. Common stock represents a share of ownership in a company and usually carries voting rights and may earn dividends. Unlike preferred stock, common stock dividends are not fixed but are declared at the discretion of the issuers board of directors. Common stock occupies the most junior position in a companys capital structure. As with all equity securities, the price of common stock fluctuates based on changes in a companys financial condition and overall market and economic conditions.
Common Stock Warrants and Rights. Common stock warrants entitle the holder to buy common stock from the issuer of the warrant at a specific price (the strike price) for a specific period of time. The market price of warrants may be substantially lower than the current market price of the underlying common stock, yet warrants are subject to similar price fluctuations. As a result, warrants may be more volatile investments than the underlying common stock. If a warrant is exercised, a Fund may hold common stock in its portfolio even if it does not ordinarily invest in common stock.
Rights are similar to warrants but normally have a shorter duration and are typically distributed directly by the issuers to existing shareholders, while warrants are typically attached to new debt or preferred stock issuances.
Warrants and rights generally do not entitle the holder to dividends or voting rights with respect to the underlying common stock and do not represent any rights in the assets of the issuer company. Warrants and rights will expire if not exercised on or prior to the expiration date.
Preferred Stock. Preferred stock is a class of stock that generally pays dividends at a specified rate and has preference over common stock in the payment of dividends and liquidation. Preferred stock generally does not carry voting rights. As with all equity securities, the price of preferred stock fluctuates based on changes in a companys financial condition and on overall market and economic conditions.
Part II - 1
Initial Public Offerings (IPOs). The Funds may purchase securities in IPOs. These securities are subject to many of the same risks as investing in companies with smaller market capitalizations. Securities issued in IPOs have no trading history, and information about the companies may be available for very limited periods. The prices of securities sold in IPOs may be highly volatile. At any particular time or from time to time, the Fund may not be able to invest in securities issued in IPOs, or invest to the extent desired, because, for example, only a small portion (if any) of the securities being offered in an IPO may be made available to a Fund. In addition, under certain market conditions, a relatively small number of companies may issue securities in IPOs. Similarly, as the number of funds to which IPO securities are allocated increases, the number of securities issued to the Fund may decrease. The investment performance of a Fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the Fund is able to do so. In addition, as the Fund increases in size, the impact of IPOs on the Funds performance will generally decrease.
Foreign Investments (including Foreign Currencies)
Certain Funds may invest in certain obligations or securities of foreign issuers. For purposes of a Funds investment policies and unless described otherwise in the Funds Prospectus, an issuer of a security will be deemed to be located in a particular country if: (i) the principal trading market for the security is in such country, (ii) the issuer is organized under the laws of such country or (iii) the issuer derives at least 50% of its revenues or profits from such country or has at least 50% of its total assets situated in such country. Possible investments include equity securities and debt securities (e.g., bonds and commercial paper) of foreign entities, obligations of foreign branches of U.S. banks and of foreign banks, including, without limitation, Eurodollar Certificates of Deposit, Eurodollar Time Deposits, Eurodollar Bankers Acceptances, Canadian Time Deposits and Yankee Certificates of Deposit, and investments in Canadian Commercial Paper, and Europaper. Securities of foreign issuers may include sponsored and unsponsored American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), and Global Depositary Receipts (GDRs). Therefore, there may be less information available about the issuers of unsponsored ADRs than the issuers of sponsored ADRs. Unsponsored ADRs are restricted securities.
Risk Factors of Foreign Investments. The following is a summary of certain risks associated with foreign investments:
Political and Exchange Risks. Foreign investments may subject a Fund to investment risks that differ in some respects from those related to investments in obligations of U.S. domestic issuers. Such risks include potential future adverse political and economic developments, possible imposition of withholding taxes on interest or other income, possible seizure, nationalization or expropriation of foreign deposits, possible establishment of exchange controls or taxation at the source, greater fluctuations in value due to changes in exchange rates, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations.
Higher Transaction Costs. Foreign investments may entail higher custodial fees and sales commissions than domestic investments.
Accounting and Regulatory Differences. Foreign issuers of securities or obligations are often subject to accounting treatment and engage in business practices different from those of domestic issuers of similar securities or obligations. In addition, foreign issuers are usually not subject to the same degree of regulation as domestic issuers, and their securities may trade on relatively small markets, causing their securities to experience potentially higher volatility and more limited liquidity than securities of domestic issuers. Foreign branches of U.S. banks and foreign banks are not regulated by U.S. banking authorities and may be subject to less stringent reserve requirements than those applicable to domestic branches of U.S. banks. In addition, foreign banks generally are not bound by accounting, auditing, and financial reporting standards comparable to those applicable to U.S. banks. Dividends and interest paid by foreign issuers may be subject to withholding and other foreign taxes which may decrease the net return on foreign investments as compared to dividends and interest paid to the Fund by domestic companies.
Currency Risk. Foreign securities may be denominated in foreign currencies, although foreign issuers may also issue securities denominated in U.S. dollars. The value of a Funds investments denominated in foreign currencies and any funds held in foreign currencies will be affected by changes in currency exchange rates, the relative strength of those currencies and the U.S. dollar, and exchange-control regulations. Changes in the foreign currency exchange rates also may affect the value of dividends and interest earned, gains and losses realized on the sale of securities and net investment income and gains, if any, to be distributed to shareholders by a Fund. The exchange rates between the U.S. dollar and other currencies are determined by the forces of supply and demand in foreign exchange markets. Accordingly, the ability of a Fund that invests in foreign securities as part of its principal investment strategy to
Part II - 2
achieve its investment objective may depend, to a certain extent, on exchange rate movements. In addition, while the volume of transactions effected on foreign stock exchanges has increased in recent years, in most cases it remains appreciably below that of domestic securities exchanges. Accordingly, a Funds foreign investments may be less liquid and their prices may be more volatile than comparable investments in securities of U.S. companies. In buying and selling securities on foreign exchanges, purchasers normally pay fixed commissions that are generally higher than the negotiated commissions charged in the U.S. In addition, there is generally less government supervision and regulation of securities exchanges, brokers and issuers located in foreign countries than in the U.S.
Settlement Risk. The settlement periods for foreign securities and instruments are often longer than those for securities or obligations of U.S. issuers or instruments denominated in U.S. dollars. Delayed settlement may affect the liquidity of the Funds holdings. Certain types of securities and other instruments are not traded delivery versus payment in certain markets (e.g., government bonds in Russia) meaning that a Fund may deliver securities or instruments before payment is received from the counterparty. In such markets, a Fund may not receive timely payment for securities or other instruments it has delivered and may be subject to increased risk that the counterparty will fail to make payments when due or default completely.
Emerging Market Securities. Investing in companies domiciled in emerging market countries may be subject to potentially higher risks than investments in developed countries. These risks include: (i) less social, political, and economic stability; (ii) greater illiquidity and price volatility due to smaller or limited local capital markets for such securities, or low non-existent trading volumes; (iii) less scrutiny and regulation by local authorities of the foreign exchanges and broker-dealers; (iv) the seizure or confiscation by local governments of securities held by foreign investors, and the possible suspension or limiting by local governments of an issuers ability to make dividend or interest payments; (v) limiting or entirely restricting repatriation of invested capital, profits, and dividends by local governments; (vi) possible local taxation of capital gains, including on a retroactive basis; (vii) the attempt by issuers facing restrictions on dollar or euro payments imposed by local governments to make dividend or interest payments to foreign investors in the local currency; (viii) difficulty in enforcing legal claims related to the securities and/or local judges favoring the interests of the issuer over those of foreign investors; (ix) bankruptcy judgments being paid in the local currency; (x) greater difficulty in determining market valuations of the securities due to limited public information regarding the issuer, and (xi) difficulty of ascertaining the financial health of an issuer due to lax financial reporting on a regular basis, substandard disclosure and differences in accounting standards.
Emerging country securities markets are typically marked by a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of ownership of such securities by a limited number of investors. Although some emerging markets have become more established and tend to issue securities of higher credit quality, the markets for securities in other emerging countries are in the earliest stages of their development, and these countries issue securities across the credit spectrum. Even the markets for relatively widely traded securities in emerging countries may not be able to absorb, without price disruptions, a significant increase in trading volume or trades of a size customarily undertaken by institutional investors in the securities markets of developed countries. The limited size of many of these securities markets can cause prices to be erratic for reasons apart from factors that affect the soundness and competitiveness of the securities issuers. For example, prices may be unduly influenced by traders who control large positions in these markets. Additionally, market making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and reduced liquidity of such markets. The limited liquidity of emerging country securities may also affect a Funds ability to accurately value its portfolio securities or to acquire or dispose of securities at the price and time it wishes to do so or in order to meet redemption requests.
Many emerging market countries suffer from uncertainty and corruption in their legal frameworks. Legislation may be difficult to interpret and laws may be too new to provide any precedential value. Laws regarding foreign investment and private property may be weak or non-existent. Sudden changes in governments may result in policies which are less favorable to investors, such as policies designed to expropriate or nationalize sovereign assets. Certain emerging market countries in the past have expropriated large amounts of private property, in many cases with little or no compensation, and there can be no assurance that such expropriation will not occur in the future.
Foreign investment in the securities markets of certain emerging countries is restricted or controlled to varying degrees. These restrictions may limit a Funds investment in certain emerging countries and may increase the expenses of the Fund. Certain emerging countries require governmental approval prior to investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuers outstanding securities or to a specific class of securities, which may have less advantageous terms (including price) than securities of the company available for purchase by nationals.
Part II - 3
Many developing countries lack the social, political, and economic stability characteristics of the United States. Political instability among emerging market countries can be common and may be caused by an uneven distribution of wealth, social unrest, labor strikes, civil wars, and religious oppression. Economic instability in emerging market countries may take the form of: (i) high interest rates; (ii) high levels of inflation, including hyperinflation; (iii) high levels of unemployment or underemployment; (iv) changes in government economic and tax policies, including confiscatory taxation; and (v) imposition of trade barriers.
Currencies of emerging market countries are subject to significantly greater risks than currencies of developed countries. Many emerging market countries have experienced steady declines or even sudden devaluations of their currencies relative to the U.S. dollar. Some emerging market currencies may not be internationally traded or may be subject to strict controls by local governments, resulting in undervalued or overvalued currencies.
Some emerging market countries have experienced balance of payment deficits and shortages in foreign exchange reserves. Governments have responded by restricting currency conversions. Future restrictive exchange controls could prevent or restrict a companys ability to make dividend or interest payments in the original currency of the obligation (usually U.S. dollars). In addition, even though the currencies of some emerging market countries may be convertible into U.S. dollars, the conversion rates may be artificial to their actual market values.
A Funds income and, in some cases, capital gains from foreign stocks and securities will be subject to applicable taxation in certain of the countries in which it invests, and treaties between the U.S. and such countries may not be available in some cases to reduce the otherwise applicable tax rates. Foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Such delays in settlement could result in temporary periods when a portion of the assets of a Fund remains uninvested and no return is earned on such assets. The inability of a Fund to make intended security purchases or sales due to settlement problems could result either in losses to the Fund due to subsequent declines in value of the portfolio securities, in the Fund deeming those securities to be illiquid, or, if the Fund has entered into a contract to sell the securities, in possible liability to the purchaser.
In the past, governments within the emerging markets have become overly reliant on the international capital markets and other forms of foreign credit to finance large public spending programs which cause huge budget deficits. Often, interest payments have become too overwhelming for a government to meet, representing a large percentage of total gross domestic product (GDP). These foreign obligations have become the subject of political debate and have served as fuel for political parties of the opposition, which pressure the government not to make payments to foreign creditors, but instead to use these funds for social programs. Either due to an inability to pay or submission to political pressure, foreign governments have been forced to seek a restructuring of their loan and/or bond obligations, have declared a temporary suspension of interest payments or have defaulted. These events have adversely affected the values of securities issued by foreign governments and corporations domiciled in emerging market countries and have negatively affected not only their cost of borrowing, but their ability to borrow in the future as well.
Foreign Currency Transactions. The Funds may engage in foreign currency transactions which include forward foreign currency transactions. The Funds may engage in such transactions in both U.S. and non-U.S. markets. To the extent a Fund enters into such transactions in markets other than in the U.S., the Fund may be subject to certain currency, settlement, liquidity, trading and other risks similar to those described above with respect to the Funds investments in foreign securities including emerging markets securities. The Funds may engage in such transactions as a substitute for securities in which the Fund invests.
Forward Foreign Currency Exchange Contracts. The Funds may purchase forward foreign currency exchange contracts, sometimes referred to as currency forwards (Forward Contracts), which involve an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties in an amount and at a price set at the time of the contract. In the case of a cancelable Forward Contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers, so no intermediary is required. A Forward Contract generally has no deposit requirement, and no commissions are charged at any stage for trades.
At the maturity of a Forward Contract, a Fund may either accept or make delivery of the currency specified in the contract or, at or prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Certain Funds may also engage in non-deliverable forwards which are cash
Part II - 4
settled and which do not involve delivery of the currency specified in the contract. For more information on Non-Deliverable Forwards, see Non-Deliverable Forwards below.
Non-Deliverable Forwards. The Funds may also invest in non-deliverable forwards (NDFs). NDFs are cash-settled, short-term forward contracts on foreign currencies (each a Reference Currency) that are non-convertible and that may be thinly traded or illiquid. NDFs involve an obligation to pay an amount (the Settlement Amount) equal to the difference between the prevailing market exchange rate for the Reference Currency and the agreed upon exchange rate (the NDF Rate), with respect to an agreed notional amount. NDFs have a fixing date and a settlement (delivery) date. The fixing date is the date and time at which the difference between the prevailing market exchange rate and the agreed upon exchange rate is calculated. The settlement (delivery) date is the date by which the payment of the Settlement Amount is due to the party receiving payment.
Although NDFs are similar to forward foreign currency exchange contracts, NDFs do not require physical delivery of the Reference Currency on the settlement date. Rather, on the settlement date, the only transfer between the counterparties is the monetary settlement amount representing the difference between the NDF Rate and the prevailing market exchange rate. NDFs typically may have terms from one month up to two years and are settled in U.S. dollars.
NDFs are subject to many of the risks associated with derivatives in general and forward currency transactions including risks associated with fluctuations in foreign currency and the risk that the counterparty will fail to fulfill its obligations. The Funds will segregate or earmark liquid assets in an amount equal to the marked to market, on a daily basis, of the NDF.
The Funds will typically use NDFs as a substitute for the securities in which the Fund invests.
Risk Factors in Foreign Currency Transactions. The following is a summary of certain risks associated with foreign currency transactions:
Imperfect Correlation. Foreign currency transactions present certain risks. In particular, the variable degree of correlation between price movements of the currency instruments and price movements in the substituted securities creates the possibility that losses on the currency transaction may be greater than gains in the value of a Funds securities.
Liquidity. Currency instruments may not be liquid in all circumstances. As a result, in volatile markets, the Funds may not be able to dispose of or offset a transaction without incurring losses. The use of these instruments could tend to limit potential gain which might result from an increase in the value of the substituted security.
Leverage and Volatility Risk . Derivative instruments, including foreign currency derivatives, may sometimes increase or leverage a Funds exposure to a particular market risk. Leverage enhances the price volatility of derivative instruments held by a Fund.
Strategy Risk. The Funds may use foreign currency derivatives to gain or adjust exposure to securities markets. There is no guarantee that these strategies will succeed and their use may subject a Fund to greater volatility and loss. Foreign currency transactions involve complex securities transactions that involve risks in addition to direct investments in securities including leverage risk and the risks associated with derivatives in general, currencies, and investments in foreign and emerging markets.
Judgment of the Adviser. Successful use of foreign currency transactions by a Fund depends upon the ability of the Adviser to predict correctly movements in the direction of interest and currency rates and other factors affecting markets for securities. If the expectations of the Adviser are not met, a Fund would be in a worse position than if a foreign currency transaction had not been pursued.
Other Risks . Such sales of securities may, but will not necessarily, be at increased prices which reflect the rising market. Thus, a Fund may have to sell securities at a time when it is disadvantageous to do so.
A Fund may purchase and sell futures contracts on securities and indexes of securities. Each of these instruments is a derivative instrument as its value derives from the underlying asset or index.
Subject to its investment objective and policies, a Fund may use futures contracts for hedging and risk management purposes and to seek to enhance portfolio performance.
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Futures contracts may be used to manage a Funds exposure to changing interest rates and/or security prices. Some futures strategies, including selling futures contracts, tend to hedge a Funds investments against price fluctuations. Other strategies, including buying futures contracts, tend to increase market exposure. Futures contracts may be combined with each other or with forward contracts in order to adjust the risk and return characteristics of a Funds overall strategy in a manner deemed appropriate by the Adviser and consistent with the Funds objective and policies.
The use of futures is a highly specialized activity which involves investment strategies and risks different from those associated with ordinary portfolio securities transactions, and there can be no guarantee that their use will increase a Funds return. While the use of these instruments by a Fund may reduce certain risks associated with owning its portfolio securities, these techniques themselves entail certain other risks. If the Adviser applies a strategy at an inappropriate time or judges market conditions or trends incorrectly, options and futures strategies may lower the Funds return. Certain strategies limit a Funds possibilities to realize gains, as well as its exposure to losses. A Fund could also experience losses if the prices of its futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. In addition, a Fund will incur transaction costs, including trading commissions and option premiums, in connection with its futures and options transactions, and these transactions could significantly increase the Funds turnover rate.
Each Fund will file a notice under the Commodity Exchange Act under Regulation 4.5 and is operated by a person that has claimed an exclusion from the definition of the term commodity pool operator under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a pool operator under the Commodity Exchange Act.
Futures Contracts. When a Fund purchases a futures contract, it agrees to purchase a specified quantity of an underlying instrument at a specified future date or, in the case of an index futures contract, to make a cash payment based on the value of a securities index. When the Fund sells a futures contract, it agrees to sell a specified quantity of the underlying instrument at a specified future date or, in the case of an index futures contract, to receive a cash payment based on the value of a securities index. The price at which the purchase and sale will take place is fixed when a Fund enters into the contract. Futures can be held until their delivery dates or the position can be (and normally is) closed out before then. There is no assurance, however, that a liquid market will exist when the Fund wishes to close out a particular position.
When a Fund purchases a futures contract, the value of the futures contract tends to increase and decrease in tandem with the value of its underlying instrument. Therefore, purchasing futures contracts will tend to increase the Funds exposure to positive and negative price fluctuations in the underlying instrument, much as if it had purchased the underlying instrument directly. When a Fund sells a futures contract, by contrast, the value of its futures position will tend to move in a direction contrary to the value of the underlying instrument. Selling futures contracts, therefore, will tend to offset both positive and negative market price changes, much as if the underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay for the underlying instrument unless the contract is held until the delivery date. However, when the Fund buys or sells a futures contract it will be required to deposit initial margin with a futures commission merchant (FCM). Initial margin deposits are typically equal to a small percentage of the contracts value. If the value of either partys position declines, that party will be required to make additional variation margin payments equal to the change in value on a daily basis. The party that has a gain may be entitled to receive all or a portion of this amount. A Fund may be obligated to make payments of variation margin at a time when it is disadvantageous to do so. Furthermore, it may not always be possible for the Fund to close out its futures positions. Until it closes out a futures position, a Fund will be obligated to continue to pay variation margin. Initial and variation margin payments do not constitute purchasing on margin for purposes of the Funds investment restrictions. In the event of the bankruptcy of an FCM that holds margin on behalf of a Fund, the Fund may be entitled to return of margin owed to it only in proportion to the amount received by the FCMs other customers, potentially resulting in losses to the Fund. A Fund will earmark and reserve Fund assets, in cash or liquid securities, in connection with its use of options and futures contracts to the extent required by the staff of the Securities and Exchange Commission (SEC). A Fund will earmark and reserve liquid assets in an amount equal to the current mark-to-market exposure, on a daily basis, of a futures contract that is contractually required to cash settle. Such assets cannot be sold while the futures contract or option is outstanding unless they are replaced with other suitable assets. By setting aside assets equal only to its net obligation under cash-settled futures, the Fund will have the ability to have exposure to such instruments to a greater extent than if the Fund were required to set aside assets equal to the full notional value of such contracts. There is a possibility that earmarking and
Part II - 6
reservation of a large percentage of the Funds assets could impede portfolio management or the Funds ability to meet redemption requests or other current obligations.
A Fund only invests in futures contracts to the extent they could invest in the underlying instrument directly.
Cash Equitization. The objective where equity futures are used to equitize cash is to match the notional value of all futures contracts to a Funds cash balance. The notional values of the futures contracts and of the cash are monitored daily. As the cash is invested in securities and/or paid out to participants in redemptions, the Adviser simultaneously adjusts the futures positions. Through such procedures, a Fund not only gains equity exposure from the use of futures, but also benefits from increased flexibility in responding to client cash flow needs. Additionally, because it can be less expensive to trade a list of securities as a package or program trade rather than as a group of individual orders, futures provide a means through which transaction costs can be reduced. Such non-hedging risk management techniques involve leverage, and thus present, as do all leveraged transactions, the possibility of losses as well as gains that are greater than if these techniques involved the purchase and sale of the securities themselves rather than their synthetic derivatives.
Correlation of Price Changes. Because there are a limited number of types of exchange-traded futures contracts, it is likely that the futures contracts available will not match a Funds current or anticipated investments exactly. A Fund may invest in futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the futures position will not track the performance of the Funds other investments.
Futures contracts prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match a Funds investments well. Futures contracts prices are affected by such factors as current and anticipated short term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the futures markets and the securities markets, from structural differences in how futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts. A Fund may purchase or sell futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in a Funds futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments.
Liquidity of Futures Contracts. There is no assurance that a liquid market will exist for any particular futures contract at any particular time even if the contract is traded on an exchange. In addition, exchanges may establish daily price fluctuation limits for futures contracts and may halt trading if a contracts price moves up or down more than the limit in a given day. On volatile trading days when the price fluctuation limit is reached or a trading halt is imposed, it may be impossible for a Fund to enter into new positions or close out existing positions. If the market for a contract is not liquid because of price fluctuation limits or otherwise, it could prevent prompt liquidation of unfavorable positions, and could potentially require a Fund to continue to hold a position until delivery or expiration regardless of changes in its value. As a result, a Funds access to other assets held to cover its futures positions could also be impaired.
Position Limits. Futures exchanges can limit the number of futures contracts that can be held or controlled by an entity. If an adequate exemption cannot be obtained, the applicable Fund or such Funds Adviser may be required to reduce the size of its futures positions or may not be able to trade a certain futures contract in order to avoid exceeding such limits.
Asset Coverage for Futures Contracts Positions. The Funds will comply with guidelines established by the SEC with respect to coverage of options and futures contracts by mutual funds, and if the guidelines so require, will set aside or earmark appropriate liquid assets in the amount prescribed. Such assets cannot be sold while the futures contract is outstanding, unless they are replaced with other suitable assets. As a result, there is a possibility that the reservation of a large percentage of a Funds assets could impede portfolio management or the Funds ability to meet redemption requests or other current obligations.
Investment Company Securities. A Fund may acquire the securities of other investment companies (acquired funds) to the extent permitted under the 1940 Act and consistent with its investment objective and strategies. As a shareholder of another investment company, a Fund would bear, along with other shareholders, its
Part II - 7
pro rata portion of the other investment companys expenses, including advisory fees. These expenses would be in addition to the advisory and other expenses that a Fund bears directly in connection with its own operations. Except as described below, the 1940 Act currently requires that, as determined immediately after a purchase is made, (i) not more than 5% of the value of the funds total assets will be invested in the securities of any one investment company, (ii) not more than 10% of the value of its total assets will be invested in the aggregate in securities of investment companies as a group and (iii) not more than 3% of the outstanding voting stock of any one investment company will be owned by the fund.
The limitations described above do not apply to investments in money market funds subject to certain conditions. The Fund may invest in affiliated and unaffiliated money market funds without limit under Rule 12d1-1 of the 1940 Act subject to the acquiring funds investment policies and restrictions and the conditions of the Rule.
Miscellaneous Investment Strategies and Risks
Borrowings. The Funds may borrow for temporary purposes and/or for investment purposes. Such a practice will result in leveraging of a Funds assets and may cause the Fund to liquidate portfolio positions when it would not be advantageous to do so. This borrowing may be secured or unsecured. If a Fund utilizes borrowings, for investment purposes or otherwise, it may pledge up to 33 1 / 3 % of its total assets to secure such borrowings. Provisions of the 1940 Act require a Fund to maintain continuous asset coverage (that is, total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed, with an exception for borrowings not in excess of 5% of a Funds total assets made for temporary administrative or emergency purposes. Any borrowings for temporary administrative purposes in excess of 5% of a Funds total assets must maintain continuous asset coverage. If the 300% asset coverage should decline as a result of market fluctuations or other reasons, a Fund may be required to sell some of its portfolio holdings within three days to reduce the debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. Borrowing will tend to exaggerate the effect on net asset value of any increase or decrease in the market value of a Funds portfolio. Money borrowed will be subject to interest costs which may or may not be recovered by appreciation of the securities purchased. A Fund also may be required to maintain minimum average balances in connection with such borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate.
Certain types of investments are considered to be borrowings under precedents issued by the SEC. Such investments are subject to the limitations as well as asset segregation requirements.
Government Intervention in Financial Markets. Events in the financial sector over the past several years have resulted in reduced liquidity in credit and fixed income markets and in an unusually high degree of volatility in the financial markets, both domestically and internationally. While entire markets have been impacted, issuers that have exposure to the real estate, mortgage and credit markets have been particularly affected. These events and the potential for continuing market turbulence may have an adverse effect on the Funds investments. It is uncertain how long these conditions will continue.
Recent instability in the financial markets has led governments and regulators around the world to take a number of unprecedented actions designed to support certain financial institutions and segments of the financial markets that have experienced extreme volatility, and in some cases a lack of liquidity. Governments, their regulatory agencies, or self regulatory organizations may take actions that affect the regulation of the instruments in which a Fund invests, or the issuers of such instruments, in ways that are unforeseeable. Legislation or regulation may also change the way in which the Fund is regulated. Such legislation or regulation could limit or preclude a Funds ability to achieve its investment objective.
Governments or their agencies may also acquire distressed assets from financial institutions and acquire ownership interests in those institutions. The implications of government ownership and disposition of these assets are unclear, and such a program may have positive or negative effects on the liquidity, valuation and performance of the Funds portfolio holdings. Furthermore, volatile financial markets can expose a Fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held by the Fund.
Private Placements, Restricted Securities and Other Unregistered Securities. Subject to its policy limitation, a Fund may acquire investments that are illiquid or have limited liquidity, such as commercial obligations issued in reliance on the so-called private placement exemption from registration afforded by Section 4(2) under the Securities Act of 1933, as amended (the 1933 Act), and cannot be offered for public sale in the U.S. without first being registered under the 1933 Act. An illiquid investment is any investment that cannot be
Part II - 8
disposed of within seven days in the normal course of business at approximately the amount at which it is valued by a Fund. The price a Fund pays for illiquid securities or receives upon resale may be lower than the price paid or received for similar securities with a more liquid market. Accordingly the valuation of these securities will reflect any limitations on their liquidity.
A Fund is subject to a risk that should the Fund decide to sell illiquid securities when a ready buyer is not available at a price the Fund deems representative of their value, the value of the Funds net assets could be adversely affected. Where an illiquid security must be registered under the 1933 Act before it may be sold, a Fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Fund might obtain a less favorable price than prevailed when it decided to sell.
The Funds may invest in commercial paper issued in reliance on the exemption from registration afforded by Section 4(2) of the 1933 Act and other restricted securities (i.e., other securities subject to restrictions on resale). Section 4(2) commercial paper (4(2) paper) is restricted as to disposition under federal securities law and is generally sold to institutional investors, such as the Fund, that agree that they are purchasing the paper for investment purposes and not with a view to public distribution. Any resale by the purchaser must be in an exempt transaction. 4(2) paper is normally resold to other institutional investors through or with the assistance of the issuer or investment dealers who make a market in 4(2) paper, thus providing liquidity. The Funds believes that 4(2) paper and possibly certain other restricted securities which meet the criteria for liquidity established by the Trustees are quite liquid. The Funds intend, therefore, to treat restricted securities that meet the liquidity criteria established by the Board of Trustees, including 4(2) paper and Rule 144A Securities, as determined by the Adviser, as liquid and not subject to the investment limitation applicable to illiquid securities.
The ability of the Trustees to determine the liquidity of certain restricted securities is permitted under an SEC Staff position set forth in the adopting release for Rule 144A under the 1933 Act (Rule 144A). Rule 144A is a nonexclusive safe-harbor for certain secondary market transactions involving securities subject to restrictions on resale under federal securities laws. Rule 144A provides an exemption from registration for resales of otherwise restricted securities to qualified institutional buyers. Rule 144A was expected to further enhance the liquidity of the secondary market for securities eligible for resale. The Funds believe that the Staff of the SEC has left the question of determining the liquidity of all restricted securities to the Trustees. The Trustees have directed the Adviser to consider the following criteria in determining the liquidity of certain restricted securities:
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the frequency of trades and quotes for the security; |
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the number of dealers willing to purchase or sell the security and the number of other potential buyers; |
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dealer undertakings to make a market in the security; and |
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the nature of the security and the nature of the marketplace trades. |
Certain 4(2) paper programs cannot rely on Rule 144A because, among other things, they were established before the adoption of the rule. However, the Trustees may determine for purposes of the Trusts liquidity requirements that an issue of 4(2) paper is liquid if the following conditions, which are set forth in a 1994 SEC no-action letter, are met:
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The 4(2) paper must not be traded flat or in default as to principal or interest; |
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The 4(2) paper must be rated in one of the two highest rating categories by at least two NRSROs, or if only one NRSRO rates the security, by that NRSRO, or if unrated, is determined by the Adviser to be of equivalent quality; |
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The Funds Adviser must consider the trading market for the specific security, taking into account all relevant factors, including but not limited to, whether the paper is the subject of a commercial paper program that is administered by an issuing and paying agent bank and for which there exists a dealer willing to make a market in that paper, or whether the paper is administered by a direct issuer pursuant to a direct placement program; |
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The Funds Adviser shall monitor the liquidity of the 4(2) paper purchased and shall report to the Board of Trustees promptly if any such securities are no longer determined to be liquid if such determination causes a Fund to hold more than 10% of its net assets in illiquid securities in order for the Board of Trustees to consider what action, if any, should be taken on behalf of the Trust, unless the Funds Adviser is able to dispose of illiquid assets in an orderly manner in an amount that reduces the Funds holdings of illiquid assets to less than 10% of its net assets; and |
Part II - 9
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The Funds Adviser shall report to the Board of Trustees on the appropriateness of the purchase and retention of liquid restricted securities under these guidelines no less frequently than quarterly. |
Securities Issued in Connection with Reorganizations and Corporate Restructuring. Debt securities may be downgraded and issuers of debt securities including investment grade securities may default in the payment of principal or interest or be subject to bankruptcy proceedings. In connection with reorganizing or restructuring of an issuer, an issuer may issue common stock or other securities to holders of its debt securities. A Fund may hold such common stock and other securities even though it does not ordinarily invest in such securities.
Real Estate Investment Trusts (REITs)
The Funds may invest in equity interests or debt obligations issued by REITs. REITs are pooled investment vehicles which invest primarily in income producing real estate or real estate related loans or interest. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling property that has appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. Similar to investment companies, REITs are not taxed on income distributed to shareholders provided they comply with several requirements of the Internal Revenue Code (Code). A Fund will indirectly bear its proportionate share of expenses incurred by REITs in which the Fund invests in addition to the expenses incurred directly by the Fund.
Investing in REITs involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills and on cash flows, are not diversified, and are subject to default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax free pass-through of income under the Code and failing to maintain their exemption from registration under the 1940 Act.
REITs (especially mortgage REITs) are also subject to interest rate risks. When interest rates decline, the value of a REITs investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REITs investment in fixed rate obligations can be expected to decline. In contrast, as interest rates on adjustable rate mortgage loans are reset periodically, yields on a REITs investment in such loans will gradually align themselves to fluctuate less dramatically in response to interest rate fluctuations than would investments in fixed rate obligations.
Investment in REITs involves risks similar to those associated with investing in small capitalization companies. These risks include:
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limited financial resources; |
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infrequent or limited trading; and |
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more abrupt or erratic price movements than larger company securities. |
In addition, small capitalization stocks, such as certain REITs, historically have been more volatile in price than the larger capitalization stocks included in the S&P 500 ® Index.
Recent Events Relating to the Overall Economy
The U.S. Government, the Federal Reserve, the Treasury, the SEC, the Federal Deposit Insurance Corporation and other governmental and regulatory bodies have recently taken or are considering taking actions to address the financial crisis. These actions include, but are not limited to, the enactment by the United States Congress of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law on July 21, 2010 and imposes a new regulatory framework over the U.S. financial services industry and the consumer credit markets in general, and proposed regulations by the SEC. Given the broad scope, sweeping nature, and relatively recent enactment of some of these regulatory measures, the potential impact they could have on securities held by the Fund is unknown. There can be no assurance that these measures will not have an adverse effect on the value or marketability of securities held by a Fund. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory body (or other authority or regulatory body) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
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Each Fund is a diversified fund and as such intends to meet the diversification requirements of the 1940 Act Current 1940 Act diversification requirements require that with respect to 75% of the assets of the Fund, the Fund may not invest more than 5% of its total assets in the securities of any one issuer or own more than 10% of the outstanding voting securities of any one issuer, except cash or cash items, obligations of the U.S. government, its agencies and instrumentalities, and securities of other investment companies. As for the other 25% of a Funds assets not subject to the limitation described above, there is no limitation on investment of these assets under the 1940 Act, so that all of such assets may be invested in securities of any one issuer. Investments not subject to the limitations described above could involve an increased risk to a Fund should an issuer be unable to make interest or principal payments or should the market value of such securities decline.
The Funds will also comply with the diversification requirements imposed by the Code for qualification as a regulated investment company. See Distributions and Tax Matters.
The following discussion is a brief summary of some of the important federal (and, where noted, state) income tax consequences affecting the Funds and their shareholders. There may be other tax considerations applicable to particular shareholders. Except as otherwise noted in a Funds Prospectus, a Fund is not intended for foreign shareholders. As a result, this section does not address in detail the tax consequences affecting any shareholder who, as to the U.S., is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership. This section is based on the Code, the regulations thereunder, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. The following tax discussion is very general; therefore, prospective investors are urged to consult their tax advisors about the impact an investment in a Fund may have on their own tax situations and the possible application of foreign, state and local law.
The Funds generally will be treated as a separate entity for federal income tax purposes, and thus the provisions of the Code generally will be applied to a Fund and not at the Trust level. Net long-term and short-term capital gain, net income and operating expenses therefore will be determined separately for a Fund.
Special tax rules apply to investments held through defined contribution plans and other tax-qualified plans. Shareholders should consult their tax advisors to determine the suitability of shares of a Fund as an investment through such plans.
Qualification as a Regulated Investment Company
Each Fund intends to elect to be treated and qualify each year as a regulated investment company under Subchapter M of the Code. In order to qualify for the special tax treatment accorded regulated investment companies and their shareholders, each Fund must, among other things:
(a) | derive at least 90% of its gross income for each taxable year from (i) dividends, interest, payments with respect to certain securities loans, and gain from the sale or other disposition of stock, securities, or foreign currencies, or other income (including, but not limited to, gain from options, swaps, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies and (ii) net income derived from interests in qualified publicly traded partnerships (QPTPs, defined below); |
(b) | diversify its holdings so that, at the end of each quarter of the Funds taxable year, (i) at least 50% of the market value of the Funds total assets is represented by cash and cash items, U.S. government securities, securities of other regulated investment companies, and other securities, limited in respect of any one issuer to an amount not greater than 5% of the value of the Funds total assets and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Funds total assets is invested (x) in the securities (other than cash or cash items, or securities issued by the U.S. government or other regulated investment companies) of any one issuer or of two or more issuers that the Fund controls and that are engaged in the same, similar, or related trades or businesses, or (y) in the securities of one or more QPTPs. In the case of the Funds investments in loan participations, the Fund shall treat both the financial intermediary and the issuer of the underlying loan as an issuer for the purposes of meeting this diversification requirement; and |
(c) | distribute with respect to each taxable year at least 90% of the sum of its investment company taxable income (as that term is defined in the Code, without regard to the deduction for dividends paid generally, taxable ordinary income and any excess of net short-term capital gain over net long-term capital loss) and net tax-exempt interest income, for such year. |
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In general, for purposes of the 90% gross income requirement described in paragraph (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, 100% of the net income derived from an interest in a qualified publicly traded partnership (defined as a partnership (x) interests in which are traded on an established securities markets or readily tradable on a secondary market as the substantial equivalents thereof, (y) that derives at least 90% of its income from passive income sources defined in Code section 7704(d), and (z) that derives less than 90% of its income from the qualifying income described in (a)(i) above) will be treated as qualifying income. Although income from a QPTP is qualifying income, as discussed above, investments in QPTPs cannot exceed 25% of the Funds assets. In addition, although in general the passive loss rules of the Code do not apply to regulated investment companies, such rules do apply to a regulated investment company with respect to items attributable to an interest in a QPTP.
Gains from foreign currencies (including foreign currency options, foreign currency swaps, foreign currency futures and foreign currency forward contracts) currently constitute qualifying income for purposes of the 90% test, described in paragraph (a) above. However, the Treasury Department has the authority to issue regulations (possibly with retroactive effect) excluding from the definition of qualifying income a funds foreign currency gains to the extent that such income is not directly related to the Funds principal business of investing in stock or securities.
For purposes of paragraph (b) above, the term outstanding voting securities of such issuer will include the equity securities of a QPTP. A Funds investment in MLPs may qualify as an investment in (1) a QPTP, (2) a regular partnership, (3) a passive foreign investment company (a PFIC) or (4) a corporation for U.S. federal income tax purposes. The treatment of particular master limited partnerships (MLPs) for U.S. federal income tax purposes will affect the extent to which a Fund can invest in MLPs. The U.S. federal income tax consequences of a Funds investments in PFICs and regular partnerships are discussed in greater detail below.
If a Fund qualifies for a taxable year as a regulated investment company that is accorded special tax treatment, the Fund will not be subject to federal income tax on income distributed in a timely manner to its shareholders in the form of dividends (including Capital Gain Dividends, defined below). If a Fund were to fail to qualify as a regulated investment company accorded special tax treatment in any taxable year, the Fund would be subject to taxation on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gain, would be taxable to shareholders as ordinary income. Some portions of such distributions may be eligible for the dividends-received deduction in the case of corporate shareholders and for treatment as qualified dividend income in the case of individual shareholders. In addition, the Fund could be required to recognize unrealized gain, pay substantial taxes and interest, and make substantial distributions before re-qualifying as a regulated investment company that is accorded special tax treatment.
Each Fund intends to distribute at least annually to its shareholders all or substantially all of its investment company taxable income (computed without regard to the dividends-paid deduction) and may distribute its net capital gain (that is the excess of net long-term capital gain over net short-term capital loss). Investment company taxable income which is retained by a Fund will be subject to tax at regular corporate tax rates. Each Fund might also retain for investment its net capital gain. If a Fund does retain such net capital gain, such gain will be subject to tax at regular corporate rates on the amount retained, but the Fund may designate the retained amount as undistributed capital gain in a notice to its shareholders who (i) will be required to include in income for federal income tax purposes, as long-term capital gain, their respective shares of the undistributed amount, and (ii) will be entitled to credit their respective shares of the tax paid by a Fund on such undistributed amount against their federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. For federal income tax purposes, the tax basis of shares owned by a shareholder of a Fund will be increased by an amount equal under current law to the difference between the amount of undistributed capital gain included in the shareholders gross income and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence.
In determining its net capital gain, including in connection with determining the amount available to support a Capital Gain Dividend, its taxable income and its earnings and profits, a Fund may elect to treat part or all of any post-October capital loss (defined as the greatest of net capital loss, net long-term capital loss, or net short-term capital loss, in each case attributable to the portion of the taxable year after October 31) or late-year ordinary loss (generally, (i) net ordinary loss from the sale, exchange or other taxable disposition of property, attributable to the portion of the taxable year after October 31, plus (ii) other net ordinary loss attributable to the portion of the taxable year after December 31) as if incurred in the succeeding taxable year.
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Excise Tax on Regulated Investment Companies
If a Fund fails to distribute in a calendar year an amount equal to the sum of 98% of its ordinary income for such year and 98.2% of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a nondeductible 4% excise tax on the undistributed amounts. Each Fund intends to make distributions sufficient to avoid imposition of the 4% excise tax, although the Fund reserves the right to pay an excise tax rather than make an additional distribution when circumstances warrant (e.g., the excise tax amount is deemed by the Fund to be de minimis ). Certain derivative instruments give rise to ordinary income and loss. If a Fund has a taxable year that begins in one calendar year and ends in the next calendar year, the Fund will be required to make this excise tax distribution during its taxable year. There is a risk that a Fund could recognize income prior to making this excise tax distribution and could recognize losses after making this distribution. As a result, an excise tax distribution could constitute a return of capital (see discussion below).
Each Fund anticipates distributing substantially all of its net investment income for each taxable year. Distributions are taxable to shareholders even if they are paid from income or gain earned by the Fund before a shareholders investment (and thus were included in the price the shareholder paid). Distributions are taxable whether shareholders receive them in cash or reinvest them in additional shares. A shareholder whose distributions are reinvested in shares will be treated as having received a dividend equal to the fair market value of the new shares issued.
Dividends and distributions on a Funds shares generally are subject to federal income tax as described herein to the extent they do not exceed the Funds realized income and gains, even though such dividends and distributions may represent economically a return of a particular shareholders investment. Such dividends and distributions are likely to occur in respect of shares purchased at a time when a Funds net asset value reflects gains that are either (i) unrealized, or (ii) realized but not distributed.
For federal income tax purposes, distributions of net investment income generally are taxable as ordinary income. Taxes on distributions of capital gain are determined by how long a Fund owned the investment that generated it, rather than how long a shareholder may have owned shares in the Fund. Distributions of net capital gain from the sale of investments that a Fund owned for more than one year and that are properly designated by the Fund as capital gain dividends (Capital Gain Dividends) will be taxable as long-term capital gain. Distributions of capital gain generally are made after applying any available capital loss carryovers. For taxable years beginning after December 31, 2012, the maximum individual rate applicable to long-term capital gains is either 15% or 20%, depending on whether the individuals income exceeds certain threshold amounts. A distribution of gain from the sale of investments that a Fund owned for one year or less will be taxable as ordinary income. Distributions attributable to gain from the sale of MLPs that is characterized as ordinary income under the Codes recapture provisions will be taxable as ordinary income.
Distributions of investment income designated by a Fund as derived from qualified dividend income will be taxed in the hands of individuals at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet certain holding-period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio, and the shareholder must meet certain holding-period and other requirements with respect to the Funds shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (i) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (ii) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (iii) if the recipient elects to have the dividend income treated as investment interest for purposes of the limitation on deductibility of investment interest, or (iv) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the U.S. (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the U.S.) or (b) treated as a PFIC.
In general, distributions of investment income designated by a Fund as derived from qualified dividend income will be treated as qualified dividend income by a non-corporate taxable shareholder so long as the shareholder meets the holding period and other requirements described above with respect to the Funds shares. In any event, if the
Part II - 13
qualified dividend income received by a Fund during any taxable year is equal to or greater than 95% of its gross income, then 100% of the Funds dividends (other than dividends that are properly designated as Capital Gain Dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term gross income is the excess of net short-term capital gain over net long-term capital loss.
If a Fund receives dividends from an underlying fund, and the underlying fund designates such dividends as qualified dividend income, then the Fund may, in turn, designate a portion of its distributions as qualified dividend income as well, provided the Fund meets the holding-period and other requirements with respect to shares of the underlying fund.
Any loss realized upon a taxable disposition 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 with respect to those shares. All or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed if other shares of such Fund are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
A distribution paid to shareholders by a Fund in January of a year generally is deemed to have been received by shareholders on December 31 of the preceding year, if the distribution was declared and payable to shareholders of record on a date in October, November, or December of that preceding year. A Fund will provide federal tax information annually, including information about dividends and distributions paid during the preceding year to taxable investors and others requesting such information.
If a Fund makes a distribution to its shareholders in excess of its current and accumulated earnings and profits in any taxable year, the excess distribution will be treated as a return of capital to the extent of each shareholders basis (for tax purposes) in its shares, and any distribution in excess of basis will be treated as capital gain. A return of capital is not taxable, but it reduces the shareholders basis in its shares, which reduces the loss (or increases the gain) on a subsequent taxable disposition by such shareholder of the shares.
Dividends of net investment income received by corporate shareholders (other than shareholders that are S corporations) of a Fund will qualify for the 70% dividends-received deduction generally available to corporations to the extent of the amount of qualifying dividends received by the Fund from domestic corporations for the taxable year. A dividend received by a Fund will not be treated as a qualifying dividend (1) if the stock on which the dividend is paid is considered to be debt-financed (generally, acquired with borrowed funds), (2) if it has been received with respect to any share of stock that the Fund has held less than 46 days (91 days in the case of certain preferred stock) during the 91-day period beginning on the date which is 45 days before the date on which such share becomes ex-dividend with respect to such dividend (during the 181-day period beginning 90 days before such date in the case of certain preferred stock) or (3) to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Moreover, the dividends-received deduction may be disallowed or reduced (1) if the corporate shareholder fails to satisfy the foregoing requirements with respect to its shares of the Fund or (2) by application of the Code. However, any distributions received by a Fund from REITs and PFICs will not qualify for the corporate dividends-received deduction.
For taxable years beginning after December 31, 2012, an additional 3.8% Medicare tax will be imposed on certain net investment income (including ordinary dividends and capital gain distributions received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates and trusts to the extent that such persons 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.
The sale, exchange, or redemption of Fund shares may give rise to a gain or loss. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of a Fund will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for more than one year. However, any capital loss arising from the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on (or undistributed capital gains credited with respect to) such shares. Additionally, any loss realized upon the sale or exchange of Fund shares with a tax holding period of six months or less may be disallowed to the extent of any distributions treated as exempt interest dividends with respect to such shares. For taxable years beginning after December 31, 2012, the maximum individual rate applicable to long-term capital gains is either 15% or 20%, depending on whether the individuals income exceeds
Part II - 14
certain threshold amounts. Capital gain of a corporate shareholder is taxed at the same rate as ordinary income. Depending on a shareholders percentage ownership in a Fund, a partial redemption of Fund shares could cause the shareholder to be treated as receiving a dividend, taxable as ordinary income in an amount equal to the full amount of the distribution, rather than capital gain income.
The following applies to Fund investments to the extent a Fund is permitted to invest in such investments.
Certain investments of a Fund, including transactions in options, swaptions, futures contracts, forward contracts, straddles, swaps, short sales, foreign currencies, inflation-linked securities and foreign securities, including for hedging purposes, will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale and short sale rules). In a given case, these rules may accelerate income to a Fund, defer losses to the Fund, cause adjustments in the holding periods of the Funds securities, convert long-term capital gain into short-term capital gain, convert short-term capital losses into long-term capital loss, or otherwise affect the character of the Funds income. These rules could therefore affect the amount, timing and character of distributions to shareholders and cause differences between a Funds book income and its taxable income. If a Funds book income exceeds its taxable income, the distribution (if any) of such excess generally will be treated as (i) a dividend to the extent of the Funds remaining earnings and profits (including earnings and profits arising from tax-exempt income), (ii) thereafter, as a return of capital to the extent of the recipients basis in its shares, and (iii) thereafter, as gain from the sale or exchange of a capital asset. If a Funds book income is less than taxable income, the Fund could be required to make distributions exceeding book income to qualify as a regulated investment company that is accorded special tax treatment. Income earned as a result of these transactions would, in general, not be eligible for the dividends-received deduction or for treatment as exempt-interest dividends when distributed to shareholders. Each Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interest of the Fund and its shareholders.
A Funds participation in loans of securities may affect the amount, timing, and character of distributions to shareholders. With respect to any security subject to a securities loan, any (i) amounts received by the Fund in place of dividends earned on the security during the period that such security was not directly held by the Fund will not give rise to qualified dividend income and (ii) withholding taxes accrued on dividends during the period that such security was not directly held by the Fund will not qualify as a foreign tax paid by the Fund and therefore cannot be passed through to shareholders even if the Fund meets the requirements described in Foreign Taxes, below.
Certain debt securities purchased by a Fund are sold at an original issue discount and thus do not make periodic cash interest payments. Similarly, zero-coupon bonds do not make periodic interest payments. Generally, the amount of the original issue discount is treated as interest income and is included in taxable income (and required to be distributed) over the term of the debt security even though payment of that amount is not received until a later time, usually when the debt security matures. In addition, payment-in-kind securities will give rise to income that is required to be distributed and is taxable even though a Fund holding the security receives no interest payment in cash on the security during the year. Because each Fund distributes substantially all of its net investment income to its shareholders (including such imputed interest), a Fund may have to sell portfolio securities in order to generate the cash necessary for the required distributions. Such sales may occur at a time when the Adviser would not otherwise have chosen to sell such securities and may result in a taxable gain or loss. The Fund may invest in inflation-linked debt securities. Any increase in the principal amount of an inflation-linked debt security will be original issue discount, which is taxable as ordinary income and is required to be distributed, even though the Fund will not receive the principal, including any increase thereto, until maturity. A Fund investing in such securities may be required to liquidate other investments, including at times when it is not advantageous to do so, in order to satisfy its distribution requirements and to eliminate any possible taxation at the Fund level.
A Fund may invest in debt obligations that are in the lowest rated categories (or are unrated), including debt obligations of issuers that are not currently paying interest or that are in default. Investments in debt obligations that are at risk of being in default (or are presently in default) present special tax issues for the Fund. Tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless securities and how payments received on obligations in default should be allocated between principal and income. These and other related issues will be addressed by a Fund when, as and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a regulated investment company and does not become subject to U.S. federal income taxation or any excise tax.
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Transactions of a Fund in foreign currencies, foreign currency denominated debt securities and certain foreign currency options, future contracts and forward contracts (and similar instruments) may accelerate income recognition and result in ordinary income or loss to the Fund for federal income tax purposes which will be taxable to the shareholders as such when it is distributed to them.
Special tax considerations apply if a Fund invests in investment companies that are taxable as partnerships for federal income tax purposes. In general, a Fund will not recognize income earned by such an investment company until the close of the investment companys taxable year. But a Fund will recognize such income as it is earned by the investment company for purposes of determining whether it is subject to the 4% excise tax. Therefore, if a Fund and such an investment company have different taxable years, the Fund may be compelled to make distributions in excess of the income recognized from such an investment company in order to avoid the imposition of the 4% excise tax. A Funds receipt of a non-liquidating cash distribution from an investment company taxable as a partnership generally will result in recognized gain (but not loss) only to the extent that the amount of the distribution exceeds the Funds adjusted basis in shares of such investment company before the distribution. A Fund that receives a liquidating cash distribution from an investment company taxable as a partnership will recognize capital gain or loss to the extent of the difference between the proceeds received by the Fund and the Funds adjusted tax basis in shares of such investment company; however, the Fund will recognize ordinary income, rather than capital gain, to the extent that the Funds allocable share of unrealized receivables (including any accrued but untaxed market discount) exceeds the shareholders share of the basis in those unrealized receivables.
The Funds may invest in REITs. Such investments in REIT equity securities may require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued to hold. The Funds investments in REIT equity securities may at other times result in the Funds receipt of cash in excess of the REITs earnings; if the Fund distributes such amounts, such distribution could constitute a return of capital to Fund shareholders for federal income tax purposes. Dividends received by the Fund from a REIT generally will not constitute qualified dividend income.
A Fund might invest directly or indirectly in residual interests in real estate mortgage investment conduits (REMICs) or equity interests in taxable mortgage pools (TMPS). Under a notice issued by the IRS in October 2006 and Treasury regulations that have not yet been issued (but may apply with retroactive effect) a portion of a Funds income from a REIT that is attributable to the REITs residual interest in a REMIC or a TMP (referred to in the Code as an excess inclusion) will be subject to federal income taxation in all events. This notice also provides, and the regulations are expected to provide, that excess inclusion income of a regulated investment company, such as a Fund, will generally be allocated to shareholders of the regulated investment company in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related REMIC or TMP residual interest directly.
In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions) and (ii) will constitute unrelated business taxable income (UBTI) to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on such income. In addition, because the Code provides that excess inclusion income is ineligible for treaty benefits, a regulated investment company must withhold tax on excess inclusions attributable to its foreign shareholders at a 30% rate of withholding, regardless of any treaty benefits for which a shareholder is otherwise eligible.
Any investment in residual interests of a CMO that has elected to be treated as a REMIC can create complex tax problems, especially if the Fund has state or local governments or other tax-exempt organizations as shareholders. Under current law, the Fund serves to block UBTI from being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder will recognize UBTI by virtue of its investment in the Fund if shares in a Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Code Section 514(b). Furthermore, a tax-exempt shareholder may recognize UBTI if a Fund recognizes excess inclusion income derived from direct or indirect investments in REMIC residual interests or TMPs if the amount of such income recognized by the Fund exceeds the Funds investment company taxable income (after taking into account deductions for dividends paid by the Fund).
In addition, special tax consequences apply to charitable remainder trusts (CRTs) that invest in regulated investment companies that invest directly or indirectly in residual interests in REMICs or in TMPs. Under
Part II - 16
legislation enacted in December 2006, a CRT, as defined in section 664 of the Code, that realizes UBTI for a taxable year must pay an excise tax annually of an amount equal to such UBTI. Under IRS guidance issued in October 2006, a CRT will not recognize UBTI solely as a result of investing in a Fund that recognizes excess inclusion income. Rather, if at any time during any taxable year a CRT (or one of certain other tax-exempt shareholders, such as the U.S., a state or political subdivision, or an agency or instrumentality thereof, and certain energy cooperatives) is a record holder of a share in a Fund that recognizes excess inclusion income, then the Fund will be subject to a tax on that portion of its excess inclusion income for the taxable year that is allocable to such shareholders at the highest federal corporate income tax rate. The extent to which this IRS guidance remains applicable in light of the December 2006 legislation is unclear. To the extent permitted under the 1940 Act, each Fund may elect to specially allocate any such tax to the applicable CRT, or other shareholder, and thus reduce such shareholders distributions for the year by the amount of the tax that relates to such shareholders interest in the Fund. The Fund has not yet determined whether such an election will be made. CRTs are urged to consult their tax advisors concerning the consequences of investing in the Fund.
If a Fund invests in PFICs, certain special tax consequences may apply. A PFIC is any foreign corporation in which (i) 75% or more of the gross income for the taxable year is passive income, or (ii) the average percentage of the assets (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50%. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gains over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons. A Funds investments in certain PFICs could subject the Fund to a U.S. federal income tax (including interest charges) on distributions received from the company or on proceeds received from the disposition of shares in the company. This tax cannot be eliminated by making distributions to Fund shareholders. In addition, certain interest charges may be imposed on the Fund as a result of such distributions.
If a Fund is in a position to treat a PFIC as a qualified electing fund (QEF), the Fund will be required to include its share of the companys income and net capital gain annually, regardless of whether it receives any distributions from the company. Alternately, a Fund may make an election to mark the gains (and to a limited extent losses) in such holdings to the market as though it had sold and repurchased its holdings in those PFICs on the last day of the Funds taxable year. Such gain and loss are treated as ordinary income and loss. The QEF and mark-to-market elections may have the effect of accelerating the recognition of income (without the receipt of cash) and increasing the amount required to be distributed by a Fund to avoid taxation. Making either of these elections, therefore, may require the Fund to liquidate other investments (including when it is not advantageous to do so) to meet its distribution requirement, which also may accelerate the recognition of gain and affect the Funds total return. A fund that invests indirectly in PFICs by virtue of the funds investment in other investment companies that qualify as U.S. persons within the meaning of the Code may not make such elections; rather, such underlying investment companies investing directly in the PFICs would decide whether to make such elections. Dividends paid by PFICs will not be eligible to be treated as qualified dividend income.
The ability of a Fund to invest directly in commodities, and in certain commodity-related securities and other instruments, is subject to significant limitations in order to enable a Fund to maintain its status as a regulated investment company under the Code.
If a Fund invests in shares of other mutual funds, ETFs or other companies that are taxable as regulated investment companies, as well as certain investments in REITs (collectively, underlying funds), its distributable income and gains will normally consist, in part, of distributions from the underlying funds and gains and losses on the disposition of shares of the underlying funds. To the extent that an underlying fund realizes net losses on its investments for a given taxable year, the Fund will not be able to recognize its share of those losses (so as to offset distributions of net income or capital gains from other underlying funds) until it disposes of shares of the underlying fund. Moreover, even when the Fund does make such a disposition, a portion of its loss may be recognized as a long-term capital loss, which will not be treated as favorably for federal income tax purposes as a short-term capital loss or an ordinary deduction. In particular, the Fund will not be able to offset any capital losses from its dispositions of underlying fund shares against its ordinary income (including distributions of any net short-term capital gain realized by an underlying fund).
Part II - 17
In addition, in certain circumstances, the wash sale rules under Section 1091 of the Code may apply to a Funds sales of underlying fund shares that have generated losses. A wash sale occurs if shares of an underlying fund are sold by the Fund at a loss and the Fund acquires substantially identical shares of that same underlying fund 30 days before or after the date of the sale. The wash-sale rules could defer losses in the Funds hands on sales of underlying fund shares (to the extent such sales are wash sales) for extended (and, in certain cases, potentially indefinite) periods of time.
As a result of the foregoing rules, and certain other special rules, the amount of net investment income and net capital gain that each Fund will be required to distribute to shareholders may be greater than what such amounts would have been had the Fund directly invested in the securities held by the underlying funds, rather than investing in shares of the underlying funds. For similar reasons, the character of distributions from the Fund (e.g., long-term capital gain, exempt interest, eligibility for dividends-received deduction, etc.) will not necessarily be the same as it would have been had the Fund invested directly in the securities held by the underlying funds.
If a Fund received dividends from an underlying fund that qualifies as a regulated investment company, and the underlying fund designates such dividends as qualified dividend income, then the Fund is permitted in turn to designate a portion of its distributions as qualified dividend income, provided the Fund meets holding period and other requirements with respect to shares of the underlying fund.
Depending on a Funds percentage ownership in an underlying fund, both before and after a redemption, a redemption of shares of an underlying fund by a Fund may cause the Fund to be treated as receiving a Section 301 distribution taxable as a dividend to the extent of its allocable shares of earnings and profits, on the full amount of the distribution instead of receiving capital gain income on the shares of the underlying fund. Such a distribution may be treated as qualified dividend income and thus eligible to be taxed at the rates applicable to long-term capital gain. If qualified dividend income treatment is not available, the distribution may be taxed as ordinary income. This could cause shareholders of a Fund to recognize higher amounts of ordinary income than if the shareholders had held the shares of the underlying funds directly.
A Fund may elect to pass through to shareholders foreign tax credits from an underlying fund and exempt-interest dividends from an underlying fund, provided that at least 50% of the Funds total assets are invested in other regulated investment companies at the end of each quarter of the taxable year.
Each Fund generally is required to backup withhold and remit to the U.S. Treasury a percentage of the taxable dividends and other distributions paid to, and the proceeds of share sales, exchanges, or redemptions made by, any individual shareholder who fails to properly furnish the Fund with a correct taxpayer identification number (TIN), who has under-reported dividend or interest income, or who fails to certify to the Fund that he or she is not subject to backup withholding. The backup withholding rules may also apply to distributions that are properly designated as exempt-interest dividends. The backup withholding tax rate is 28%.
Shares of the Funds have not been registered for sale outside of the United States. This SAI is not intended for distribution to prospective investors outside of the United States. The Funds generally do not market or sell Shares to investors domiciled outside of the United States, even, with regard to individuals, if they are citizens or lawful permanent residents of the United States.
Distributions properly designated as Capital Gain Dividends and exempt-interest dividends generally will not be subject to withholding of federal income tax. However, exempt-interest dividends may be subject to backup withholding (as discussed above). In general, dividends other than Capital Gain Dividends and exempt-interest dividends paid by a Fund to a shareholder that is not a U.S. person within the meaning of the Code (a foreign person) are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, effective for taxable years of a Fund beginning before January 1, 2014 (or a later date if extended by the U.S. Congress as discussed below), the Fund will not be required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign person (w) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign person is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
Part II - 18
countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign person and the foreign person is a controlled foreign corporation) from U.S.-source interest income of types similar to those not subject to U.S. federal income tax if earned directly by an individual foreign person, to the extent such distributions are properly designated by the Fund (interest-related dividends), and (ii) with respect to distributions (other than (a) distributions to an individual foreign person who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution and (b) distributions subject to special rules regarding the disposition of U.S. real property interests (as described below) of net short-term capital gains in excess of net long-term capital losses to the extent such distributions are properly designated by the Fund (short-term capital gain dividends). Depending on the circumstances, a Fund may make designations of interest-related and/or short-term capital gain dividends with respect to all, some or none of its potentially eligible dividends and/or treat such dividends, in whole or in part, as ineligible for these exemptions from withholding. In the case of shares held through an intermediary, the intermediary may withhold even if the Fund makes a designation with respect to a payment. Foreign persons should contact their intermediaries regarding the application of these rules to their accounts. Absent legislation extending these exemptions for taxable years beginning on or after January 1, 2014, these special withholding exemptions for interest-related and short-term capital gain dividends will expire and these dividends generally will be subject to withholding as described above.
A beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of a Fund or on Capital Gain Dividends or exempt-interest dividends unless (i) such gain or dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States or (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or the receipt of the Capital Gain Dividend and certain other conditions are met or (iii) the shares constitute U.S. real property interests (USRPIs) or the Capital Gain Dividends are attributable to gains from the sale or exchange of USRPIs in accordance with the rules set forth below.
Special rules apply to distributions to foreign shareholders from a Fund that is either a U.S. real property holding corporation (USRPHC) or would be a USRPHC but for the operation of the exceptions to the definition thereof described below. Additionally, special rules apply to the sale of shares in the Fund that is a USRPHC. Very generally, a USRPHC is a domestic corporation that holds U.S. real property interests (USRPIs) USRPIs are defined as any interest in U.S. real property or any equity interest in a USRPHC the fair market value of which equals or exceeds 50% of the sum of the fair market values of the corporations USRPIs, interests in real property located outside the United States and other assets. The Fund that holds (directly or indirectly) significant interests in REITs may be a USRPHC. The special rules discussed in the next paragraph will also apply to distributions from the Fund that would be a USRPHC absent exclusions from USRPI treatment for interests in domestically controlled REITs or regulated investment companies and not-greater-than-5% interests in publicly traded classes of stock in REITs or regulated investment companies.
In the case of a Fund that is a USRPHC or would be a USRPHC but for the exceptions from the definition of USRPI (described immediately above), distributions by the Fund that are attributable to (a) gains realized on the disposition of USRPIs by the Fund and (b) distributions received by the Fund from a lower-tier regulated investment company or REIT that the Fund is required to treat as USRPI gain in its hands will retain their character as gains realized from USRPIs in the hands of the Funds foreign shareholders. (However, absent legislation, after December 31, 2013, this look-through treatment for distributions by the Fund to foreign shareholders will apply only to such distributions that, in turn, are attributable to distributions received by the Fund from a lower-tier REIT and required to be treated as USRPI gain in the Funds hands.) If the foreign shareholder holds (or has held in the prior year) more than a 5% interest in a Fund, such distributions will be treated as gains effectively connected with the conduct of a U.S. trade or business, and subject to tax at graduated rates. Moreover, such shareholders will be required to file a U.S. income tax return for the year in which the gain was recognized and a Fund will be required to withhold 35% of the amount of such distribution. In the case of all other foreign shareholders (i.e., those whose interest in the Fund did not exceed 5% at any time during the prior year), the USRPI distribution will be treated as ordinary income (regardless of any designation by the Fund that such distribution is a short-term capital gain dividend or a Capital Gain Dividend), and the Fund must withhold 30% (or a lower applicable treaty rate) of the amount of the distribution paid to such foreign shareholder. Foreign shareholders of a Fund are also subject to wash sale rules to prevent the avoidance of the tax-filing and -payment obligations discussed above through the sale and repurchase of Fund shares.
Part II - 19
In addition, if a Fund is a USRPHC, it must typically withhold 10% of the amount realized in a redemption by a greater-than-5% foreign shareholder, and that shareholder must file a U.S. income tax return for the year of the disposition of the USRPI and pay any additional tax due on the gain. On or before December 31, 2013, no withholding is generally required with respect to amounts paid in redemption of shares of a Fund if the Fund is a domestically controlled USRPHC or, in certain limited cases, if the Fund (whether or not domestically controlled) holds substantial investments in regulated investment companies that are domestically controlled USRPHCs. Absent legislation extending this exemption from withholding beyond December 31, 2013, it will expire at that time and any previously exempt Fund will be required to withhold with respect to amounts paid in redemption of its shares as described above.
In order to qualify for any exemptions from withholding described above or for lower withholding tax rates under income tax treaties, or to establish an exemption from backup withholding, the foreign investor must comply with special certification and filing requirements relating to its non-US status (including, in general, furnishing an IRS Form W-8BEN or substitute form). Foreign investors in the Fund should consult their tax advisers in this regard.
If a shareholder is eligible for the benefits of a tax treaty, any effectively connected income or gain will generally be subject to U.S. federal income tax on a net basis only if it is also attributable to a permanent establishment maintained by the shareholder in the United States.
A beneficial holder of shares who is a foreign person may be subject to state and local tax and to the U.S. federal estate tax in addition to the federal tax on income referred to above. Foreign shareholders in a Fund should consult their tax advisors with respect to the potential application of the above rules.
Effective July 1, 2014, a Fund will be required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends and (effective January 1, 2017) redemption proceeds and certain capital gain dividends made to certain non-U.S. entities that fail to comply (or be deemed compliant) with extensive new reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information to a Fund to enable the Fund to determine whether withholding is required.
Certain Fund may be subject to foreign withholding taxes or other foreign taxes with respect to income (possibly including, in some cases, capital gain) received from sources within foreign countries. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of a Funds assets at year end consists of the securities of foreign corporations, or if at least 50% of the value of a Funds total assets at the close of each quarter of its taxable year is represented by interests in other regulated investment companies, the Fund may elect to permit shareholders to claim a credit or deduction on their income tax returns for their pro rata portion of qualified taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. In such a case, shareholders will include in gross income from foreign sources their pro rata shares of such taxes. A shareholders ability to claim a foreign tax credit or deduction in respect of foreign taxes paid by a Fund may be subject to certain limitations imposed by the Code and the Treasury Regulations issued thereunder, as a result of which a shareholder may not get a full credit or deduction for the amount of such taxes. In particular, shareholders must hold their Fund shares (without protection from risk of loss) on the ex-dividend date and for at least 15 additional days during the 30-day period surrounding the ex-dividend date to be eligible to claim a foreign tax credit with respect to a given dividend. Shareholders who do not itemize on their federal income tax returns may claim a credit (but no deduction) for such foreign taxes.
If a Fund does not make the above election or if more than 50% of its assets at the end of the year do not consist of securities of foreign corporations, the Funds net income will be reduced by the foreign taxes paid or withheld. In such cases, shareholders will not be entitled to claim a credit or deduction with respect to foreign taxes.
The foregoing is only a general description of the treatment of foreign source income or foreign taxes under the U.S. federal income tax laws. Because the availability of a credit or deduction depends on the particular circumstances of each shareholder, shareholders are advised to consult their own tax advisors.
The Funds intend to qualify to pay exempt-interest dividends to their respective shareholders. In order to qualify to pay exempt-interest dividends, at least 50% of the value of a Funds total assets must consist of tax-exempt municipal bonds at the close of each quarter of the Funds taxable year, or at least 50% of the value of the Funds total assets at the close of each quarter of its taxable year must be represented by interests in other regulated
Part II - 20
investment companies. An exempt-interest dividend is that part of a dividend that is properly designated as an exempt-interest dividend and that consists of interest received by a Fund on such tax-exempt securities. Shareholders of a Fund that pays exempt-interest dividends would not incur any regular federal income tax on the amount of exempt-interest dividends received by them from a Fund, but an investment in such a Fund may result in liability for federal and state alternative minimum taxation and may be subject to state and local taxes.
Interest on indebtedness incurred or continued by a shareholder, whether a corporation or an individual, to purchase or carry shares of a Fund is not deductible to the extent it relates to exempt-interest dividends received by the shareholder from the Fund. Any loss incurred on the sale or redemption of the Funds shares held for six months or less will be disallowed to the extent of exempt-interest dividends received with respect to such shares.
Interest on certain tax-exempt bonds that are private activity bonds within the meaning of the Code is treated as a tax preference item for purposes of the alternative minimum tax, and any such interest received by a Fund and distributed to shareholders will be so treated for purposes of any alternative minimum tax liability of shareholders to the extent of the dividends proportionate share of the Funds income consisting of such interest. All exempt-interest dividends are subject to the corporate alternative minimum tax.
The exemption from federal income tax for exempt-interest dividends does not necessarily result in exemption for such dividends under the income or other tax laws of any state or local authority. Shareholders that receive social security or railroad retirement benefits should consult their tax advisors to determine what effect, if any, an investment in a Fund may have on the federal taxation of their benefits.
From time to time legislation may be introduced or litigation may arise that would change the tax treatment of exempt-interest dividends. Such legislation or litigation may have the effect of raising the state or other taxes payable by shareholders on such dividends. Shareholders should consult their tax advisors for the current federal, state and local law on exempt-interest dividends.
As a result of U.S. federal income tax requirements, the Trust on behalf of a Fund, has the right to reject an order for a creation of Shares if the creator (or group of creators) would, upon obtaining the Shares so ordered, own 80% or more of the outstanding Shares of a Fund and if, pursuant to Section 351 of the Code, the Fund would have a basis in the Deposit Instruments different from the market value of such securities on the date of deposit. The Trust also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination. See Creation and Redemption of Creation UnitsProcedures for Creation of Creation Units in Appendix A.
Depending on the residence of the shareholders for tax purposes, distributions may also be subject to state and local taxation. Rules of state and local taxation regarding qualified dividend income, ordinary income dividends and capital gain dividends from regulated investment companies may differ from the rules of U.S. federal income tax in many respects. Shareholders are urged to consult their tax advisors as to the consequences of these and other state and local tax rules affecting investment in a Fund.
Most states provide that a regulated investment company may pass through (without restriction) to its shareholders state and local income tax exemptions available to direct owners of certain types of U.S. government securities (such as U.S. Treasury obligations). Thus, for residents of these states, distributions derived from a Funds investment in certain types of U.S. government securities should be free from state and local income taxation to the extent that the interest income from such investments would have been exempt from state and local taxes if such securities had been held directly by the respective shareholders. Certain states, however, do not allow a regulated investment company to pass through to its shareholders the state and local income tax exemptions available to direct owners of certain types of U.S. government securities unless a Fund holds at least a required amount of U.S. government securities. Accordingly, for residents of these states, distributions derived from a Funds investment in certain types of U.S. government securities may not be entitled to the exemptions from state and local income taxes that would be available if the shareholders had purchased U.S. government securities directly. The exemption from state and local income taxes does not preclude states from asserting other taxes on the ownership of U.S. government securities. To the extent that a Fund invests to a substantial degree in U.S. government securities which are subject to favorable state and local tax treatment, shareholders of the Fund will be notified as to the extent to which distributions from the Fund are attributable to interest on such securities.
Part II - 21
Tax Shelter Reporting Regulations
If a shareholder realizes a loss on disposition of a Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
The federal income tax discussion set forth above is for general information only. Prospective investors should consult their tax advisers regarding the specific federal tax consequences of purchasing, holding, and disposing of shares of the Fund, as well as the effects of state, local and foreign tax law and any proposed tax law changes.
The names of the Trustees of the Trust, together with information regarding their year of birth, the year each Trustee became a Board member of the Trust, principal occupations and other board memberships, including those in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the Securities Exchange Act) or subject to the requirements of Section 15(d) of the Securities Exchange Act or any company registered as an investment company under the 1940 Act, are shown below. The contact address for each of the Trustees is 270 Park Avenue, New York, NY 10017.
Name (Year of Birth; Positions
|
Principal Occupation
|
Number of Funds
|
Other Directorships Held
|
|||
Independent Trustees |
||||||
Gary L. French
(1951);
Trustee of the
|
Senior Consultant for The Regulatory Fundamentals Group LLC (2011present); Senior Vice PresidentFund Administration, State Street Corporation (20022010). | 4 | Independent Trustee, The China Fund, Inc. (2013present); Exchange Traded Concepts Trust II (20122014); Exchange Traded Concepts Trust I (20112014). | |||
Robert J. Grassi
(1957); Trustee of the
|
Sole Proprietor, Academy Hills Advisors LLC (2012present); Pension Director, Corning Incorporated (20022012). | 4 | None. | |||
Thomas P. Lemke
(1954);
Trustee of the
|
Retired; Executive Vice President and General Counsel, Legg Mason (20052013). | 4 | Independent Director of AXA Premier VIP Trust (2014present); Independent Director of The Advisors Inner Circle III Funds (2014present); Independent Director of The Munder Funds (2014present); Independent Director of ICI Mutual Insurance Company (20082013). | |||
Lawrence R. Maffia
(1950); Trustee of the
|
Retired (2013present); Director and President, ICI Mutual Insurance Company (20062013). | 4 | Director, ICI Mutual Insurance Company (19992013). |
Part II - 22
Name (Year of Birth; Positions
|
Principal Occupation
|
Number of Funds
|
Other Directorships Held
|
|||
Emily A. Youssouf
(1951); Trustee of the
|
Vice Chair (20112013) and Board Member (2013present) of New York City Housing Authority; Clinical Professor, NYU Schack Institute of Real Estate (2009present); Board Member, NYC Health and Hospitals Corporation (2005present). | 4 | Trustee, NYC School Construction Authority (2009present); Board Member, NYS Job Development Authority (2008present); Board Member, PennyMac Financial Services, Inc. (2013-present). | |||
Interested Trustee |
||||||
Robert Deutsch (2) (1957); Trustee of the Trust since 2014 |
Head of the Global ETF Business for JPMorgan Asset Management (2013present); Head of the Global Liquidity Business for JPMorgan Asset Management (20032013). | 4 | None. |
(1) | A Fund Complex means two or more registered investment companies that hold themselves out to investors as related companies for purposes of investment and investor services or have a common investment adviser or have an investment adviser that is an affiliated person of the investment adviser of any of the other registered investment companies. The two Funds are currently the only series of the Trust that have been filed for registration, but two additional series have been created and will be registered in the future. |
(2) | Mr. Deutsch is an interested trustee because he is an employee of the Adviser. |
The Trustees serve for an indefinite term. The Board of Trustees decides upon general policies and is responsible for overseeing the business affairs of the Trust.
Qualifications of Trustees
The Board believes that each Trustees experience, qualifications, attributes or skills on an individual basis and in combination with those of the other Trustees lead to the conclusion that the Board possesses the requisite skills and attributes to carry out its oversight responsibilities with respect to the Trust. The Board believes that the significance of each Trustees experience, qualifications, attributes or skills is an individual matter (meaning that experience that is important for one Trustee may not have the same value for another) and that these factors are best evaluated at the Board level, with no single Trustee, or particular factor, being indicative of Board effectiveness. However, the Board believes that Trustees need to be able to critically review, evaluate, question and discuss information provided to them, and to interact effectively with Trust management, service providers and counsel, in order to exercise effective business judgment in the performance of their duties. The Board believes that each of its members has these abilities.
The summaries below, relating to the experience, qualifications, attributes and skills of the each Trustee, are required by the registration form adopted by the SEC, do not constitute holding out the Board or any Trustee as having any special expertise or experience, and do not impose any greater responsibility or liability on any such person or on the Board as a whole than would otherwise be the case. The following is a summary of specific experience, qualifications, attributes and/or skills of each Trustee:
Gary L. French. Mr. French has over 30 years of experience in the financial services industry and related fields, including serving in various leadership roles with large financial institutions that operated and administered services to investment companies. He has familiarity with a variety of financial, accounting, investment, regulatory and operational matters through his prior experience (including as Senior Vice President and Business Head in the Fund Administration Division at State Street Bank) and through his current position as a Senior Consultant for The Regulatory Fundamentals Group LLC. He also gained experience serving as an independent director and officer of several other registered investment companies, and in his current position as on independent director with The China Fund, Inc.
Robert J. Grassi. Mr. Grassi has over 20 years of experience in a variety of business and financial matters, including experience in senior management positions. He has familiarity with a variety of financial, accounting,
Part II - 23
investment and regulatory matters through his prior experience (including as Director of Pensions and Investments at Corning Incorporated) and through his current position as Sole Proprietor of Academy Hills Advisors LLC, an investment consulting firm.
Thomas P. Lemke. Mr. Lemke has over 35 years of experience in the financial services industry, including experience in various senior management positions with financial services firms in addition to multiple years of service with a regulatory agency and major law firms. In addition, he has a background in internal controls, including legal, compliance, internal audit, risk management and fund administration, and has served as general counsel for several financial services firms. He has familiarity with a variety of financial, accounting, investment, regulatory and operational matters through his prior experience (including as Executive Vice President, General Counsel, and Head of the Governance Group of Legg Mason, Inc.). He has also gained experience as an independent director of other registered investment companies, including his current position with each of AXA Premier VIP Trust, The Advisors Inner Circle III Funds, and The Munder Funds, and his prior position as independent director of ICI Mutual Insurance Company.
Lawrence R. Maffia . Mr. Maffia has over 30 years of experience in the financial services industry, including positions held at a public auditing firm and various other positions in the mutual fund industry. He has familiarity with a variety of financial, accounting, investment and regulatory matters through his prior experience (including as President and Company Director at ICI Mutual Insurance Company, a provider of D&O/E&O liability insurance and fidelity bonding for the U.S. mutual fund industry, and his prior positions as chief financial officer of Stein Roe & Farnham Mutual Funds and chief operations officer of Stein Roe & Farnham Mutual Funds transfer agent).
Emily A. Youssouf. Ms. Youssouf has over 20 years of business experience in the financial services industry and related fields, including serving in several executive level positions within the investment banking and housing finance industries. In addition, she has an extensive background in strategic planning and financial analysis based on her current positions as a Board Member of the New York City Housing Authority (where she serves as the Chair of the Audit Committee), as a Board Member of the NYC Health and Hospitals Corporation (where she serves as the Chair of the Audit Committee, Chair of the Capital Committee and Member of the Finance Committee), as a Board Member of PennyMac Financial Services, Inc. (where she serves as a member of the Related Party Committee and the Audit Committee), as a Board Member of the NYC School Construction Authority, as a Board Member of the NYS Job Development Authority (where she also serves as a member of the Audit Committee) and as a Clinical Professor at NYU Schack Institute of Real Estate. She has familiarity with a variety of financial, accounting, investment and regulatory matters through her prior experience and through her current positions described above.
Robert F. Deutsch. Mr. Deutsch has over 25 years of experience in the financial services industry. He has substantial mutual fund experience and is experienced with financial, accounting, investment and regulatory matters due to time at J.P. Morgan Asset Management, including his current position as head of the Global ETF Business and his prior position as head of the Global Liquidity Business. He was a client advisor at Goldman Sachs Asset Management for a broad range of institutional, intermediary and subadvisory clients.
Board Leadership Structure and Oversight
The Board has adopted a committee structure that allows it to effectively perform its oversight function for all of the Funds in the complex. As described under Standing Committee, the Board has one committee: the Audit and Valuation Committee. The Board has determined that the leadership and committee structure is appropriate for the Funds and allows the Board to effectively and efficiently evaluate issues that impact the Trust as a whole as well as issues that are unique to each Fund.
The Board and the Audit and Valuation Committee take an active role in risk oversight including the risks associated with exchange-traded funds, including investment risk, compliance and valuation. In connection with its oversight, the Board receives regular reports from the Chief Compliance Officer (CCO), the Advisers and the Administrator. The Board also receives periodic reports from the Chief Risk Officer of JPMAM, including reports concerning operational controls that are designed to address market risk, credit risk, and liquidity risk among others. The Board also receives regular reports from personnel responsible for JPMAMs business resiliency and disaster recovery.
In addition, the Board and the Audit and Valuation Committee work on an ongoing basis in fulfilling the oversight function. The Audit and Valuation Committee is responsible for oversight of the performance of the Funds audit, accounting and financial reporting policies, practices and internal controls and valuation policies, assisting the Board in its oversight of the valuation of the Funds securities by the Advisers, overseeing the quality
Part II - 24
and objectivity of the Funds independent audit and the financial statements of the Funds, and acting as a liaison between the Funds independent registered public accounting firm and the full Board. After each meeting of the committee, the Audit and Valuation Committee reports its committee proceedings to the full Board. This committee structure allows the Board to efficiently evaluate a large amount of material and effectively fulfill its oversight function. Annually, the Board considers the efficiency of this committee structure.
The Board of Trustees has one standing committee, the Audit and Valuation Committee. All members of the Board of Trustees, with the exception of Mr. Deutsch, serve on the Audit and Valuation Committee.
For details of the number of times the Audit and Valuation Committee met during the most recent fiscal year, see TRUSTEES Standing Committees in Part I of this SAI.
For details of the dollar range of equity securities owned by each Trustee in the Funds, see TRUSTEES Ownership of Securities in Part I of this SAI.
The Funds overseen by the Trustees will pay each Trustee an annual fee of $40,000 and will reimburse each Trustee for expenses incurred in connection with service as a Trustee. In addition, the Funds pay the lead Independent Trustee and Audit and Valuation Committee Chair an additional annual fee of $5,000. The Trustees may hold various other directorships unrelated to the Trust.
The Declaration of Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust, unless, as to liability to the Trust or its shareholders, it is finally adjudicated that they engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in their offices (collectively, disabling conduct). In the case of settlement, such indemnification will not be provided unless it has been determined by a court or other body approving the settlement or disposition, or in the absence of such a determination, there has been a dismissal of the proceeding by the court or other body before it was brought for insufficiency of evidence of any disabling conduct with which the Trustee or officer has been charged, or by a reasonable determination based upon a review of readily available facts, by vote of a majority of disinterested Trustees or in a written opinion of independent counsel, that such officers or Trustees did not engage in disabling conduct.
For details of Trustee compensation paid by the Fund, including deferred compensation, see TRUSTEES Trustee Compensation in Part I of this SAI.
The Trusts executive officers (listed below) generally are employees of the Adviser or one of its affiliates. The officers conduct and supervise the business operations of the Trust. The officers hold office until a successor has been elected and duly qualified. The Trust has no employees. The names of the officers of the Fund, together with their year of birth, information regarding their positions held with the Trust and principal occupations are shown below. The contact address for each of the officers, unless otherwise noted, is 270 Park Avenue, New York, NY 10017.
Name (Year of Birth), Positions Held with the Trusts (Since) |
Principal Occupations During Past 5 Years |
|
Robert Deutsch (1957), President (2014) |
Managing Director , global head of J.P. Morgan Asset Managements Exchange Traded Funds and a member of the J.P. Morgan Global Funds Operating Committee. Previously, head of the Global Liquidity Business from 2003 to 2013 and National Sales Manager for J.P. Morgans U.S. Mutual Funds Business prior to 2003. | |
Paul Shield (1960), Treasurer (2014) |
Managing Director and head of Business Management for JPMorgan Asset Managements Exchange Traded Fund platform since 2013. Senior Global Product Manager of Alternative Investments for BNY Mellon from 2011 to 2013 and Global Product Head for Exchange Traded Funds at JPMorgan Chase Bank from 2008 to 2011. |
Part II - 25
Name (Year of Birth), Positions Held with the Trusts (Since) |
Principal Occupations During Past 5 Years |
|
Frank J. Nasta (1964), Secretary (2014) |
Managing Director and Associate General Counsel, JPMorgan Chase since 2008; Previously, Director, Managing Director, General Counsel and Corporate Secretary, J. & W. Seligman & Co. Incorporated; Secretary of each of the investment companies of the Seligman Group of Funds and Seligman Data Corp.; Director and Corporate Secretary, Seligman Advisors, Inc. and Seligman Services, Inc. | |
Stephen M. Ungerman (1953), Chief Compliance Officer (2014) | Managing Director, JPMorgan Chase & Co.; Mr. Ungerman has been with JPMorgan Chase & Co. since 2000. | |
Kathryn A. Jackson (1962), AML Compliance Officer (2014)* | Vice President and AML Compliance Manager for JPMorgan Asset Management Compliance since 2011; Senior On-Boarding Specialist for JPMorgan Distribution Services, Inc. in Global Liquidity from 2008 to 2011; prior to joining JPMorgan, Ms. Jackson was a Financial Services Analyst responsible for on-boarding, compliance and training with Nationwide Securities LLC and 1717 Capital Management Company, both registered broker-dealers, from 2005 until 2008. | |
Elizabeth A. Davin (1964), Assistant Secretary (2014)** | Executive Director and Assistant General Counsel, JPMorgan Chase since February 2012; formerly Vice President and Assistant General Counsel, JPMorgan Chase from 2005 until February 2012; Senior Counsel, JPMorgan Chase (formerly Bank One Corporation) from 2004 to 2005. | |
Jessica K. Ditullio (1962), Assistant Secretary (2014)** | Executive Director and Assistant General Counsel, JPMorgan Chase since February 2011; Ms. Ditullio has served as an attorney with various titles for JPMorgan Chase (formerly Bank One Corporation) since 1990. | |
John T. Fitzgerald (1975), Assistant Secretary (2014) | Executive Director and Assistant General Counsel, JPMorgan Chase since February 2011; formerly, Vice President and Assistant General Counsel, JPMorgan Chase from 2005 until February 2011. | |
Carmine Lekstutis (1980), Assistant Secretary (2014) | Vice President and Assistant General Counsel, JPMorgan Chase since 2011; Associate, Skadden, Arps, Slate, Meagher & Flom LLP (law firm) from 2006 to 2011. | |
Gregory S. Samuels (1980), Assistant Secretary (2014) | Executive Director and Assistant General Counsel, JPMorgan Chase since February 2014; formerly Vice President and Assistant General Counsel, JPMorgan Chase from 2010 to February 2014; Associate, Ropes & Gray (law firm) from 2008 to 2010; Associate, Clifford Chance LLP (law firm) from 2005 to 2008. | |
Pamela L. Woodley (1971), Assistant Secretary (2014)*** | Vice President and Assistant General Counsel, JPMorgan Chase since November 2004. | |
Michael M. DAmbrosio (1969), Assistant Treasurer (2014) | Executive Director, JPMorgan Funds Management, Inc. from July 2012; prior to joining JPMorgan Chase, Mr. DAmbrosio was a Tax Director at PricewaterhouseCoopers LLP since 2006. | |
Julie A. Roach (1971), Assistant Treasurer (2014)** | Vice President, JPMorgan Funds Management, Inc. from August 2012; prior to joining JPMorgan Chase, Ms. Roach was a Senior Manager with Deloitte since 2001. |
* | The contact address for the officer is 500 Stanton Christiana Road, Ops 1, Floor 02, Newark, DE 19173. |
** | The contact address for the officer is 460 Polaris Parkway, Westerville, OH 43082. |
*** | The contact address for the officer is 4 New York Plaza, 21st Floor, NY, NY 10004. |
For details of the percentage of shares of the Funds owned by the officers and Trustees, as a group, see SHARE OWNERSHIP Trustees and Officers in Part I of this SAI.
Part II - 26
Pursuant to an investment advisory agreement, JPMIM serves as investment adviser to the Funds.
The Trusts Shares are not sponsored, endorsed or guaranteed by, and do not constitute obligations or deposits of JPMorgan Chase, any bank affiliate of JPMIM or any other bank, and are not insured by the FDIC or issued or guaranteed by the U.S. government or any of its agencies.
For details of the investment advisory fees paid under the advisory agreement, see INVESTMENT ADVISER Investment Advisory Fees in Part I of the SAI for the Fund.
For details of the dollar range of shares of the Funds beneficially owned by the portfolio managers who serve on a teams that manage the Funds, see PORTFOLIO MANAGERS Portfolio Managers Other Accounts Managed in Part I of this SAI.
J.P. Morgan Investment Management Inc.
JPMIM serves as investment adviser to the Funds pursuant to the investment advisory agreement between JPMIM and the Trust (the JPMIM Advisory Agreement). JPMIM is a wholly-owned subsidiary of JPMorgan Asset Management Holdings Inc., which is a wholly-owned subsidiary of JPMorgan Chase & Co. (JPMorgan Chase).
JPMIM is a registered investment adviser under the Investment Advisers Act of 1940, as amended. JPMIM is located at 270 Park Avenue, New York, NY 10017.
Under the JPMIM Advisory Agreement, JPMIM provides investment advisory services to each Fund, which include managing the purchase, retention and disposition of each Funds investments. JPMIM may delegate its responsibilities to a sub-adviser. Any subadvisory agreements must be approved by the Trusts Board of Trustees and the applicable Funds shareholders, as required by the 1940 Act.
Under separate agreements, JPMorgan Chase Bank, and JPMorgan Funds Management, Inc. (JPMFM) provide certain custodial, lead recordkeeping and administrative services to the Trust. JPMorgan Chase Bank and JPMFM are each an affiliate of JPMIM. See the Custodian, Administrator, and Transfer Agent sections.
Under the terms of the JPMIM Advisory Agreement, the investment advisory services JPMIM provides to the Funds are not exclusive. JPMIM is free to and does render similar investment advisory services to others. JPMIM serves as investment adviser to personal investors and other investment companies and acts as fiduciary for trusts, estates and employee benefit plans. Certain of the assets of trusts and estates under management are invested in common trust funds for which JPMIM serves as trustee. The accounts which are managed or advised by JPMIM have varying investment objectives, and JPMIM invests assets of such accounts in investments substantially similar to, or the same as, those which are expected to constitute the principal investments of the Fund. Such accounts are supervised by employees of JPMIM who may also be acting in similar capacities for the Fund. See Portfolio Transactions.
Each Fund is managed by employees of JPMIM who, in acting for their customers, including the Fund, do not discuss their investment decisions with any personnel of JPMorgan Chase or any personnel of other divisions of JPMIM or with any of their affiliated persons, with the exception of certain other investment management affiliates of JPMorgan Chase which execute transactions on behalf of the Fund.
As compensation for the services rendered and related expenses, such as salaries of advisory personnel borne by JPMIM under the JPMIM Advisory Agreement, the Trust, on behalf of each Fund, has agreed to pay JPMIM a fee, which is computed daily and may be paid monthly, equal to the annual rate of the Funds average daily net assets as described in the Funds Prospectus.
The JPMIM Advisory Agreement continues in effect for annual periods beyond 2016 of each year only if specifically approved thereafter annually in the same manner as the Distribution Agreement; except that for new funds, the initial approval will continue for up to two years, after which annual approvals are required. See the Distributor section. The JPMIM Advisory Agreement will terminate automatically if assigned and is terminable at any time without penalty by a vote of a majority of the Trustees, or by a vote of the holders of a majority of the Funds outstanding voting securities (as defined in the 1940 Act), on 60 days written notice to JPMIM and by JPMIM on 90 days written notice to the Trust.
The JPMIM Advisory Agreement provides that the Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by any Fund in connection with the matters to when the JPMIM Advisory
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Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by it of its duties and obligations thereunder, or, a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services.
Subject to the supervision of the Trusts Board of Trustees, JPMIM provides or will cause to be provided a continuous investment program for a Fund, including investment research and management with respect to all securities and investments and cash equivalents. JPMIM may delegate its responsibilities to a sub-adviser. Any subadvisory agreement must be approved by the Trusts Board of Trustees and the Funds shareholders, as required by the 1940 Act.
JPMorgan Chase Bank and JPMFM are each subsidiaries of JPMorgan Chase and affiliates of JPMIM. See the Custodian and Administrator sections.
POTENTIAL CONFLICTS OF INTEREST
The chart in Part I of this SAI entitled Portfolio Managers Other Accounts Managed shows the number, type and market value as of a specified date of the accounts other than the Funds that are managed by the Funds portfolio managers. The potential for conflicts of interest exists when portfolio managers manage other accounts with similar investment objectives and strategies as the Fund (Similar Accounts). Potential conflicts may include, for example, conflicts between investment strategies and conflicts in the allocation of investment opportunities. Responsibility for managing the Advisers and its affiliates clients portfolios is organized according to investment strategies within asset classes. Generally, client portfolios with similar strategies are managed by portfolio managers in the same portfolio management group using the same objectives, approach and philosophy. Underlying sectors or strategy allocations within a larger portfolio are likewise managed by portfolio managers who use the same approach and philosophy as similarly managed portfolios. Therefore, portfolio holdings, relative position sizes and industry and sector exposures tend to be similar across similar portfolios and strategies, which minimize the potential for conflicts of interest.
The Adviser and/or its affiliates (together JPMorgan) perform investment services, including rendering investment advice, to varied clients. The Adviser, JPMorgan and their directors, officers, agents, and/or employees may render similar or differing investment advisory services to clients, including the Funds, and may give advice or exercise investment responsibility and take such other action with respect to any of their other clients that differs from the advice given or the timing or nature of action taken with respect to another client or group of clients, including the Funds. It is the Advisers policy, to the extent practicable, to allocate, within its reasonable discretion, investment opportunities among clients, including the Funds, over a period of time on a fair and equitable basis. One or more of the Advisers other client accounts may at any time hold, acquire, increase, decrease, dispose, or otherwise deal with positions in investments in which another client account, including the Funds, may have an interest from time-to-time.
The Adviser, JPMorgan, JPMorgan Chase and any of their directors, partners, officers, agents or employees, may also buy, sell, or trade securities for their own accounts or the proprietary accounts of the Adviser, JPMorgan and/or JPMorgan Chase. The Adviser, JPMorgan and/or JPMorgan Chase, within their discretion may make different investment decisions and other actions with respect to their own proprietary accounts than they make for client accounts, including the Funds, including the timing or nature of such investment decisions or actions. Further, the Adviser is not required to purchase or sell for any client account, including the Funds, securities that it, JPMorgan, JPMorgan Chase and/or any of their employees, principals, or agents may purchase or sell for their own accounts or the proprietary accounts of the Adviser, JPMorgan or JPMorgan Chase or their clients.
The Adviser and/or its affiliates may receive more compensation with respect to certain Similar Accounts than that received with respect to the Funds or may receive compensation based in part on the performance of certain Similar Accounts. This may create a potential conflict of interest for the Adviser and its affiliates or the portfolio managers by providing an incentive to favor these Similar Accounts when, for example, placing securities transactions. In addition, the Adviser or its affiliates could be viewed as having a conflict of interest to the extent that the Adviser or an affiliate has a proprietary investment in Similar Accounts, the portfolio managers have personal investments in Similar Accounts or the Similar Accounts are investment options in the Advisers or its affiliates employee benefit plans. Potential conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of investment opportunities because of market factors or investment restrictions imposed upon the Adviser and its affiliates by law, regulation, contract or internal policies. Allocations of aggregated trades, particularly trade orders that were only partially completed due to limited availability and allocation of investment opportunities generally, could raise a potential conflict of interest, as the Adviser or its
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affiliates may have an incentive to allocate securities that are expected to increase in value to favored accounts. Initial public offerings, in particular, are frequently of very limited availability. The Adviser and its affiliates may be perceived as causing accounts they manage to participate in an offering to increase the Advisers and its affiliates overall allocation of securities in that offering. A potential conflict of interest also may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by another account, or when a sale in one account lowers the sale price received in a sale by a second account. If the Adviser or its affiliates manage accounts that engage in short sales of securities of the type in which the Fund invests, the Adviser or its affiliates could be seen as harming the performance of the Fund for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall.
As an internal policy matter, the Adviser or its affiliates may from time to time maintain certain overall investment limitations on the securities positions or positions in other financial instruments the Adviser or its affiliates will take on behalf of its various clients due to, among other things, liquidity concerns and regulatory restrictions. Such policies may preclude the Funds from purchasing particular securities or financial instruments, even if such securities or financial instruments would otherwise meet the Funds objective.
The Adviser and/or its affiliates serve as adviser to the Funds, as well as certain funds of funds. The funds of funds may invest in shares of the Funds. Because the Adviser and/or its affiliates is the adviser to the Funds and it or its affiliates is adviser to the funds of funds, it may be subject to certain potential conflicts of interest when allocating the assets of the funds of funds to a Fund. Purchases and redemptions of Fund shares by a fund of funds due to reallocations or rebalancings may result in a Fund having to sell securities or invest cash when it otherwise would not do so. Such transactions could accelerate the realization of taxable income if sales of securities resulted in gains and could also increase the Funds transaction costs. Large redemptions by an affiliated fund of funds may cause the Funds expense ratio to increase due to a resulting smaller asset base. To the extent that the portfolio managers for the funds of funds also serve as portfolio managers for a Fund, the portfolio managers may have regular and continuous access to the holdings of the Fund. In addition, the portfolio managers of the funds of funds may have access to the holdings of the Fund, as well as knowledge of and a potential impact on investment strategies and techniques of the Fund.
The goal of the Adviser and its affiliates is to meet their fiduciary obligation with respect to all clients. The Adviser and its affiliates have policies and procedures that seek to manage conflicts. The Adviser and its affiliates monitor a variety of areas, including compliance with fund guidelines, review of allocation decisions and compliance with the Advisers Codes of Ethics and JPMorgan Chase and Co.s Code of Conduct. With respect to the allocation of investment opportunities, the Adviser and its affiliates also have certain policies designed to achieve fair and equitable allocation of investment opportunities among its clients over time. For example:
Orders for the same equity security traded through a single trading desk or system are aggregated on a continual basis throughout each trading day consistent with the Advisers and its affiliates duty of best execution for its clients. If aggregated trades are fully executed, accounts participating in the trade will be allocated their pro rata share on an average price basis. Partially completed orders generally will be allocated among the participating accounts on a pro-rata average price basis, subject to certain limited exceptions. For example, accounts that would receive a de minimis allocation relative to their size may be excluded from the order. Another exception may occur when thin markets or price volatility require that an aggregated order be completed in multiple executions over several days. If partial completion of the order would result in an uneconomic allocation to an account due to fixed transaction or custody costs, the Adviser and its affiliates may exclude small orders until 50% of the total order is completed. Then the small orders will be executed. Following this procedure, small orders will lag in the early execution of the order, but will be completed before completion of the total order.
Purchases of money market instruments and fixed income securities cannot always be allocated pro-rata across the accounts with the same investment strategy and objective. However, the Adviser and its affiliates attempt to mitigate any potential unfairness by basing non-pro rata allocations traded through a single trading desk or system upon objective predetermined criteria for the selection of investments and a disciplined process for allocating securities with similar duration, credit quality and liquidity in the good faith judgment of the Adviser or its affiliates so that fair and equitable allocation will occur over time.
For details of the dollar range of shares of the Funds beneficially owned by the portfolio managers, see PORTFOLIO MANAGERS Portfolio Managers Ownership of Securities in Part I of this SAI.
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PORTFOLIO MANAGER COMPENSATION
The Advisers portfolio managers participate in a competitive compensation program that is designed to attract and retain outstanding people and closely link the performance of investment professionals to client investment objectives. The total compensation program includes a base salary fixed from year to year and a variable performance bonus consisting of cash incentives and restricted stock and may include mandatory notional investments (as described below) in selected mutual funds advised by the Adviser or its affiliates. These elements reflect individual performance and the performance of the Advisers business as a whole.
Each portfolio managers performance is formally evaluated annually based on a variety of factors including the aggregate size and blended performance of the portfolios such portfolio manager manages. Individual contribution relative to client goals carries the highest impact. Portfolio manager compensation is primarily driven by meeting or exceeding clients risk and return objectives, relative performance to competitors or competitive indices and compliance with firm policies and regulatory requirements. In evaluating each portfolio managers performance with respect to the mutual funds he or she manages, a Funds pre-tax performance is compared to the appropriate market peer group and to the Funds benchmark index listed in the Funds Prospectus over one, three and five year periods (or such shorter time as the portfolio manager has managed the Fund). Investment performance is generally more heavily weighted to the long-term.
Awards of restricted stock are granted as part of an employees annual performance bonus and comprise from 0% to 40% of a portfolio managers total bonus. As the level of incentive compensation increases, the percentage of compensation awarded in restricted stock also increases. Up to 50% of the restricted stock portion of a portfolio managers bonus may instead be subject to mandatory notional investment in selected mutual funds advised by the Adviser or its affiliates. When these awards vest over time, the portfolio manager receives cash equal to the market value of the notional investment in the selected mutual funds.
The Trust, the Adviser and the Distributor have each adopted codes of ethics pursuant to Rule 17j-1 under the 1940 Act (and pursuant to Rule 204A-1 under the Advisers Act with respect to the Advisers).
The Trusts code of ethics includes policies which require access persons (as defined in Rule 17j-1) to: (i) place the interest of Trust shareholders first; (ii) conduct personal securities transactions in a manner that avoids any actual or potential conflict of interest or any abuse of a position of trust and responsibility; and (iii) refrain from taking inappropriate advantage of his or her position with the Trust or a Fund. The Trusts code of ethics prohibits any access person from: (i) employing any device, scheme or artifice to defraud the Trust or a Fund; (ii) making to the Trust or the Fund any untrue statement of a material fact or omit to state to the Trust or a Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; (iii) engaging in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Trust or a Fund; or (iv) engaging in any manipulative practice with respect to the Trust or a Fund. The Trusts code of ethics permits personnel subject to the code to invest in securities, including securities that may be purchased or held by a Fund so long as such investment transactions are not in contravention of the above noted policies and prohibitions.
The code of ethics adopted by the Adviser requires that all employees must: (i) place the interest of the accounts which are managed by the Adviser first; (ii) conduct all personal securities transactions in a manner that is consistent with the code of ethics and the individual employees position of trust and responsibility; and (iii) refrain from taking inappropriate advantage of their position. Employees of the Adviser are also prohibited from certain mutual fund trading activity including excessive trading of shares of a mutual fund as described in the Funds Prospectus or SAI and effecting or facilitating a mutual fund transaction to engage in market timing. The Advisers code of ethics permits personnel subject to the code to invest in securities, including securities that may be purchased or held by the Fund subject to certain restrictions. However, all employees are required to preclear securities trades (except for certain types of securities such as non-proprietary mutual fund shares and U.S. government securities).
The Distributors code of ethics requires that all employees of the Distributor must: (i) conduct themselves and their personal securities transactions in a manner that does not create conflicts of interest with the firms clients; (ii) conduct all personal securities transactions in a manner that is consistent with the code of ethics and the individual employees position of trust and responsibility; and (iii) refrain from taking inappropriate advantage of their positions. Employees of the Distributor are also prohibited from certain mutual fund trading activity, including
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excessive trading of shares of a mutual fund as such term is defined in the Funds Prospectus or SAI, or effecting or facilitating a mutual fund transaction to engage in market timing. The Distributors code of ethics permits personnel subject to the code to invest in securities, including securities that may be purchased or held by a Fund subject to the policies and restrictions in such code of ethics.
Investment Decisions and Portfolio Transactions.
Pursuant to the JPMIM Advisory Agreement, the Adviser determines, subject to the general supervision of the Board of Trustees of the Trust and in accordance with a Funds investment objective and restrictions, which securities are to be purchased and sold by a Fund and which brokers are to be eligible to execute its portfolio transactions. The Adviser operates independently in providing services to their respective clients. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved. Thus, for example, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. In some instances, one client may sell a particular security to another client. It also happens that two or more clients may simultaneously buy or sell the same security, in which event each days transactions in such security are, insofar as possible, averaged as to price and allocated between such clients in a manner which in the opinion of the Adviser is equitable to each and in accordance with the amount being purchased or sold by each. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients.
Brokerage and Research Services.
On behalf of a Fund, the Adviser places orders for all purchases and sales of portfolio securities, enters into repurchase agreements, and may enter into reverse repurchase agreements and execute loans of portfolio securities on behalf of the Fund unless otherwise prohibited. See Investment Strategies and Policies.
Fixed income and debt securities and municipal bonds and notes are generally traded at a net price with dealers acting as principal for their own accounts without a stated commission. The price of the security usually includes profit to the dealers. In underwritten offerings, securities are purchased at a fixed price, which includes an amount of compensation to the underwriter, generally referred to as the underwriters concession or discount. Transactions on stock exchanges (other than foreign stock exchanges) involve the payment of negotiated brokerage commissions. Such commissions vary among different brokers. Also, a particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in foreign securities generally involve payment of fixed brokerage commissions, which are generally higher than those in the U.S. On occasion, certain securities may be purchased directly from an issuer, in which case no commissions or discounts are paid.
In connection with portfolio transactions, the overriding objective is to obtain the best execution of purchase and sales orders. In making this determination, the Adviser considers a number of factors including, but not limited to: the price per unit of the security, the brokers execution capabilities, the commissions charged, the brokers reliability for prompt, accurate confirmations and on-time delivery of securities, the broker-dealer firms financial condition, the brokers ability to provide access to public offerings, as well as the quality of research services provided. As permitted by Section 28(e) of the Securities Exchange Act, the Adviser may cause the Fund to pay a broker-dealer which provides brokerage and research services to the Adviser, or the Fund and/or other accounts for which the Adviser exercises investment discretion an amount of commission for effecting a securities transaction for a Fund in excess of the amount other broker-dealers would have charged for the transaction if the Adviser determines in good faith that the greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of either a particular transaction or the Advisers overall responsibilities to accounts over which it exercises investment discretion. Not all such services are useful or of value in advising a Fund. The Adviser reports to the Board of Trustees regarding overall commissions paid by a Fund and their reasonableness in relation to the benefits to the Fund. In accordance with Section 28(e) of the Securities Exchange Act and consistent with applicable SEC guidance and interpretation, the term brokerage and research services includes (i) advice as to the value of securities; (ii) the advisability of investing in, purchasing or selling securities; (iii) the availability of securities or of purchasers or sellers of securities; (iv) furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts; and (v) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement, and custody) or required by rule or regulation in connection with such transactions.
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Brokerage and research services received from such broker-dealers will be in addition to, and not in lieu of, the services required to be performed by an Adviser under the Advisory Agreement. The fees that a Fund pays to the Adviser are not reduced as a consequence of the Advisers receipt of brokerage and research services. To the extent a Funds portfolio transactions are used to obtain such services, the brokerage commissions paid by the Fund may exceed those that might otherwise be paid by an amount that cannot be presently determined. Such services generally would be useful and of value to the Adviser in serving one or more of its other clients and, conversely, such services obtained by the placement of brokerage business of other clients generally would be useful to the Adviser in carrying out its obligations to a Fund. While such services are not expected to reduce the expenses of the Adviser, the Adviser would, through use of the services, avoid the additional expenses that would be incurred if it should attempt to develop comparable information through its own staff.
Subject to the overriding objective of obtaining the best execution of orders, the Adviser may allocate a portion of a Funds brokerage transactions to affiliates of the Adviser. Under the 1940 Act, persons affiliated with the Fund and persons who are affiliated with such persons are prohibited from dealing with the Fund as principal in the purchase and sale of securities unless an exemptive order allowing such transactions is obtained from the SEC. The SEC has granted an exemptive order permitting the Fund to engage in principal transactions with J.P. Morgan Securities LLC, an affiliated broker, involving taxable money market instruments (including commercial paper, banker acceptances and medium term notes) and repurchase agreements. The orders are subject to certain conditions. An affiliated person of a Fund may serve as its broker in listed or over-the-counter transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with comparable transactions.
In addition, a Fund may not purchase securities during the existence of any underwriting syndicate for such securities of which JPMorgan Chase Bank or an affiliate is a member or in a private placement in which JPMorgan Chase Bank or an affiliate serves as placement agent, except pursuant to procedures adopted by the Board of Trustees that either comply with rules adopted by the SEC or with interpretations of the SECs staff. A Fund expects to purchase securities from underwriting syndicates of which certain affiliates of JPMorgan Chase act as a member or manager. Such purchases will be effected in accordance with the conditions set forth in Rule 10f-3 under the 1940 Act and related procedures adopted by the Trustees, including a majority of the Trustees who are not interested persons of the Fund. Among the conditions are that the issuer of any purchased securities will have been in operation for at least three years, that not more than 25% of the underwriting will be purchased by the Fund and all other accounts over which the same investment adviser has discretion, and that no shares will be purchased from any of the Advisers affiliates.
On those occasions when the Adviser deems the purchase or sale of a security to be in the best interests of a Fund as well as other customers, including other funds, the Adviser, to the extent permitted by applicable laws and regulations, may, but is not obligated to, aggregate the securities to be sold or purchased for the Fund with those to be sold or purchased for other customers in order to obtain best execution, including lower brokerage commissions if appropriate. In such event, allocation of the securities so purchased or sold as well as any expenses incurred in the transaction will be made by the Adviser in the manner it considers to be most equitable and consistent with its fiduciary obligations to its customers, including the Funds. In some instances, the allocation procedure might not permit the Fund to participate in the benefits of the aggregated trade.
Allocation of transactions, including their frequency, to various broker-dealers is determined by a Funds Adviser based on its best judgment and in a manner deemed fair and reasonable to Shareholders and consistent with the Advisers obligation to obtain the best execution of purchase and sales orders. In making this determination, the Adviser considers the same factors for the best execution of purchase and sales orders listed above. Accordingly, in selecting broker-dealers to execute a particular transaction, and in evaluating the best overall terms available, the Adviser is authorized to consider the brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act) provided to a Fund and/or other accounts over which the Adviser exercises investment discretion. The Adviser may cause a Fund to pay a broker-dealer that furnishes brokerage and research services a higher commission than that which might be charged by another broker-dealer for effecting the same transaction, provided that the Adviser determines in good faith that such commission is reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either the particular transaction or the overall responsibilities of the Adviser to the Fund. To the extent such services are permissible under the safe harbor requirements of Section 28(e) of the Securities Exchange Act and consistent with applicable SEC guidance and interpretation, such brokerage and research services might consist of advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, the availability of securities or purchasers or sellers of
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securities; analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts, market data, stock quotes, last sale prices, and trading volumes. Shareholders of a Fund should understand that the services provided by such brokers may be useful to the Adviser in connection with its services to other clients and not all the services may be used by the Adviser in connection with the Fund.
Under the policy for JPMIM, soft dollar services refer to arrangements that fall within the safe harbor requirements of Section 28(e) of the Securities Exchange Act, as amended, which allow JPMIM to allocate client brokerage transactions to a broker-dealer in exchange for products or services that are research and brokerage-related and provide lawful and appropriate assistance in the performance of the investment decision-making process. These services include third party research, market data services, and proprietary broker-dealer research. A Fund receives proprietary research where broker-dealers typically incorporate the cost of such research into their commission structure. Many brokers do not assign a hard dollar value to the research they provide, but rather bundle the cost of such research into their commission structure. It is noted in this regard that some research that is available only under a bundled commission structure is particularly important to the investment process. However, a Fund does not participate in soft dollar arrangements for market data services and third-party research.
Investment decisions for a Fund are made independently from those for any other investment company or account managed by the Adviser. Any such other investment company or account may also invest in the same securities as the Trust. When a purchase or sale of the same security is made at substantially the same time on behalf of a Fund and another investment company or account, the transaction will be averaged as to price, and available investments allocated as to amount, in a manner which the Adviser of the Fund believes to be equitable to the Fund and such other investment company or account. In some instances, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained by the Fund. To the extent permitted by law, the Adviser may aggregate the securities to be sold or purchased by it for a Fund with those to be sold or purchased by it for other investment companies or accounts in order to obtain best execution. In making investment recommendations for the Trust, the Adviser will not inquire or take into consideration whether an issuer of securities proposed for purchase or sale by the Trust is a customer of the Adviser or their parents or subsidiaries or affiliates and in dealing with its commercial customers, the Adviser and their respective parent, subsidiaries, and affiliates will not inquire or take into consideration whether securities of such customers are held by the Trust.
For details of brokerage commissions paid by the Funds, see BROKERAGE AND RESEARCH SERVICES Brokerage Commissions in Part I of this SAI.
For details of the Funds ownership of securities of the Funds regular broker dealers, see BROKERAGE AND RESEARCH SERVICES Securities of Regular Broker-Dealers in Part I of this SAI.
JPMorgan Funds Management, Inc. (JPMFM or the Administrator) serves as the administrator to the Funds, pursuant to an Administration Agreement (the Administration Agreement), between the Trust, on behalf of each Fund, and JPMFM. JPMFM is an affiliate of JPMorgan Chase Bank and an indirect, wholly-owned subsidiary of JPMorgan Chase; it has its principal place of business at 460 Polaris Parkway, Westerville, OH 43082.
Pursuant to the Administration Agreement, JPMFM performs or supervises all operations of the Funds for which it serves (other than those performed under the advisory agreement, the custodian agreement, and the transfer agency agreement for the Fund). Under the Administration Agreement, JPMFM has agreed to maintain the necessary office space for the Funds, and to furnish certain other services required by the Funds with respect to each Fund. The Administrator prepares annual and semi-annual reports to the SEC, prepares federal and state tax returns and generally assists in all aspects of the Funds operations other than those performed under the advisory agreement, any sub-advisory agreements, the custodian agreement, and the transfer agency agreement. JPMFM may, at its expense, subcontract with any entity or person concerning the provision of services under the Administration Agreement. SEI Investments Global Funds Services serves as the Funds sub-administrator (the Sub-administrator). The Administrator pays the Sub-administrator a fee for its services as the Funds Sub-administrator.
If not terminated, the Administration Agreement shall continue in effect for annual periods beyond April 30 of each year, provided that such continuance is specifically approved at least annually by the vote of a majority of those members of the Board of Trustees who are not parties to the Administration Agreement or interested persons of any such party. The Administration Agreement may be terminated without penalty, on not less than 60 days prior written notice, by the Board of Trustees of the Trust or by JPMFM.
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The Administration Agreement provides that JPMFM shall not be liable for any error of judgment or mistake of law or any loss suffered by the Funds in connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad faith or negligence in the performance of its duties, or from the reckless disregard by it of its obligations and duties thereunder.
In consideration of the services to be provided by JPMFM pursuant to the Administration Agreement, JPMFM receives from each Fund a pro rata portion of a fee computed daily and paid monthly at an annual rate equal to 0.085% of average daily net assets of each Fund.
For details of the administration and administrative services fees paid or accrued, see ADMINISTRATOR Administrator Fees in Part I of this SAI.
Shares will be continuously offered for sale by the Distributor only. The Distributor will deliver the Prospectus and, upon request, this SAI to persons purchasing Creation Unit Aggregations and will maintain records of both orders placed with it and confirmations of acceptance furnished by it. The Distributor is a broker-dealer registered under the Securities Exchange Act and a member of the Financial Industry Regulatory Authority (FINRA).
Unless otherwise terminated, the Distribution Agreement will continue in effect for successive one-year terms after the initial two year term if approved at least annually by: (a) the vote of the Board of Trustees, including the vote of a majority of those members of the Board of Trustees who are not parties to the Distribution Agreement or interested persons of any such party, cast in person at a meeting for the purpose of voting on such approval, or (b) the vote of a majority of the outstanding voting securities of the Fund. The Distribution Agreement for the Funds provides that it may be terminated as to a Fund at any time, without the payment of any penalty (i) by vote of the Trustees; (ii) by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund; or (iii) by the Distributor upon not less than 60 days prior written notice to the Trust. The Distribution Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities dealers (Soliciting Dealers) who will solicit purchases of Creation Unit Aggregations of Fund Shares. Such Soliciting Dealers may also be Participating Parties (as defined in Procedures for Creation of Creation Unit Aggregations below) and DTC Participants (as defined in DTC Acts as Securities Depository below).
Pursuant to the Global Custody Agreement with JPMorgan Chase Bank, 270 Park Avenue, New York, New York 10017 (the JPMorgan Custody Agreement), JPMorgan Chase Bank serves as the custodian for each Fund. Pursuant to the JPMorgan Custody Agreement, JPMorgan Chase Bank is responsible for holding portfolio securities and cash and maintaining the books of account and records of portfolio transactions. JPMorgan Chase Bank is an affiliate of the Adviser.
For custodian services, each Fund pays to JPMorgan Chase Bank annual safekeeping fees of between 0.0006% and 0.35% of assets held by JPMorgan Chase Bank (depending on the domicile in which the asset is held), calculated monthly in arrears and fees between $2.50 and $80 for securities trades (depending on the domicile in which the trade is settled), as well as transaction fees on certain activities of $2.50 to $20 per transaction. JPMorgan Chase Bank is also reimbursed for its reasonable out-of pocket or incidental expenses, including, but not limited to, registration and transfer fees and related legal fees.
JPMorgan Chase Bank may also be paid $15, $35 or $60 per proxy (depending on the country where the issuer is located) for its service which helps facilitate the voting of proxies throughout the world. For securities in the U.S. market, this fee is waived if the Adviser votes the proxies directly.
SEI Investments Global Funds Services (SEIIGFS) serves as the fund accounting agent for the Trust. As such, SEIIGFS provides services for each Fund including calculating the daily NAV for each Fund, maintaining books and records for the Funds and calculating Fund performance.
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JPMorgan Chase Bank also serves as the Funds transfer agent. As transfer agent, JPMorgan Chase Bank is also responsible for maintaining account records, detailing the ownership of Fund shares and for crediting income, capital gains and other changes in share ownership to shareholder accounts. JPMorgan Chase Bank will be paid $250 per creation or redemption transaction. The Trust may be reimbursed for all or part of this fee by the Authorized Participant placing the creation or redemption order.
The Funds pay the expenses incurred in their operations, including their pro-rata share of expenses of the Trust. These expenses include: investment advisory and administrative fees; the compensation of the Trustees; registration fees; interest charges; taxes; expenses connected with the execution, recording and settlement of security transactions; fees and expenses of the Funds custodian for all services to the Funds, including safekeeping of funds and securities and maintaining required books and accounts; expenses of preparing and mailing reports to investors and to government offices and commissions; expenses of meetings of investors; listing fees; fees and expenses of independent accountants, legal counsel and any transfer agent, registrar or dividend disbursing agent of the Trust; insurance premiums; and expenses of calculating the net asset value (NAV) of, and the net income on, shares of the Funds. Service providers to the Funds may, from time to time, voluntarily waive all or a portion of any fees to which they are entitled.
The Funds service providers have agreed that they will waive fees or reimburse the Funds as described in the Prospectus.
The law firm of Dechert LLP, 1095 Avenue of the Americas, New York, NY 10036-6797, is counsel to the Trust.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm for the Trust and the Funds is PricewaterhouseCoopers LLP (PWC). PWC conducts an annual audit of the financial statements of each of the Funds and will assist in the preparation and/or review of each Funds federal and state income tax returns.
Each Fund declares and pays dividends and distributions as described under Distribution and Tax Matters in the Prospectus.
The NAV per share of a Fund is equal to the value of all the assets attributable to that class, minus the liabilities, divided by the number of outstanding shares. The NAV of each Fund is determined each business day as of the close of trading (normally 4:00 p.m ET) on the New York Stock Exchange. The following is a discussion of the procedures used by a Fund in valuing its assets.
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 (for example, a natural disaster affecting an entire country or region, or an event that affects an individual company) but before a Funds NAV is calculated, may be valued at its fair value in accordance with policies and procedures adopted by the Trusts 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 determinations 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 Funds NAV.
Equity securities listed on a North American, Central American, South American or Caribbean (Americas) securities exchange are generally valued at the last sale price on the exchange on which the security is principally traded that is reported before the time when the net assets of a Fund are valued. The value of securities listed on the NASDAQ Stock Market, Inc. is generally the NASDAQ official closing price.
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Generally, trading of foreign securities on most foreign markets is completed before the close in trading in U.S. markets. The Fund has implemented fair value pricing on a daily basis for all equity securities other than Americas equity securities. The fair value pricing utilizes the quotations of an independent pricing service. Trading on foreign markets may also take place on days on which the U.S. markets and the Funds are closed.
Shares of open-end investment companies are valued at their NAVs.
Fixed income securities with a remaining maturity of 61 days or more are valued using market quotations supplied by approved independent third party pricing services, affiliated pricing services or broker/dealers. In determining security prices, pricing services and broker/dealers may consider a variety of inputs and factors, including, but not limited to proprietary models that may take into account market transactions in securities with comparable characteristics, yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, underlying collateral and estimated cash flows.
Generally, short-term securities which mature in 60 days or less are valued at amortized cost if their maturity at acquisition was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if their maturity when acquired by a Fund was more than 60 days.
Assets and liabilities initially expressed in foreign currencies will be converted into U.S. dollars at the prevailing market rates from an approved independent pricing service as of 4:00 PM ET.
Options (e.g., on stock indices or equity securities) traded on U.S. equity securities exchanges are valued at the composite mean price, using the National Best Bid and Offer quotes at the close of options trading on such exchanges.
Options traded on foreign exchanges or U.S. commodities 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 a Funds NAV.
Exchange traded futures (e.g., on stock indices, debt securities or commodities) are valued at the settled price, or if no settled price is available, at the last sale price as of the close of the exchanges on which they trade.
Non-listed over-the-counter options and futures are valued at the evaluated price provided by a counterparty or broker/dealer.
Swaps and structured notes are priced generally by an approved independent third party or affiliated pricing service or at an evaluated price provided by a counterparty or broker/dealer.
Certain fixed income securities and swaps may be valued using market quotations or valuations provided by pricing services affiliated with the Adviser. Valuations received by a Fund from affiliated pricing services are the same as those provided to other affiliated and unaffiliated entities by these affiliated pricing services.
Securities or other assets for which market quotations are not readily available or for which market quotations do not represent the value at the time of pricing (including certain illiquid securities) are fair valued in accordance with procedures established by and under the supervision and responsibility of the Trustees. The Board of Trustees has established an Audit and Valuation Committee to assist the Board of Trustees in its oversight of the valuation of the Funds securities. The Funds Administrator has created a Valuation Committee (VC) to (1) make fair value determinations in certain predetermined situations as outlined in the procedures approved by the Board of Trustees and (2) provide recommendations to the Board of Trustees in other situations. The VC includes senior representatives from the Funds management as well as the Funds investment adviser. Fair value situations could include, but are not limited to: (1) a significant event that affects the value of a Funds securities (e.g., news relating to natural disasters affecting an issuers operations or earnings announcements); (2) illiquid securities; (3) securities that may be defaulted or de-listed from an exchange and are no longer trading; or (4) any other circumstance in which the VC believes that market quotations do not accurately reflect the value of a security.
From time to time, there may be errors in the calculation of the NAV of the Fund or the processing of creations and redemptions. Shareholders will generally not be notified of the occurrence of an error or the resolution thereof.
The Trust was formed as a Delaware statutory trust on February 25, 2010 pursuant to a Declaration of Trust.
Under Delaware law, shareholders of a statutory trust shall have the same limitation of personal liability that is extended to stockholders of private corporations for profit organized under Delaware law, unless otherwise provided in the trusts governing trust instrument. The Trusts Declaration of Trust provides that shareholders of the Trust shall not be personally liable for the debts, liabilities, obligations and expenses incurred by, contracted for, or
Part II - 36
otherwise existing with respect to the Trust or any series thereof. In addition, the Declaration of Trust provides that neither the Trust, nor the Trustees, officers, employees, nor agents thereof shall have any power to bind personally any shareholders nor to call upon any shareholder for payment of any sum of money or assessment other than such as the shareholder may personally agree to pay. Moreover, the Trusts Declaration of Trust expressly provides that the shareholders shall have the same limitation of personal liability that is extended to shareholders of a private corporation for profit organized under the General Corporation Law of in the State of Delaware.
The Trusts Declaration of Trust provides for the indemnification out of the assets held with respect to a particular series of shares of any shareholder or former shareholder held personally liable solely by reason of a claim or demand relating to the person being or having been a shareholder and not because of the shareholders acts or omissions. The Trusts Declaration of Trust also provides that the Trust, on behalf of the applicable series, may, at its option with prior written notice, assume the defense of any claim made against a shareholder.
The Trusts Declaration of Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with any proceeding in which they may be involved because of their offices with the Trust, unless, as to liability to the Trust or the shareholders thereof, the Trustees engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their offices. In addition, the Declaration of Trust provides that any Trustee who has been determined to be an audit committee financial expert shall not be subject to a greater liability or duty of care because of such determination.
The Trust shall continue without limitation of time subject to the provisions in the Declaration of Trust concerning termination by action of the shareholders or by action of the Trustees upon written notice to the shareholders.
The Trust is an open-end, management investment company organized as a Delaware statutory trust. Each Fund represents a separate series of shares of beneficial interest. See Delaware Trust.
The Trusts Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares (par value $0.0001 per share (or such other value as the Trustees may determine from time to time)) of one or more series and classes within any series and to divide or combine the shares of any series or class without materially changing the proportionate beneficial interest of such shares of such series or class in the assets held with respect to that series. Each share represents an equal beneficial interest in the net assets of a Fund with each other share of that Fund. The Trustees of the Trust may authorize the issuance of shares of additional series and the creation of classes of shares within any series with such preferences, voting powers, rights, duties and privileges as the Trustees may determine; however, the Trustees may not classify or change outstanding shares in a manner materially adverse to shareholders of each share. Upon liquidation of a Fund, shareholders are entitled to share pro rata in the net assets of the Fund available for distribution to such shareholders. The rights of redemption and exchange are described in the Prospectus and elsewhere in this SAI.
The shareholders of a Fund are entitled to one vote for each dollar of NAV (or a proportionate fractional vote with respect to the remainder of the NAV of shares, if any), on matters on which shares of a Fund shall be entitled to vote. Subject to the 1940 Act, the Trustees themselves have the power to alter the number and the terms of office of the Trustees, to lengthen their own terms, or to make their terms of unlimited duration subject to certain removal procedures, and appoint their own successors, provided, however, that immediately after such appointment the requisite majority of the Trustees have been elected by the shareholders. The voting rights of shareholders are not cumulative with respect to the election of Trustees. It is the intention of the Trust not to hold meetings of shareholders annually. The Trustees may call meetings of shareholders for action by shareholder vote as may be required by either the 1940 Act or the Declaration of Trust of the Trust.
Each share of a series represents an equal proportionate interest in the assets in that series with each other share of that series. The shares of each series participate equally in the earnings, dividends and assets of the particular series. Expenses of the Trust which are not attributable to a specific series are allocated among all of their series in a manner deemed by the Trustees to be fair and equitable. Shares have no pre-emptive or conversion rights, and when issued, are fully paid and non-assessable. Shares of each series generally vote together, except when required under federal securities laws to vote separately on matters that may affect a particular class, such as the approval of distribution plans for a particular class.
The Trustees of the Trust may, without shareholder approval (unless otherwise required by applicable law): (i) cause the Trust to merge or consolidate with or into one or more trusts (or series thereof to the extent permitted by law, partnerships, associations, corporations or other business entities (including trusts, partnerships,
Part II - 37
associations, corporations, or other business entities created by the Trustees to accomplish such merger or consolidation) so long as the surviving or resulting entity is an investment company as defined in the 1940 Act, or is a series thereof, that will succeed to or assume the Trusts registration under the 1940 Act and that is formed, organized, or existing under the laws of the U.S. or of a state, commonwealth, possession or territory of the U.S., unless otherwise permitted under the 1940 Act; (ii) cause the shares to be exchanged under or pursuant to any state or federal statute to the extent permitted by law; or (iii) cause the Trust to reorganize as a corporation, limited liability company or limited liability partnership under the laws of Delaware or any other state or jurisdiction. However, the exercise of such authority may be subject to certain restrictions under the 1940 Act.
The Trustees may, without shareholder vote, generally restate, amend or otherwise supplement the Trusts governing instruments, including the Declaration of Trust and the By-Laws, without the approval of shareholders, subject to limited exceptions, such as the right to elect Trustees.
The Trustees, without obtaining any authorization or vote of shareholders, may change the name of any series or dissolve or terminate any series.
Shares have no subscription or preemptive rights and only such conversion or exchange rights as the Board may grant in its discretion. When issued for payment as described in the Prospectus and this SAI, Shares will be fully paid and non-assessable. In the event of a liquidation or dissolution of the Trust, Shares of the Fund are entitled to receive the assets available for distribution belonging to the Fund, and a proportionate distribution, based upon the relative asset values of the Fund, of any general assets not belonging to any particular Fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted to the holders of the outstanding voting securities of an investment company such as the Trust shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding Shares of a Fund affected by the matter. For purposes of determining whether the approval of a majority of the outstanding Shares of a Fund will be required in connection with a matter, the Fund will be deemed to be affected by a matter unless it is clear that the interests of the Fund in the matter are identical, or that the matter does not affect any interest of the Fund. Under Rule 18f-2, the approval of an investment advisory agreement or any change in investment policy would be effectively acted upon with respect to the Fund only if approved by a majority of the outstanding Shares of the Fund. However, Rule 18f-2 also provides that the ratification of independent public accountants, the approval of principal underwriting contracts, and the election of Trustees may be effectively acted upon by Shareholders of the Trust voting without regard to series.
The Trust has adopted a policy regarding the disclosure of information about each Funds portfolio holdings. The Board of Trustees of the Trust must approve all material amendments to this policy. A Funds complete portfolio holdings are publicly disseminated each day the Fund is open for business through financial reporting and news services, including publicly accessible Internet web sites. In addition, a basket composition file, which includes the security names and share quantities to deliver in exchange for Fund shares, together with estimates and actual cash components, is publicly disseminated daily prior to the opening of the Exchange via the National Securities Clearing Corporation (NSCC). The basket represents one Creation Unit of a Fund. The Trust, the Adviser and the Distributor will not disseminate non-public information concerning the Trust, except: (i) to a party for a legitimate business purpose related to the day-to-day operations of the Funds or (ii) to any other party for a legitimate business or regulatory purpose, upon waiver or exception.
PROXY VOTING PROCEDURES AND GUIDELINES
The Board of Trustees has delegated to the Adviser and its affiliated advisers, proxy voting authority with respect to a Funds portfolio securities. To ensure that the proxies of portfolio companies are voted in the best interests of a Fund, the Funds Board of Trustees has adopted the Advisers detailed proxy voting procedures (the Procedures) that incorporate guidelines (Guidelines) for voting proxies on specific types of issues.
The Adviser and its affiliated advisers are part of a global asset management organization with the capability to invest in securities of issuers located around the globe. Because the regulatory framework and the business cultures and practices vary from region to region, the Guidelines are customized for each region to take into account such variations. Separate Guidelines cover the regions of (1) North America, (2) Europe, Middle East, Africa, Central America and South America, (3) Asia (ex-Japan) and (4) Japan, respectively.
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Notwithstanding the variations among the Guidelines, all of the Guidelines have been designed with the uniform objective of encouraging corporate action that enhances shareholder value. As a general rule, in voting proxies of a particular security, the Adviser and its affiliated advisers will apply the Guidelines of the region in which the issuer of such security is organized. Except as noted below, proxy voting decisions will be made in accordance with the Guidelines covering a multitude of both routine and non-routine matters that the Adviser and its affiliated advisers have encountered globally, based on many years of collective investment management experience.
To oversee and monitor the proxy-voting process, the Adviser has established a proxy committee and appointed a proxy administrator in each global location where proxies are voted. The primary function of each proxy committee is to review periodically general proxy-voting matters, review and approve the Guidelines annually, and provide advice and recommendations on general proxy-voting matters as well as on specific voting issues. The procedures permit an independent voting service to perform certain services otherwise carried out or coordinated by the proxy administrator.
Although for many matters the Guidelines specify the votes to be cast, for many others, the Guidelines contemplate case-by-case determinations. In addition, there will undoubtedly be proxy matters that are not contemplated by the Guidelines. For both of these categories of matters and to override the Guidelines, the Procedures require a certification and review process to be completed before the vote is cast. That process is designed to identify actual or potential material conflicts of interest (between a Fund on the one hand, and the Funds Adviser, principal underwriter or an affiliate of any of the foregoing, on the other hand) and ensure that the proxy vote is cast in the best interests of the Fund. A conflict is deemed to exist when the proxy is for JPMorgan Chase & Co. stock or for the Fund, or when the proxy administrator has actual knowledge indicating that a JPMorgan affiliate is an investment banker or rendered a fairness opinion with respect to the matter that is the subject of the proxy vote. When such conflicts are identified, the proxy will be voted by an independent third party either in accordance with JPMorgan proxy voting guidelines or by the third party using its own guidelines.
When other types of potential material conflicts of interest are identified, the proxy administrator and JPMAMs Chief Fiduciary Officer will evaluate the potential conflict of interest and determine whether such conflict actually exists, and if so, will recommend how the Adviser will vote the proxy. In addressing any material conflict, the Adviser may take one or more of the following measures (or other appropriate action): removing or walling off from the proxy voting process certain Adviser personnel with knowledge of the conflict, voting in accordance with any applicable Guideline if the application of the Guideline would objectively result in the casting of a proxy vote in a predetermined manner, or deferring the vote to or obtaining a recommendation from an third independent party, in which case the proxy will be voted by, or in accordance with the recommendation of, the independent third party.
The following summarizes some of the more noteworthy types of proxy voting policies of the non-U.S. Guidelines:
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Corporate governance procedures differ among the countries. Because of time constraints and local customs, it is not always possible for the Adviser to receive and review all proxy materials in connection with each item submitted for a vote. Many proxy statements are in foreign languages. Proxy materials are generally mailed by the issuer to the sub-custodian which holds the securities for the client in the country where the portfolio company is organized, and there may not be sufficient time for such materials to be transmitted to the Adviser in time for a vote to be cast. In some countries, proxy statements are not mailed at all, and in some locations, the deadline for voting is two to four days after the initial announcement that a vote is to be solicited and it may not always be possible to obtain sufficient information to make an informed decision in good time to vote. |
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Certain markets require that shares being tendered for voting purposes are temporarily immobilized from trading until after the shareholder meeting has taken place. Elsewhere, notably emerging markets, it may not always be possible to obtain sufficient information to make an informed decision in good time to vote. Some markets require a local representative to be hired in order to attend the meeting and vote in person on our behalf, which can result in considerable cost. The Adviser also considers the cost of voting in light of the expected benefit of the vote. In certain instances, it may sometimes be in the Funds best interests to intentionally refrain from voting in certain overseas markets from time to time. |
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Where proxy issues concern corporate governance, takeover defense measures, compensation plans, capital structure changes and so forth, the Adviser pays particular attention to managements arguments for promoting the prospective change. The Advisers sole criterion in determining its voting stance is whether such changes will be to the economic benefit of the beneficial owners of the shares. |
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The Adviser is in favor of a unitary board structure of the type found in the United Kingdom as opposed to tiered board structures. Thus, the Adviser will generally vote to encourage the gradual phasing out of tiered board structures, in favor of unitary boards. However, since tiered boards are still very prevalent in markets outside of the United Kingdom, local market practice will always be taken into account. |
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The Adviser will use its voting powers to encourage appropriate levels of board independence, taking into account local market practice. |
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The Adviser will usually vote against discharging the board from responsibility in cases of pending litigation, or if there is evidence of wrongdoing for which the board must be held accountable. |
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The Adviser will vote in favor of increases in capital which enhance a companys long-term prospects. The Adviser will also vote in favor of the partial suspension of preemptive rights if they are for purely technical reasons (e.g., rights offers which may not be legally offered to shareholders in certain jurisdictions). However, the Adviser will vote against increases in capital which would allow the company to adopt poison pill takeover defense tactics, or where the increase in authorized capital would dilute shareholder value in the long term. |
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The Adviser will vote in favor of proposals which will enhance a companys long-term prospects. The Adviser will vote against an increase in bank borrowing powers which would result in the company reaching an unacceptable level of financial leverage, where such borrowing is expressly intended as part of a takeover defense, or where there is a material reduction in shareholder value. |
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The Adviser will generally vote against anti-takeover devices. |
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Where social or environmental issues are the subject of a proxy vote, the Adviser will consider the issue on a case-by-case basis, keeping in mind at all times the best economic interests of its clients. |
The following summarizes some of the more noteworthy types of proxy voting policies of the U.S. Guidelines:
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The Adviser considers votes on director nominees on a case-by-case basis. Votes generally will be withheld from directors who: (a) attend less than 75% of board and committee meetings without a valid excuse; (b) implement or renew a dead-hand poison pill; (c) are affiliated directors who serve on audit, compensation or nominating committees or are affiliated directors and the full board serves on such committees or the company does not have such committees; or (d) ignore a shareholder proposal that is approved by a majority of either the shares outstanding or the votes cast based on a review over a consecutive two year time frame. |
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The Adviser votes proposals to classify boards on a case-by-case basis, but normally will vote in favor of such proposal if the issuers governing documents contain each of eight enumerated safeguards (for example, a majority of the board is composed of independent directors and the nominating committee is composed solely of such directors). |
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The Adviser also considers management poison pill proposals on a case-by-case basis, looking for shareholder-friendly provisions before voting in favor. |
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The Adviser votes against proposals for a super-majority vote to approve a merger. |
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The Adviser considers proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan on a case-by-case basis, taking into account such factors as the extent of dilution and whether the transaction will result in a change in control. |
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The Adviser votes proposals on a stock option plan based primarily on a detailed, quantitative analysis that takes into account factors such as estimated dilution to shareholders equity and dilution to voting power. The Adviser votes against proposals to adopt a two tiered compensation structure for board directors. The Adviser generally considers other management compensation proposals on a case-by-case basis. |
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The Adviser also considers on a case-by-case basis proposals to change an issuers state of incorporation, mergers and acquisitions and other corporate restructuring proposals and certain social issue proposals. |
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The Adviser generally votes for management proposals which seek shareholder approval to make the state of incorporation the exclusive forum for disputes if the company is a Delaware corporation; otherwise, the Adviser votes on a case by case basis. |
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The Adviser generally supports management disclosure practices for environmental issues except for those companies that have been involved in significant controversies, fines or litigation related to environmental issues. |
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The Adviser reviews Say on Pay proposals on a case by case basis with additional review of proposals where the issuers previous years proposal received a low level of support. |
In accordance with regulations of the SEC, the Funds proxy voting records for the most recent 12-month period ended June 30 are on file with the SEC and are available on the Funds website at www.jpmorganfunds.com and are on the SECs website at www.sec.gov.
The Trust is not required to hold a meeting of Shareholders for the purpose of electing Trustees except that (i) the Trust is required to hold a Shareholders meeting for the election of Trustees at such time as less than a majority of the Trustees holding office have been elected by Shareholders and (ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds of the Trustees holding office have been elected by the Shareholders, that vacancy may only be filled by a vote of the Shareholders. In addition, Trustees may be removed from office by a written consent signed by the holders of Shares representing two-thirds of the outstanding Shares of a Trust at a meeting duly called for the purpose, which meeting shall be called and held in accordance with the By-Laws of the Trust. Except as set forth above, the Trustees may continue to hold office and may appoint successor Trustees.
As used in the Trusts Prospectus and in this SAI, assets belonging to a Fund means the consideration received by the Trust upon the issuance or sale of Shares in the Fund, together with all income, earnings, profits, and proceeds derived from the investment thereof, including any proceeds from the sale, exchange, or liquidation of such investments, and any funds or payments derived from any reinvestment of such proceeds, and any general assets of the Trust not readily identified as belonging to the Fund that are allocated to that Fund by the Trusts Board of Trustees. The Board of Trustees may allocate such general assets in any manner it deems fair and equitable. It is anticipated that the factor that will be used by the Board of Trustees in making allocations of general assets to the Fund will be the relative net asset values of the Fund at the time of allocation. Assets belonging to a Fund are charged with the direct liabilities and expenses in respect of that Fund, and with a share of the general liabilities and expenses of the Trust not readily identified as belonging to the Fund that are allocated to that Fund in proportion to the relative net asset values of the Fund at the time of allocation. The timing of allocations of general assets and general liabilities and expenses of the Trust to a Fund will be determined by the Board of Trustees of the Trust and will be in accordance with generally accepted accounting principles. Determinations by the Board of Trustees of the Trust as to the timing of the allocation of general liabilities and expenses and as to the timing and allocable portion of any general assets with respect to the Fund are conclusive.
As used in this SAI and the Prospectus, the term majority of the outstanding voting securities of the Trust, a Fund or a particular class of a Fund means the following when the 1940 Act governs the required approval: the affirmative vote of the lesser of (a) more than 50% of the outstanding shares of the Trust, such Fund or such class of such Fund, or (b) 67% or more of the shares of the Trust, such Fund or such class of such Fund present at a meeting at which the holders of more than 50% of the outstanding shares of the Trust, such Fund or such class of such Fund are represented in person or by proxy. Otherwise, the declaration of trust, articles of incorporation or by-laws usually govern the needed approval and generally require that if a quorum is present at a meeting, the vote of a majority of the shares of the Trust, such Fund or such class of such Fund, as applicable, shall decide the question.
Telephone calls to a Fund, a Funds service providers or a Financial Intermediary as Financial Intermediary may be recorded. With respect to the securities offered hereby, this SAI and the Prospectus do not contain all the information included in the Registration Statements of the Trust filed with the SEC under the 1933 Act and the 1940 Act. Pursuant to the rules and regulations of the SEC, certain portions have been omitted. The Registration Statement, including the exhibits filed therewith, may be examined at the office of the SEC in Washington, D.C.
Statements contained in this SAI and the Prospectus concerning the contents of any contract or other document are not necessarily complete, and in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statements of the Trusts. Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any information or to make any representations, other than those contained in the Prospectus and this SAI, in connection with the offer contained therein and, if given or made, such other information or representations must not be relied upon as having been authorized by the Trust, the Fund or the Distributor. The Prospectus and this SAI do not constitute an offer by the Fund or by the Distributor to sell or solicit any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful for the Fund or the Distributor to make such offer in such jurisdictions.
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APPENDIX A PURCHASES AND REDEMPTIONS
BOOK ENTRY ONLY SYSTEM
The following information supplements and should be read in conjunction with the section in the Funds Prospectus entitled Buying and Selling Shares.
The Depository Trust Company (DTC) acts as securities depositary for the Shares. Shares of a Fund are represented by securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC. Certificates will not be issued for Shares.
DTC, a limited-purpose trust company, was created to hold securities of its participants (the DTC Participants) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (NYSE) and FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (the Indirect Participants).
Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as Beneficial Owners) is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of Shares.
Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Trust and DTC, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of the Shares holdings of each DTC Participant. The Trust shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant. The Trust shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants accounts with payments in amounts proportionate to their respective beneficial interests in Shares as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a street name, and will be the responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing its service with respect to the Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange.
A-1
CREATION AND REDEMPTION OF CREATION UNITS
General
The Trust issues and sells Shares of the Funds only in Creation Units on a continuous basis through the Distributor, without an initial sales load, at their NAV next determined after receipt, on any Business Day (as defined herein), of an order in proper form. An Authorized Participant (defined below) that is not a qualified institutional buyer, as such term is defined under Rule 144A of the Securities Act of 1933, will not be able to receive, as part of a redemption, restricted securities eligible for resale under Rule 144A.
A Business Day with respect to the Fund is any day on which the Exchange is open for business. As of the date of this SAI, the Exchange observes the following holidays: New Years Day, Martin Luther King, Jr. Day, Presidents Day , Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Continuous Offering
The method by which Creation Units are created and traded may raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by a Fund on an ongoing basis, at any point a distribution, as such term is used in the 1933 Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner that could render them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the 1933 Act.
For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent shares and sells such shares directly to customers or if it chooses to couple the creation of new shares with an active selling effort involving solicitation of secondary market demand for shares. A determination of whether one is an underwriter for purposes of the 1933 Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not underwriters but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the 1933 Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus delivery obligation with respect to Shares of a Fund are reminded that, pursuant to Rule 153 under the 1933 Act, a prospectus delivery obligation under Section 5(b)(2) of the 1933 Act owed to an exchange member in connection with a sale on the Exchange is satisfied by the fact that the prospectus is available at the Exchange upon request. The prospectus delivery mechanism provided in Rule 153 is available only with respect to transactions on an exchange.
Portfolio Deposit
The consideration for a purchase of Creation Units generally consists of the in-kind deposit of a designated portfolio of equity securities and other investments (the Deposit Instruments) included in each Funds Underlying Index and an amount of cash computed as described below (the Cash Amount). The Cash Amount together with the Deposit Instruments, as applicable, are referred to as the Portfolio Deposit, which represents the minimum initial and subsequent investment amount for a Creation Unit of a Fund.
In the event a Fund requires Deposit Instruments in consideration for purchasing a Creation Unit, the portfolio of securities required may, in certain limited circumstances (such as in connection with pending changes to the Funds Underlying Index), be different than the portfolio of securities the Fund will deliver upon redemption of Fund Shares.
In the event a Fund requires Deposit Instruments and a Cash Amount in consideration for purchasing a Creation Unit, the function of the Cash Amount is to compensate for any differences between the NAV per Creation Unit and the Deposit Amount (as defined below). The Cash Amount would be an amount equal to the difference between the NAV of the Shares (per Creation Unit) and the Deposit Amount, which is an amount equal to the aggregate market value of the Deposit Instruments. If the Cash Amount is a positive number (the NAV per Creation Unit exceeds the Deposit Amount), the Authorized Participant will deliver the Cash Amount. If the Cash Amount is a negative number (the NAV per Creation Unit is less than the Deposit Amount), the Authorized Participant will receive the Cash Amount. Computation of the Cash Amount excludes any stamp duty or other similar fees and
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expenses payable upon transfer of beneficial ownership of the Deposit Instruments, which shall be the sole responsibility of the Authorized Participant.
The Administrator, through the NSCC, makes available on each Business Day, immediately prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern time), the list of the names and the required number of shares of each Deposit Instrument to be included in the current Portfolio Deposit (based on information at the end of the previous Business Day), as well as information regarding the Cash Amount for a Fund. Such Portfolio Deposit is applicable, subject to any adjustments as described below, in order to effect creations of Creation Units of a Fund until such time as the next-announced Portfolio Deposit composition is made available.
The identity and number of the Deposit Instruments and Cash Amount required for the Portfolio Deposit for a Fund changes as rebalancing adjustments and corporate action events are reflected from time to time by the Adviser with a view to the investment objective of the Fund. The composition of the Deposit Instruments and the amount of the Cash Amount may also change in response to adjustments to the weighting or composition of the component securities of the Funds Index.
In addition, the Trust reserves the right to accept a basket of securities or cash that differs from Deposit Instruments or to permit the substitution of an amount of cash (i.e., a cash in lieu amount) to be added to the Cash Amount to replace any Deposit Instrument which may, among other reasons, not be available in sufficient quantity for delivery, not be permitted to be re-registered in the name of the Trust as a result of an in-kind creation order pursuant to local law or market convention or which may not be eligible for transfer through the Clearing Process (described below), or which may not be eligible for trading by a Participating Party (defined below). In light of the foregoing, in order to seek to replicate the in-kind creation order process, the Trust expects to purchase the Deposit Instruments represented by the cash in lieu amount in the secondary market (Market Purchases). In such cases where the Trust makes Market Purchases because a Deposit Instrument may not be permitted to be re-registered in the name of the Trust as a result of an in-kind creation order pursuant to local law or market convention, or for other reasons, the Authorized Participant will reimburse the Trust for, among other things, any difference between the market value at which the securities were purchased by the Trust and the cash in lieu amount (which amount, at the Advisers discretion, may be capped), applicable registration fees and taxes. Brokerage commissions incurred in connection with the Trusts acquisition of Deposit Instruments will be at the expense of a Fund and will affect the value of all Shares of the Fund; but the Adviser may adjust the transaction fee to the extent the composition of the Deposit Instruments changes or cash in lieu is added to the Cash Amount to protect ongoing shareholders. The adjustments described above will reflect changes, known to the Adviser on the date of announcement to be in effect by the time of delivery of the Portfolio Deposit, in the composition of the Index or resulting from stock splits and other corporate actions.
In addition to the list of names and numbers of securities constituting the current Deposit Instruments of a Portfolio Deposit, the Administrator, through the NSCC, also makes available on each Business Day, the estimated Cash Component adjusted through the close of the trading day. In addition, on a continuous basis throughout the day, the intra-day indicative value will be calculated and disseminated in accordance with a Funds relevant listing standards.
Procedures for Creation of Creation Units
To be eligible to place orders with the Distributor to create Creation Units of a Fund, an entity or person either must be (1) a Participating Party, i.e. , a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the NSCC; or (2) a DTC Participant (see Book Entry Only System); which, in either case, must have executed an agreement with the Distributor (as it may be amended from time to time in accordance with its terms) (Participant Agreement) (discussed below). A Participating Party and DTC Participant are collectively referred to as an Authorized Participant. All Creation Units of a Fund, however created, will be entered on the records of DTC in the name of Cede & Co. for the account of a DTC Participant.
All orders to create Creation Units must be placed in multiples of a certain number of Shares of a Fund, as disclosed under PURCHASE AND REDEMPTION OF CREATION UNITS in Part I of this SAI. Except as described below, and in all cases subject to the terms of the applicable Participant Agreement, all orders to create Creation Units, whether through the NSCC Clearing Process or outside the NSCC Clearing Process through DTC or otherwise, must be received by the Distributor no later than the closing time of the regular trading session on the Exchange (Closing Time) (ordinarily 4:00 p.m. Eastern time), in each case on the date such order is placed in order for creation of Creation Units to be effected based on the NAV of a Fund as determined on such date. A Custom Order may be placed by an Authorized Participant in the event that the Trust permits the substitution of
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an amount of cash to be added to the Cash Amount to replace any Deposit Instrument which may not be available in sufficient quantity for delivery or which may not be eligible for trading by such Authorized Participant or the investor for which it is acting, or other relevant reason. The Business Day on which a creation order (or order to redeem as discussed below) is placed is herein referred to as the Transmittal Date. Orders must be transmitted by telephone or other transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement, as described below (see Placement of Creation Orders Using NSCC Clearing Process). Severe economic or market disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor, a Participating Party or a DTC Participant. Creation Units may be created in advance of the receipt by the Trust of all or a portion of the Portfolio Deposit. In such cases, the Authorized Participant will remain liable for the full deposit of the missing portion(s) of the Portfolio Deposit and will be required to post collateral with the Trust consisting of cash at least equal to a percentage of the marked-to-market value of such missing portion(s) that is specified in the Participant Agreement. The Trust may use such collateral to buy the missing portion(s) of the Portfolio Deposit at any time and will subject such Authorized Participant to liability for any shortfall between the cost to the Trust of purchasing such securities and the value of such collateral. The Trust will have no liability for any such shortfall. The Trust will return any unused portion of the collateral to the Authorized Participant once the entire Fund Deposit has been properly received by the Distributor and deposited into the Trust.
Orders to create Creation Units of a Fund shall be placed with a Participating Party or DTC Participant, as applicable, in the form required by such Participating Party or DTC Participant. Investors should be aware that their particular broker may not have executed a Participant Agreement, and that, therefore, orders to create Creation Units of a Fund may have to be placed by the investors broker through a Participating Party or a DTC Participant who has executed a Participant Agreement. At any given time there may be only a limited number of broker-dealers that have executed a Participant Agreement. Those placing orders to create Creation Units of the Fund through the NSCC Clearing Process should afford sufficient time to permit proper submission of the order to the Distributor prior to the Closing Time on the Transmittal Date.
Orders for creation that are effected outside the NSCC Clearing Process are likely to require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the NSCC Clearing Process. Those persons placing orders outside the NSCC Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire system by contacting the operations department of the broker or depository institution effectuating such transfer of Deposit Instruments and Cash Amount.
Orders to create Creation Units of a Fund may be placed through the Clearing Process utilizing procedures applicable to domestic funds for domestic securities (Domestic Funds) (see Placement of Creation Orders Using NSCC Clearing Process) or outside the NSCC Clearing Process utilizing the procedures applicable to either Domestic Funds or Foreign Funds for foreign securities (Foreign Funds) (see Placement of Creation Orders Outside NSCC Clearing Process Domestic Funds and Placement of Creation Orders Outside NSCC Clearing Process Foreign Funds). In the event that the Fund includes both domestic and foreign securities, the time for submitting orders is as stated in the Placement of Creation Orders Outside NSCC Clearing Process Foreign Funds and Placement of Redemption Orders Outside NSCC Clearing Process Foreign Funds sections below shall operate.
Placement of Creation Orders Using NSCC Clearing Process
Portfolio Deposits created through the NSCC Clearing Process, if available, must be delivered through a Participating Party that has executed a Participant Agreement.
The Participant Agreement authorizes the Distributor to transmit to the NSCC on behalf of the Participating Party such trade instructions as are necessary to effect the Participating Partys creation order. Pursuant to such trade instructions from the Distributor to the NSCC, the Participating Party agrees to transfer the requisite Deposit Instruments (or contracts to purchase such Deposit Instruments that are expected to be delivered in a regular way manner by the third (3rd) Business Day) and the Cash Amount to the Trust, together with such additional information as may be required by the Distributor. An order to create Creation Units of a Fund through the NSCC Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than the Closing Time on such Transmittal Date and (ii) all other procedures set forth in the Participant Agreement are properly followed.
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Placement of Creation Orders Outside NSCC Clearing Process Domestic Funds
Portfolio Deposits created outside the NSCC Clearing Process must be delivered through a DTC Participant that has executed a Participant Agreement. A DTC Participant who wishes to place an order creating Creation Units of a Fund to be effected outside the NSCC Clearing Process need not be a Participating Party, but such orders must state that the DTC Participant is not using the NSCC Clearing Process and that the creation of Creation Units will instead be effected through a transfer of securities and cash. The Portfolio Deposit transfer must be ordered by the DTC Participant in a timely fashion so as to ensure the delivery of the requisite number of Deposit Instruments through DTC to the account of the Trust by no later than 11:00 a.m. Eastern time, of the next Business Day immediately following the Transmittal Date. All questions as to the number of Deposit Instruments to be delivered, and the validity, form and eligibility (including time of receipt) for the deposit of any tendered securities, will be determined by the Trust, whose determination shall be final and binding. The cash equal to the Cash Component must be transferred directly to the Custodian through the Federal Reserve wire system in a timely manner so as to be received by the Custodian no later than 2:00 p.m. Eastern time, on the next Business Day immediately following the Transmittal Date. An order to create Creation Units of a Fund outside the NSCC Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than the Closing Time on such Transmittal Date; and (ii) all other procedures set forth in the Participant Agreement are properly followed. However, if the Distributor does not receive both the requisite Deposit Instruments and the Cash Amount in a timely fashion on the next Business Day immediately following the Transmittal Date, such order may be cancelled. Upon written notice to the Distributor, such cancelled order may be resubmitted the following Business Day using the Portfolio Deposit as newly constituted to reflect the current NAV of the applicable Fund. The delivery of Creation Units so created will occur no later than the third (3rd) Business Day following the day on which the creation order is deemed received by the Distributor.
Additional transaction fees may be imposed with respect to transactions effected outside the NSCC Clearing Process (through a DTC Participant) and in circumstances in which any cash can be used in lieu of Deposit Instruments to create Creation Units. (See Creation Transaction Fee section below.)
Placement of Creation Orders Outside NSCC Clearing Process Foreign Funds
The Distributor will inform the Transfer Agent, the Adviser and the Custodian upon receipt of a Creation Order. The Custodian will then provide such information to the appropriate subcustodian. For each Fund, the Custodian will cause the subcustodian of such Fund to maintain an account into which the Deposit Instruments (or the cash value of all or part of such securities, in the case of a permitted cash purchase or cash in lieu amount) will be delivered. Deposit Instruments must be delivered to an account maintained at the applicable local custodian. The Trust must also receive, on or before the contractual settlement date, immediately available or same day funds estimated by the Custodian to be sufficient to pay the Cash Amount next determined after receipt in proper form of the purchase order, together with the creation transaction fee described below.
Once the Transfer Agent has accepted a creation order, the Transfer Agent will confirm the issuance of a Creation Unit of the Fund against receipt of payment, at such NAV as will have been calculated after receipt in proper form of such order. The Transfer Agent will then transmit a confirmation of acceptance of such order.
Creation Units will not be issued until the transfer of good title to the Trust of the Deposit Instruments and the payment of the Cash Component have been completed. When the subcustodian has delivered to the account of the relevant subcustodian, the Distributor and the Adviser will be notified of such delivery and the Transfer Agent will issue and cause the delivery of the Creation Units.
Acceptance of Creation Orders
The Trust and the Distributor reserve the absolute right to reject or revoke acceptance of a creation order transmitted to it in respect of a Fund, for example, if (a) the order is not in proper form; (b) the purchaser or group of related purchasers, upon obtaining the Creation Units of Shares, would own 80% or more of the outstanding Shares of such Fund; (c) the acceptance of the Portfolio Deposit would have certain adverse tax consequences, such as causing the Fund no longer to meet RIC status under the Code for federal tax purposes; (d) the acceptance of the Portfolio Deposit would, in the opinion of the Fund, be unlawful, as in the case of a purchaser who was banned from trading in securities (e) the acceptance of the Portfolio Deposit would otherwise, in the discretion of the Fund, the Adviser and/or sub-advisers, have an adverse effect on the Fund or on the rights of the Funds beneficial owners; or; or (f) there exist circumstances outside the control of the Fund that make it impossible to process purchases of Creation Units of Shares for all practical purposes. Examples of such circumstances include: acts of God or public
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service or utility problems such as fires, floods, extreme weather conditions and power outage resulting in telephone, telecopy and computer failures; market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the Funds, the Adviser, any sub-adviser, the Transfer Agent, the Custodian, the Distributor, DTC, NSCC or any other participant in the purchase process; and similar extraordinary events. The Transfer Agent will notify a prospective creator of its rejection of the order of such person. The Trust, the Custodian, any subcustodian and the Distributor are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits to Authorized Participants nor shall either of them incur any liability to Authorized Participants for the failure to give any such notification. All questions as to the number of shares of each security in the Deposit Instruments and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trusts determination shall be final and binding.
Creation Units of a Fund may be created in advance of receipt by the Trust of all or a portion of the applicable Deposit Instruments as described below. In these circumstances, the initial deposit will have a value greater than the NAV of the Shares on the date the order is placed in proper form since, in addition to available Deposit Instruments, cash must be deposited in an amount equal to the sum of (i) the Cash Amount, plus (ii) at least 105%, which the Trust may change from time to time, of the market value of the undelivered Deposit Instruments (the Additional Cash Deposit) with the Fund pending delivery of any missing Deposit Instruments.
If an Authorized Participant determines to post an Additional Cash Deposit as collateral for any undelivered Deposit Instruments, such Authorized Participant must deposit with the Custodian the appropriate amount of federal funds by 10:00 a.m. New York, (or such other time as specified by the Trust) on the date of requested settlement. If the Custodian does not receive the Additional Cash Deposit in the appropriate amount by such time, then the order may be deemed to be rejected and the AP shall be liable to a fund for losses, if any, resulting therefrom. An additional amount of cash shall be required to be deposited with the Custodian, pending delivery of the missing Deposit Instruments to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to 105% as required, which the Trust may change from time to time, of the daily marked to market value of the missing Deposit Instruments. To the extent that missing Deposit Securities are not received by the specified time on the settlement date, or in the event a marked-to market payment is not made within one Business Day following notification by the Distributor that such a payment is required, the Trust may use the cash on deposit to purchase the missing Deposit Instruments. The Authorized Participant will be liable to the Trust for the costs incurred by the Trust in connection with any such purchases. These costs will be deemed to include the amount by which the actual purchase price of the Deposit Instruments exceeds the market value of such Deposit Instruments on the transmittal date plus the brokerage and related transaction costs associated with such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit Instruments have been properly received by the Distributor or purchased by the Trust and deposited into the Trust. In addition, a transaction fee will be charged in all cases.
Creation Transaction Fee
A fixed creation transaction fee is imposed on each creation transaction regardless of the number of Creation Units purchased in the transaction. The amount of the creation transaction fee for a Fund is disclosed under PURCHASE AND REDEMPTION OF CREATION UNITS in Part I of this SAI. In addition, a variable charge for cash creations or for creations outside the NSCC Clearing Process currently of up to four times the basic creation transaction fee will be imposed. In the case of cash creations or where the Trust permits a creator to substitute cash in lieu of depositing a portion of the Deposit Instruments, the creator may be assessed an additional variable charge to compensate a Fund for the costs associated with purchasing the applicable securities. (See Portfolio Deposit section above.) As a result, in order to seek to replicate the in-kind creation order process, the Trust expects to purchase, in the secondary market or otherwise gain exposure to, the portfolio securities that could have been delivered as a result of an in-kind creation order pursuant to local law or market convention, or for other reasons (Market Purchases). In such cases where the Trust makes Market Purchases, the Authorized Participant will reimburse the Trust for, among other things, any difference between the market value at which the securities and/or financial instruments were purchased by the Trust and the cash in lieu amount (which amount, at the Advisers discretion, may be capped), applicable registration fees, brokerage commissions and certain taxes. The Adviser may adjust the transaction fee to the extent the composition of the creation securities changes or cash in lieu is added to the Cash Amount to protect ongoing shareholders. Creators of Creation Units are responsible for the costs of transferring the securities constituting the Deposit Instruments to the account of the Trust.
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Redemption of Creation Units
Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor, only on a Business Day and only through a Participating Party or DTC Participant who has executed a Participant Agreement. The Trust will not redeem Shares in amounts less than Creation Units. Beneficial owners also may sell Shares in the secondary market, but must accumulate enough Shares to constitute a Creation Unit in order to have such Shares redeemed by the Trust. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation Unit. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Shares to constitute a redeemable Creation Unit. See with respect to each Fund, the section entitled Summary Information The Funds Main Risks and More About the Fund Investment Risks in the applicable Prospectus.
The Administrator, through NSCC, makes available immediately prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern time) on each day that the Exchange is open for business, the identity of a Funds securities and/or an amount of cash that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day. A Funds securities received on redemption will generally correspond pro rata, to the extent practicable, to such Funds securities. A Funds securities received on redemption (Redemption Instruments) may include, with respect to a Fund, securities in different proportions than securities of the Underlying Index or may include securities not currently represented in the Underlying Index. Redemption Instruments received on redemption may not be identical to Deposit Instruments that are applicable to creations of Creation Units. If the Trust determines, based on information available to the Trust when a redemption request is submitted by an Authorized Participant, that (i) the short interest of a Fund in the marketplace is greater than or equal to 100% and (ii) the orders in the aggregate from all Authorized Participants redeeming Fund Shares on a Business Day represent 25% or more of the outstanding Shares of a Fund, such Authorized Participant will be required to verify to the Trust the accuracy of its representations that are deemed to have been made by submitting a request for redemption. If, after receiving notice of the verification requirement, the Authorized Participant does not verify the accuracy of its representations that are deemed to have been made by submitting a request for redemption in accordance with this requirement, its redemption request will be considered not to have been received in proper form. Unless cash redemptions are permitted for a Fund, the redemption proceeds for a Creation Unit generally consist of Redemption Instruments as announced by the Administrator on the Business Day of the request for redemption, plus cash in an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Redemption Instruments, less the redemption transaction fee and variable fees described below. Should the Redemption Instruments have a value greater than the NAV of the Shares being redeemed, a compensating cash payment to the Trust equal to the differential plus the applicable redemption transaction fee will be required to be arranged for by or on behalf of the redeeming shareholder. Each Fund reserves the right to honor a redemption request by delivering a basket of securities or cash that differs from the Redemption Instruments.
Redemption Transaction Fee
The basic redemption transaction fee (as described in PURCHASE AND REDEMPTION OF CREATION UNITS in Part I of this SAI) is the same no matter how many Creation Units are being redeemed pursuant to any one redemption request. An additional charge up to four times the redemption transaction fee will be charged with respect to cash redemptions or redemptions outside of the NSCC Clearing Process. An additional variable charge for cash redemptions or partial cash redemptions (when cash redemptions are permitted for a Fund) may also be imposed to compensate each applicable Fund for the costs associated with selling the applicable securities. As a result, in order to seek to replicate the in-kind redemption order process, the Trust expects to sell, in the secondary market, the portfolio securities or settle any financial instruments that may not be permitted to be re-registered in the name of the Participating Party as a result of an in-kind redemption order pursuant to local law or market convention, or for other reasons (Market Sales). In such cases where the Trust makes Market Sales, the Authorized Participant will reimburse the Trust for, among other things, any difference between the market value at which the securities and/or financial instruments were sold or settled by the Trust and the cash in lieu amount (which amount, at the Advisers discretion, may be capped), applicable registration fees, brokerage commissions and certain taxes (Transaction Costs). The Adviser may adjust the transaction fee to the extent the composition of the redemption securities changes or cash in lieu is added to the Cash Amount to protect ongoing shareholders. In no event will transaction fees charged by a Fund in connection with a redemption exceed 2% of the value of each Creation Unit. Investors who use the services of a broker or other such intermediary may be charged a fee for such
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services. To the extent a Fund cannot recoup the amount of Transaction Costs incurred in connection with a redemption from the redeeming shareholder because of the 2% cap or otherwise, those Transaction Costs will be borne by the Funds remaining shareholders and negatively affect the Funds performance.
Placement of Redemption Orders Using NSCC Clearing Process
Orders to redeem Creation Units of the Fund through the NSCC Clearing Process, if available, must be delivered through a Participating Party that has executed the Participant Agreement. An order to redeem Creation Units of a Fund using the Clearing Process is deemed received on the Transmittal Date if (i) such order is received by the Distributor not later than 4:00 p.m. Eastern time on such Transmittal Date; and (ii) all other procedures set forth in the Participant Agreement are properly followed; such order will be effected based on the NAV of the Fund as next determined. An order to redeem Creation Units of the Fund using the NSCC Clearing Process made in proper form but received by the Fund after 4:00 p.m. Eastern time, will be deemed received on the next Business Day immediately following the Transmittal Date. The requisite Fund Securities (or contracts to purchase such Fund Securities which are expected to be delivered in a regular way manner) and the applicable cash payment will be transferred by the third (3rd) Business Day following the date on which such request for redemption is deemed received.
Placement of Redemption Orders Outside NSCC Clearing Process Domestic Funds
Orders to redeem Creation Units of a Fund outside the NSCC Clearing Process must be delivered through a DTC Participant that has executed the Participant Agreement. A DTC Participant who wishes to place an order for redemption of Creation Units of a Fund to be effected outside the NSCC Clearing Process need not be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that redemption of Creation Units of the Fund will instead be effected through transfer of Creation Units of the Fund directly through DTC. An order to redeem Creation Units of a Fund outside the Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than 4:00 p.m. Eastern time on such Transmittal Date; (ii) such order is preceded or accompanied by the requisite number of Shares of Creation Units specified in such order, which delivery must be made through DTC to the Custodian no later than 11:00 a.m. Eastern time, on such Transmittal Date (the DTC Cut-Off-Time); and (iii) all other procedures set forth in the Participant Agreement are properly followed.
After the Distributor has deemed an order for redemption outside the NSCC Clearing Process received, the Custodian will initiate procedures to transfer the requisite Redemption Instruments (or contracts to purchase such Redemption Instruments) which are expected to be delivered within three Business Days and the cash redemption payment to the redeeming Beneficial Owner by the third Business Day following the Transmittal Date on which such redemption order is deemed received by the Custodian. An additional variable redemption transaction fee of up to four times the basic transaction fee is applicable to redemptions outside the NSCC Clearing Process.
To the extent contemplated by an Authorized Participants agreement, in the event the Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the Creation Unit to be redeemed to the Funds Transfer Agent, the Transfer Agent will nonetheless accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing shares as soon as possible. Such undertaking shall be secured by the Authorized Participants delivery and maintenance of collateral consisting of cash having a value (marked to market daily) at least equal to 105%, which the Trust may change from time to time, of the value of the missing shares.
The current procedures for collateralization of missing shares require, among other things, that any cash collateral shall be in the form of U.S. dollars in immediately available funds and shall be held by the Custodian and marked to market daily, and that the fees of the Custodian and any sub-custodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the Authorized Participant. The Authorized Participants agreement will permit the Trust, on behalf of the Fund, to purchase the missing shares or acquire the Deposit Instruments and the Cash Amount underlying such shares at any time and will subject the Authorized Participant to liability for any shortfall between the cost to the Trust of purchasing such shares, Deposit Instruments or Cash Amount and the value of the collateral.
Placement of Redemption Orders Outside NSCC Clearing Process Foreign Funds
Arrangements satisfactory to the Trust must be in place for the Participating Party to transfer the Creation Units through DTC on or before the settlement date. Redemptions of Shares for Redemption Instruments will be subject to compliance with applicable U.S. federal and state securities laws and a Fund (whether or not it otherwise permits
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cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Fund could not lawfully deliver specific Redemption Instruments upon redemptions or could not do so without first registering the Deposit Securities under such laws.
In connection with taking delivery of Shares for Redemption Instruments upon redemption of Creation Units, a redeeming shareholder or entity acting on behalf of a redeeming shareholder must maintain appropriate custody arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the Redemption Instruments are customarily traded, to which account such Redemption Instruments will be delivered. If neither the redeeming shareholder nor the entity acting on behalf of a redeeming shareholder has appropriate arrangements to take delivery of the Redemption Instruments in the applicable foreign jurisdiction and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Redemption Instruments in such jurisdictions, the Trust may, in its discretion, exercise its option to redeem such Shares in cash, and the redeeming shareholder will be required to receive its redemption proceeds in cash.
Deliveries of redemption proceeds generally will be made within three business days. Due to the schedule of holidays in certain countries or for other reasons, however, the delivery of redemption proceeds may take longer than three business days after the day on which the redemption request is received in proper form. In such cases, the local market settlement procedures will not commence until the end of the local holiday periods.
The holidays applicable to the Foreign Funds (including the Funds) are listed below. The proclamation of new holidays, the treatment by market participants of certain days as informal holidays ( e.g. , days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays or changes in local securities delivery practices, could affect the information set forth herein at some time in the future. The dates in calendar year 2014 in which the regular holidays affect the relevant securities markets are as follows (the following holiday schedule is subject to potential changes in the securities market):
2014
AUSTRALIA |
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January 1 | April 18 | May 19 | August 13 | December 25 | ||||
January 27 | April 21 | June 2 | September 29 | December 26 | ||||
March 3 | April 25 | June 9 | October 6 | |||||
March 10 | May 5 | August 4 | November 4 | |||||
CANADA |
||||||||
January 1 | May 19 | September 1 | December 26 | |||||
January 2 | June 24 | October 13 | ||||||
February 17 | July 1 | November 11 | ||||||
April 18 | August 4 | December 25 | ||||||
GERMANY |
||||||||
April 6 | December 26 | |||||||
April 9 | ||||||||
May 1 | ||||||||
December 25 | ||||||||
GREECE |
||||||||
January 1 | April 18 | August 15 | ||||||
January 6 | April 21 | October 28 | ||||||
March 3 | May 1 | December 25 | ||||||
March 25 | June 9 | December 26 | ||||||
HONG KONG |
||||||||
January 1 | April 21 | July 1 | December 24 | |||||
January 30 | May 1 | September 9 | December 25 | |||||
January 31 | May 6 | October 1 | December 26 | |||||
April 18 | June 2 | October 2 | December 31 |
A-9
IRELAND |
||||||||
January 1 | May 1 | October 27 | December 29 | |||||
March 17 | May 5 | December 24 | ||||||
April 18 | June 2 | December 25 | ||||||
April 21 | August 4 | December 26 | ||||||
ITALY |
||||||||
January 1 | May 1 | December 24 | ||||||
January 6 | June 2 | December 25 | ||||||
April 18 | August 15 | December 26 | ||||||
April 25 | December 8 | |||||||
JAPAN |
||||||||
January 1 | February 11 | July 21 | November 3 | |||||
January 2 | March 21 | September 15 | November 24 | |||||
January 3 | April 29 | September 23 | December 23 | |||||
January 13 | May 5 | October 13 | December 31 | |||||
MALAYSIA |
||||||||
January 1 | February 3 | June 7 | October 6 | |||||
January 14 | May 1 | July 28 | October 22 | |||||
January 30 | May 13 | July 29 | October 23 | |||||
January 31 | May 15 | July 30 | October 25 | |||||
February 1 | May 30 | September 1 | December 25 | |||||
NEW ZEALAND |
||||||||
January 1 | February 6 | June 2 | ||||||
January 2 | April 18 | October 27 | ||||||
January 20 | April 21 | December 25 | ||||||
January 27 | April 25 | December 26 | ||||||
SINGAPORE |
||||||||
January 1 | May 1 | August 9 | December 25 | |||||
January 31 | May 13 | October 6 | ||||||
February 1 | May 15 | October 22 | ||||||
April 18 | July 28 | October 23 | ||||||
SOUTH AFRICA |
||||||||
January 1 | April 28 | December 16 | ||||||
March 21 | May 1 | December 25 | ||||||
April 18 | June 16 | December 26 | ||||||
April 21 | September 24 | |||||||
SOUTH KOREA |
||||||||
January 1 | March 1 | August 15 | October 3 | |||||
January 30 | May 5 | September 7 | December 24 | |||||
January 31 | May 6 | September 8 | ||||||
February 1 | June 6 | September 9 | ||||||
SWEDEN |
||||||||
January 1 | May 1 | December 24 | ||||||
January 6 | May 29 | December 25 | ||||||
April 18 | June 6 | December 26 | ||||||
April 21 | June 20 | December 31 | ||||||
SWITZERLAND |
||||||||
January 1 | April 21 | August 1 | December 25 | |||||
January 2 | May 1 | August 15 | December 26 | |||||
January 6 | May 29 | September 11 | December 31 | |||||
March 19 | June 9 | December 8 | ||||||
April 18 | June 19 | December 24 | ||||||
UNITED KINGDOM |
||||||||
January 1 | May 5 | December 26 | ||||||
April 18 | August 25 | |||||||
April 21 | December 25 |
A-10
The longest redemption cycle for Foreign Funds is a function of the longest redemption cycle in among countries whose securities comprise the Funds. In the calendar year 2014, the dates of regular holidays affecting the following securities markets present the worst-case (longest) redemption cycle* for Foreign Funds as follows:
SETTLEMENT PERIODS GREATER THAN SEVEN DAYS FOR YEAR 2014
Redemption
Request Date |
Redemption
Settlement Date |
Settlement Period | ||||||||||
Austria: |
12/19/2014 | 12/29/2014 | 10 | |||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
China: |
1/27/2014 | 2/10/2014 | 14 | |||||||||
1/28/2014 | 2/11/2014 | 14 | ||||||||||
1/29/2014 | 2/12/2014 | 14 | ||||||||||
4/28/2014 | 5/8/2014 | 10 | ||||||||||
4/29/2014 | 5/9/2014 | 10 | ||||||||||
4/30/2014 | 5/12/2014 | 12 | ||||||||||
9/26/2014 | 10/8/2014 | 12 | ||||||||||
9/29/2014 | 10/9/2014 | 10 | ||||||||||
9/30/2014 | 10/10/2014 | 10 | ||||||||||
The Czech Republic: |
12/19/2014 | 12/29/2014 | 10 | |||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
Denmark: |
12/23/2014 | 1/2/2015 | 10 | |||||||||
12/23/2013 | 1/2/2014 | 10 | ||||||||||
4/14/2014 | 4/22/2014 | 8 | ||||||||||
4/15/2014 | 4/23/2014 | 8 | ||||||||||
4/16/2014 | 4/24/2014 | 8 | ||||||||||
12/19/2014 | 12/29/2014 | 10 | ||||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
12/31/2015 | 1/8/2015 | 8 | ||||||||||
Egypt: |
12/31/2013 | 1/8/2014 | 8 | |||||||||
1/6/2014 | 1/14/2014 | 8 | ||||||||||
4/14/2014 | 4/22/2014 | 8 | ||||||||||
4/15/2014 | 4/23/2014 | 8 | ||||||||||
4/16/2014 | 4/24/2014 | 8 | ||||||||||
4/17/2014 | 4/27/2014 | 10 | ||||||||||
7/21/2014 | 7/31/2014 | 10 | ||||||||||
7/22/2014 | 8/3/2014 | 12 | ||||||||||
7/24/2014 | 8/4/2014 | 11 | ||||||||||
9/29/2014 | 10/7/2014 | 8 | ||||||||||
9/30/2014 | 10/8/2014 | 8 | ||||||||||
10/1/2014 | 10/9/2014 | 8 | ||||||||||
10/2/2014 | 10/12/2014 | 10 | ||||||||||
Finland: |
12/23/2013 | 1/2/2014 | 10 | |||||||||
12/19/2014 | 12/29/2014 | 10 | ||||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
Hong Kong: |
12/19/2014 | 12/29/2014 | 10 | |||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
Hungary: |
12/19/2014 | 12/29/2014 | 10 | |||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 12/31/2014 | 8 | ||||||||||
India: |
9/26/2014 | 10/7/2014 | 11 | |||||||||
9/29/2014 | 10/8/2014 | 9 | ||||||||||
10/1/2014 | 10/9/2014 | 8 |
A-11
Redemption
Request Date |
Redemption
Settlement Date |
Settlement Period | ||||||||||
Indonesia: |
12/23/2013 | 1/2/2014 | 10 | |||||||||
7/23/2014 | 8/4/2014 | 12 | ||||||||||
7/24/2014 | 8/5/2014 | 12 | ||||||||||
7/25/2014 | 8/6/2014 | 12 | ||||||||||
12/19/2014 | 12/29/2014 | 10 | ||||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
Sweden: |
12/23/2013 | 1/2/2014 | 10 | |||||||||
12/19/2014 | 12/30/2014 | 11 | ||||||||||
12/22/2014 | 12/31/2014 | 9 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
Israel: |
4/13/2014 | 4/22/2014 | 9 | |||||||||
Italy: |
12/23/2013 | 1/2/2014 | 10 | |||||||||
12/19/2014 | 12/29/2014 | 10 | ||||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
Kazakhstan: |
3/18/2014 | 3/26/2014 | 8 | |||||||||
3/19/2014 | 3/27/2014 | 8 | ||||||||||
3/20/2014 | 3/28/2014 | 8 | ||||||||||
Kuwait: |
2/20/2014 | 3/2/2014 | 10 | |||||||||
2/23/2014 | 3/3/2014 | 8 | ||||||||||
2/24/2014 | 3/4/2014 | 8 | ||||||||||
7/23/2014 | 8/3/2014 | 11 | ||||||||||
7/24/2014 | 8/4/2014 | 11 | ||||||||||
7/27/2014 | 8/5/2014 | 9 | ||||||||||
9/30/2014 | 10/8/2014 | 8 | ||||||||||
10/1/2014 | 10/9/2014 | 8 | ||||||||||
10/2/2014 | 10/12/2014 | 10 | ||||||||||
Malaysia: |
1/27/2014 | 2/4/2014 | 8 | |||||||||
1/28/2014 | 2/5/2014 | 8 | ||||||||||
1/29/2014 | 2/6/2014 | 8 | ||||||||||
7/23/2014 | 7/31/2014 | 8 | ||||||||||
7/24/2014 | 8/1/2014 | 8 | ||||||||||
7/25/2014 | 8/4/2014 | 10 | ||||||||||
Nigeria: |
12/19/2014 | 12/29/2014 | 10 | |||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 12/31/2014 | 8 | ||||||||||
Norway: |
12/23/2013 | 1/2/2014 | 10 | |||||||||
4/14/2014 | 4/22/2014 | 8 | ||||||||||
4/15/2014 | 4/23/2014 | 8 | ||||||||||
4/16/2014 | 4/24/2014 | 8 | ||||||||||
12/19/2014 | 12/29/2014 | 10 | ||||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
Pakistan: |
7/24/2014 | 8/1/2014 | 8 | |||||||||
7/25/2014 | 8/4/2014 | 10 | ||||||||||
7/28/2014 | 8/5/2014 | 8 | ||||||||||
Philippines: |
12/23/2013 | 1/2/2014 | 10 | |||||||||
12/26/2013 | 1/3/2014 | 8 | ||||||||||
12/27/2013 | 1/6/2014 | 10 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
12/26/2014 | 1/5/2015 | 10 | ||||||||||
12/29/2014 | 1/6/2015 | 8 | ||||||||||
Portugal: |
12/19/2014 | 12/29/2014 | 10 | |||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 12/31/2014 | 8 |
A-12
Redemption
Request Date |
Redemption
Settlement Date |
Settlement Period | ||||||||||
Qatar: |
7/23/2014 | 8/3/2014 | 11 | |||||||||
7/24/2014 | 8/4/2014 | 11 | ||||||||||
7/27/2014 | 8/5/2014 | 9 | ||||||||||
9/30/2014 | 10/8/2014 | 8 | ||||||||||
10/1/2014 | 10/9/2014 | 8 | ||||||||||
10/2/2014 | 10/12/2014 | 10 | ||||||||||
Saudi Arabia: |
7/22/2014 | 8/2/2014 | 11 | |||||||||
7/23/2014 | 8/3/2014 | 11 | ||||||||||
9/30/2014 | 10/8/2014 | 8 | ||||||||||
10/1/2014 | 10/11/2014 | 10 | ||||||||||
South Africa: |
12/23/2013 | 1/2/2014 | 10 | |||||||||
12/24/2013 | 1/3/2014 | 10 | ||||||||||
12/27/2013 | 1/6/2014 | 10 | ||||||||||
12/30/2013 | 1/7/2014 | 8 | ||||||||||
12/31/2013 | 1/8/2014 | 8 | ||||||||||
3/14/2014 | 3/24/2014 | 10 | ||||||||||
3/17/2014 | 3/25/2014 | 8 | ||||||||||
3/18/2014 | 3/26/2014 | 8 | ||||||||||
3/19/2014 | 3/27/2014 | 8 | ||||||||||
3/20/2014 | 3/28/2014 | 8 | ||||||||||
4/11/2014 | 4/22/2014 | 9 | ||||||||||
4/14/2014 | 4/23/2014 | 9 | ||||||||||
4/15/2014 | 4/24/2014 | 9 | ||||||||||
4/16/2014 | 4/25/2014 | 9 | ||||||||||
4/17/2014 | 4/29/2014 | 12 | ||||||||||
4/22/2014 | 4/30/2014 | 8 | ||||||||||
4/23/2014 | 5/2/2014 | 9 | ||||||||||
4/24/2014 | 5/5/2014 | 11 | ||||||||||
4/25/2014 | 5/6/2014 | 11 | ||||||||||
4/29/2014 | 5/7/2014 | 8 | ||||||||||
4/30/2014 | 5/8/2014 | 8 | ||||||||||
6/9/2014 | 6/17/2014 | 8 | ||||||||||
6/10/2014 | 6/18/2014 | 8 | ||||||||||
6/11/2014 | 6/19/2014 | 8 | ||||||||||
6/12/2014 | 6/20/2014 | 8 | ||||||||||
6/13/2014 | 6/23/2014 | 10 | ||||||||||
9/17/2014 | 9/25/2014 | 8 | ||||||||||
9/18/2014 | 9/26/2014 | 8 | ||||||||||
9/19/2014 | 9/29/2014 | 10 | ||||||||||
9/22/2014 | 9/30/2014 | 8 | ||||||||||
9/23/2014 | 10/1/2014 | 8 | ||||||||||
12/9/2014 | 12/17/2014 | 8 | ||||||||||
12/10/2014 | 12/18/2014 | 8 | ||||||||||
12/11/2014 | 12/19/2014 | 8 | ||||||||||
12/12/2014 | 12/22/2014 | 10 | ||||||||||
12/15/2014 | 12/23/2014 | 8 | ||||||||||
12/18/2014 | 12/29/2014 | 11 | ||||||||||
12/19/2014 | 12/30/2014 | 11 | ||||||||||
12/22/2014 | 12/31/2014 | 9 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
12/24/2014 | 1/5/2015 | 12 | ||||||||||
12/29/2014 | 1/6/2015 | 8 | ||||||||||
12/30/2014 | 1/7/2015 | 8 | ||||||||||
12/31/2014 | 1/8/2015 | 8 |
A-13
Redemption
Request Date |
Redemption
Settlement Date |
Settlement Period | ||||||||||
Spain: |
4/14/2014 | 4/22/2014 | 8 | |||||||||
4/15/2014 | 4/23/2014 | 8 | ||||||||||
4/16/2014 | 4/24/2014 | 8 | ||||||||||
Sweden: |
12/23/2013 | 1/2/2014 | 10 | |||||||||
12/19/2014 | 12/29/2014 | 10 | ||||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 1/2/2015 | 10 | ||||||||||
Switzerland: |
12/23/2013 | 1/3/2014 | 11 | |||||||||
12/27/2013 | 1/6/2014 | 10 | ||||||||||
12/30/2013 | 1/7/2014 | 8 | ||||||||||
12/19/2014 | 12/29/2014 | 10 | ||||||||||
12/22/2014 | 12/30/2014 | 8 | ||||||||||
12/23/2014 | 1/5/2015 | 13 | ||||||||||
12/29/2014 | 1/6/2015 | 8 | ||||||||||
12/30/2014 | 1/7/2015 | 8 | ||||||||||
Taiwan: |
1/23/2014 | 2/5/2014 | 13 | |||||||||
1/24/2014 | 2/6/2014 | 13 | ||||||||||
1/27/2014 | 2/7/2014 | 11 | ||||||||||
Turkey: |
7/23/2014 | 7/31/2014 | 8 | |||||||||
7/24/2014 | 8/1/2014 | 8 | ||||||||||
7/25/2014 | 8/4/2014 | 10 | ||||||||||
9/30/2014 | 10/8/2014 | 8 | ||||||||||
10/1/2014 | 10/9/2014 | 8 | ||||||||||
10/2/2014 | 10/10/2014 | 8 | ||||||||||
UAE: |
7/23/2014 | 7/31/2014 | 8 | |||||||||
7/24/2014 | 8/3/2014 | 10 | ||||||||||
7/27/2014 | 8/4/2014 | 8 | ||||||||||
Vietnam: |
4/29/2014 | 5/7/2014 | 8 |
* | These worst-case redemption cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse) redemption cycles are possible. |
A-14
PART C: OTHER INFORMATION
Item 28. Exhibits
(a)(1) | Certificate of Trust dated February 25, 2010. Incorporated herein by reference to the Registrants Registration Statement as filed with the Securities and Exchange Commission on October 21, 2013 (Accession Number 0001193125-13-405484). | |
(a)(2) | Declaration of Trust dated February 19, 2014. Incorporated herein by reference to the Registrants Registration Statement as filed with the Securities and Exchange Commission on February 25, 2014 (Accession Number 0001193125-14-067429). | |
(b) | By-Laws dated February 19, 2014. Incorporated herein by reference to the Registrants Registration Statement as filed with the Securities and Exchange Commission on February 25, 2014 (Accession Number 0001193125-14-067429). | |
(c) | Instruments Defining Rights of Security Holders. Incorporated by reference to Exhibits (a) and (b). | |
(d)(1) | Investment Advisory Agreement dated May 9, 2014. Filed herewith. | |
(e)(1) | Distribution Agreement dated April 1, 2014. Filed herewith. | |
(f) | Not applicable. | |
(g)(1) | Global Custody Agreement dated May 7, 2014, between J.P. Morgan Exchange-Traded Fund Trust and JPMorgan Chase Bank, N.A. Filed herewith. | |
(h)(1) | Administration Agreement dated May 9, 2014. Filed herewith. | |
(h)(2) | Agency Services Agreement dated May 8, 2014. Filed herewith. | |
(h)(3) | Fee Waiver Agreement dated May 9, 2014. Filed herewith. | |
(h)(4) | Accounting Services Agreement - to be filed by amendment. | |
(i) | Opinion and consent of counsel. Filed herewith. | |
(j) | Consent of independent registered public accounting firm. Filed herewith. | |
(k) | Not applicable. | |
(l) | Not applicable. | |
(m) | Not applicable. | |
(n) | Not applicable. | |
(o) | Reserved. | |
(p)(1) | Codes of Ethics of the Trust. Filed herewith. | |
(p)(2) | Code of Ethics of J.P. Morgan Asset Management, Inc., including JPMIM, effective February 1, 2005; Revised August 1, 2013. Filed herewith. | |
(p)(3) | Codes of Ethics of the Distributor dated September 20, 2013. Filed herewith. |
Item 29. Persons Controlled by or Under Common Control with the Fund
Not applicable.
Item 30. Indemnification
Reference is made to Article VII, Section 4 of Registrants Declaration of Trust. Registrant, its Trustees and officers are insured against certain expenses in connection with the defense of claims, demands, actions, suits, or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the 1933 Act), may be permitted to directors, trustees, officers and controlling persons of the Registrant and the principal underwriter pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, trustee, officer, or controlling person of the Registrant and the principal underwriter in connection with the successful defense of any action, suite or proceeding) is asserted against the Registrant by such director, trustee, officer or controlling person or principal underwriter in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.
Item 31. Business and Other Connections of the Investment Adviser
See Management of the Trust in Part B. The business or other connections of each director and officer of J.P. Morgan Investment Management Inc. is currently listed in the investment advisor registration on Form ADV for J.P. Morgan Investment Management Inc. (File No. 801-21011) and is incorporated herein by reference.
Item 32. Principal Underwriters
(a) Furnish the name of each investment company (other than the Registrant) for which each principal underwriter currently distributing the securities of the Registrant also acts as a principal underwriter, distributor or investment adviser.
Registrants distributor, SEI Investments Distribution Co. (the Distributor), acts as distributor for:
SEI Daily Income Trust | July 15, 1982 | |
SEI Liquid Asset Trust | November 29, 1982 | |
SEI Tax Exempt Trust | December 3, 1982 | |
SEI Institutional Managed Trust | January 22, 1987 | |
SEI Institutional International Trust | August 30, 1988 | |
The Advisors Inner Circle Fund | November 14, 1991 | |
The Advisors Inner Circle Fund II | January 28, 1993 | |
Bishop Street Funds | January 27, 1995 | |
SEI Asset Allocation Trust | April 1, 1996 | |
SEI Institutional Investments Trust | June 14, 1996 | |
City National Rochdale Funds (f/k/a CNI Charter Funds) | April 1, 1999 | |
Causeway Capital Management Trust | September 20, 2001 | |
ProShares Trust | November 14, 2005 | |
Community Capital Trust (f/k/a Community Reinvestment Act Qualified Investment Fund) | January 8, 2007 |
SEI Alpha Strategy Portfolios, LP | June 29, 2007 | |
TD Asset Management USA Funds | July 25, 2007 | |
SEI Structured Credit Fund, LP | July 31, 2007 | |
Wilshire Mutual Funds, Inc. | July 12, 2008 | |
Wilshire Variable Insurance Trust | July 12, 2008 | |
Global X Funds | October 24, 2008 | |
ProShares Trust II | November 17, 2008 | |
Exchange Traded Concepts Trust (f/k/a FaithShares Trust) | August 7, 2009 | |
Schwab Strategic Trust | October 12, 2009 | |
RiverPark Funds Trust | September 8, 2010 | |
Adviser Managed Trust Fund | December 10, 2010 | |
Huntington Strategy Shares | July 26, 2011 | |
New Covenant Funds | March 23, 2012 | |
Cambria ETF Trust | August 30, 2012 | |
Highland Funds I (f/k/a Pyxis Funds I) | September 25, 2012 | |
KraneShares Trust | December 18, 2012 | |
LocalShares Investment Trust | May 6, 2013 | |
SEI Insurance Products Trust | September 10, 2013 | |
KP Funds | September 19, 2013 | |
The Advisors Inner Circle Fund III | February 12, 2014 | |
J.P. Morgan Exchange-Traded Fund Trust | April 1, 2014 |
The Distributor provides numerous financial services to investment managers, pension plan sponsors, and bank trust departments. These services include portfolio evaluation, performance measurement and consulting services (Funds Evaluation) and automated execution, clearing and settlement of securities transactions (MarketLink).
(b) Furnish the Information required by the following table with respect to each director, officer or partner of each principal underwriter named in the answer to Item 20 of Part B. Unless otherwise noted, the business address of each director or officer is Oaks, PA 19456.
Name |
Position and Office with Underwriter |
Positions and Offices with Registrant |
||
William M. Doran | Director | | ||
Edward D. Loughlin | Director | | ||
Wayne M. Withrow | Director | | ||
Kevin P. Barr | President & Chief Executive Officer | | ||
Maxine J. Chou | Chief Financial Officer, Chief Operations Officer, & Treasurer | | ||
Karen E. LaTourette | Chief Compliance Officer, Anti-Money Laundering Officer & Assistant Secretary | | ||
John C. Munch | General Counsel & Secretary | | ||
Mark J. Held | Senior Vice President | | ||
Lori L. White | Vice President & Assistant Secretary | | ||
John P. Coary | Vice President & Assistant Secretary | | ||
John J. Cronin | Vice President | | ||
Robert M. Silvestri | Vice President | |
(c) Not applicable.
Item 33. Location of Accounts and Records
All accounts, books, records and documents required pursuant to Section 31(a) of the Investment Company Act of 1940, as amended, and the rules promulgated thereunder will be maintained at the offices of:
J.P. Morgan Investment Management Inc., the Registrants investment adviser, at 270 Park Avenue, New York, NY 10017 (records relating to its functions as investment adviser).
SEI Investments Distribution Co., the Registrants distributor, at One Freedom Valley Drive, Oaks, PA 19456 (records relating to its functions as distributor).
JPMorgan Chase Bank, N.A. at 270 Park Avenue, New York, NY 10017 (records relating to its functions as shareholder servicing agent, custodian and administrative services agent).
JPMorgan Funds Management, Inc., the Registrants administrator, at 460 Polaris Parkway, Westerville, Ohio 43082 (relating to its functions as administrator).
Item 34. Management Services
Not applicable.
Item 35. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Trust has duly caused this registration statement to be signed on its behalf by the undersigned, duly authorized, in the City of New York, and State of New York on the 14 th day of May, 2014.
Pursuant to the requirements of the Securities Act, this registration statement has been signed below by the following persons in the capacities and on the date(s) indicated.
Gary L. French * | Robert J. Grassi * | |||||||
Gary L. French | Robert J. Grassi | |||||||
Trustee | Trustee | |||||||
Thomas P. Lemke * | Lawrence Maffia * | |||||||
Thomas P. Lemke | Lawrence Maffia | |||||||
Trustee | Trustee | |||||||
Emily Youssouf * | Robert Deutsch * | |||||||
Emily Youssouf | Robert Deutsch | |||||||
Trustee | Trustee, President and Principal Executive Officer | |||||||
By: | Paul Shield * | |||||||
Paul Shield | ||||||||
Treasurer and Principal Financial Officer | ||||||||
*By: | /s/ Elizabeth A. Davin | |||||||
Elizabeth A. Davin | ||||||||
Attorney-in-Fact |
EXHIBIT INDEX
Exhibit No. |
Description |
|
(d)(1) | Investment Advisory Agreement dated May 9, 2014. | |
(e)(1) | Distribution Agreement dated April 1, 2014. | |
(g)(1) | Global Custody Agreement dated May 7, 2014, between J.P. Morgan Exchange-Traded Fund Trust and JPMorgan Chase Bank, N.A. | |
(h)(1) | Administration Agreement dated May 9, 2014. | |
(h)(2) | Agency Services Agreement dated May 8, 2014. | |
(h)(3) | Fee Waiver Agreement dated May 9, 2014. | |
(i) | Opinion and consent of counsel. | |
(j) | Consent of independent registered public accounting firm. | |
(p)(1) | Codes of Ethics of the Trust. | |
(p)(2) | Code of Ethics of J.P. Morgan Asset Management, Inc., including JPMIM, effective February 1, 2005; Revised August 1, 2013. | |
(p)(3) | Codes of Ethics of the Distributor dated September 20, 2013. |
J.P. MORGAN EXCHANGE-TRADED FUND TRUST
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made this 9th day of May, 2014, between J.P. Morgan Exchange-Traded Fund Trust, a statutory trust organized under the laws of the State of Delaware (the Trust), on behalf of the series of the Trust set forth in Schedule A (each, a Fund) , and J.P. Morgan Investment Management Inc., a Delaware corporation (the Adviser). This Agreement shall be effective as of May 9, 2014.
WHEREAS , the Trust is an open-end management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the 1940 Act); and
WHEREAS , the Trust desires to retain the Adviser to render investment advisory services to the Funds as agreed to from time to time between the Trust and the Adviser, and the Adviser is willing to render such services;
NOW, THEREFORE , W I T N E S S E T H: that in consideration of the premises and mutual promises hereinafter set forth, the parties hereto agree as follows:
1. The Trust hereby appoints the Adviser to act as investment adviser to the Funds for the period and on the terms set forth in this Agreement. The Adviser accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided.
2. Subject to the general supervision and review of the Trustees of the Trust, the Adviser shall manage the investment operations of each Fund and the composition of the Funds holdings of securities and investments, including cash, the purchase, retention and disposition thereof and agreements relating thereto, in accordance with the Funds investment objectives and policies as stated in the Trusts registration statement on Form N-1A, as such may be amended from time to time (the Registration Statement), with respect to the Fund, under the 1940 Act, and subject to the following understandings:
(a) the Adviser shall furnish a continuous investment program for each Fund and determine from time to time what investments or securities will be purchased, retained, sold or lent by the Fund, and what portion of the assets will be invested or held uninvested as cash;
(b) the Adviser shall use the same skill and care in the management of each Funds investments as it uses in the administration of other accounts for which it has investment responsibility as agent;
(c) the Adviser, in the performance of its duties and obligations under this Agreement, shall act in conformity with the Trusts Declaration of Trust (such Declaration of Trust, as presently in effect and as amended from time to time, is herein called the Declaration of Trust), the Trusts By-Laws (such By-Laws, as presently in effect and as amended from time to time, are herein called the By-Laws) and the Registration Statement and with the instructions and directions of the Trustees of the Trust and will conform to and comply with the requirements of the 1940 Act and all other applicable federal and state laws and regulations;
(d) the Adviser shall determine the securities to be purchased, sold or lent by each Fund and as agent for the Fund will effect portfolio transactions pursuant to its determinations either directly with the issuer or with any broker and/or dealer in such securities; in placing orders with brokers and/or dealers the Adviser intends to seek best price and execution for purchases and sales; the Adviser shall also determine whether the Fund shall enter into repurchase or reverse repurchase agreements;
On occasions when the Adviser deems the purchase or sale of a security to be in the best interest of one of the Funds as well as other customers of the Adviser, including any other of the Funds, the Adviser may, to the extent permitted by applicable laws and regulations, but shall not be obligated to, aggregate the securities to be so sold or purchased in order to obtain best execution, including lower brokerage commissions, if applicable. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Adviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Fund;
(e) the Adviser shall maintain books and records with respect to each Funds securities transactions and shall render to the Trusts Trustees such periodic and special reports as the Trustees may reasonably request;
(f) it is understood and agreed that the Adviser may from time to time employ or associate with such other entities or persons as the Adviser believes appropriate to assist in the performance of this Agreement with respect to a particular Fund or Funds (each a Subadviser), and that any such Subadviser shall have all of the rights and powers of the Adviser set forth in this Agreement as with respect to such Fund; provided, that a Fund shall not pay any additional compensation for the services provided by any Subadviser and the Adviser shall be responsible for the supervision of the activities of each Subadviser so engaged, and the Adviser shall be responsible for all acts or omissions of any Subadviser or other persons or entities, in connection with the performance of the Advisers duties hereunder unless otherwise agreed by the parties. The retention of any Subadviser shall be approved in advance by (i) the Board of Trustees of the Trust and (ii) the shareholders of the relevant Fund if required under any applicable provisions of the 1940 Act. The Adviser will review, monitor and report to the Trusts Board of Trustees regarding the performance and investment procedures of any Subadviser. In the event that the services of any Subadviser are terminated, the Adviser may provide investment advisory services pursuant to this Agreement to the Fund without a Subadviser and without further shareholder approval to the extent consistent with the 1940 Act. A Subadviser may be an affiliate of the Adviser; and
(g) the investment management services of the Adviser to any of the Funds under this Agreement are not to be deemed exclusive, and the Adviser shall be free to render similar services to others.
3. The Trust has delivered copies of each of the following documents to the Adviser and will promptly notify and deliver to it all future amendments and supplements, if any:
(a) The Declaration of Trust;
(b) The By-Laws;
(c) Resolutions of the Board of Trustees of the Trust authorizing the appointment of the Adviser and approving the form of this Agreement; and
(d) The Trusts Notification of Registration on Form N-8A and Registration Statement as filed with the Securities and Exchange Commission (the Commission).
4. The Adviser shall keep each Funds books and records required to be maintained by it pursuant to paragraph 2(e). The Adviser agrees that all records which it maintains for any Fund are the property of the Trust and it will promptly surrender any of such records to the Trust upon the Trusts request. The Adviser further agrees to preserve for the periods prescribed by Rule 3la-2 under the 1940 Act any such records as are required to be maintained by the Adviser with respect to any Fund by Rule 31a-1 under the 1940 Act.
5. The Adviser and/or its affiliates (JPMorgan Chase) perform investment services, including rendering investment advice, to varied clients. The Adviser, JPMorgan Chase and its or their directors, officers, agents, and/or employees may render similar or differing investment advisory services to clients and may give advice or exercise investment responsibility and take such other action with respect to any of its other clients that differs from the advice given or the timing or nature of action taken with respect to another client or group of clients, provided that such activities will not adversely affect or otherwise impair the performance by the Adviser of its duties and obligations under this Agreement and such activities are not otherwise prohibited by applicable law. It is the Advisers policy, to the extent practicable, to allocate, within its reasonable discretion, investment opportunities among clients over a period of time on a fair and equitable basis. One or more of the Advisers other client accounts may at any time hold, acquire, increase, decrease, dispose, or otherwise deal with positions in investments in which another client account may have an interest from time-to-time.
The Adviser, JPMorgan Chase, and any of its or their directors, partners, officers, agents or employees, may also buy, sell, or trade securities for their own accounts or the proprietary accounts of the Adviser and/or JPMorgan Chase. The Adviser and/or JPMorgan Chase, within their discretion, may make different investment decisions and other actions with respect to their own proprietary accounts than those made for client accounts, including the timing or nature of such investment decisions or actions. Further, the Adviser is not required to purchase or sell for any client account securities that it, JPMorgan Chase, and any of its or their employees, principals, or agents may purchase or sell for their own accounts or the proprietary accounts of the Adviser, or JPMorgan Chase or its clients.
The Adviser will maintain a written code of ethics (the Code of Ethics) that it reasonably believes complies with the requirements of Rule 17j-1 under the 1940 Act (Rule 17j-1), a copy of which will be provided to the Trust, and will institute procedures reasonably necessary to prevent any Access Person (as defined in Rule 17j-1) from violating its Code of
Ethics. The Adviser will follow such Code of Ethics in performing its services under this Agreement. Further, the Adviser represents that it has policies and procedures regarding the detection and prevention of the misuse of material, nonpublic information by the Adviser and its employees, a copy of which it will provide to the Trust upon any reasonable request. The Adviser shall ensure that its employees will comply in all material respects with the provisions of Section 16 of the Exchange Act, and to cooperate reasonably with the Trust for purposes of filing any required reports with the SEC or such other regulator having appropriate jurisdiction.
6. During the term of this Agreement the Adviser will pay all expenses incurred by it in connection with its activities under this Agreement, other than the cost of securities and investments purchased for a Fund (including taxes and brokerage commissions, if any). The Adviser shall pay, among other things, (i) all expenses relating to its registration under the Investment Advisers Act of 1940; and (ii) all other general business overhead expenses incurred in connection with the distribution services provided to the Trust, including office space, equipment, and personnel as may be necessary or convenient to provide the services.
7. For the services provided and the expenses borne pursuant to this Agreement, each Fund will pay to the Adviser as full compensation therefor a fee at an annual rate set forth on Schedule A attached hereto. Such fee will be computed based on the average daily net assets and payable as agreed by the Trust and the Adviser, but no more frequently than monthly.
8. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by any Fund in connection with the matters to which this Agreement relates, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services (in which case any award of damages shall be limited to the period and the amount set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement.
9. This Agreement will become effective as to an initial Fund as of the date first written above and, unless sooner terminated as provided herein, shall continue in effect until April 30, 2016. Thereafter, if not terminated, this Agreement shall continue in effect as to an initial Fund for successive periods of twelve months each ending on April 30 of each year, only so long as such continuance is specifically approved at least annually in conformity with the requirements of the 1940 Act. With respect to each new Fund added to the Agreement on or after May 9, 2014, each such Fund shall have an initial term of up to two years ending on the date indicated on Schedule A and thereafter, if not terminated, shall continue in effect for successive periods each ending on April 30 of each year, only so long as such continuance is specifically approved at least annually in conformity with the requirements of the 1940 Act. With respect to all Funds, however, this Agreement may be terminated with respect to any Fund at any time, without the payment of any penalty, by vote of a majority of all the Trustees of the Trust or by vote of a majority of the outstanding voting securities of that Fund on 60 days written notice to the Adviser, or by the Adviser at any time, without the payment of any penalty, on 90 days written notice to the Trust. The termination of this Agreement with respect to one Fund shall not result in the termination of this Agreement with respect to any other Fund. This Agreement will
automatically and immediately terminate in the event of its assignment (as defined in the 1940 Act), provided that an assignment to a corporate successor to all or substantially all of the Advisers business or to a wholly-owned subsidiary of such corporate successor which does not result in a change of actual control of the Advisers business shall not be deemed to be an assignment for the purposes of this Agreement.
10. The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, unless otherwise expressly provided herein or authorized by the Trustees of the Trust from time to time, have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Funds.
11. This Agreement may be amended, with respect to any Fund, by mutual consent, but the consent of the Trust must be approved (a) by vote of a majority of those Trustees of the Trust who are not parties to this Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such amendment, and (b) by vote of a majority of the outstanding voting securities of the Fund.
12. Notices of any kind to be given to the Adviser by the Trust shall be in writing and shall be duly given if mailed or delivered to the Adviser at 270 Park Avenue, New York, New York 10017, Attention: J.P. Morgan Investment Management Inc., or at such other address or to such other individual as shall be specified by the Adviser to the Trust. Notices of any kind to be given to the Trust by the Adviser shall be in writing and shall be duly given if mailed or delivered to the J.P. Morgan Exchange-Traded Fund Trust , 270 Park Avenue, New York, New York 10017, Attention: President, with a copy to the Secretary at the same address, or at such other address or to such other individual as shall be specified by the Trust to the Adviser.
13. The Trustees of the Trust have authorized the execution of this Agreement in their capacity as Trustees and not individually, and the Adviser agrees that neither the past, present or future Trustees nor any officer or employee of the Trust nor any Funds investors nor any representative or agent of the Trust or of the Fund(s) shall be personally liable upon, or shall resort be had to their private property for the satisfaction of, obligations given, executed or delivered on behalf of or by the Trust or the Fund(s), that such past, present or future Trustees, officers, employees, investors, representatives and agents shall not be personally liable hereunder, and that it shall look solely to the Trust property for the satisfaction of any claim hereunder.
14. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original.
15. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF , the parties hereto have caused this instrument to be executed by their officers designated below as of the 9 th day of May, 2014.
J.P. MORGAN EXCHANGE-TRADED FUND TRUST | ||
By: | /s/ Paul Shield | |
Title: Treasurer |
J.P. MORGAN INVESTMENT MANAGEMENT INC. | ||
By: | /s/ George C.W. Gatch | |
Title: Managing Director |
Schedule A
to
Investment Advisory Agreement
of
J.P. Morgan Exchange-Traded Fund Trust
Advisory Fee Rates
Name |
Fee Rate | |||
JPMorgan Diversified Return Global Equity ETF |
0.24 | % | ||
JPMorgan Diversified Return International Ex-North America Equity ETF |
0.24 | % |
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this Agreement ) is made as of this 1 st day of April, 2014, by and between J.P. Morgan Exchange-Traded Fund Trust (the Company ), a Delaware statutory trust, on behalf of itself and each of the series of the Company (each a Fund and collectively, the Funds) identified on Schedule A hereto, and SEI Investments Distribution Co. (the Distributor ), a Pennsylvania corporation.
WHEREAS, the Company is registered as an investment company with the U.S. Securities and Exchange Commission (the SEC ) under the Investment Company Act of 1940, as amended (the 1940 Act ), and its shares of beneficial interest ( Shares ) are registered with the SEC under the Securities Act of 1933, as amended (the 1933 Act ); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended (the 1934 Act ), and is a member of the Financial Industry Regulatory Authority, Inc. ( FINRA ); and
WHEREAS, the Company intends to create and redeem groups of Shares of each Fund on a continuous basis at their net asset value only in aggregations constituting Creation Units (as defined in the Funds effective registration statement on Form N-1A filed with the SEC, as amended from time to time ( Registration Statement )); and
WHEREAS , the Shares of each Fund will be listed on one or more national securities exchanges (together, the Listing Exchanges );
WHEREAS, the Company desires to retain the Distributor to act as the distributor with respect to the issuance and distribution of Creation Units of each Fund, hold itself available to receive and process orders for such Creation Units in the manner set forth herein, and to enter into arrangements with broker-dealers who may solicit purchases of Creation Units.
NOW, THEREFORE , in consideration of the mutual covenants hereinafter contained and intending to be legally bound, the parties hereby agree as follows:
SECTION 1 APPOINTMENT
The Company hereby appoints the Distributor as its distributor of Creation Units of the Funds and to provide such other services in accordance with the terms set forth in this Agreement. The Distributor accepts such appointment and agrees to furnish certain related services as set forth in this Agreement.
SECTION 2 SOLICITATION OF SALES AND OTHER SERVICES
2.01 Solicitation of Sales . The Company grants to the Distributor the right to sell its Creation Units authorized for issue at the applicable net asset value, in accordance with the Prospectus, as agent and on behalf of the Company, during the term of this Agreement and subject to the registration requirements of the 1933 Act, the rules and regulations of the SEC and applicable laws governing the sale of securities in the various states ( Blue Sky Laws ). As used in this Agreement, the term, Prospectus means any prospectus, statement of additional information, registration statement, proxy solicitation and tender offer materials, annual or other periodic report of the Company or any Fund of the Company or any advertising, marketing, shareholder communication, or promotional material generated by the Company or its investment adviser from time to time, as appropriate, including all amendments or supplements thereto.
2.02 Other Services . Without limiting the foregoing, the Distributor will perform or supervise the performance by others of the additional services set forth herein, including those set forth in Schedule B , attached hereto. If the Distributor delegates any obligations hereunder, it shall be solely responsible for ensuring all such delegates comply with the terms of this Agreement and the Distributor shall remain responsible and liable for any non-compliance by such delegates such that any non-compliance by delegates shall constitute non-compliance by Distributor.
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SECTION 3 REPRESENTATIONS, WARRANTIES AND COVENANTS
3.01 Representations, Warranties and Covenants of the Company . The Company represents, warrants and covenants that:
(a) it is duly organized, validly existing and in good standing under the laws of the state of its formation, and has all requisite power under the laws of such state and applicable federal law to conduct its business as now being conducted and to perform its obligations as contemplated by this Agreement;
(b) this Agreement has been duly authorized by the board of trustees of the Company, including by majority affirmative vote of the independent trustees of the Company and, when executed and delivered by the Company, will constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms;
(c) it shall timely perform all obligations identified in this Agreement as obligations of the Company, including, without limitation, providing the Distributor with all due diligence and marketing materials reasonably requested by the Distributor and giving all necessary consents or approvals in good faith and within a timely manner;
(d) to the best of its knowledge, as of the date of this Agreement, it is not a party to any, and there are no, pending or threatened legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations or inquiries (collectively, Actions ) of any nature against it, its advisor or its properties or assets which are reasonably likely to, individually or in the aggregate, have a material effect upon its business or financial condition or its ability to perform its obligations under this Agreement, (ii) its entering into this Agreement does not conflict with, constitute a material default of or require a consent under any material agreement or instrument to which the Company or any of its Funds is a party or by which it or any of such Funds are bound and (iii) there is no injunction, order, judgment or decree imposed upon it or any of its properties or assets;
(e) it is an investment company that at the time of initial funding and at all times thereafter, will be duly registered under the 1933 Act and the 1940 Act, and each Fund is a separate series of the Company;
(f) each Prospectus has been prepared in accordance with all applicable laws and regulations and, at the time such Prospectus was filed with the SEC and became effective, no Prospectus will include an untrue statement of a material fact or omit to state a material fact that is required to be stated therein so as to make the statements contained in such Prospectus not misleading;
(g) it will notify the Distributor as soon as reasonably practical of any matter that it believes is reasonably likely to materially affect the Distributors performance of its duties and obligations under this Agreement, including any amendment to a Prospectus;
(h) it will provide Distributor with the opportunity to review and comment on each piece of sales literature or marketing material at least one week prior to proposed use of the same (or such shorter period as otherwise agreed in writing) and will not use or permit another party to use any advertising or marketing material unless and until the Distributor has approved the use of such material;
(i) it will provide Distributor with the opportunity to review and comment on each Prospectus at least one week prior to filing (or such shorter period as otherwise agreed in writing) the same with an applicable regulatory body;
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(j) it will provide Distributor with the opportunity to review and comment on each exemptive application or amendment thereto at least two weeks prior to filing the same with an applicable regulatory body (or such shorter period as otherwise agreed in writing);
(k) it shall fully cooperate with requests from government regulators and the Distributor for information relating to customers and/or transactions involving the Creation Units, as permitted by law, in order for the Distributor to comply with its regulatory obligations; and
(l) in the event it determines that it is in the interest of the Company to suspend or terminate the sale of any Creation Units, the Company shall promptly notify the Distributor of such fact in advance and in writing prior to the date on which the Company desires to cease offering the Creation Units.
3.02 Representations, Warranties and Covenants of Distributor . The Distributor hereby represents, warrants and covenants as follows:
(a) it is duly organized, validly existing and in good standing under the laws of the state of its formation, and has all requisite power under the laws of such state and applicable federal law to conduct its business as now being conducted and to perform its obligations as contemplated by this Agreement;
(b) it has full power, right and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by all requisite actions on its part, and no other proceedings on its part are necessary to approve this Agreement or to consummate the transactions contemplated hereby; this Agreement has been duly executed and delivered by it; this Agreement constitutes a legal, valid and binding obligation, enforceable against it in accordance with its terms;
(c) information about litigation to which the Distributor or any of its affiliates is a party will be set forth in SEI Investments Companys periodic SEC filings in accordance with the rules of the SEC and will be publicly available in filings on Forms 10-Q, 10-K and 8-K from time to time; and the Distributor will promptly notify the Company of any Actions, including any material litigation or regulatory examination specifically focused on the Company and the Services provided by the Distributor to Company hereunder; as of the date of this Agreement, it is not a party to any, and there are no, pending or threatened actions of any nature against it or its properties or assets which are reasonably likely to, individually or in the aggregate, have a material effect upon its business or financial condition, and there is no injunction, order, judgment, decree, or regulatory restriction imposed specifically upon it or any of its properties or assets which is reasonably likely to have a material effect on the Distributors ability to perform the services hereunder;
(d) it is registered as a broker-dealer with the SEC under the 1934 Act and a member of FINRA, and agrees to comply with all applicable rules and regulations of FINRA and to notify the Company in the event that it is suspended or expelled from FINRA;
(e) it shall not provide any information about the Company or the Funds to or make any representations other than those contained in the current Prospectus of the Company filed with the SEC, or contained in shareholder reports or other material that may be prepared by or on behalf of the Company for the Distributors use;.
(f) it will maintain compliance policies and procedures (a Compliance Program ) that are reasonably designed to prevent violations of the Federal Securities Laws (as defined in Rule 38a-1 of the 1940 Act, and including applicable laws and regulations aimed at the prevention and detection of money laundering and/or the financing of terrorism activities including the Bank Secrecy Act, as amended by the USA PATRIOT Act) with respect to the Distributors services under this Agreement, will provide a
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certification to such effect upon reasonable request of the Company and will provide any and all information with respect to the Compliance Program, including without limitation, information and certifications with respect to material violations of the Compliance Program and any material deficiencies or changes therein, as may be reasonably requested by the Companys chief compliance officer or board of trustees;
(g) it has as of the date hereof, and shall at all times have and maintain, net capital of not less than that required by Rule 15c3-1 under the 1934 Act, or any successor provision thereto;
(h) upon reasonable request by the Company, the Distributor shall provide the Company with information relating to the services provided pursuant to this Agreement as necessary and applicable to enable the Company to complete required regulatory filings;
(i) it shall fully cooperate with requests from government regulators and the Company for information relating to customers and/or transactions involving the Creation Units, as permitted by law, in order for the Company to comply with its regulatory obligations; and
(j) it shall deliver or cause the delivery of a Prospectus to persons purchasing Shares in Creation Units and shall maintain records of both orders placed with the Distributor and confirmations of acceptance furnished by Distributor.
SECTION 4 ISSUANCE AND REGISTRATION OF SHARES
4.01 Issuance of Shares . The Company agrees to issue Creation Units of each Fund and to request the Depository Trust Company to record on its books the ownership of the Shares constituting such Creation Units in accordance with the book-entry system procedures described in each Prospectus in such amounts as the Distributor has requested through the Companys transfer agent in writing or other means of data transmission, as promptly as practicable after receipt by the Company of the requisite Deposit Securities and Cash Components (together with any fees) and acceptance of such order, upon the terms described in the Registration Statement.
4.02 Registration of Shares . The Company agrees that it will take all action necessary to register or qualify Shares under the federal and applicable state securities laws so that there will be available for sale the number of Shares necessary in connection with the number of Creation Units the Distributor may reasonably be expected to sell and to pay all fees associated with said registration. The Company will make available to the Distributor such number of copies of its Prospectus as the Distributor may reasonably request. The Company will furnish to the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the distribution of Creation Units of the Company.
SECTION 5 AGREEMENTS WITH AUTHORIZED PARTICIPANTS
The Distributor will enter into agreements (each, an Authorized Participant Agreement ) with authorized participants approved by the Company and Distributor for the creation and redemption of Creation Units of a Fund. Each authorized participant shall be (i) a registered broker/dealer, (ii) eligible and authorized to participate in the Depositary Trust Company direct registration system and (iii) except as expressly permitted pursuant to the terms of the Authorized Participant Agreement, in good standing with FINRA. Each Authorized Participant Agreement will include such terms and conditions as the Distributor will deem necessary or appropriate from time to time.
SECTION 6 EXPENSES
6.01 Company Expenses . The Company will pay all fees and expenses (i) in connection with the preparation, setting in type and filing of any Prospectus under the 1933 Act and amendments for the issue of its Shares or Creation Units; (ii) if applicable, in connection with the registration and qualification
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of Shares for sale in the various states in which the board of trustees of the Company will determine advisable to qualify such Shares for sale; (iii) of preparing, setting in type, printing and mailing any report or other communication to shareholders or authorized participants of the Company in their capacity as such; and (iv) of preparing, setting in type, printing and mailing any Prospectus sent to existing shareholders or authorized participants.
6.02 Distributor Expenses . The Distributor will pay all of its costs and expenses (other than expenses and costs deemed payable by the Funds and other than expenses which one or more authorized participants may bear pursuant to any agreement with Distributor) incurred by it in connection with the performance of its distribution duties hereunder. The Distributor shall pay, among other things, (i) all expenses relating to Distributors broker-dealer qualification and registration under the 1934 Act; and (ii) all other general business overhead expenses incurred in connection with the distribution services provided under this Agreement, including office space, equipment, and personnel as may be necessary or convenient to provide the services.
SECTION 7 COMPENSATION
As compensation for providing the services under this Agreement, the Distributor will receive the fees set forth in Schedule C hereto. Notwithstanding anything in this Agreement to the contrary, the Distributor and its affiliates may receive compensation or reimbursement from the Company or the Companys investment advisor with respect to any services not included under this Agreement, as may be agreed upon by the parties from time to time. The parties acknowledge, that to the extent the Company lacks resources to pay the fees (or other expenses) payable to Distributor, the Companys investment adviser may make such payment to Distributor from the past profits or other resources of the investment adviser. The parties further acknowledge that to the extent that fees payable to the Distributor are paid by the investment adviser, the investment adviser shall be responsible for making all disclosures of such payments to the board of trustees.
SECTION 8 INDEMNIFICATION; CONTRIBUTION
8.01 Indemnification of Distributor . The Company, on behalf of each Fund, agrees to indemnify, defend and hold harmless, the Distributor and each of its directors, officers, principals, representatives, employees and each person, if any, who controls, is controlled by or is under common control with, the Distributor within the meaning of Section 15 of the 1933 Act (collectively, the Distributor Indemnified Parties ) from and against any and all losses, claims, damages or liabilities, joint or several, whatsoever (including any investigation, legal or other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) to which the Distributor Indemnified Parties may become subject arising by reason of, (i) any claim that any Prospectus or other information filed or made public by the Company or any document incorporated by reference therein or filed as an exhibit thereto, or any marketing literature or materials included an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading (except to the extent such untrue statement or alleged untrue statement of a material fact in marketing literature or materials was provided by or specifically reviewed and approved in writing by the Distributor), and will reimburse the Distributor for any legal or other expenses reasonably incurred by the Distributor in connection with investigating or defending any such action or claim as such expenses are incurred or (ii) any breach of any representation, warranty or covenant made by the Company in this Agreement; provided, however, that the Company does not agree to indemnify the Distributor or hold it harmless to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or alleged omissions made in reliance upon and in conformity with written information furnished to the Company by the Distributor or specifically reviewed and approved in writing by the Distributor. The Distributor shall not be entitled to indemnification from the Company or protected from liability under the Agreement related to any claim directly caused by Distributors, or its delegates gross negligence, bad faith, fraud, reckless disregard, willful misconduct or criminal misconduct in the performance of the services hereunder.
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THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
8.02 Indemnification of the Company . The Distributor agrees to indemnify and hold harmless the Company, each of its trustees, officers, employees and each person, if any, who controls, is controlled by or is under common control with, the Company within the meaning of Section 15 of the 1933 Act (collectively, the Company Indemnified Parties ) from and against any and all losses, claims, damages or liabilities, joint or several, whatsoever (including any investigation, legal or other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) to which the Company Indemnified Parties may become subject as a result of: (i) any breach of any representation, warranty, covenant or undertaking made by the Distributor in this Agreement, (ii) a failure of Distributor to perform any material obligations set forth in this Agreement (including any written procedures prepared in connection with the performance of this Agreement), (iii) any material failure by the Distributor to comply with any applicable laws, including but not limited to the FINRA/NASD Conduct Rules and federal and state securities laws applicable to Distributor as distributor to the Company, (iv) an action, inaction, or omission of the Distributor pursuant to this Agreement involving gross negligence, bad faith, or fraud by the Distributor, its affiliates, officers, directors, principals, representatives, employees, and/or its agents, or (v) based on an untrue statement or alleged untrue statement or omission or alleged omission made in a Prospectus or any document incorporated by reference therein or filed as an exhibit thereto, or any marketing literature or materials, in reliance upon and in conformity with written information furnished to the Company by the Distributor.
8.03 Indemnification Procedures .
(a) If any action or claim shall be brought against any Distributor Indemnified Party or Company Indemnified Party (any such party, an Indemnified Party and collectively, the Indemnified Parties ), in respect of which indemnity may be sought against the other party hereto, such Indemnified Party shall promptly notify the indemnifying party in writing, and the indemnifying party shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party except to the extent such indemnifying party has been materially prejudiced by such failure.
(b) Any Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the indemnifying party has agreed in writing to pay such fees and expenses, (ii) the indemnifying party has failed to assume the defense and employ counsel, or (iii) the named parties to any such action (including any impleaded party) included such Indemnified Party and the indemnifying party and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party or which may also result in a conflict of interest (in which case if such Indemnified Party notifies the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of such Indemnified Party, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for all such Indemnified Parties.
(c) No indemnifying party shall, without the written consent of the Indemnified Party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the Indemnified Party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Indemnified Party.
(d) The indemnifying party shall not be liable for any settlement of any such action effected without its written consent, but if such action is settled with the written consent of the indemnifying party, or if there shall be a final judgment for the plaintiff in any such action and the time for filing all appeals has expired, the indemnifying party agrees to indemnify and hold harmless any Indemnified Party from and against any loss or liability by reason of such settlement or judgment.
J.P. Morgan Exchange-Traded Fund Trust Distribution Agreement | Page 6 | |
THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
(e) The obligations of the indemnifying party under this Section 8 shall be in addition to any liability that the indemnifying party may otherwise have.
8.04 Contribution . If the indemnification provided for in this Section 8 is insufficient or unavailable to any Indemnified Party under this Section 8 in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by damages, liabilities or expenses in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Distributor on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the Indemnified Party failed to give the notice required under Section 8.03(a) , above, then each indemnifying party shall contribute to such amount paid or payable by such Indemnified Party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Distributor on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Distributor on the other shall be deemed to be in the same proportion as the amount of gross proceeds received by the Company from the offering of the Shares under this Agreement (expressed in dollars) bears to the gross proceeds received by the Distributor relating to the offering of the Shares. The relative fault shall be determined by reference to, among other things, whether, if applicable, any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Distributor on the other and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Distributor agree that it would not be just and equitable if contributions pursuant to this Section 8.04 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to herein. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
8.05 Consequential Damages . Notwithstanding anything in this Agreement to the contrary, neither party shall be liable under this Agreement to the other party hereto for any punitive, consequential, special or indirect losses or damages.
SECTION 9 TERM AND TERMINATION
This Agreement will be effective upon its execution, and, unless terminated as provided, will continue in force for two years and thereafter from year to year, provided that such annual continuance is approved by either (i) the vote of a majority of the trustees of the Company, or the vote of a majority of the outstanding voting securities of the Fund and (ii) the vote of a majority of those trustees of the Company who are not parties to this Agreement or the Companys distribution plan(s) if any or interested persons of any such party, cast in person at a meeting called for the purpose of voting on the approval. This Agreement may be terminated at any time without penalty by a vote of the trustees of the Company; by vote of a majority of the outstanding voting securities of the Fund; or by the Distributor upon not less than sixty days prior written notice to the other party; and shall automatically terminate upon its assignment. As used in this paragraph the terms, vote of a majority of the outstanding voting securities, assignment and interested person will have the respective meanings specified in the 1940 Act.
J.P. Morgan Exchange-Traded Fund Trust Distribution Agreement | Page 7 | |
THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
In the event the Company gives notice of termination, all reasonable expenses associated with the movement (or duplication) of records and materials and conversion thereof to a successor service provider, and all trailing out-of-pocket expenses incurred by Distributor, will be borne by the Company unless such termination is based on Distributors suspension or expulsion from FINRA or deregistration as a broker-dealer.
SECTION 10 MISCELLANEOUS
10.01 Records . The books and records pertaining to the Company, which are in the possession or under the control of Distributor, will be the property of the Company. Such books and records will be prepared and maintained as required under the 1940 Act and other applicable securities laws, rules and regulations. The Company and its authorized persons will have access to such books and records at all times during the Distributors normal business hours. Upon the reasonable request of the Company, the Distributor will make available or provide copies of such books and records to the Company or its authorized persons, as requested at the Companys expense.
10.02 Independent Contractor. The Distributor will undertake and discharge its obligations hereunder as an independent contractor. Neither Distributor nor any of its officers, directors, employees or representatives is or will be an employee of the Company or a Fund in connection with the performance of Distributors duties hereunder. The Distributor will be responsible for its own conduct and the employment, control, compensation and conduct of its agents and employees, and for any injury to such agents or employees or to others through its agents and employees. Any obligations of Distributor hereunder may be performed by one or more third parties or affiliates of Distributor and Distributor accepts responsibility and liability for their performance as if the obligations were performed by the Distributor.
10.03 Notices . All notices provided for or permitted under this Agreement will be deemed effective upon receipt, and will be in writing and (a) delivered personally, (b) sent by commercial overnight courier with written verification of receipt, or (c) sent by certified or registered U.S. mail, postage prepaid and return receipt requested, to the party to be notified, at the address for such party set forth below. Notices to the Distributor will be sent to the attention of: General Counsel, SEI Investments Distribution Co., 1 Freedom Valley Drive, Oaks, Pennsylvania 19456. Notices to the Company will be sent to General Counsel, JPMorgan Funds Management, 270 Park Avenue, New York, New York 10017.
10.04 Dispute Resolution . Whenever either party desires to institute legal proceedings against the other party concerning this Agreement, it will provide written notice to that effect to such other party. The party providing such notice will refrain from instituting said legal proceedings for a period of thirty (30) days following the date of provision of such notice. During such period, the parties will attempt in good faith to amicably resolve their dispute by negotiation among their executive officers.
10.05 Entire Agreement; Amendments . This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement, draft or agreement or proposal with respect to the subject matter hereof. This Agreement or any part hereof may be amended or waived only by an instrument in writing signed by the party against which enforcement of such amendment or waiver is sought.
10.06 Non-Solicitation . Except as may otherwise be agreed by the parties, during the term of this Agreement and for a period of one (1) year afterward, the Company will not recruit, solicit, employ or engage, for the Company or any other person, any employee of the Distributor who provided direct services to the Company pursuant to this Agreement.
10.07 Governing Law . This Agreement will be governed by and construed in accordance with the laws of the State of New York without giving effect to any conflict of laws or choice of laws rules or principles thereof. To the extent that the applicable laws of the State of New York, or any of the provisions of this Agreement, conflict with the applicable provisions of the 1940 Act, the latter will control.
J.P. Morgan Exchange-Traded Fund Trust Distribution Agreement | Page 8 | |
THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
10.08 Counterparts . This Agreement may be executed in two or more counterparts, all of which will constitute one and the same instrument. Each such counterpart will be deemed an original, and it will not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. This Agreement will be deemed executed by both parties when any one or more counterparts hereof or thereof, individually or taken together, bears the original, scanned or facsimile signatures of each of the parties.
10.09 Force Majeure . No breach of any obligation of a party to this Agreement (other than obligations to pay amounts owed) will constitute an event of default or breach to the extent it arises out of a cause, existing or future, that is beyond the control and without negligence of the party otherwise chargeable with breach or default, including without limitation: work action or strike; lockout or other labor dispute; flood; war; riot; theft; act of terrorism, earthquake or natural disaster. Either party desiring to rely upon any of the foregoing as an excuse for default or breach will, when the cause arises, give to the other party prompt notice of the facts which constitute such cause; and, when the cause ceases to exist, give prompt notice thereof to the other party.
10.10 Severability. Any provision of this Agreement that is determined to be invalid or unenforceable in any jurisdiction will be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. If a court of competent jurisdiction declares any provision of this Agreement to be invalid or unenforceable, the parties agree that the court making such determination will have the power to reduce the scope, duration, or area of the provision, to delete specific words or phrases, or to replace the provision with a provision that is valid and enforceable and that comes closest to expressing the original intention of the parties, and this Agreement will be enforceable as so modified.
10.11 Confidential Information .
(a) Each of the Distributor and the Company (each, in such capacity, the Receiving Party ) acknowledges and agrees to maintain the confidentiality of Confidential Information (as hereinafter defined) provided to the Receiving Party by the other party hereto (in such capacity, the Disclosing Party ) in connection with this Agreement. The Receiving Party will not disclose or disseminate the Disclosing Partys Confidential Information to any Person other than (i) those directors, officers, employees, agents, contractors, subcontractors and licensees of the Receiving Party, or (ii) with respect to the Distributor as a Receiving Party, to those employees, agents, contractors, subcontractors and licensees of any agent or affiliate, who have a need to know it in order to assist the Receiving Party in performing its obligations, or to permit the Receiving Party to exercise its rights, under this Agreement. In addition, the Receiving Party (x) will take all reasonable steps to prevent unauthorized access to the Disclosing Partys Confidential Information, and (y) will not use the Disclosing Partys Confidential Information, or authorize other Persons to use the Disclosing Partys Confidential Information, for any purposes other than in connection with performing its obligations or exercising its rights hereunder. As used herein, reasonable steps means steps that a party takes to protect its own, similarly confidential or proprietary information of a similar nature, which steps will in no event be less than a reasonable standard of care.
(b) The term Confidential Information , as used herein, will mean all business strategies, plans and procedures, proprietary information, methodologies, data and trade secrets, and other confidential information and materials (including, without limitation, any non-public personal information as defined in Regulation S-P) , markets software, processes, formulas, technology, designs, drawings, and marketing or distribution or sales methods or systems, sales or profit figures, or other financial information of the Disclosing Party, its affiliates, their respective clients or suppliers, or other Persons with whom they do business, that may be obtained by the Receiving Party from any source or that may be developed as a result of this Agreement, whether or not such information is marked as confidential.
J.P. Morgan Exchange-Traded Fund Trust Distribution Agreement | Page 9 | |
THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
(c) Notwithstanding anything to the contrary herein, the provisions of this Section 10.11 respecting Confidential Information will not apply to the extent, but only to the extent, that such Confidential Information is: (a) already known to the Receiving Party free of any restriction at the time it is obtained from the Disclosing Party, (b) subsequently learned from an independent third party free of any restriction and without breach of this Agreement; (c) is or becomes publicly available through no wrongful act of the Receiving Party or any third party; (d) independently developed by or for the Receiving Party without reference to or use of any Confidential Information of the Disclosing Party; or (e) required to be disclosed pursuant to an applicable law, rule, regulation, government requirement or court order, or the rules of any stock exchange (provided, however, that to the extent it may legally do so, the Receiving Party will advise the Disclosing Party of such required disclosure promptly upon learning thereof in order to afford the Disclosing Party a reasonable opportunity to contest, limit and/or assist the Receiving Party in crafting such disclosure).
(d) The Receiving Party will advise its employees, agents, contractors, subcontractors and licensees, and will require its agents to advise their employees, agents, contractors, subcontractors and licensees, of the Receiving Partys obligations of confidentiality and non-use under this Section 10.11 , and will be responsible for ensuring compliance by its employees, agents, contractors, subcontractors and licensees with such obligations. In addition, the Receiving Party will require all persons that are provided access to the Disclosing Partys Confidential Information, other than the Receiving Partys accountants and legal counsel, to execute confidentiality or non-disclosure agreements containing provisions substantially similar to those set forth in this Section 10.11 . The Receiving Party will promptly notify the Disclosing Party in writing upon learning of any unauthorized disclosure or use of the Disclosing Partys Confidential Information by such persons.
(e) Upon the Disclosing Partys written request following the termination of this Agreement, the Receiving Party shall promptly return to the disclosing party, destroy or render unusable, and discontinue use of, any Confidential Information then in the receiving partys possession or control. Notwithstanding the foregoing, (i) the Receiving Party may retain copies of Confidential Information to the extent required to do so by applicable law or internal record keeping policies and (ii) the Receiving Party shall not be required to delete electronically-stored Confidential Information to the extent such deletion would be technologically impracticable or inconsistent with its archival records retention policy; provided, however, that in either case all such Confidential Information retained by the Receiving Party will remain subject to the provisions of this Section 10.11 for so long as it is so retained. If requested by the Disclosing Party, the Receiving Party will certify in writing its compliance with the provisions of this paragraph.
10.12 Use of Name .
(a) The Company will not use the name of the Distributor, or any of its affiliates, in any Prospectus, sales literature, and other material relating to the Company in any manner without the prior written consent of the Distributor (which will not be unreasonably withheld); provided , however , that the Distributor hereby approves all lawful uses of the names of the Distributor and its affiliates in the Prospectus of the Company and in all other materials which merely refer in accurate terms to their appointment hereunder or which are required by applicable law, regulations or otherwise by the SEC, FINRA, or any state securities authority.
(b) Neither the Distributor nor any of its affiliates will use the name of the Company in any publicly disseminated materials, including sales literature, in any manner other than with respect to representative client lists, without the prior written consent of the Company (which will not be unreasonably withheld); provided , however , that the Company and each Fund hereby approves all lawful uses of its name in any required regulatory filings of the Distributor which merely refer in accurate terms to the appointment of the Distributor hereunder, or which are required by applicable law, regulations or otherwise by the SEC, FINRA, or any state securities authority.
J.P. Morgan Exchange-Traded Fund Trust Distribution Agreement | Page 10 | |
THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
10.13 Insurance .
(a) The Company hereby represents that it will maintain from and after the initial Funding of the Company, adequate insurance coverage with respect to its responsibilities pursuant to this Agreement, including commercially reasonable fidelity bond(s), errors and omissions, directors and officers, and professional liability insurance. All of the foregoing policies shall be issued by insurance companies having an A minus rating or better by A.M. Best Company or an equivalent Standard & Poors rating. The Company shall furnish Certificates of Insurance evidencing all of the foregoing insurance coverage upon execution of this Agreement, and annually upon the written request of the Distributor. The Company shall promptly inform the Distributor of any material changes to its policies, endorsements or coverage.
(b) The Distributor agrees to maintain liability insurance coverage which is, in scope and amount, consistent with coverage customary in the industry for distribution activities similar to the distribution activities provided to the Company hereunder. The Distributor will notify the Company upon receipt of any notice of material, adverse change in the terms or provisions of its insurance coverage that is reasonably likely to materially and adversely affect the Companys rights hereunder. Such notification will include the date of change and the reason or reasons therefore.
*****
J.P. Morgan Exchange-Traded Fund Trust Distribution Agreement | Page 11 | |
THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
IN WITNESS WHEREOF, the Company and Distributor have each duly executed this Agreement, as of the day and year above written.
J.P. MORGAN EXCHANGE-TRADED FUND TRUST | SEI INVESTMENTS DISTRIBUTION CO. | |||||||
By: | /s/ Paul Shield | By: | /s/ Maxine Chou | |||||
Name: Paul Shield | Name: Maxine Chou | |||||||
Title: Treasurer | Title: Chief Financial Officer & Chief Operating Officer |
J.P. Morgan Exchange-Traded Fund Trust Distribution Agreement | Page 12 | |
THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
SCHEDULE A
List of Funds
JPMorgan Diversified Return Global Equity ETF
JPMorgan Diversified Return International Ex-North America Equity ETF
JPMorgan Diversified Return Emerging Markets Equity ETF
JPMorgan Target Volatility Efficiente 10 ETF
J.P. Morgan Exchange-Traded Fund Trust Distribution Agreement | Page 13 | |
THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
SCHEDULE B
List of Services
Contract Management
| Coordinate and execute Authorized Participant Agreements pursuant to Section 5 of this Agreement |
| Coordinate and execute operational agreements related to the services contemplated by this Agreement (networking agreements, NSCC redemption agreements, etc.) |
| Coordinate and execute on behalf of the Company shareholder service and similar agreements to the extent permitted by applicable law, and as contemplated by the Companys distribution and/or shareholder servicing plan, if applicable |
FINRA Review
| Review and approve Fund sales literature and marketing materials provided to the Distributor for compliance with applicable SEC & FINRA advertising rules |
| Conduct FINRA filing of materials |
| Respond to FINRA comments on marketing materials |
| Provide access to the Distributors proprietary marketing automated review system |
Other Services
| Forward any complaints concerning the Company received by the Distributor to the Company, assist in resolving such complaints, and maintain a log of such complaints as required by applicable law; |
| Keep and maintain all books and records relating to the services provided by the Distributor under this Agreement in accordance with applicable law. |
J.P. Morgan Exchange-Traded Fund Trust Distribution Agreement | Page 14 | |
THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
SCHEDULE C
Fees
The Distributor will receive from the Company, to the extent available pursuant to Section 7 hereof, fees in the amount of $0.00 annually.
J.P. Morgan Exchange-Traded Fund Trust Distribution Agreement | Page 15 | |
THIS DOCUMENT CONSTITUTES CONFIDENTIAL INFORMATION OF SEI INVESTMENTS DISTRIBUTION CO. |
GLOBAL CUSTODY AGREEMENT
TABLE OF CONTENTS
1. INTENTION OF THE PARTIES; DEFINITIONS |
1 | |||||
1.1 |
Intention of the Parties | 1 | ||||
1.2 |
Definitions | 1 | ||||
2. WHAT BANK IS REQUIRED TO DO |
4 | |||||
2.1 |
Set Up Accounts | 4 | ||||
2.2 |
Cash Account | 4 | ||||
2.3 |
Segregation of Assets; Nominee Name | 4 | ||||
2.4 |
Settlement of Trades | 5 | ||||
2.5 |
Contractual Settlement Date Accounting | 6 | ||||
2.6 |
Actual Settlement Date Accounting | 6 | ||||
2.7 |
Income Collection (Autocredit ® ) | 6 | ||||
2.8 |
Certain Ministerial Acts | 7 | ||||
2.9 |
Corporate Actions | 7 | ||||
2.10 |
Class Action Litigation | 8 | ||||
2.11 |
Proxies | 8 | ||||
2.12 |
Statements and Information Available On-Line and other Reports | 10 | ||||
2.13 |
Access to Banks Records | 10 | ||||
2.14 |
Maintenance of Financial Assets at Subcustodian Locations | 11 | ||||
2.15 |
Tax Relief Services | 11 | ||||
2.16 |
[RESERVED] | 11 | ||||
2.17 |
[RESERVED] | 11 | ||||
2.18 |
[RESERVED] | 11 | ||||
2.19 |
Restricted Markets | 11 | ||||
2.20 |
Compliance with SEC rule 17f-5 | 11 | ||||
2.21 |
Compliance with SEC rule 17f-7 | 13 | ||||
2.22 |
Notifications | 14 | ||||
3. INSTRUCTIONS |
14 | |||||
3.1 |
Acting on Instructions; Unclear Instructions | 14 | ||||
3.2 |
Verification and Security Procedures | 15 | ||||
3.3 |
Instructions; Contrary to Law/Market Practice | 15 | ||||
3.4 |
Cut-off Times | 15 |
i
ii
10.10 |
Security Holding Disclosure | 28 | ||||
10.11 |
USA Patriot Act Disclosure | 28 | ||||
10.12 |
Confidentiality | 28 | ||||
10.13 |
No Third Party Beneficiaries | 29 | ||||
10.14 |
Several Obligations of the Funds | 29 | ||||
SCHEDULE A |
31 | |||||
SCHEDULE B |
32 | |||||
SCHEDULE C |
33 | |||||
SCHEDULE D |
40 | |||||
ANNEX A Electronic Access |
43 | |||||
APPENDIX 1 Information Regarding Country Risk |
45 | |||||
APPENDIX 2 List of Subcustodians |
47 | |||||
APPENDIX 3 List of Securities Depositories |
59 |
iii
GLOBAL CUSTODY AGREEMENT
This Agreement dated as of May 7, 2014 is between JPMORGAN CHASE BANK, N.A. ( Bank ), with a place of business at 383 Madison Avenue, New York, NY 10179; and J.P. MORGAN EXCHANGETRADED FUND TRUST (the Trust ) severally and on behalf of its series listed on Schedule A hereto, (each, a Fund and together the Funds ), as may be amended from time to time, with a place of business at 270 Park Avenue, New York, NY 10017. For purposes of this Agreement, each individual Fund is a separate Customer .
1. | INTENTION OF THE PARTIES; DEFINITIONS |
1.1 | Intention of the Parties . |
(a) This Agreement sets out the terms governing custodial, settlement and certain other associated services offered by Bank to Customer. Bank will be responsible for the performance of only those Securities custody duties that are set forth in this Agreement. Customer acknowledges that Bank is not providing any legal, tax or investment advice in connection with the services hereunder.
(b) Investing in foreign markets may be a risky enterprise. The holding of Financial Assets and cash in foreign jurisdictions may involve risks of loss or other special considerations. Bank will not be liable for any loss that results from the general risks of investing or Country Risk.
1.2 | Definitions . |
(a) As used herein, the following terms have the meaning hereinafter stated.
Account has the meaning set forth in Section 2.1 of this Agreement.
Affiliate means an entity controlling, controlled by, or under common control with, Bank.
Affiliated Subcustodian means a Subcustodian that is an Affiliate.
Applicable Laws means the applicable laws in force in the United States, including the Investment Company Act of 1940 (1940 Act) ; the Investment Advisers Act of 1940, as amended; the Securities Act of 1933, as amended (1933 Act) and the Securities Exchange Act of 1934, as amended (1934 Act) as well as any applicable statute, treaty, rule, regulation or common law and any applicable decree, injunction, judgment, order, formal interpretation or ruling issued by a court or governmental entity.
Authorized Person means any person who has been designated by written notice from Customer (or by any agent designated by Customer, including, without limitation, an investment manager) to act on behalf of Customer hereunder. Such persons will continue to be Authorized Persons until such time as Bank receives Instructions from Customer (or its agent) that any such person is no longer an Authorized Person.
EXECUTION
1
Bank Indemnitees means Bank, its Subcustodians, and their respective nominees, directors, officers, employees and agents.
Banks London Branch means the London branch office of JPMorgan Chase Bank, N. A.
Business Day means a day on which the Bank is generally open for business.
Cash Account has the meaning set forth in Section 2.1(a)(ii).
Confidential Information means and includes all non public information concerning the Customer or the Accounts which Bank receives in the course of providing services under this Agreement. Nevertheless, the term Confidential Information shall not include information which is or becomes available to the general public by means other than Banks breach of the terms of this Agreement or information that Bank obtains on a non-confidential basis from a person who is not known to be subject to any obligation of confidentiality to any person with respect to that information.
Corporate Action means any subscription right, bonus issue, stock repurchase plan, redemption, exchange, tender offer, or similar matter with respect to a Financial Asset in the Securities Account that require discretionary action by the holder, but does not include proxy solicitations.
Country Risk means the risk of investing or holding assets in a particular country or market, including, but not limited to, risks arising from nationalization, expropriation or other governmental actions; the countrys financial infrastructure, including prevailing custody and settlement practices; laws applicable to the safekeeping and recovery of Financial Assets and cash held in custody; the regulation of the banking and securities industries, including changes in market rules; currency restrictions, devaluations or fluctuations; and market conditions affecting the orderly execution of securities transactions or the value of assets.
Entitlement Holder means the person named on the records of a Securities Intermediary as the person having a Securities Entitlement against the Securities Intermediary.
Financial Asset means a Security and refers, as the context requires, either to the asset itself or to the means by which a persons claim to it is evidenced, including a Security, a security certificate, or a Securities Entitlement. Financial Asset does not include cash.
Instructions means any instructions that have been verified in accordance with a Security Procedure or, if no Security Procedure is applicable, which Bank reasonably believes to have been given by an Authorized Person.
Liabilities means any liabilities, losses, claims, costs, damages, penalties, fines, obligations, or expenses of any kind whatsoever (including, without limitation, reasonable attorneys fees and disbursements).
EXECUTION
2
Overdraft means any Liabilities that result in the Transfer Accounts being overdrawn.
Securities means stocks, bonds, rights, warrants and other negotiable and non-negotiable instruments, whether issued in certificated or uncertificated form, that are commonly traded or dealt in on securities exchanges or financial markets. Securities also means other obligations of an issuer, or shares, participations and interests in an issuer recognized in the country in which it is issued or dealt in as a medium for investment and any other property as may be acceptable to Bank for the Securities Account.
Securities Account means each Securities custody account on Banks records to which Financial Assets are or may be credited pursuant hereto.
Securities Depository has the meaning set forth in Section 5.1 of this Agreement.
Securities Entitlement means the rights and property interests of an Entitlement Holder with respect to a Financial Asset as set forth in Part 5 of Article 8 of the Uniform Commercial Code of the State of New York, as the same may be amended from time to time.
Securities Intermediary means Bank, a Subcustodian, a Securities Depository, and any other financial institution which in the ordinary course of business maintains Securities custody accounts for others and acts in that capacity.
Security Procedure means security procedures to be followed by Customer upon the issuance of an Instruction and/or by Bank upon the receipt of an Instruction, so as to enable Bank to verify that such Instruction is authorized, as set forth in service level documentation in effect from time to time between the parties with respect to the services set forth in this Agreement, or as otherwise agreed in writing by the parties. A Security Procedure may, without limitation, involve the use of algorithms, codes, passwords, encryption and telephone call backs. Customer acknowledges that Security Procedures are designed to verify the authenticity of, and not detect errors in, Instructions. For the avoidance of doubt, the parties agree that a SWIFT message issued in the name of Customer through any third party utility agreed upon by the parties as being a method for providing Instructions and authenticated in accordance with that utilitys customary procedures, shall be deemed to be an authorized Instruction .
Services means the Custody Services provided under the Agreement.
Subcustodian has the meaning set forth in Section 5.1 and includes Affiliated Subcustodians.
Transfer Agent as used in Section 4.3 means JPMorgan Chase Bank, NA, in its capacity as transfer agent, or any successor transfer agent appointed by the Customer.
Transfer Accounts means the clearing account(s), if any, listed on Schedule B hereto used to concentrate cash for the Customers so that monies transferring into and out of such clearing account(s) can be made as a single net payment or receipt by the Bank.
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Transfer Account Liabilities means with respect to a given Customer that portion of any Overdraft, obligation, or other Liabilities arising under any of the Transfer Accounts that are attributable to transactions relating to that Customer, including purchases and redemptions of shares of that Customer.
(b) All terms in the singular will have the same meaning in the plural unless the context otherwise provides and visa versa.
2. | WHAT BANK IS REQUIRED TO DO |
2.1 | Set Up Accounts . |
(a) Bank will establish and maintain the following accounts ( Accounts ):
(i) | a Securities Account in the name of Customer for Financial Assets, which may be received by or on behalf of Bank or its Subcustodian for the account of Customer, including as an Entitlement Holder; and |
(ii) | an account in the name of Customer ( Cash Account ) for any and all cash in any currency received by or on behalf of Bank for the account of Customer. |
Notwithstanding paragraph (ii), cash held in respect of those markets where Customer is required to have a cash account in its own name held directly with the relevant Subcustodian or a Securities Depository will be held in that manner and will not be part of the Cash Account.
(b) At the request of Customer, additional Accounts may be opened in the future, which will be subject to the terms of this Agreement.
2.2 | Cash Account . |
Except as otherwise provided in Instructions acceptable to Bank, all cash held in the Cash Account will be deposited during the period it is credited to the Accounts in one or more deposit accounts at Bank or at Banks London Branch. Any cash so deposited with Banks London Branch will be payable exclusively by Banks London Branch in the applicable currency, subject to compliance with Applicable Law, including, without limitation, any restrictions on transactions in the applicable currency imposed by the country of the applicable currency.
2.3 | Segregation of Assets; Nominee Name . |
(a) Bank will identify in its records that Financial Assets credited to Customers Securities Account belong to Customer (except as otherwise may be agreed by Bank and Customer).
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(b) To the extent permitted by Applicable Law or market practice, Bank will require each Subcustodian to identify in its own records that Financial Assets held at such Subcustodian by Bank on behalf of its customers belong to customers of Bank, such that it is readily apparent that the Financial Assets do not belong to Bank or the Subcustodian.
(c) Bank is authorized, in its discretion,
(i) | to hold in bearer form, such Financial Assets as are customarily held in bearer form or are delivered to Bank or its Subcustodian in bearer form; |
(ii) | to hold Securities in or deposit Securities with any Securities Depository, settlement system or dematerialized book entry or similar systems; and |
(iii) | to register in the name of Customer, Bank, a Subcustodian, a Securities Depository, or their respective nominees, such Financial Assets as are customarily held in registered form. |
(d) Bank is authorized, when directed to do so by Customer, to hold Financial Assets at third parties and to register Financial Assets in broker street name or in the name of other third parties (or their nominees). Notwithstanding Section 7.1, Bank shall have no liability for any loss of Financial Assets or other damages resulting from holding or registering Financial Assets as long as Bank correctly follows Customers Instructions in doing so.
Customer authorizes Bank or its Subcustodian to hold Financial Assets in omnibus accounts and will accept delivery of Financial Assets of the same class and denomination as those with Bank or its Subcustodian.
(e) In the event that Customer requests the opening of any additional Account for the purpose of holding collateral pledged by Customer to a securities exchange, clearing corporation or other central counterparty (a Counterparty) to secure trading activity by Customer, or the pledge to a Counterparty of cash or individual Securities held in an Account, that Account (or the pledged cash or Securities) shall be subject to the collateral arrangements in effect between the Bank and the Counterparty in addition to the terms of this Agreement to the extent applicable.
2.4 | Settlement of Trades . |
When Bank receives an Instruction directing settlement of a transaction in Financial Assets that includes all information required by Bank, Bank will use reasonable care to effect such settlement as instructed. Settlement of transactions in Financial Assets will be conducted in accordance with prevailing standards of the market in which the transaction occurs. Without limiting the generality of the foregoing, the risk of loss will be Customers whenever Bank delivers Financial Assets or payment in accordance with applicable market practice in advance of receipt or settlement of the expected consideration. In the case of the failure of Customers counterparty (or other appropriate party) to deliver the expected consideration as agreed, Bank will contact the counterparty to seek settlement, but Bank will not be obligated to institute legal proceedings, file a proof of claim in any insolvency proceeding, or take any similar action.
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2.5 | Contractual Settlement Date Accounting . |
(a) Bank will effect book entries on a contractual settlement date accounting basis as described below with respect to the settlement of trades in those markets where Bank generally offers contractual settlement date accounting and will notify Customer of those markets from time to time.
(i) | Sales : On the settlement date for a sale, Bank will credit the Cash Account with the proceeds of the sale and transfer the relevant Financial Assets to an account at the Bank pending settlement of the trade where not already delivered. |
(ii) | Purchases : On the settlement date for the purchase (or earlier, if market practice requires delivery of the purchase price before the settlement date), Bank will debit the Cash Account for the settlement amount and credit a separate account at the Bank. Bank then will post the Securities Account as awaiting receipt of the expected Financial Assets. Customer will not be entitled to the Financial Assets that are awaiting receipt until Bank or a Subcustodian actually receives them. |
Bank reserves the right to restrict in good faith the availability of contractual settlement date accounting for credit or operational reasons.
(b) Bank may (in its absolute discretion) upon oral or written notification to Customer reverse any debit or credit made pursuant to Section 2.5(a) prior to a transactions actual settlement, and Customer will be responsible for any costs or liabilities resulting from such reversal. Customer acknowledges that the procedures described in this sub-section are of an administrative nature, and Bank does not undertake to make loans and/or Financial Assets available to Customer pursuant to this sub-section.
2.6 | Actual Settlement Date Accounting . |
With respect to any sale or purchase transaction that is not posted to the Account on the contractual settlement date as referred to in Section 2.5, Bank will post the transaction on the date on which the cash or Financial Assets received as consideration for the transaction is actually received by Bank.
2.7 | Income Collection (Autocredit ® ) . |
(a) Bank will credit the Cash Account with income and redemption proceeds on Financial Assets in accordance with the times notified by Bank from time to time on or after the anticipated payment date, net of any taxes that are withheld by Bank or any third party. Where no time is specified for a particular market, income and redemption proceeds from Financial Assets will be credited only after actual receipt and reconciliation. Bank may reverse such credits upon oral or written notification to Customer that Bank believes that the corresponding payment will not be received by Bank within a reasonable period or such credit was incorrect.
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(b) Bank will make good faith efforts in its discretion to contact appropriate parties to collect unpaid interest, dividends or redemption proceeds, but neither Bank nor its Subcustodians will be obliged to file any formal notice of default, institute legal proceedings, file a proof of claim in any insolvency proceeding, or take any similar action.
2.8 | Certain Ministerial Acts . |
Until Bank receives Instructions to the contrary, Bank will:
(a) present all Financial Assets for which Bank has received notice of a call for redemption or that have otherwise matured, and all income and interest coupons and other income items that call for payment upon presentation;
(b) execute in the name of Customer such certificates as may be required to obtain payment in respect of Financial Assets;
(c) exchange interim or temporary documents of title for Financial Assets held in the Securities Account for definitive documents of title; and
(d) provide information concerning the Accounts to Subcustodians, Securities Depositories, counterparties, issuers of Financial Assets, governmental entities, securities exchanges, self-regulatory entities, and similar entities to the extent required by Applicable Law or as may be required in the ordinary course by market practice or otherwise in order to provide the services contemplated by this Agreement.
2.9 | Corporate Actions . |
(a) Bank will notify Customer of any Corporate Action of which information is either (i) received by it or by a Subcustodian to the extent that Banks central corporate actions department has actual knowledge of the Corporate Action in time to notify its customers in a timely manner; or (ii) published via a formal notice in publications and reporting services routinely used by Bank for this purpose in time for Bank to notify its customers in a timely manner. Bank does not commit, however, to provide information concerning Corporate Actions relating to Financial Assets being held at Customers request in a name not subject to the control of Bank or its Subcustodian.
(b) If an Authorized Person fails to provide Bank with timely Instructions with respect to any Corporate Action or class action, neither Bank nor its Subcustodians or their respective nominees will take any action in relation to that Corporate Action or class action, except as otherwise agreed in writing by Bank and Customer or as may be set forth by Bank as a default action in the notification it provides under Section 2.9 (a) with respect to that Corporate Action or class action.
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(c) Bank may sell or otherwise dispose of fractional interests in Financial Assets arising out of a Corporate Action or class action litigation and, to the extent necessary to protect Customers interest in that Corporate Action or class action, credit the Cash Account with the proceeds of the sale or disposition. If some, but not all, of an outstanding class of Financial Asset is called for redemption, Bank may allot the amount redeemed among the respective beneficial holders of such class of Financial Asset in any manner Bank deems to be fair and equitable. Bank will promptly notify Customer of any action taken pursuant to this sub-section.
(d) Notices of Corporate Actions and class actions dispatched to Customer may have been obtained from sources which Bank does not control and may have been translated or summarized. Although Bank believes such sources to be reliable, Bank has no duty to verify the information contained in such notices nor the faithfulness of any translation or summary and therefore does not guarantee its accuracy, completeness or timeliness, and shall not be liable to Customer for any loss that may result from relying on such notice.
2.10 | Class Action Litigation . |
Any notices received by Banks corporate actions department about U.S. settled securities class action litigation that requires action by affected owners of the underlying Financial Assets will be promptly provided to Customer if Bank, using reasonable care and diligence in the circumstances, identifies that Customer was a shareholder and held the relevant Financial Assets in custody with Bank at the relevant time. Bank will not make filings in the name of Customer in respect to such notifications.
2.11 | Proxies . |
(a) Subject to and upon the terms of this sub-section, Bank will provide Customer with information which it receives on matters to be voted upon at meetings of holders of Financial Assets ( Notifications ), and Bank will act in accordance with Customers Instructions in relation to such Notifications ( the active proxy voting service ). If information is received by Bank at its proxy voting department too late to permit timely voting by Customer, Banks only obligation will be to provide, so far as reasonably practicable, a Notification (or summary information concerning a Notification) on an information only basis.
(b) The active proxy voting service is available only in certain markets, details of which are available from Bank on request. Provision of the active proxy voting service is conditional upon receipt by Bank of a duly completed enrollment form as well as additional documentation that may be required for certain markets.
(c) Bank will act upon Instructions to vote on matters referred to in a Notification, provided Instructions are received by Bank at its proxy voting department by the deadline referred to in the relevant Notification. If Instructions are not received in a timely manner, Bank will not be obligated to provide further notice to Customer and shall not be obliged to vote. It is Customers obligation to monitor the agreed upon means of providing Notifications to determine if new Notifications have been received.
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(d) Bank reserves the right to provide Notifications or parts thereof in the language received. Bank will attempt in good faith to provide accurate and complete Notifications, whether or not translated.
(e) Customer acknowledges that Notifications and other information furnished pursuant to the active proxy voting service ( information ) are proprietary to Bank and that Bank owns all intellectual property rights, including copyrights and patents, embodied therein. Accordingly, Customer will not make any use of such information except in connection with the active proxy voting service.
(f) In markets where the active proxy voting service is not available or where Bank has not received a duly completed enrollment form or other relevant documentation, Bank will not provide Notifications to Customer but will endeavor to act upon Instructions to vote on matters before meetings of holders of Financial Assets where it is reasonably practicable for Bank (or its Subcustodians or nominees as the case may be) to do so and where such Instructions are received in time for Bank to take timely action (the passive proxy voting service ).
(g) Customer acknowledges that the provision of proxy voting services (whether active or passive) may be precluded or restricted under a variety of circumstances. These circumstances include, but are not limited to:
(i) | the Financial Assets being on loan or out for registration, |
(ii) | the pendency of conversion or another corporate action; |
(iii) | Financial Assets being held at Customers request in a name not subject to the control of Bank or its Subcustodian; |
(iv) | in a margin or collateral account at Bank or another bank or broker, or otherwise in a manner which affects voting; |
(v) | local market regulations or practices, or restrictions by the issuer; |
(vi) | Bank may be required to vote all shares held for a particular issue for all of Banks customers on a net basis (i.e. a net yes or no vote based on voting instructions received from all its customers). Where this is the case, Bank will inform Customer by means of the Notification. |
(h) Notwithstanding the fact that Bank may act in a fiduciary capacity with respect to Customer under other agreements, in performing active or passive voting proxy services Bank will be acting solely as the agent of Customer, and will not exercise any discretion, with regard to such proxy services or vote any proxy except when directed by an Authorized Person.
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2.12 | Statements and Information Available On-Line and other Reports . |
(a) Bank will send, or make available on-line, to Customer, at times mutually agreed upon, a formal statement of account in Banks standard format for each Account maintained by Customer with Bank, identifying the Financial Assets and cash held in each Account (each such statement a Statement of Account ). Additionally, Bank will send (or make available on-line to) Customer an advice or notification of any transfers of cash or Financial Assets with respect to each Account. Bank will not be liable with respect to any matter set forth in those portions of any Statement of Account or any such advice (or reasonably implied therefrom) to which Customer has not given Bank a written exception or objection within sixty (60) days of receipt of the Statement of Account, provided such matter is not the result of Banks negligence, willful misconduct or bad faith. References in this Agreement to Statements of Account include Statements of Account in electronic form.
(b) Prices and other information obtained from third parties which may be contained in any Statement of Account or other statement sent to Customer have been obtained from sources Bank believes to be reliable. Bank does not, however, make any representation as to the accuracy of such information or that the prices specified necessarily reflect the proceeds that would be received on a disposal of the relevant Financial Assets.
(c) Customer acknowledges that, except for Statements of Account or as otherwise expressly agreed by Bank, records and reports available to it on-line may not be accurate due to mis-postings, delays in updating Account records, and other causes. Bank will not be liable for any loss or damage arising out of the inaccuracy of any such records or reports accessed on-line.
(d) Upon written request, Bank will supply a copy of its current SAS 70 Report to Customer. Upon written request, Bank shall provide Customer with information about Banks processes for the management and monitoring of Subcustodians for safeguarding Financial Assets.
2.13 | Access to Banks Records . |
Bank shall create and maintain records relating to its activities and obligations under this Agreement in such manner as will aid Customer in fulfilling its obligations under the 1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be property of Customer. Bank will allow Customers duly authorized officers, employees, and agents, including Customers independent public accountants, and the employees and agents of the SEC access at all times during the regular business hours of the Bank to such records. Subject to restrictions under Applicable Law, Bank also will obtain an undertaking to permit Customers independent public accountants, reasonable access to the records of any Subcustodian of Securities held in the Securities Account as may be required in connection with such examination.
In addition, the Bank shall cooperate with and supply necessary information to the entity or entities appointed by the Customer to keep its books of account and/or compute its net asset value. The Bank shall take all such reasonable actions as a Customer may from time to time request to
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enable a Customer to obtain, from year to year, favorable opinions from the Customers independent accountants with respect to the Banks activities hereunder in connection with (i) the preparation of any registration statement of a Customer and of a Customers reports on Form N-SAR and any other reports required by the SEC, and (ii) the fulfillment by the Customer of any other requirements of the SEC.
2.14 | Maintenance of Financial Assets at Subcustodian Locations . |
(a) Unless Instructions require another location acceptable to Bank, Financial Assets will be held in the country or jurisdiction in which their principal trading market is located, where such Financial Assets may be presented for payment, where such Financial Assets were acquired, or where such Financial Assets are otherwise held. Bank reserves the right to refuse to accept delivery of Financial Assets or cash in countries and jurisdictions other than those referred to in Appendix 2 to this Agreement, as in effect from time to time.
(b) Bank will not be obliged to follow an Instruction to hold Financial Assets with, or have them registered or recorded in the name of, any person not chosen by Bank. However, if Customer does instruct Bank to hold Securities and/or cash with or register or record Securities in the name of a person not chosen by Bank and Bank agrees to do so, the consequences of doing so are at Customers own risk and Bank (i) will not be liable therefor and (ii) may not provide services under this Agreement with respect to Securities or cash so held, including, without limitation, services provided under Sections 2.8, 2.9, 2.11, and 8.2.
2.15 | Tax Relief Services . |
Bank will provide tax relief services as provided in Section 8.2.
2.16 | [RESERVED.] |
2.17 | [RESERVED .] |
2.18 | [RESERVED.] |
2.19 | Restricted Markets. |
The Bank reserves the right to restrict the services it provides in certain markets it determines are restricted markets from time to time. A current list of these markets, and a summary of the related restrictions, is set forth on Schedule D hereto. The Bank may update Schedule D from time to time upon prompt notice to Customer.
2.20 | Compliance with rule 17f-5 (rule 17f-5). |
(a) Customers board of directors (or equivalent body) (hereinafter Board) hereby delegates to Bank, and, except as to the country or countries as to which Bank may, from time to time, advise Customer that it does not accept such delegation, Bank hereby accepts the delegation to it, of the obligation to perform as Customers Foreign Custody Manager (as that term is
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defined in rule 17f-5(a)(3) as promulgated under the 1940 Act), including for the purposes of: (i) selecting Eligible Foreign Custodians (as that term is defined in rule 17f-5(a)(1), and as the same may be amended from time to time, or that have otherwise been exempted pursuant to an SEC exemptive order) to hold foreign Financial Assets and Cash, (ii) evaluating the contractual arrangements with such Eligible Foreign Custodians (as set forth in rule 17f-5(c)(2)), and (iii) monitoring such foreign custody arrangements (as set forth in rule 17f-5(c)(3)).
(b) | In connection with the foregoing, Bank shall: |
(i) | provide written reports notifying Customers Board of the placement of Financial Assets and Cash with particular Eligible Foreign Custodians and of any material change in the arrangements with such Eligible Foreign Custodians, with such reports to be provided to Customers Board at such times as the Board deems reasonable and appropriate based on the circumstances of Customers foreign custody arrangements (and until further notice from Customer such reports shall be provided not less than quarterly with respect to the placement of Financial Assets and Cash with particular Eligible Foreign Custodians and with reasonable promptness upon the occurrence of any material change in the arrangements with such Eligible Foreign Custodians); |
(ii) | exercise such reasonable care, prudence and diligence in performing as Customers Foreign Custody Manager as a person having responsibility for the safekeeping of foreign Financial Assets and cash would exercise; |
(iii) | in selecting an Eligible Foreign Custodian, first have determined that foreign Financial Assets and cash placed and maintained in the safekeeping of such Eligible Foreign Custodian shall be subject to reasonable care, based on the standards applicable to custodians in the relevant market, after having considered all factors relevant to the safekeeping of such foreign Financial Assets and cash, including, without limitation, those factors set forth in rule 17f-5(c)(1)(i)-(iv); |
(iv) | determine that the written contract with an Eligible Foreign Custodian requires that the Eligible Foreign Custodian shall provide reasonable care for foreign Financial Assets and Cash based on the standards applicable to custodians in the relevant market and complies with the requirements of Rule 17f-5(c)(2) with respect to the provisions of the contract. |
(v) | have established a system to monitor the continued appropriateness of maintaining foreign Financial Assets and cash with particular Eligible Foreign Custodians and of the governing contractual arrangements; it being understood, however, that in the event that Bank shall have determined that the existing Eligible Foreign Custodian in a given country would no longer afford foreign Financial Assets and cash reasonable care, it shall withdraw the Customers Financial Assets and cash as soon as reasonably practicable, place such Financial Assets and cash with another Eligible Foreign Custodian in that country and notify Customer of such actions; however in the event that no other Eligible Foreign Custodian in that country would afford reasonable care, Bank shall promptly so advise Customer and shall then act in accordance with the Instructions of Customer with respect to the disposition of the affected foreign Financial Assets and cash. |
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Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain foreign Financial Assets and cash on behalf of Customer with Eligible Foreign Custodians pursuant to a written contract deemed appropriate by Bank.
(c) Except as expressly provided herein, Customer shall be solely responsible to assure that the maintenance of foreign Financial Assets and cash hereunder complies with the rules, regulations, interpretations and exemptive orders as promulgated by or under the authority of the SEC.
(d) Bank represents to Customer that it is a U.S. Bank as defined in rule 17f-5(a)(7). Customer represents to Bank that: (1) the foreign Financial Assets and cash being placed and maintained in Banks custody are subject to the 1940 Act, as the same may be amended from time to time; (2) its Board: (i) has determined that it is reasonable to rely on Bank to perform as Customers Foreign Custody Manager (ii) or its investment adviser shall have determined that Customer may maintain foreign Financial Assets and cash in each country in which Customers Financial Assets and cash shall be held hereunder and determined to accept Country Risk. Nothing contained herein shall require Bank to make any selection or to engage in any monitoring on behalf of Customer that would entail consideration of Country Risk.
(e) Bank shall provide to Customer such information relating to Country Risk as is specified in Appendix 1 hereto. Customer hereby acknowledges that: (i) such information is solely designed to inform Customer of market conditions and procedures and is not intended as a recommendation to invest or not invest in particular markets; and (ii) Bank has gathered the information from sources it considers reliable, but that Bank shall have no responsibility for inaccuracies or incomplete information unless such inaccuracy or incomplete information is the result of the Banks willful misfeasance, bad faith, negligence, or reckless disregard of its duties and obligations under this Section 2.20.
2.21 | Compliance with rule 17f-7 (rule 17f-7) |
(a) Bank shall, for consideration by Customer, provide an analysis of the custody risks associated with maintaining Customers foreign Financial Assets and cash with each Eligible Securities Depository used by Bank as of the date hereof (or, in the case of an Eligible Securities Depository not used by Bank as of the date hereof, prior to the initial placement of Customers foreign Assets at such Depository) and at which any foreign Financial Assets and cash of Customer are held or are expected to be held. The foregoing analysis will be provided to Customer at Banks website. In connection with the foregoing, Customer shall notify Bank of any Eligible Securities Depositories at which it does not choose to have its foreign Financial Assets and cash held. Bank shall monitor the custody risks associated with maintaining Customers foreign Financial Assets and cash at each such Eligible Securities Depository on a continuing basis and shall promptly notify Customer or its adviser of any material changes in such risks.
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(b) Bank shall exercise reasonable care, prudence and diligence in performing the requirements set forth in Section 2.21(a) above. Bank represents to Customer that it is a Primary Custodian as defined in rule 17f-7(b)(2).
(c) Based on the information available to it in the exercise of diligence, Bank shall determine the eligibility under rule 17f-7 of each depository before including it on Appendix 3 hereto and shall promptly advise Customer if any Eligible Securities Depository ceases to be eligible. (Eligible Securities Depositories used by Bank as of the date hereof are set forth in Appendix 3 hereto, and as the same may be amended on notice to Customer from time to time.)
2.22 | Notifications. |
If Customer has agreed to access information concerning the Accounts through Banks website, Bank may make any notifications required under this Agreement by posting such notification on the website (except for the notices discussed in Section 10.1).
3. | INSTRUCTIONS |
3.1 | Acting on Instructions; Unclear Instructions . |
(a) Customer authorizes Bank to accept and act upon any Instructions received by it without inquiry. Customer will indemnify the Bank Indemnitees against, and hold each of them harmless from, any Liabilities that may be imposed on, incurred by, or asserted against the Bank Indemnitees as a result of any action or omission taken in accordance with any Instructions or other directions upon which Bank is authorized to rely under the terms of this Agreement.
(b) Unless otherwise expressly provided, all Instructions will continue in full force and effect until canceled or superseded.
(c) Bank may (in its sole discretion and without affecting any part of this Section 3.1) seek clarification or confirmation of an Instruction from an Authorized Person and may decline to act upon an Instruction if it does not receive clarification or confirmation satisfactory to it. Bank will not be liable for any loss arising from any reasonable delay in carrying out any such Instruction while it seeks such clarification or confirmation or in declining to act upon any Instruction for which it does not receive clarification satisfactory to it.
(d) In executing or paying a payment order Bank may rely upon the identifying number (e.g. Fedwire routing number or account) of any party as instructed in the payment order. Customer assumes full responsibility for any inconsistency between the name and identifying number of any party in payment orders issued to Bank in Customers name.
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3.2 | Verification and Security Procedures . |
(a) Bank and Customer shall comply with any applicable Security Procedures with respect to the delivery or authentication of Instructions and shall ensure that any codes, passwords or similar devices are reasonably safeguarded.
(b) Either party may record any of their telephone communications as long as such recording is in compliance with Applicable Laws.
3.3 | Instructions; Contrary to Law/Market Practice . |
Bank need not act upon Instructions which it reasonably believes to be contrary to law, regulation or market practice, but Bank will be under no duty to investigate whether any Instructions comply with Applicable Law or market practice. In the event Bank does not act upon such Instructions, Bank will notify Customer as soon as reasonably practicable.
3.4 | Cut-off Times . |
Bank has established cut-off times for receipt of some categories of Instruction, which will be made available to Customer. If Bank receives an Instruction after its established cut-off time, Bank will attempt to act upon the Instruction on the day requested if Bank deems it practicable to do so or otherwise as soon as practicable on the next business day. Bank will provide Customer with reasonable prior notice of any changes to the cut-off times previously communicated to Customer.
3.5 | Electronic Access . |
Access by Customer to certain applications or products of Bank via Banks web site or otherwise shall be governed by this Agreement and the terms and conditions set forth in Annex A.
4. | FEES, EXPENSES AND OTHER AMOUNTS OWING TO BANK |
4.1 | Fees and Expenses . |
Customer will pay Bank for its services hereunder the fees set forth in Schedule C hereto or such other amounts as may be agreed upon in writing from time to time, together with Banks reasonable out-of-pocket or incidental expenses, including, but not limited to, legal fees and tax or related fees incidental to processing by governmental authorities, issuers, or their agents. Customer authorizes Bank to deduct amounts owing to it from the Cash Account, for any such fees or expenses from time to time in arrears.
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4.2 | Overdrafts . |
If a debit to any currency in the Cash Account results (or will result) in a debit balance, then Bank may, in its discretion, (i) advance an amount equal to the overdraft, (ii) or refuse to settle in whole or in part the transaction causing such debit balance, or (iii) if any such transaction is posted to the Securities Account, reverse any such posting. If Bank elects to make such an advance, the advance will be deemed a loan to Customer, payable on demand, bearing interest at the applicable rate charged by Bank from time to time, for such overdrafts, from the date of such advance to the date of payment (both after as well as before judgment) and otherwise on the terms on which Bank makes similar overdrafts available from time to time. No prior action or course of dealing on Banks part with respect to the settlement of transactions on Customers behalf will be asserted by Customer against Bank for Banks refusal to make advances to the Cash Account or to settle any transaction for which Customer does not have sufficient available funds in the applicable currency in the Account.
4.3 | Banks Right Over Securities; Set-off . |
(a) Customer grants Bank a security interest in and a lien on the Financial Assets held in the Securities Account as security for any and all amounts which are now or become owing to Bank under any provision of this Agreement, whether or not matured or contingent (Indebtedness).
(b) Without prejudice to Banks rights under Applicable Law, Bank may set off against any Indebtedness any amount in any currency standing to the credit of any of Customers accounts (whether deposit or otherwise) with any Bank branch or office or with any Affiliate of Bank. For this purpose, Bank shall be entitled to accelerate the maturity of any fixed term deposits and to effect such currency conversions as may be necessary at its current rates for the sale and purchase of the relevant currencies.
(c) With respect to any obligation of a Customer arising out of this Agreement, the Bank shall look for payment or satisfaction of such obligation solely to the assets of the Customer to which such obligation relates as though the Bank had separately contracted by separate written instrument with respect to each Customer.
(d) Customer grants to Bank a security interest in and a lien on the Financial Assets held in a Customers Securities Account and the cash held in that Customers Cash Account to secure that portion of any Overdraft, obligation, or other Liability owing with respect to a Transfer Account that constitute that Customers Transfer Account Liabilities, and Bank shall be entitled (i) without notice, to segregate, place a hold on and/or withhold delivery of such Financial Assets and cash to satisfy such Customers Transfer Account Liabilities and (ii) upon notice to the Board of such Customer, sell or otherwise realize any of such Financial Assets and to apply the proceeds and any other monies credited to that Customers Cash Account in satisfaction of its Transfer Account Liabilities. Without prejudice to Banks rights under Applicable Laws, Bank may, upon notice to the Board of such Customer, set off any Overdraft, obligation, or other Liability owing with respect to a Transfer Account that constitute that Customers Transfer Account Liabilities against any amount in any currency standing to the credit of any of that Customers accounts (whether deposit or otherwise) with any Bank branch or office.
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(e) Customer will be solely responsible for ensuring that the Transfer Agent maintains sufficient records and internal controls to monitor and reconcile daily activity with respect to amounts and transactions in the Transfer Accounts that are attributable to each Customer. In particular, Customer will ensure that the Transfer Agent provides to the Bank, promptly upon request: (1) information as to the amount of cash attributable to each Customer in the Transfer Accounts, (2) information regarding the transactions of each Customer that are processed through the Transfer Accounts, and (3) records to identify and support any obligations, Liabilities, and/or Overdrafts incurred or created in connection with the transactions processed through the Transfer Accounts that are attributable to each Customer. Customer will be responsible for any Liabilities resulting from a failure or delay of the Transfer Agent to provide accurate and timely information to the Bank regarding the Transfer Accounts.
(f) The Bank hereby agrees that it will follow the following procedures in connection with enforcing a lien or right of set-off against a Customers assets pursuant to this Section 4.3.
(i) | The Bank will comply with all applicable laws, rules and regulations in connection with enforcing a lien or right of set-off against a Customers assets, including all applicable provisions of state law relating to enforcement of rights of set off or liens against securities and other property held in bailment. |
(ii) | To enforce a right of set-off or a lien pursuant to Sub-section 4.3 (a) or (b) of the Agreement, regardless of any other notice requirements under Applicable Laws, rules or regulations or any applicable terms of the Agreement, the Bank will (x) without notice, segregate, place a hold on and/or withhold delivery of Financial Assets in such Customers Securities Account and cash in its Cash Account with a market value equal to the amount the Bank has determined in good faith is due and payable; and (y) give written notice (Notice) to the Board of the applicable Customer of its intention to sell or otherwise realize such Financial Assets and to apply the proceeds and any other monies credited to that Customers Cash Account in satisfaction of its Indebtedness if the amount the Bank has determined in good faith is due and payable are not repaid within two business days allowing the notice. The Customer may request the Bank to substitute different Financial Assets for the Financial Assets segregated by the Bank and the Bank will not unreasonably deny such request. |
(iii) | Prior to enforcing a right of set-off or a lien against a Customers assets pursuant to Sub-section 4.3(d), regardless of any other notice requirements under Applicable Laws, rules or regulations or any applicable terms of the Agreement, the Bank will (w) send a written request to the Transfer Agent, with a copy to the Board of the Customers, for information sufficient to identify and support any obligations, Liabilities, and/or Overdrafts incurred or created in connection with the transactions processed through the Transfer Accounts that are attributable to each Customer; (x) upon receipt of such information, the Bank will, segregate, |
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place a hold on and/or withhold delivery of Financial Assets in each such Customers Securities Account and cash in its Cash Account with a market value equal to the amount the Bank has determined in good faith is due and payable; and (z) give Notice to the Board of the applicable Customers of its intention to sell or otherwise realize such Financial Assets and to apply the proceeds and any other monies credited to that Customers Cash Account in satisfaction of its Transfer Account Liabilities, if the amount the Bank has determined in good faith is due and payable are not repaid within two business days following the Notice. The Customer may request the Bank to substitute different Financial Assets for the Financial Assets segregated by the Bank and the Bank will not unreasonably deny such request. |
(iv) | The Bank will not obtain through enforcement of the right of set-off or the lien more than the amount it has determined in good faith to be owed. |
(v) | The Bank will seek to enforce the right of set-off or the lien first against a Customers cash assets, and then only against portfolio securities or other property for which a readily ascertainable market price can be obtained. |
(vi) | The Bank will arrange for the sale of any such Financial Assets in nominal market transactions and will not arrange for the sale of such Financial Assets in circumstances that, to the best of its knowledge, independently would raise affiliated transaction concerns under the 1940 Act. |
5. | SUBCUSTODIANS, SECURITIES DEPOSITORIES, AND OTHER AGENTS |
5.1 | Appointment of Subcustodians; Use of Securities Depositories . |
(a) Bank is authorized under this Agreement to act through and hold Customers Financial Assets with subcustodians, being at the date of this Agreement the entities listed in Appendix 2 and/or such other entities as Bank may appoint as subcustodians ( Subcustodians ). Bank will use reasonable care, prudence and diligence in the selection and continued appointment of such Subcustodians. At the request of Customer, Bank may, but need not, add to Appendix 2 an Eligible Foreign Custodian where Bank has not acted as Foreign Custody Manager with respect to the selection thereof. Bank shall notify Customer in the event that it elects to add any such entity. In addition, Bank and each Subcustodian may deposit Financial Assets with, and hold Financial Assets in, any securities depository, settlement system, dematerialized book entry system or similar system (together a Securities Depository ) on such terms as such systems customarily operate and Customer will provide Bank with such documentation or acknowledgements that Bank may require to hold the Financial Assets in such systems.
(b) Any agreement Bank enters into with a Subcustodian for holding Banks customers assets will provide that such assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of such Subcustodian or its creditors except a claim for payment for
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their safe custody or administration, or, in the case of cash deposits, except for liens or rights in favor of creditors of the Subcustodian arising under bankruptcy, insolvency or similar law, and that the beneficial ownership thereof will be freely transferable without the payment of money or value other than for safe custody or administration. Where a Subcustodian deposits Securities with a Securities Depository, Bank will cause the Subcustodian to identify on its records as belonging to Bank, as agent, the Securities shown on the Subcustodians account at such Securities Depository. This Section 5.1(b) will not apply to the extent of any special agreement or arrangement made by Customer with any particular Subcustodian.
(c) Bank will not be liable for any act or omission by (or the insolvency of) any Securities Depository. In the event Customer incurs a loss due to the negligence, willful misconduct, or insolvency of a Securities Depository, Bank will make reasonable endeavors, in its discretion, to seek recovery from the Securities Depository, but Bank will not be obligated to institute legal proceedings, file a proof claim in any insolvency proceeding, or take any similar action.
(d) The term Subcustodian as used herein shall mean the following:
(i) | a U.S. Bank, which shall mean a U.S. bank as defined in rule 17f-5(a)(7); |
(ii) | an Eligible Foreign Custodian, which shall mean: (i) a banking institution or trust company, incorporated or organized under the laws of a country other than the United States, that is regulated as such by that countrys government or an agency thereof, and (ii) a majority-owned direct or indirect subsidiary of a U.S. bank or bank holding company which subsidiary is incorporated or organized under the laws of a country other than the United States. In addition, an Eligible Foreign Custodian shall also mean any other entity that shall have been so qualified by exemptive order, rule or other appropriate action of the SEC. |
(iii) | For purposes of clarity, it is agreed that as used in Section 5.2(a), the term Subcustodian shall not include any Eligible Foreign Custodian as to which Bank has not acted as Foreign Custody Manager. |
(e) The term securities depository as used herein when referring to a securities depository located outside the U.S. shall mean:
an Eligible Securities Depository which, in turn, shall have the same meaning as in rule 17f-7(b)(1)(i)-(vi) as the same may be amended from time to time, or that has otherwise been made exempt pursuant to an SEC exemptive order or no-action letter of the staff of the SEC.
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(f) The term securities depository as used herein when referring to a securities depository located in the U.S. shall mean a securities depository as defined in rule 17f-4(a).
5.2 | Liability for Subcustodians . |
(a) Subject to Section 7.1(b), Bank shall be liable for the actions or omissions of any Subcustodian to the same extent as if such act or omission was performed by the Bank itself. In the event of any Losses suffered or incurred by a Customer caused by or resulting from the actions or omissions of any Subcustodian for which the Bank would otherwise be liable, the Bank shall promptly reimburse such Customer in the amount of any such Losses. Bank shall also be liable for losses that result from the insolvency of any Affiliated Subcustodian.
(b) Subject to Section 5.1(a) and Banks duty to use reasonable care in the monitoring of a Subcustodians financial condition as reflected in its published financial statements and other publicly available financial information concerning it customarily reviewed by Bank in its oversight process, Bank will not be responsible for the insolvency of any Subcustodian which is not a branch or an Affiliated Subcustodian.
(c) Bank reserves the right to add, replace or remove Subcustodians. Bank will give prompt notice of any such action, which will be advance notice if practicable. Upon request by Customer, Bank will identify the name, address and principal place of business of any Subcustodian and the name and address of the governmental agency or other regulatory authority that supervises or regulates such Subcustodian.
5.3 | Use of Agents . |
(a) Bank may provide certain services under this Agreement through third parties, which may be Affiliates, provided the provision of services by such Affiliate complies with the 1940 Act and the rules issued thereunder and the policies and procedures of the Customer. Except to the extent provided in Section 5.2 with respect to Subcustodians, Bank will not be responsible for any loss as a result of a failure by any broker or any other third party that it selects and retains using reasonable care to provide ancillary services that it may not customarily provide itself, including, without limitation, delivery services and providers of information regarding matters such as pricing, proxy voting, corporate actions and class action litigation. Nevertheless, Bank will be liable for the performance of any such broker selected by Bank that is an Affiliate to the same extent as Bank would have been liable if it performed such services itself.
(b) In the case of the sale under Section 2.8 of a fractional interest (or in other cases where Customer has requested Bank to arrange for execution of a trade) Bank will place trades with a broker which is an Affiliate to the extent that: (1) Bank has established a program for such trading with such Affiliate, (2) trading with such Affiliate complies with the 1940 Act, as amended and the rules issued thereunder, and (3) trading with such Affiliate complies with the Customers policies and procedures, provided that such policies and procedures have been provided to Bank and Bank has agreed that they are acceptable to Bank. An affiliated broker may charge its customary commission (or retain its customary spread) with respect to any such transaction.
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6. | ADDITIONAL PROVISIONS RELATING TO CUSTOMER |
6.1 | Representations of Customer and Bank . |
(a) Customer represents and warrants that (i) it has full authority and power, and has obtained all necessary authorizations and consents, to deposit and control the Financial Assets and cash in the Accounts, to use Bank as its custodian in accordance with the terms of this Agreement, to borrow money (either short term or intraday borrowings in order to settle transactions prior to receipt of covering funds), grant a lien over Financial Assets as contemplated by Section 4.3, and to enter into foreign exchange transactions; (ii) assuming execution and delivery of this Agreement by Bank, this Agreement is Customers legal, valid and binding obligation, enforceable in accordance with its terms and it has full power and authority to enter into and has taken all necessary corporate action to authorize the execution of this Agreement; (iii) it has not relied on any oral or written representation made by Bank or any person on its behalf, and acknowledges that this Agreement sets out to the fullest extent the duties of Bank; (iv) it is a resident of the United States and shall notify Bank of any changes in residency; and (v) except as granted under Section 4.3 of this Agreement or otherwise to Bank, the Financial Assets and cash deposited in the Accounts are not subject to any encumbrance or security interest whatsoever and the Customer undertakes that, so long as Liabilities are outstanding, it will not create or permit to exist any encumbrance or security interest over such Financial Assets or cash except with the prior written consent of Bank.
(b) Bank represents and warrants that (i) assuming execution and delivery of this Agreement by Customer, this Agreement is Banks legal, valid and binding obligation, enforceable in accordance with its terms; (ii) it has full power and authority to enter into and has taken all necessary corporate action to authorize the execution of this Agreement; and (iii) no legal or administrative proceedings have been instituted or threatened against Bank which would impair Banks ability to perform its duties and obligations under this Agreement; and (iv) Banks execution and performance of this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of Bank or any law or regulation applicable to Bank.
Bank may rely upon the above or the certification of such other facts as may be required to administer Banks obligations hereunder. Customer shall indemnify Bank against all losses, liability, claims or demands arising directly or indirectly from any such certifications.
6.2 | Customer to Provide Certain Information to Bank . |
Upon request, Customer will promptly provide to Bank such information about itself and its financial status as Bank may reasonably request, including Customers organizational documents and its current audited and unaudited financial statements.
6.3 | Customer is Liable to Bank Even if it is Acting for Another Person . |
If Customer is acting as an agent for a disclosed or undisclosed principal in respect of any transaction, cash, or Financial Asset, Bank nevertheless will treat Customer as its principal for all purposes under this Agreement. In this regard, Customer will be liable to Bank as a principal in respect of any transactions relating to the Account. The foregoing will not affect any rights Bank might have against Customers principal.
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7. | WHEN BANK IS LIABLE TO CUSTOMER |
7.1 | Standard of Care; Liability . |
(a) Bank shall exercise reasonable care, prudence and diligence in carrying out all its duties and obligations under this Agreement, and shall be liable to each Customer for any and all claims, liabilities, losses, damages, fines, penalties and expenses (Losses) suffered or incurred by Customer resulting from the failure of Bank to exercise such reasonable care, prudence and diligence or resulting from Banks willful misfeasance, bad faith, negligence or reckless disregard of its obligations and duties under this Agreement and to the extent provided in Section 5.2(a). In addition, Bank shall be liable to each applicable Customer for all Losses representing reasonable costs and expenses incurred by such Customer in connection with any claim by such Customer against Bank arising from the obligations of Bank hereunder, including, without limitation, all reasonable attorneys fees and expenses incurred by such Customer in connection with any investigations, lawsuits or proceedings relating to such claim; provided that such Customer has recovered from Bank for such claim.
Upon the occurrence of any event that causes or may cause any loss, damage or expense to Customer, Bank shall (i) promptly notify Customer of the occurrence of such event and (ii) use its commercially reasonable best efforts to cause any Subcustodian to use all commercially reasonable efforts and to take all reasonable steps under the circumstances to mitigate the effects of such event and to avoid continuing harm to Customer.
Nevertheless, under no circumstances will Bank be liable for any indirect, incidental, consequential or special damages (including, without limitation, lost profits) of any form, whether or not foreseeable and regardless of the type of action in which such a claim may be brought, with respect to the Accounts, Banks performance hereunder, or Banks role as custodian.
(b) Customer will indemnify the Bank Indemnitees against, and hold them harmless from, any Liabilities that may be imposed on, incurred by or asserted against any of the Bank Indemnitees in connection with or arising out of (i) Banks performance under this Agreement, provided the Bank Indemnitees have acted with reasonable care and have not acted with willful misfeasance, bad faith or negligence or reckless disregard of their obligations and duties under this Agreement or engaged in fraud or willful misconduct in connection with the Liabilities in question or (ii) any Bank Indemnitees status as a holder of record of Customers Financial Assets. Nevertheless, Customer will not be obligated to indemnify any Bank Indemnitee under the preceding sentence with respect to any Liability for which Bank is liable under Section 5.2 of this Agreement. Customer shall have no liability whatsoever for any indirect, incidental, consequential, special or speculative loss or damages (including, without limitation, lost profits) of any form whether or not foreseeable and regardless of the type of action in which such a claim may be brought.
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(c) Without limiting Subsections 7.1 (a) or (b), Bank will have no duty or responsibility to: (i) question Instructions or make any suggestions to Customer or an Authorized Person regarding such Instructions; (ii) supervise or make recommendations with respect to investments or-the retention of Financial Assets; (iii) advise Customer or an Authorized Person regarding any default in the payment of principal or income of any Security other than as provided in Section 2.7(b) of this Agreement; (iv) evaluate or report to Customer or an Authorized Person regarding the financial condition of any broker, agent or other party to which Bank is instructed to deliver Financial Assets or cash; or (v) review or reconcile trade confirmations received from brokers (and Customer or its Authorized Persons issuing Instructions will bear any responsibility to review such confirmations against Instructions issued to and Statements of Account issued by Bank).
7.2 | Force Majeure . |
Bank will maintain and update from time to time business continuation and disaster recovery procedures with respect to its global custody business that are required by Applicable Law and as it determines from time to time meet reasonable commercial standards. Neither party will have any liability, however, for any damage, loss, expense or liability of any nature that Customer may suffer or incur, caused by an act of God, fire, flood, civil or labor disturbance, war, terrorism, act of any governmental authority or other act or threat of any authority (de jure or de facto), legal constraint, malfunction of equipment or software (except where such malfunction is primarily attributable to the other partys negligence in selecting, operating or maintaining the equipment or software), failure of or the effect of rules or operations of any external funds transfer system, inability to obtain or interruption of external communications facilities, or any cause beyond the reasonable control of the party (including without limitation, in the case of Bank, the non-availability of appropriate foreign exchange), provided, however, that the party must notify the other party promptly when it becomes aware of a specific occurrence or event and uses commercially reasonable efforts to resolve the adverse effects of the occurrence or event.
7.3 | Bank May Consult With Counsel . |
Bank will be entitled to rely on, and may act upon the advice of professional advisers in relation to matters of law, regulation or market practice (which reasonably may be the professional advisers of Customer), and will not be liable to Customer for any action taken or omitted pursuant to such advice; provided that Bank has selected and retained such professional advisers using reasonable care and acts reasonably in reliance on the advice.
7.4 | Bank Provides Diverse Financial Services and May Generate Profits as a Result . |
Customer acknowledges that Bank or its Affiliates may have a material interest in transactions entered into by Customer with respect to the Account or that circumstances are such that Bank may have a potential conflict of duty or interest. For example, Bank or its Affiliates may act as a market maker in the Financial Assets to which Instructions relate, provide brokerage services to other customers, act as financial adviser to the issuer of such Financial Assets, act in the same transaction as agent for more than one customer, have a material interest in the issue of the Financial Assets; or earn profits from any of these activities. Customer further acknowledges that Bank or its Affiliates may be in possession of information tending to show that the Instructions received may not be in the best interests of Customer but that Bank is not under any duty to disclose any such information.
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8. | TAXATION |
8.1 | Tax Obligations . |
(a) Customer confirms that Bank is authorized to deduct from any cash received or credited to the Cash Account any taxes or levies required by any revenue or governmental authority for whatever reason in respect of Customers Accounts.
(b) Customer will provide to Bank such certifications, documentation, and information as it may reasonably require in connection with taxation, and warrants that, when given, this information is true and correct in every respect, not misleading in any way, and contains all material information. Customer undertakes to notify Bank immediately if any information requires updating or correcting. Bank shall not be liable for any taxes, penalties, interest or additions to tax, payable or paid that result from (i) the inaccurate completion of documents by Customer or any third party; (ii) provision to Bank or a third party of inaccurate or misleading information by Customer or any third party; (iii) the withholding of material information by Customer or any third party; or (iv) as a result of any delay by any revenue authority or any other cause beyond the Banks control.
(c) If Bank does not receive appropriate certifications, documentation and information then, as and when appropriate and required, additional tax shall be deducted from all income received in respect of the Financial Assets issued (including, but not limited to, United States non-resident alien tax and/or backup withholding tax).
(d) Customer will be responsible in all events for the timely payment of all taxes relating to the Financial Assets in the Securities Account. Customer will indemnify and hold Bank harmless from and against any and all liabilities, penalties, interest or additions to tax with respect to or resulting from, any delay in, or failure by, Bank (i) to pay, withhold or report any U.S. federal, state or local taxes or foreign taxes imposed on, or (ii) to report interest, dividend or other income paid or credited to the Cash Account, regardless of the reason for such delay or failure, provided, however, that Customer will not be liable to Bank for any penalty or additions to tax due solely as a result of Banks willful misfeasance, bad faith or negligence or reckless disregard of its obligations and duties under this Agreement with respect to paying or withholding tax or reporting interest, dividend or other income paid or credited to the Cash Account.
8.2 | Tax Relief Services . |
(a) Subject to the provisions of this Section, Bank will apply for a reduction of withholding tax and any refund of any tax paid or tax credits in respect of income payments on Financial Assets credited to the Securities Account that Bank believes may be available. To defray expenses pertaining to nominal tax claims, Bank may from time-to-time set minimum thresholds as to a de minimus value of tax reclaims or reduction of withholding which it will pursue in respect of income payments under this section.
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(b) The provision of a tax relief service by Bank is conditional upon Bank receiving from Customer (i) a declaration of its identity and place of residence and (ii) certain other documentation (pro forma copies of which are available from Bank), prior to the receipt of Financial assets in the Account or the payment of income.
(c) Bank will perform tax relief services only with respect to taxation levied by the revenue authorities of the countries advised to Customer from time to time and Bank may, by notification in writing, in its absolute discretion, supplement or amend the countries in which the tax relief services are offered. Other than as expressly provided in this Section 8.2 Bank will have no responsibility with regard to Customers tax position or status in any jurisdiction.
(d) Customer confirms that Bank is authorized to disclose any information requested by any revenue authority or any governmental entity in relation to the processing of any tax relief claim.
9. | TERMINATION |
9.1 | Termination |
Either party may terminate this Agreement on sixty (60) days written notice to the other party. If Customer gives notice of termination, it must provide full details of the persons to whom Bank must deliver Financial Assets and cash. If Bank gives notice of termination, then Customer must, within sixty (60) days, notify Bank of details of its new custodian, failing which Bank may elect (at any time after the sixty day notice period) either to retain the Financial Assets and cash until such details are given, continuing to charge fees due (in which case Banks sole obligation will be for the safekeeping of the Financial Assets and cash), or deliver the Financial Assets and cash to Customer. Bank will in any event be entitled to deduct any amounts owing to it prior to delivery of the Financial Assets and cash (and, accordingly, Bank will be entitled to sell Financial Assets and apply the sale proceeds in satisfaction of amounts owing to it). Customer will reimburse Bank promptly for all out-of-pocket expenses it incurs in delivering Financial Assets upon termination. Termination will not affect any of the liabilities either party owes to the other arising under this Agreement prior to such termination.
9.2 | Appointment of Successor Custodian |
If a successor custodian shall have been appointed by the Board, Bank shall, upon receipt of a Notice from Customer, on such specified date of termination (i) deliver directly to the successor custodian (or any subcustodian appointed by successor custodian), all Financial Assets and Securities (other than Securities held in a Book-Entry System or Securities Depository) and cash then owned by Customer and held by Bank as custodian, and (ii) transfer any Financial Assets and Securities held in a Book-Entry System or Securities Depository to an account of or for the benefit of Customer at the successor custodian (or any subcustodian appointed by successor custodian), provided that Customer shall have paid to Bank all fees, expenses and other amounts to the payment
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or reimbursement of which it shall then be entitled. In addition, to the extent customary in the industry, Bank shall, at the reasonable expense of Customer, transfer to such successor copies of all relevant books, records, correspondence, and other data established or maintained by Bank under this Agreement, and will cooperate in the transfer of such duties and responsibilities.
10. | MISCELLANEOUS |
10.1 | Notices . |
(a) Notices pursuant to Section 9 of this Agreement shall be sent or served by registered mail, overnight delivery services, such as Federal Express (FedEx) or United Parcel Service (UPS), etc., courier services or hand delivery to the address of the respective parties as set out on the first page of this Agreement, unless notice of a new address is given to the other party in writing. Notice will not be deemed to be given unless it has been received.
(b) The notice required in Section 4.3(f) of the Agreement shall be served by registered mail or hand delivery to the following:
President, J.P. Morgan Exchange-Traded Fund Trust
c/o J.P. Morgan Asset Management
270 Park Avenue
New York, NY 10017
With copies to J.P. Morgan Funds Funds Legal
c/o J.P. Morgan Asset Management
270 Park Avenue
New York, NY 10017
10.2 | Successors and Assigns . |
This Agreement will be binding on each of the parties successors and assigns, but the parties agree that neither party can assign its rights and obligations under this Agreement without the prior written consent of the other party, which consent will not be unreasonably withheld.
10.3 | Interpretation . |
Headings are for convenience only and are not intended to affect interpretation. References to sections are to sections of this Agreement and references to sub-sections and paragraphs are to sub-sections of the sections and paragraphs of the sub-sections in which they appear.
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10.4 | Entire Agreement . |
This Agreement, including the Schedules, Exhibits, and Appendices (and any separate agreement which Bank and Customer may enter into with respect to any Cash Account), sets out the entire Agreement between the parties in connection with the subject matter hereof, and this Agreement supersedes any other agreement, statement, or representation relating to custody, whether oral or written. Amendments must be in writing and signed by both parties.
10.5 | Information Concerning Deposits at J.P. Morgans Non-US Branch . |
Under U.S. federal law, deposit accounts that Customer maintains in Banks foreign branches (outside of the U.S.) are not insured by the Federal Deposit Insurance Corporation. In the event of Banks liquidation, foreign branch deposits have a lesser preference than U.S. deposits, and such foreign deposits are subject to cross-border risks.
10.6 | Insurance . |
Bank will not be required to maintain any insurance coverage for the benefit of Customer.
10.7 | Governing Law and Jurisdiction. |
This Agreement will be construed, regulated, and administered under the laws of the United States or State of New York, as applicable, without regard to New Yorks principles regarding conflict of laws. The United States District Court for the Southern District of New York will have the sole and exclusive jurisdiction over any lawsuit or other judicial proceeding relating to or arising from this Agreement. If that court lacks federal subject matter jurisdiction, the Supreme Court of the State of New York, New York County will have sole and exclusive jurisdiction. Either of these courts will have proper venue for any such lawsuit or judicial proceeding, and the parties waive any objection to venue or their convenience as a forum. The parties agree to submit to the jurisdiction of any of the courts specified and to accept service of process to vest personal jurisdiction over them in any of these courts. The parties further hereby knowingly, voluntarily and intentionally waive, to the fullest extent permitted by Applicable Laws, any right to a trial by jury with respect to any such lawsuit or judicial proceeding arising or relating to this Agreement or the transactions contemplated hereby. To the extent that in any jurisdiction Customer may now or hereafter be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (before or after judgment) or other legal process, Customer shall not claim, and it hereby irrevocably waives, such immunity.
10.8 | Severability; Waiver; and Survival . |
(a) If one or more provisions of this Agreement are held invalid, illegal or unenforceable in any respect on the basis of any particular circumstances or in any jurisdiction, the validity, legality and enforceability of such provision or provisions under other circumstances or in other jurisdictions and of the remaining provisions will not in any way be affected or impaired.
(b) Except as otherwise provided herein, no failure or delay on the part of either party in exercising any power or right hereunder operates as a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right. No waiver by a party of any provision of this Agreement, or waiver of any breach or default, is effective unless it is in writing and signed by the party against whom the waiver is to be enforced.
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(c) The parties rights, protections, and remedies under this Agreement shall survive its termination.
10.9 | Counterparts . |
This Agreement may be executed in several counterparts each of which will be deemed to be an original and together will constitute one and the same agreement.
10.10 | Security Holding Disclosure . |
With respect to Securities and Exchange Commission Rule 14b-2 under The U.S. Shareholder Communications Act, regarding disclosure of beneficial owners to issuers of Securities, Bank is instructed not to disclose the name, address or Security positions of Customer in response to shareholder communications requests regarding the Accounts.
10.11 | USA Patriot Act Disclosure . |
Section 326 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) requires Bank to implement reasonable procedures to verify the identity of any person that opens a new account with it. Accordingly, Customer acknowledges that Section 326 of the USA PATRIOT Act and Banks identity verification procedures require Bank to obtain information which may be used to confirm Customers identity including without limitation Customers name, address and organizational documents (identifying information). Customer may also be asked to provide information about its financial status such as its current audited and unaudited financial statements. Customer agrees to provide Bank with and consents to Bank obtaining from third parties any such identifying and financial information required as a condition of opening an account with or using any service provided by Bank.
10.12 | Confidentiality . |
(a) Subject to Clause 10.12(b) Bank will hold all Confidential Information in confidence and will not disclose any Confidential Information except as may be required by Applicable Laws, a regulator with jurisdiction over the Banks business, or with the consent of Customer.
(b) Customer authorizes Bank to disclose Confidential Information to the extent necessary to provide relevant services to the Customer to:
(i) | its Affiliates and branches, any Subcustodian, subcontractor, agent, Securities Depository, securities exchange, broker, third party agent, proxy solicitor, issuer, or any other person that Bank believes it is reasonably required to have access to the Confidential Information for Bank to provide services under this Agreement, provided that Bank shall be liable to Customer if a Subcustodian or delegate discloses Confidential Information in a manner not permitted by this Section 10.12; |
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(ii) | its professional advisors, auditors or public accountants; and |
(iv) | any revenue authority or any governmental entity in relation to the processing of any tax relief claim. |
10.13 | No Third Party Beneficiaries . |
A person who is not a party to this Agreement shall have no right to enforce any term of this Agreement.
10.14 | Several Obligations of the Funds . |
This Agreement is executed on behalf of the Board and not individually, and the obligations of this Agreement are not binding upon any of the Customers Trustees, officers or shareholders personally but are binding only upon the assets and property of the Customer. With respect to the obligations of each Fund arising hereunder, Bank shall look for payment or satisfaction of any such obligation solely to the assets of the Fund which such obligation relates as though Bank had separately contracted by separate written instrument with respect to each Fund, and in no event shall Bank have recourse, by set off or otherwise, to or against any assets of any other Fund.
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SIGNED for and on behalf of : | ||
J.P. MORGAN EXCHANGE-TRADED FUND TRUST | ||
By: | /s/ Paul Shield | |
Name: | Paul Shield 5/7/14 | |
Title: | Treasurer |
JPMORGAN CHASE BANK, N.A. | ||
By: | /s/ Tracy Winthrop | |
Name: | Tracy Winthrop 5/7/14 | |
Title: | Executive Director |
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SCHEDULE A
List of Entities Covered by the Global Custody Agreement
JPMorgan Diversified Return Global Equity ETF
JPMorgan Diversified Return International Ex-North America Equity ETF
JPMorgan Diversified Return Emerging Markets Equity ETF
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SCHEDULE B
List of Transfer Accounts
ACCOUNT NO. |
ACCOUNT TITLE |
|
NONE |
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SCHEDULE C
Global Custody Fee Schedule to the Global Custody Agreement
As of May 7, 2014
Custody
*All Fees in: | U.S. Dollar |
Safekeeping, Administration and Transaction Charges
Safekeeping and administration charges are applied to the market value of assets held at the end of the billing period. Transaction charges are applied to all securities transactions (including receives/delivers versus payment and free receives/delivers), effected during the billing period. Transaction prices below presume that the Bank receives valid instructions in an electronic format that enables straight-through processing (STP), when applicable; trade instructions that require manual input or repair will incur a surcharge as described below.
Country of Settlement |
Safekeeping & Administration |
Transactions (Buys/Sells,
Receive/Deliver Free) |
||||||
Basis Point Fee | Fee per STP Transaction | |||||||
Argentina |
15.00 | 40.00 | ||||||
Australia |
1.75 | 25.00 | ||||||
Austria |
1.50 | 20.00 | ||||||
Bahrain |
30.00 | 80.00 | ||||||
Bangladesh |
30.00 | 80.00 | ||||||
Belgium |
1.50 | 20.00 | ||||||
Bermuda |
15.00 | 45.00 | ||||||
Botswana |
30.00 | 80.00 | ||||||
Brazil |
9.00 | 40.00 | ||||||
Bulgaria |
30.00 | 75.00 | ||||||
Canada |
1.75 | 15.00 | ||||||
Chile |
16.00 | 45.00 | ||||||
China |
16.00 | 45.00 | ||||||
Colombia |
30.00 | 65.00 | ||||||
Croatia |
20.00 | 45.00 | ||||||
Cyprus |
20.00 | 75.00 | ||||||
Czech Republic |
17.00 | 45.00 | ||||||
Denmark |
1.50 | 25.00 | ||||||
Egypt |
15.00 | 45.00 | ||||||
Estonia |
25.00 | 65.00 | ||||||
Euro CDs |
0.15 | 15.00 | ||||||
Euroclear |
0.85 | 8.00 | ||||||
Finland |
1.50 | 25.00 | ||||||
France |
1.00 | 20.00 | ||||||
Germany |
1.00 | 20.00 | ||||||
Ghana |
25.00 | 80.00 | ||||||
Greece |
5.00 | 35.00 | ||||||
Hong Kong |
2.00 | 35.00 |
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Country of Settlement |
Safekeeping & Administration |
Transactions (Buys/Sells,
Receive/Deliver Free) |
||||||
Basis Point Fee | Fee per STP Transaction | |||||||
Hungary |
16.00 | 45.00 | ||||||
Iceland |
20.00 | 60.00 | ||||||
India |
12.00 | 45.00 | ||||||
Indonesia |
10.00 | 45.00 | ||||||
Ireland |
1.50 | 25.00 | ||||||
Israel |
16.00 | 45.00 | ||||||
Italy |
1.50 | 25.00 | ||||||
Ivory Coast |
30.00 | 80.00 | ||||||
Japan |
1.25 | 8.00 | ||||||
Jordan |
30.00 | 80.00 | ||||||
Kazakhstan |
30.00 | 80.00 | ||||||
Kenya |
30.00 | 80.00 | ||||||
Korea |
6.50 | 30.00 | ||||||
Kuwait |
35.00 | 80.00 | ||||||
Latvia |
20.00 | 65.00 | ||||||
Lebanon |
30.00 | 80.00 | ||||||
Lithuania |
25.00 | 65.00 | ||||||
Luxembourg |
3.00 | 45.00 | ||||||
Malaysia |
5.00 | 40.00 | ||||||
Malta |
25.00 | 65.00 | ||||||
Mauritius |
30.00 | 80.00 | ||||||
Mexico |
5.00 | 35.00 | ||||||
Morocco |
30.00 | 75.00 | ||||||
Namibia |
30.00 | 80.00 | ||||||
Netherlands |
1.50 | 25.00 | ||||||
New Zealand |
1.50 | 25.00 | ||||||
Nigeria |
30.00 | 55.00 | ||||||
Norway |
1.50 | 20.00 | ||||||
Oman |
30.00 | 80.00 | ||||||
Pakistan |
30.00 | 75.00 | ||||||
Peru |
25.00 | 60.00 | ||||||
Philippines |
7.00 | 45.00 | ||||||
Poland |
16.00 | 55.00 | ||||||
Portugal |
3.00 | 30.00 | ||||||
Qatar |
35.00 | 80.00 | ||||||
Romania |
30.00 | 75.00 | ||||||
Russia |
15.00 | 45.00 | ||||||
Singapore |
4.00 | 40.00 | ||||||
Slovak Republic |
20.00 | 50.00 | ||||||
Slovenia |
25.00 | 50.00 |
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Country of Settlement |
Safekeeping & Administration |
Transactions (Buys/Sells,
Receive/Deliver Free) |
||||||
Basis Point Fee | Fee per STP Transaction | |||||||
South Africa |
4.00 | 35.00 | ||||||
Spain |
1.50 | 25.00 | ||||||
Sri Lanka |
20.00 | 65.00 | ||||||
Sweden |
1.50 | 25.00 | ||||||
Switzerland |
1.50 | 25.00 | ||||||
Taiwan |
9.00 | 45.00 | ||||||
Thailand |
9.00 | 35.00 | ||||||
Tunisia |
35.00 | 65.00 | ||||||
Turkey |
9.00 | 50.00 | ||||||
Ukraine |
30.00 | 80.00 | ||||||
United Arab Emirates |
30.00 | 80.00 | ||||||
United Kingdom |
0.15 | 8.00 | ||||||
United States |
0.06 | 2.50 | ||||||
Uruguay |
30.00 | 65.00 | ||||||
Venezuela |
25.00 | 75.00 | ||||||
Vietnam |
25.00 | 65.00 | ||||||
Zambia |
30.00 | 80.00 | ||||||
Zimbabwe |
30.00 | 80.00 |
U.S. Transaction Fees |
Fee per Transaction | |||
TransactionsDTC |
2.50 | |||
TransactionsFed Book Entry |
2.50 | |||
TransactionsPhysical/Private Placement |
20.00 | |||
PledgeDTC |
2.50 | |||
PledgeFed Book Entry |
2.50 | |||
Futures/Options |
3.00 | |||
U.S. Asset Servicing Transaction Fees |
Fee per Transaction | |||
PaydownsBook Entry |
5.00 | |||
PaydownsPhysical/Private Placement |
5.00 | |||
Other Transaction Fees |
Fee per Transaction | |||
Checks |
7.00 | |||
Wires-Incoming |
0.00 | |||
Wires-Outgoing |
3.50 | |||
Continuous Linked Settlement Transactions (per leg) |
3.50 | |||
Interaccount TransferSecurities (per side) |
2.50 | |||
Interaccount TransferCash (per side) |
3.50 | |||
Memo Posting * |
5.00 | |||
Cancelled Trade (in addition to transaction charge) |
At Market Rate |
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Other Transaction Fees |
Fee per Transaction | |||
Amendments (in addition to transaction charge) |
At Market Rate | |||
Manual Instruction Surcharge (in addition to transaction charge) ** |
20.00 | |||
Electronic Non-STP Surcharge (in addition to transaction charge) *** |
0.00 | |||
Manual Corporate Action Instruction |
20.00 |
* | Memos : This fee is generated when assets that are not custodied or controlled by the Bank are posted to a Funds custody account. The fee includes memos that are posted for repo transactions. Other examples may include non-securitized assets that are requested by a Fund to be posted as an asset to the custody record, such as fund of fund positions, derivatives, bank loans or time deposits. |
** | Manual Instruction Surcharge : This fee will be generated in addition to standard transaction charges for all faxed instructions sent to the Bank. |
*** | Electronic Non-STP Surcharge : This fee will be generated in addition to standard transaction charges for all instructions sent to the Bank that failed STP due to Customers instruction error. |
Proxy Voting Services
Proxy Voting Fees |
Fee per Transaction | |||
Tier A Markets (see list below) |
15.00 | |||
Tier B Markets (see list below) |
35.00 | |||
Tier C Markets (see list below) |
60.00 |
* | No charge if the Funds adviser or sub-adviser instructs ADP directly |
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Proxy Voting Market Tiers |
||||
Tier B Markets |
Tier C Markets |
|||
Austria | Argentina | Turkey | ||
Belgium | Brazil | |||
Clearstream | Bulgaria | All Other | ||
Croatia | Cyprus | |||
Czech Republic | Denmark | |||
Euroclear | Egypt | |||
France | Finland | |||
Germany | Iceland | |||
Greece | Latvia | |||
Hungary | Norway | |||
Italy | Peru | |||
Lebanon | Poland | |||
Netherlands | Romania | |||
Portugal | Slovenia | |||
Saudi Arabia | Sweden | |||
Serbia | Switzerland |
Out-of-pocket and Direct Pass Through Expenses
Recovery of applicable out-of-pocket expenses will be made as of the end of each month. Out-of-pocket expenses include, but are not limited to the following*:
| Custody. Registration/transfer fees will be a pass-through when incurred by Bank. Stamp taxes/duties/script fees will be a pass-through when incurred by Bank. Other pass-through fees include: |
| Account opening fees in the local market(s) |
| Local administrator, legal counsel and tax consultant fees as required |
| Local crossing, transaction, registration and/or depository fees |
| Transportation costs for shipment of physical securities and/or script |
| Translation services, travel and accommodation expenses, legal fee and personal attendance expenses, as required |
| Information, Benchmarking and other Data Licensed Services. These charges include payments to service providers such as Xpedite, Lipper Lana. These charges also include payments to vendors such as Automated Business Development. |
| Archives. Archive charges to include storage, transportation, and recalls of archive boxes. |
| Printing/Copying. These charges include expenses associated with printing copying and fax support. |
* | Additional fee categories may be added in response to future developments, e.g., when new regulations are enacted that result in additional expense to comply with those regulations. |
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Fee Terms and Conditions
Banks fees shall remain in place for a period of 3 years from May 7, 2014.
Bank reserves the right to renegotiate its fee schedule at any time, should the Customers actual investment portfolio and/or trading activity differ significantly from the assumptions used to develop our fee proposal. The fee schedule may also be amended by mutual agreement of the parties if the Customers service requirements change; each party agrees to negotiate, diligently and in good faith, to agree upon new fees for such service requirement changes.
Fees for additional service(s) and/or market(s) added at the request of the Customer while this fee schedule is in effect will be assessed at Banks standard price(s), unless an alternative pricing arrangement is agreed upon in advance by the Customer and Bank.
Bank requires invoices to be paid in U.S. Dollars, unless Bank and the Customer have agreed upon alternative payment arrangements in advance of remittance.
Basis point fee(s), if applicable, will be calculated at the end of the monthly billing period using asset values derived by Bank from data provided by its selected pricing sources. In the event that Bank must rely on the Customer or a portfolio manager or other party(ies) selected by the Customer to provide valuation(s) for the purpose of calculating basis point fee(s), Bank must receive such valuations no later than 30 days after the end of the billing period in a format deemed acceptable by Bank. In the event that Bank does not receive valuations by the required date, Bank will render an invoice using the most recent valuation(s) received for the respective investment(s)/account(s).
Bank will present invoices monthly in arrears, with payment expected via appropriate billing arrangement, unless an alternative billing arrangement is negotiated between the Customer and Bank. All annual fees, including basis point fees, will be pro-rated based on the number of months included in the billing period.
Transaction charges, if applicable, are applied to all securities transactions (including receives/delivers vs. payment and free, securities loans, repurchase agreements, redemptions and corporate actions) effected during the billing period. It is assumed that a Customer and its investment adviser will instruct
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the Bank of trades and other account activity in a mutually agreed electronic format that enables straight-through processing (STP), using the Banks proprietary systems, SWIFT messages, direct electronic transmissions or other means deemed acceptable by the Bank. Transaction instructions that require manual input will incur a surcharge.
Any customized technology projects required to meet the Customer specific requirements, such as non-standard reporting requirements, system interfaces or enhancements, will be billed to the Customer based on the time and materials required to design, develop, test and deliver the project, unless an alternative arrangement is negotiated between the Customer and Bank.
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SCHEDULE D
J.P. Morgan Investor Services Global Custody Restricted Markets Schedule
The following table identifies certain markets that J.P. Morgan has determined to be restricted markets and provides summary information about the nature of the restrictions applicable in each. J.P. Morgan reserves the right to update this Schedule from time to time upon notice to Customer.
Market |
Restrictions |
|
Costa Rica |
Local currency will be held in one or more separate cash accounts that J.P. Morgan opens for the benefit of its customers with J.P. Morgans Costa Rican Subcustodian.
If J.P. Morgans Costa Rican Subcustodian exits the market or becomes an unacceptable provider of subcustody services, J.P. Morgan may cease to provide custody services with respect to Securities that are safekept in Costa Rica. Although J.P. Morgan will work with customers to mitigate the impact of any decision to exit the market, it may not be practicable to give significant advance notice of the exit. |
|
Iceland |
Until further notice from J.P. Morgan, no deposits of Icelandic currency will be held in the Customers Cash Account except for the proceeds of sales of Securities safekept in Iceland (Icelandic Securities) or where income and corporate action proceeds are paid in local currency.
Until further notice from J.P. Morgan, any credit of Icelandic currency to the Customers Cash Account with J.P. Morgan will be conditional and subject to reversal by J.P. Morgan upon notice to Customer except to the extent that the funds are able to be applied at Customers Instruction to the purchase of Icelandic Securities or J.P. Morgan is able to repatriate the funds from J.P. Morgans Icelandic Subcustodian via a foreign exchange transaction (upon Instruction received from Customer). In this regard, Customer will be entitled to no more than Customers pro rata share of any recoveries that J.P. Morgan is able to obtain, as reasonably determined by J.P. Morgan. |
|
Malawi |
Local currency will be held in one or more separate cash accounts that J.P. Morgan opens for the benefit of its customers with J.P. Morgans Malawi Subcustodian.
Due to unclear standards in the Malawi market with respect to the completion and submission of corporate action elections, J.P. Morgan will be subject to a reasonable efforts standard of care with respect to any Corporate Action related to Securities safekept in Malawi (Malawi Securities).
If J.P. Morgans Malawi Subcustodian exits the market or becomes an unacceptable provider of subcustody services, J.P. Morgan may cease to provide custody services with respect to Malawi Securities. Although J.P. Morgan will work with customers to mitigate the impact of any decision to exit the market, it may not be practicable to give significant advance notice of the exit. |
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Market |
Restrictions |
|
Palestinian Territories |
Until further notice from J.P. Morgan, any credit of U.S. Dollars or Jordanian Dinars to the Customers Cash Account with J.P. Morgan applied at Customers Instruction to the purchase or sale of Securities safekept in the Palestinian Territories will be conditional and subject to reversal by J.P. Morgan upon notice to Customer except to the extent that the funds are able to be repatriated or J.P. Morgan is able to repatriate the funds from J.P. Morgans Subcustodian in the Palestinian Territories via a foreign exchange transaction (upon Instruction received from Customer). In this regard, Customer will be entitled to no more than Customers pro rata share of any recoveries that J.P. Morgan is able to obtain, as reasonably determined by J.P. Morgan.
Clients acknowledge that, due to the political uncertainties and ongoing development, issues may arise in the Palestinian Territories in connection with any of the services which the Palestinian Subcustodian is providing under our subcustodian agreement with them. As a result, J.P. Morgan wishes to highlight that there could be disruption in services, and that these disruptions or limitations in service would be considered as force majeure. |
|
Tanzania |
Local currency will be held in one or more separate cash accounts that J.P. Morgan opens for the benefit of its customers with J.P. Morgans Tanzanian Subcustodian.
Due to the unclear standards in the Tanzanian market with respect to the completion and submission of corporate action elections, J.P. Morgan will be subject to a reasonable efforts standard of care with respect to any Corporate Action related to Securities safekept in Tanzania (Tanzanian Securities).
If J.P. Morgans Tanzanian Subcustodian exits the market or becomes an unacceptable provider of subcustody services, J.P. Morgan may cease to provide custody services with respect to Tanzanian Securities. Although J.P. Morgan will work with customers to mitigate the impact of any decision to exit the market, it may not be practicable to give significant advance notice of the exit. |
|
Ukraine (for Ukrainian Equities only) |
Customer should refer to the current version of the applicable J.P. Morgans Ukraine briefing memo regarding the account structure and corporate action nuances of the Ukrainian market.
For client opening accounts in Ukraine and unincorporated client types in particular, due to unclear standards in the Ukrainian market with respect to the completion and submission of corporate action elections, J.P. Morgan will be subject to a reasonable efforts standard of care with respect to any Corporate Action related to equity Securities safekept in Ukraine. |
|
West African Economic and Monetary Union (WAEMU) |
Local currency will be held in one or more separate cash accounts that J.P. Morgan opens for the benefit of its customers with J.P. Morgans WAEMU Subcustodian.
If J.P. Morgans WAEMU Subcustodian exits the market or becomes an unacceptable provider of subcustody services, or if market conditions otherwise deteriorate within one or more of the member states of WAEMU, J.P. Morgan may cease to provide custody services with respect to Securities issued in member states of WAEMU that are settled and safekept at Dépositaire Central/Banque de Règlement S.A. Although J.P. Morgan will work with customers to mitigate the impact of any decision to exit the market, it may not be practicable to give significant advance notice of the exit. |
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Market |
Restrictions |
|
Zimbabwe |
Until further notice from J.P. Morgan, any credit of U.S. Dollars to the Customers Cash Account with J.P. Morgan applied at Customers Instruction to the purchase or sale of Securities safekept in Zimbabwe (the Zimbabwe Securities) will be conditional and subject to reversal by J.P. Morgan upon notice to Customer except to the extent that the funds are able to be repatriated or J.P. Morgan is able to repatriate the funds from J.P. Morgans Zimbabwean Subcustodian via a foreign exchange transaction (upon Instruction received from Customer). In this regard, Customer will be entitled to no more than Customers pro rata share of any recoveries that J.P. Morgan is able to obtain, as reasonably determined by J.P. Morgan.
If J.P. Morgans Zimbabwean Subcustodian exits the market or becomes an unacceptable provider of subcustody services, or if market conditions otherwise deteriorate, J.P. Morgan may cease to provide custody services with respect to Zimbabwe Securities. Although J.P. Morgan will work with customers to mitigate the impact of any decision to exit the market, it may not be practicable to give significant advance notice of the exit. |
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ANNEX A
Electronic Access
1. Bank may permit the Customer and its Authorized Persons to access certain electronic systems and applications (collectively, the Products) and to access or receive electronically Data (as defined below) in connection with the Agreement. Bank may, from time to time, introduce new features to the Products or otherwise modify or delete existing features of the Products in its sole discretion. Bank shall endeavor to give the Customer reasonable notice of its termination or suspension of access to the Products, but may do so immediately if Bank determines, in its sole discretion, that providing access to the Products would violate Applicable Law or that the security or integrity of the Products is at risk. Access to the Products shall be subject to the Security Procedures.
2. In consideration of the fees paid by the Customer to Bank and subject to any applicable software license addendum in relation to Bank-owned or sublicensed software provided for a particular application and Applicable Law, Bank grants to the Customer a non-exclusive, non-transferable, limited and revocable license to use the Products and the information and data made available through the Products or transferred electronically (the Data) for the Customers internal business use only. The immediately preceding sentence does not apply to the records described in Section 2.13 of the Agreement. The Customer may download the Data and print out hard copies for its reference, provided that it does not remove any copyright or other notices contained therein. The license granted herein will permit use by the Customers Authorized Person, provided that such use shall be in compliance with the Agreement, including this Annex. The Customer acknowledges that elements of the Data, including prices, corporate action information, and reference data, may have been licensed by Bank from third parties and that any use of such Data beyond that authorized by the foregoing license, may require the permission of one or more third parties in addition to Bank.
3. The Customer acknowledges that there are security, corruption, transaction error and access availability risks associated with using open networks such as the internet, and the Customer hereby expressly assumes such risks. The Customer is solely responsible for obtaining, maintaining and operating all software (including antivirus software, anti-spyware software, and other internet security software) and personnel necessary for the Customer to access and use the Products. All such software must be interoperable with Banks software. Each of the Customer and Bank shall be responsible for the proper functioning, maintenance and security of its own systems, services, software and other equipment.
4. In cases where Banks web site is unexpectedly down or otherwise unavailable, Bank shall, absent a force majeure event, provide other appropriate means for the Customer or its Authorized Persons to instruct Bank or obtain reports from Bank. Bank shall not be liable for any Liabilities arising out of the Customers use of, access to or inability to use the Products via Banks web site in the absence of Banks gross negligence or willful misconduct.
5. Use of the Products may be monitored, tracked, and recorded. In using the Products, the Customer hereby expressly consents to such monitoring, tracking, and recording. Individuals and organizations should have no expectation of privacy unless local law, regulation, or contract provides otherwise. Bank shall own all right, title and interest in the data reflecting the Customer usage of the Products or Banks web site (including, but not limited to, general usage data and aggregated transaction data). Bank may use and sublicense data obtained by it regarding the Customers use of the Products or Banks website, as long as Bank does not disclose to others that the Customer was the source of such data or the details of individual transactions effected using the Products or web site.
6. The Customer shall not knowingly use the Products to transmit (i) any virus, worm, or destructive element or any programs or data that may be reasonably expected to interfere with or disrupt the Products or servers connected to the Products; (ii) material that violates the rights of another, including but not limited to the intellectual property rights of another; and (iii) junk mail, spam, chain letters or unsolicited mass distribution of e-mail.
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7. The Customer shall promptly and accurately designate in writing to Bank the geographic location of its users upon written request. The Customer further represents and warrants to Bank that the Customer shall not access the service from any jurisdiction which Bank informs the Customer or where the Customer has actual knowledge that the service is not authorized for use due to local regulations or laws, including applicable software export rules and regulations. Prior to submitting any document which designates the persons authorized to act on the Customers behalf, the Customer shall obtain from each individual referred to in such document all necessary consents to enable Bank to process the data set out therein for the purposes of providing the Products.
8. The Customer will be subject to and shall comply with all applicable laws, rules and regulations concerning restricting collection, use, disclosure, processing and free movement of the Data (collectively, the Privacy Regulations). The Privacy Regulations may include, as applicable, the Federal Privacy of Consumer Financial Information Regulation (12 CFR Part 30), as amended from time to time, issued pursuant to Section 504 of the Gramm-Leach-Bliley Act of 1999 (15 U.S.C. §6801, et seq.), the Health and Insurance Portability and Accountability Act of 1996 (42 U.S.C. §1320d), The Data Protection Act 1998 and Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to processing of personal data and the free movement of such data.
9. The Customer shall be responsible for the compliance of its Authorized Persons with the terms of the Agreement, including this Annex.
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APPENDIX 1
Information Regarding Country Risk
1. | To aid Customer in its determinations regarding Country Risk, J.P. Morgan shall furnish annually, and upon the initial placing of Financial Assets and cash into a country, the following information: |
A. | Opinions of local counsel concerning: |
i. | Whether applicable foreign law would restrict the access of Customers independent public accountants to books and records kept by an Eligible Foreign Custodian located in that country which pertain to the Customers account. |
ii. | Whether applicable foreign law would restrict Customers ability to recover its Financial Assets and cash in the event of the bankruptcy of an Eligible Foreign Custodian located in that country. |
iii. | Whether applicable foreign law would restrict Customers ability to recover Financial Assets that are lost while under the control of an Eligible Foreign Custodian located in the country. |
iv. | Whether applicable foreign law would restrict the Customers right as foreign investors to convert Customers cash or cash equivalents into U.S. dollars which have not yet been invested in securities. |
B. | A market profile with respect to the following topics: |
(i) | securities regulatory environment, (ii) foreign ownership restrictions, (iii) foreign exchange, (iv) securities settlement and registration, (v) taxation, and (vi) securities depositories (including depository risk assessment), if any. |
2. | To aid Customer in monitoring Country Risk, J.P. Morgan shall furnish the following additional information: |
NewsFlashes, including with respect to changes in the information in market profiles
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APPENDIX 2
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AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
MARKET | SUBCUSTODIAN | CASH CORRESPONDENT BANK | ||
ARGENTINA | HSBC Bank Argentina S.A. | HSBC Bank Argentina S.A. | ||
Avenida Martin Garcia 464, 2nd Floor | Buenos Aires | |||
C1106ABJ Buenos Aires | ||||
ARGENTINA | ||||
AUSTRALIA | JPMorgan Chase Bank, N.A.** | Australia and New Zealand Banking Group Ltd. | ||
L18, 85 Castlereagh Street | Melbourne | |||
Sydney NSW 2000 | ||||
AUSTRALIA | ||||
AUSTRIA | UniCredit Bank Austria AG | J.P. Morgan AG** | ||
Julius Tandler Platz3 | Frankfurt | |||
A-1090 Vienna | ||||
AUSTRIA | ||||
BAHRAIN | HSBC Bank Middle East Limited | HSBC Bank Middle East Limited | ||
1st Floor, Building No 2505, Road No 2832 | Al Seef | |||
Al Seef 428 | ||||
BAHRAIN | ||||
BANGLADESH | Standard Chartered Bank | Standard Chartered Bank | ||
18-20 Motijheel C.A | Dhaka | |||
Box 536 | ||||
Dhaka -1000 | ||||
BANGLADESH | ||||
BELGIUM | BNP Paribas Securities Services S.C.A. | J.P. Morgan A.G.** | ||
Boulevard Louis Schmidt 2 | Frankfurt | |||
3rd Floor | ||||
1040 Brussels | ||||
BELGIUM | ||||
BERMUDA | HSBC Bank Bermuda Limited | HSBC Bank Bermuda Limited | ||
6 Front Street | Hamilton | |||
Hamilton HM 11 | ||||
BERMUDA | ||||
BOTSWANA | Standard Chartered Bank Botswana Limited | Standard Chartered Bank Botswana Limited | ||
5th Floor, Standard House | Gaborone | |||
P.O. Box 496 | ||||
Queens Road, The Mall | ||||
Gaborone | ||||
BOTSWANA | ||||
BRAZIL | J.P. Morgan S.A. DTVM** | J.P. Morgan S.A. DTVM** | ||
Rua Dr. Renato Paes de Barros, 1017, Floor 9 | Sao Paulo | |||
Sao Paulo SP 04530-001 | ||||
BRAZIL | ||||
BULGARIA | ING Bank N.V. | ING Bank N.V. | ||
49B Bulgaria Blvd | Sofia | |||
Sofia 1404 | ||||
BULGARIA |
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** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
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AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
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** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
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AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
MARKET | SUBCUSTODIAN | CASH CORRESPONDENT BANK | ||
DENMARK | Nordea Bank Danmark A/S | Nordea Bank Danmark A/S | ||
Christiansbro | Copenhagen C | |||
Strandgade 3 | ||||
P.O. Box 850 | ||||
DK-0900 Copenhagen C | ||||
DENMARK | ||||
EGYPT | Citibank, N.A. | Citibank, N.A. | ||
4 Ahmed Pasha Street | Cairo | |||
Garden City | ||||
Cairo | ||||
EGYPT | ||||
ESTONIA | Swedbank AS | J.P. Morgan AG** | ||
Liivalaia 8 | Frankfurt | |||
15040 Tallinn | ||||
ESTONIA | ||||
FINLAND | Nordea Bank Finland Plc | J.P. Morgan AG** | ||
Aleksis Kiven katu 3-5 | Frankfurt | |||
FIN-00020 NORDEA Helsinki | ||||
FINLAND | ||||
FRANCE | BNP Paribas Securities Services S.C.A. | J.P. Morgan AG** | ||
Les Grands Moulins de Pantin | Frankfurt | |||
9, rue du Debarcadere | ||||
93500 Pantin | ||||
FRANCE | ||||
GERMANY | Deutsche Bank AG | J.P. Morgan AG** | ||
Alfred-Herrhausen-Allee 16-24 | Frankfurt | |||
D-65760 Eschborn | ||||
GERMANY | ||||
J.P. Morgan AG#** | ||||
Junghofstrasse 14 | ||||
60311 Frankfurt | ||||
GERMANY | ||||
# Custodian for local German custody clients only. | ||||
GHANA | Standard Chartered Bank Ghana Limited | Standard Chartered Bank Ghana Limited | ||
Accra High Street | Accra | |||
P.O. Box 768 | ||||
Accra | ||||
GHANA | ||||
GREECE | HSBC Bank plc | J.P. Morgan AG** | ||
Messogion 109-111 | Frankfurt | |||
11526 Athens | ||||
GREECE | ||||
HONG KONG | JPMorgan Chase Bank, N.A.** | JPMorgan Chase Bank, N.A.** | ||
48th Floor, One Island East | ||||
18 Westlands Road, Quarry Bay | ||||
HONG KONG |
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** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
49
AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
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** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
50
AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
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** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
51
AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
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** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
52
AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
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** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
53
AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
MARKET | SUBCUSTODIAN | CASH CORRESPONDENT BANK | ||
SERBIA | Unicredit Bank Srbija a.d. | Unicredit Bank Srbija a.d. | ||
Airport City Belgrade | Belgrade | |||
Omladinskih Brigada 88 | ||||
11070 Belgrade | ||||
SERBIA | ||||
SINGAPORE | DBS Bank Ltd | Oversea-Chinese Banking Corporation | ||
10 Toh Guan Road | Singapore | |||
DBS Asia Gateway, Level 04-11 (4B) | ||||
608838 | ||||
SINGAPORE | ||||
SLOVAK REPUBLIC | UniCredit Bank Czech Republic and Slovakia, a.s. | J.P. Morgan AG** | ||
Sancova 1/A | Frankfurt | |||
SK-813 33 Bratislava | ||||
SLOVAK REPUBLIC | ||||
SLOVENIA | UniCredit Banka Slovenija d.d. | J.P. Morgan AG** | ||
Smartinska 140 | Frankfurt | |||
SI-1000 Ljubljana | ||||
SLOVENIA | ||||
SOUTH AFRICA | FirstRand Bank Limited | The Standard Bank of South Africa Limited | ||
1 Mezzanine Floor, 3 First Place, Bank City | Johannesburg | |||
Cnr Simmonds and Jeppe Streets | ||||
Johannesburg 2001 | ||||
SOUTH AFRICA | ||||
SOUTH KOREA | Standard Chartered Bank Korea Limited | Standard Chartered Bank Korea Limited | ||
47 Jongro, Jongro -Gu | Seoul | |||
Seoul 110-702 | ||||
SOUTH KOREA | ||||
SPAIN | Santander Investment S.A. | J.P. Morgan AG** | ||
Ciudad Grupo Santander | Frankfurt | |||
Avenida de Cantabria, s/n | ||||
Edificio Ecinar, planta baja | ||||
Boadilla del Monte | ||||
28660 Madrid | ||||
SPAIN | ||||
SRI LANKA | The Hongkong and Shanghai Banking Corporation Limited | The Hongkong and Shanghai Banking Corporation Limited | ||
24 Sir Baron Jayatillaka Mawatha | Colombo | |||
Colombo 1 | ||||
SRI LANKA | ||||
SWEDEN | Nordea Bank AB (publ) | Svenska Handelsbanken | ||
Hamngatan 10 | Stockholm | |||
SE-105 71 Stockholm | ||||
SWEDEN | ||||
SWITZERLAND | UBS AG | UBS AG | ||
45 Bahnhofstrasse | Zurich | |||
8021 Zurich | ||||
SWITZERLAND |
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** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
54
AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
EXECUTION
** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
55
AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
MARKET | SUBCUSTODIAN | CASH CORRESPONDENT BANK | ||
UNITED ARAB EMIRATESDFM |
HSBC Bank Middle East Limited | The National Bank of Abu Dhabi | ||
Emaar Square, Level 3, Building No. 5 | Abu Dhabi | |||
P.O. Box 502601 | ||||
Dubai | ||||
UNITED ARAB EMIRATES | ||||
UNITED ARAB EMIRATESNASDAQ DUBAI |
HSBC Bank Middle East Limited | J.P. Morgan Chase Bank, N.A. | ||
Emaar Square, Level 3, Building No. 5 | New York | |||
P.O. Box 502601 | A/C JPMorgan Chase Bank London | |||
Dubai | ||||
UNITED ARAB EMIRATES | ||||
UNITED KINGDOM | JPMorgan Chase Bank, N.A.** | JPMorgan Chase Bank, N.A.** | ||
25 Bank Street, Canary Wharf | London | |||
London E14 5JP | ||||
UNITED KINGDOM | ||||
Deutsche Bank AG Depository and Clearing | Varies by currency | |||
Centre | ||||
10 Bishops Square | ||||
London E1 6EG | ||||
UNITED KINGDOM | ||||
UNITED STATES | J.P. Morgan Chase Bank, N.A.** | J.P. Morgan Chase Bank, N.A.** | ||
4 New York Plaza | New York | |||
New York NY 10004 | ||||
UNITED STATES | ||||
URUGUAY | Banco Itaú Uruguay S.A. | Banco Itaú Uruguay S.A. | ||
Zabala 1463 | Montevideo | |||
11000 Montevideo | ||||
URUGUAY | ||||
VENEZUELA | Citibank, N.A. | Citibank, N.A. | ||
Avenida Casanova | Caracas | |||
Centro Comercial El Recreo | ||||
Torre Norte, Piso 19 | ||||
Caracas 1050 | ||||
VENEZUELA | ||||
VIETNAM | HSBC Bank (Vietnam) Ltd. | HSBC Bank (Vietnam) Ltd. | ||
Centre Point | Ho Chi Minh City | |||
106 Nguyen Van Troi Street | ||||
Phu Nhuan District | ||||
Ho Chi Minh City | ||||
VIETNAM | ||||
*WAEMUBENIN, BURKINA FASO, GUINEA-BISSAU, IVORY COAST, MALI, NIGER, SENEGAL, TOGO* |
Standard Chartered Bank Cote dIvoire SA 23 Boulevard de la Republique 1 01 B.P. 1141 Abidjan 17 IVORY COAST |
Standard Chartered Bank Cote dIvoire SA Abidjan |
||
*RESTRICTED SERVICE ONLY. PLEASE CONTACT YOUR RELATIONSHIP MANAGER FOR FURTHER INFORMATION* |
EXECUTION
** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
56
AGENT AND CASH NETWORK (CUSTODY & FUND SERVICES) |
|
|
Last Updated April 01, 2014 |
MARKET | SUBCUSTODIAN | CASH CORRESPONDENT BANK | ||
ZAMBIA | Standard Chartered Bank Zambia Plc | Standard Chartered Bank Zambia Plc | ||
Standard Chartered House | Lusaka | |||
Cairo Road | ||||
P.O. Box 32238 | ||||
Lusaka 10101 | ||||
ZAMBIA | ||||
*ZIMBABWE* | Stanbic Bank Zimbabwe Limited | Stanbic Bank Zimbabwe Limited | ||
Stanbic Centre, 3rd Floor | Harare | |||
59 Samora Machel Avenue | ||||
Harare | ||||
ZIMBABWE | ||||
*RESTRICTED SERVICE ONLY. PLEASE CONTACT YOUR RELATIONSHIP MANAGER FOR FURTHER INFORMATION* |
This document is for information only and its contents are subject to change. This document is intended neither to influence your investment decisions nor to amend or supplement any agreement governing your relations with J.P. Morgan. Neither this document nor any of its contents may be disclosed to any third party or used for any other purpose without the proper written consent of J.P. Morgan. J.P. Morgan has gathered the information from a source it considers reliable, however, it cannot be responsible for inaccuracies, incomplete information or updating of the information furnished hereby.
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** J.P. Morgan affiliate | Correspondent banks are listed for information only. |
57
APPENDIX 3
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58
SECURITIES DEPOSITORIES |
|
|
Last Updated April 01, 2014 |
MARKET | DEPOSITORY | INSTRUMENTS | ||
ARGENTINA | CVSA | Equity, Corporate Debt, Government Debt | ||
(Caja de Valores S.A.) | ||||
AUSTRALIA | ASX Settlement | Equity | ||
(ASX Settlement Pty Limited) | ||||
Austraclear | Corporate Debt, Government Debt | |||
(Austraclear Limited) | ||||
AUSTRIA | OeKB | Equity, Corporate Debt, Government Debt | ||
(Oesterreichische Kontrollbank AG) | ||||
BAHRAIN | CSD | Equity, Corporate Debt | ||
(Bahrain BourseSettlement and Central Depository) | ||||
BANGLADESH | CDBL | Equity, Corporate Debt | ||
(Central Depository Bangladesh Limited) | ||||
BELGIUM | Euroclear Belgium | Equity, Corporate Debt | ||
(Euroclear Belgium SA/NV) | ||||
NBB | Corporate Debt, Government Debt | |||
(The National Bank of Belgium) | ||||
BERMUDA | BSD | Equity, Corporate Debt, Government Debt | ||
(Bermuda Stock ExchangeBermuda Securities | ||||
Depository) | ||||
BOTSWANA | BoB | Government Debt | ||
(Bank of Botswana) | ||||
CSDB | Equity, Corporate Debt | |||
(Central Securities Depository of Botswana Ltd) | ||||
BRAZIL | BM&FBOVESPA | Equity | ||
(BM&FBOVESPA S.A.Bolsa de Valores Mercadorias e FuturosCentral Depository) |
||||
CETIP | Corporate Debt | |||
(Central de Custódia e Liquidação Financeira de Títulos Privados) |
||||
SELIC | Government Debt | |||
(Banco Central do BrasilSistema Especial de Liquidacao e Custodia) |
||||
BULGARIA | CDAD | Equity, Corporate Debt | ||
(Central Depository AD) | ||||
BNB | Government Debt | |||
(Bulgarian National Bank) | ||||
CANADA | CDS | Equity, Corporate Debt, Government Debt | ||
(CDS Clearing and Depository Services Inc.) |
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59
SECURITIES DEPOSITORIES |
|
|
Last Updated April 01, 2014 |
MARKET | DEPOSITORY | INSTRUMENTS | ||
CHILE | DCV | Equity, Corporate Debt, Government Debt | ||
(Depósito Central de Valores S.A.) | ||||
CHINA A-SHARE | CSDCC | Equity, Corporate Debt, Government Debt | ||
(China Securities Depository and Clearing Corporation Limited) |
||||
CHINA B-SHARE | CSDCC | Equity | ||
(China Securities Depository and Clearing Corporation Limited) |
||||
COLOMBIA | DCV | Government Debt | ||
(Banco de la Républica de ColombiaDepósito Central de Valores) |
||||
DECEVAL | Equity, Corporate Debt, Government Debt | |||
(Depósito Centralizado de Valores de Colombia S.A.) | ||||
COSTA RICA | CEVAL | Equity, Corporate Debt, Government Debt | ||
(Central de Valores de la Bolsa Nacional de Valores, S.A.) | ||||
CROATIA | SKDD | Equity, Corporate Debt, Government Debt | ||
(Sredinje klirinko depozitarno drutvo d.d.) | ||||
CYPRUS | CDCR | Equity, Corporate Debt, Government Debt | ||
(Cyprus Stock ExchangeCentral Depository and Central Registry) | ||||
CZECH REPUBLIC | CNB | Short-Term Corporate Debt, Short-Term Government Debt | ||
(Ceska národní banka) | ||||
CDCP | Equity, Long-Term Corporate Debt, Long-Term Government Debt | |||
(Centrální depozitár cenných papíru, a.s.) | ||||
DENMARK | VP | Equity, Corporate Debt, Government Debt | ||
(VP Securities A/S) | ||||
EGYPT | MCDR | Equity, Corporate Debt, Treasury Bonds | ||
(Misr for Central Clearing, Depository and Registry) | ||||
CBE | Treasury Bills | |||
(Central Bank of Egypt) | ||||
ESTONIA | ECSD | Equity, Corporate Debt, Government Debt | ||
(Eesti Väärtpaberikeskus AS) | ||||
FINLAND | Euroclear Finland | Equity, Corporate Debt, Government Debt | ||
(Euroclear Finland Oy) | ||||
FRANCE | Euroclear France | Equity, Corporate Debt, Government Debt | ||
(Euroclear France SA) | ||||
GERMANY | CBF | Equity, Corporate Debt, Government Debt | ||
(Clearstream Banking AG) |
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60
SECURITIES DEPOSITORIES |
|
|
Last Updated April 01, 2014 |
MARKET | DEPOSITORY | INSTRUMENTS | ||
GHANA | CSD | Equity, Corporate Debt, Government Debt | ||
(Central Securities Depository (GH) Ltd.) |
||||
GREECE | BoG | Government Debt | ||
(Bank of Greece) |
||||
HCSD | Equity, Corporate Debt | |||
(Hellenic Central Securities Depository) |
||||
HONG KONG | HKSCC | Equity, Corporate Debt, Government Debt | ||
(Hong Kong Securities Clearing Company Limited) |
||||
CMU | Corporate Debt, Government Debt | |||
(Hong Kong Monetary AuthorityCentral Moneymarkets Unit) |
||||
HUNGARY | KELER | Equity, Corporate Debt, Government Debt | ||
(Központi Elszámolóház és Értéktár (Budapest) Zrt.) |
||||
ICELAND | ISD | Equity, Corporate Debt, Government Debt | ||
(Verðbréfaskráning Íslands hf.) |
||||
INDIA | NSDL | Equity, Corporate Debt | ||
(National Securities Depository Limited) |
||||
CDSL | Equity, Corporate Debt | |||
(Central Depository Services (India) Limited) |
||||
RBI |
Government Debt | |||
(Reserve Bank of India) |
||||
INDONESIA | KSEI | Equity, Corporate Debt, Government Debt* | ||
(PT Kustodian Sentral Efek Indonesia) |
(*acts as sub-registry) | |||
BI |
Government Debt | |||
(Bank Indonesia) |
||||
INTERNATIONAL SECURITIES MARKET |
Euroclear Bank
(Euroclear Bank SA/NV) |
Internationally Traded Debt, Equity | ||
CBL |
Internationally Traded Debt, Equity | |||
(Clearstream Banking S.A.) |
||||
IRELAND | EUI | Equity, Corporate Debt | ||
(Euroclear UK & Ireland Limited) |
||||
ISRAEL | TASE-CH | Equity, Corporate Debt, Government Debt | ||
(Tel Aviv Stock Exchange Clearing House Ltd) |
||||
ITALY | Monte Titoli | Equity, Corporate Debt, Government Debt | ||
(Monte Titoli S.p.A.) |
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61
SECURITIES DEPOSITORIES |
|
|
Last Updated April 01, 2014 |
MARKET | DEPOSITORY | INSTRUMENTS | ||
JAPAN | JASDEC | Equity, Corporate Debt | ||
(Japan Securities Depository Center, Incorporated) |
||||
BOJ |
Government Debt | |||
(Bank of Japan) |
||||
JORDAN |
SDC |
Equity, Corporate Debt | ||
(Securities Depository Center) |
||||
KAZAKHSTAN | KACD | Equity, Corporate Debt, Government Debt | ||
(Central Securities Depository Joint-Stock Company) |
||||
KENYA | CBCD | Government Debt | ||
(Central Bank of KenyaCentral Depository System) |
||||
CDSC |
Equity, Corporate Debt | |||
(Central Depository and Settlement Corporation |
||||
Limited) | ||||
KUWAIT | KCC | Equity, Corporate Debt | ||
(The Kuwait Clearing Company S.A.K.) |
||||
LATVIA | LCD | Equity, Corporate Debt, Government Debt | ||
(Latvian Central Depository) |
||||
LEBANON | BDL | Government Debt | ||
(Banque du Liban) |
||||
MIDCLEAR |
Equity, Corporate Debt | |||
(Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East S.A.L.) |
||||
LITHUANIA | CSDL | Equity, Corporate Debt, Government Debt | ||
(Central Securities Depository of Lithuania) |
||||
LUXEMBOURG | CBL | Equity, Corporate Debt, Government Debt | ||
(Clearstream Banking S.A.) |
||||
MALAYSIA | Bursa Depository | Equity, Corporate Debt | ||
(Bursa Malaysia Depository Sdn Bhd) |
||||
BNM |
Government Debt | |||
(Bank Negara Malaysia) |
||||
MAURITIUS | CDS | Equity, Corporate Debt | ||
(Central Depository & Settlement Co. Ltd) |
||||
BOM |
Government Debt | |||
(Bank of Mauritius) |
||||
MEXICO | Indeval | Equity, Corporate Debt, Government Debt | ||
(S.D. Indeval S.A. de C.V. ) |
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62
SECURITIES DEPOSITORIES |
|
|
Last Updated April 01, 2014 |
MARKET | DEPOSITORY | INSTRUMENTS | ||
MOROCCO | Maroclear | Equity, Corporate Debt, Government Debt | ||
(Maroclear) |
||||
NETHERLANDS | Euroclear Nederland | Equity, Corporate Debt, Government Debt | ||
(Euroclear Nederland) |
||||
NEW ZEALAND | NZCSD | Equity, Corporate Debt, Government Debt | ||
(New Zealand Central Securities Depository Limited) |
||||
NIGERIA | CSCS | Equity, Corporate Debt | ||
(Central Securities Clearing System Plc) |
||||
CBN | Government Debt | |||
(Central Bank of Nigeria) |
||||
NORWAY | VPS | Equity, Corporate Debt, Government Debt | ||
(Verdipapirsentralen ASA) |
||||
OMAN | MCD | Equity, Corporate Debt, Government Debt | ||
(Muscat Clearing and Depository Co. (S.A.O.C)) |
||||
PAKISTAN | SBP | Government Debt | ||
(State Bank of Pakistan) |
||||
CDC | Equity, Corporate Debt | |||
(Central Depository Company of Pakistan Limited) | ||||
PALESTINIAN TERRITORIES |
CDS
(Palestine ExchangeClearing, Depository and Settlement Center) |
Equity | ||
PERU | CAVALI | Equity, Corporate Debt, Government Debt | ||
(CAVALI S.A. I.C.L.V.) | ||||
PHILIPPINES | PDTC | Equity, Corporate Debt | ||
(Philippine Depository and Trust Corporation) | ||||
RoSS | Government Debt | |||
(Registry of Scripless Securities) | ||||
POLAND | NDS | Equity, Long-Term Government Debt | ||
(Krajowy Depozyt Papierów Wartosciowych S.A.) | ||||
RPW | Short-Term Government Debt | |||
(National Bank of PolandRegistry of Securities) | ||||
PORTUGAL | INTERBOLSA | Equity, Corporate Debt, Government Debt | ||
(Sociedade Gestora de Sistemas de Liquidação e de Sistemas Centralizados de Valores Mobiliários, S.A.) | ||||
QATAR | QCSD | Equity, Government Debt | ||
(Qatar Central Securities Depositor) |
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63
SECURITIES DEPOSITORIES |
|
|
Last Updated April 01, 2014 |
MARKET | DEPOSITORY | INSTRUMENTS | ||
ROMANIA | CD S.A. | Equity, Corporate Debt | ||
(Central Depository S.A.) |
||||
NBR | Government Debt | |||
(National Bank of Romania) | ||||
RUSSIA | NSD | Equity, Corporate Debt, Government Debt | ||
(National Settlement Depository) | ||||
SAUDI ARABIA | Tadawul | Equity, Corporate Debt | ||
(The Saudi Stock Exchange (Tadawul) Company Securities Depository Center) | ||||
SAMA | Government Debt | |||
(Saudi Arabian Monetary Agency) | ||||
SERBIA | CSD | Equity, Corporate Debt, Government Debt | ||
(Central Securities Depository and Clearing House) | ||||
SINGAPORE | CDP | Equity, Corporate Debt | ||
(The Central Depository (Pte) Limited) | ||||
MAS | Government Debt | |||
(Monetary Authority of Singapore) | ||||
SLOVAK REPUBLIC | CDCP | Equity, Corporate Debt, Government Debt | ||
(Centrálny depozitár cenných papierov SR, a.s.) | ||||
SLOVENIA | KDD | Equity, Corporate Debt, Government Debt | ||
(Centralna klirinko depotna druba d.d.) | ||||
SOUTH AFRICA | Strate Ltd | Equity, Corporate Debt, Government Debt | ||
(StrateCentral Securities Depository) | ||||
SOUTH KOREA | KSD | Equity, Corporate Debt, Government Debt | ||
(Korea Securities Depository) | ||||
SPAIN | IBERCLEAR | Equity, Corporate Debt, Government Debt | ||
(Sociedad de Sistemas) | ||||
SRI LANKA | CDS | Equity, Corporate Debt | ||
(Central Depository Systems (Pvt.) Ltd.) | ||||
LankaSecure | Government Debt | |||
(LankaSecure) | ||||
SWEDEN | Euroclear Sweden | Equity, Corporate Debt, Government Debt | ||
(Euroclear Sweden AB) | ||||
SWITZERLAND | SIS | Equity, Corporate Debt, Government Debt | ||
(SIX SIS Ltd) |
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64
SECURITIES DEPOSITORIES |
|
|
Last Updated April 01, 2014 |
MARKET | DEPOSITORY | INSTRUMENTS | ||
TAIWAN | TDCC | Equity, Corporate Debt | ||
(Taiwan Depository and Clearing Corporation) | ||||
CBC | Government Debt | |||
(Central Bank of the Republic of China (Taiwan)) | ||||
TANZANIA | CDS | Equity, Corporate Debt | ||
(Dar es Salaam Stock Exchange Central Depository System) | ||||
THAILAND | TSD | Equity, Corporate Debt, Government Debt | ||
(Thailand Securities Depository Company Limited) | ||||
TRINIDAD AND TOBAGO |
TTCD
(Trinidad and Tobago Central Depository Limited) |
Equity, Corporate Debt, Government Debt | ||
TUNISIA | STICODEVAM | Equity, Corporate Debt, Government Debt | ||
(Société Tunisienne Interprofessionnelle pour la Compensation et le Dépôt des Valeurs Mobilières) | ||||
TURKEY | CBRT | Government Debt | ||
(Türkiye Cumhuriyet Merkez Bankasi A.S.) | ||||
CRA | Equity, Corporate Debt, Government Debt | |||
(Merkezi Kayit Kurulusu A.S.) | ||||
UGANDA | CDS | Government Debt | ||
(Bank of UgandaCentral Depository System) | ||||
SCD | Equity, Corporate Debt | |||
(Uganda Securities ExchangeSecurities Central Depository) | ||||
UKRAINE | NDU | Equity, Corporate Debt | ||
(National Depository of Ukraine) | ||||
UNITED ARAB EMIRATESADX |
ADX
(Abu Dhabi Securities Exchange) |
Equity, Corporate Debt, Government Debt | ||
UNITED ARAB EMIRATESDFM |
DFM
(Dubai Financial Market) |
Equity, Corporate Debt, Government Debt | ||
UNITED ARAB EMIRATESNASDAQ DUBAI |
NASDAQ Dubai
(NASDAQ Dubai Limited) |
Corporate Debt | ||
UNITED KINGDOM | EUI | Equity, Corporate Debt, Government Debt | ||
(Euroclear UK & Ireland Limited) | ||||
UNITED STATES | FRB | Government Debt, Mortgage Backed Securities | ||
(Federal Reserve Bank) | ||||
DTC | Equity, Corporate Debt | |||
(Depository Trust Company) |
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65
SECURITIES DEPOSITORIES |
|
|
Last Updated April 01, 2014 |
MARKET | DEPOSITORY | INSTRUMENTS | ||
URUGUAY | BCU | Government Debt | ||
(Banco Central del Uruguay) | ||||
VENEZUELA | CVV | Equity, Corporate Debt | ||
(Caja Venezolana de Valores, S.A.) | ||||
BCV | Government Debt | |||
(Banco Central de Venezuela) | ||||
VIETNAM | VSD | Equity, Corporate Debt, Government Debt | ||
(Vietnam Securities Depository) | ||||
WAEMUBENIN, | DC/BR | Equity, Corporate Debt, Government Debt | ||
BURKINA FASO, | ||||
GUINEA-BISSAU, | (Le Dépositaire Central / Banque de Règlement) | |||
IVORY COAST, | ||||
MALI, NIGER, | ||||
SENEGAL, TOGO | ||||
ZAMBIA | LuSE CSD | Equity, Corporate Debt | ||
(Lusaka Stock Exchange Central Securities Depository) | ||||
BoZ | Government Treasury Bills | |||
(Bank of Zambia) |
||||
ZIMBABWE | Chengetedzai Depository Company | |||
(Chengetedzai Depository Company) |
This document is for information only and its contents are subject to change. This document is intended neither to influence your investment decisions nor to amend or supplement any agreement governing your relations with J.P. Morgan. Neither this document nor any of its contents may be disclosed to any third party or used for any other purpose without the proper written consent of J.P. Morgan. J.P. Morgan has gathered the information from a source it considers reliable, however, it cannot be responsible for inaccuracies, incomplete information or updating of the information furnished hereby.
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66
ADMINISTRATION AGREEMENT
AGREEMENT dated as of the May 9, 2014 by and between J.P. Morgan Exchange-Traded Fund Trust, a Delaware statutory trust (the Trust) on behalf of itself and each for the Funds defined below, each having its principal place of business at 270 Park Avenue, New York, New York 10017, and JPMorgan Funds Management, Inc. (Administrator), a Delaware corporation having its principal place of business at 460 Polaris Parkway, Westerville, Ohio 43082.
WHEREAS, the Trust is an open-end, management investment company registered with the Securities and Exchange Commission (Commission) under the Investment Company Act of 1940, as amended (1940 Act); and
WHEREAS, the Trust desires to retain the Administrator to furnish administrative services to each series of the Trust, all as now or hereafter may be identified on Schedule A hereto as such Schedule may be amended from time to time (Funds); and
NOW, THEREFORE, in consideration of the mutual promises and covenants herein set forth, the parties agree as follows:
ARTICLE 1. Retention of the Administrator . The Trust hereby retains the Administrator to act as the administrator of the Funds and to furnish the Funds with the administrative services as set forth in Article 2 below. The Administrator hereby accepts such employment to perform the duties set forth below. The Administrator shall, for all purposes herein, be deemed to be an independent contractor and, unless otherwise expressly provided or authorized, shall have no authority to act for or represent the Trust in any way and shall not be deemed an agent of the Trust.
ARTICLE 2. Administrative Services . Subject to the direction and control of the Board of Trustees (or Directors) of the Trust (Trustees), the Administrator shall perform or supervise the performance by others of administrative services in connection with the operations of the Funds.
Without limiting the generality of the foregoing, the Administrator shall:
a. | Provide all necessary office facilities (which may be in the offices of the Administrator or an affiliate), equipment, and personnel for handling the affairs of the Funds; |
b. | Subject to supervision by counsel to the Trust, prepare amendments to, file, and maintain the Trusts governing documents, including the Declaration of Trust (or charter as the case may be), the Bylaws, and minutes of meetings of shareholders; |
c. | Provide individuals reasonably acceptable to the Trusts Trustees to serve as officers of the Trust, who will be responsible for the management of certain of the Trusts affairs as determined by the Trusts Trustees; |
d. | Prepare agenda and prepare and compile board materials for all Trustee meetings and review, file, and maintain minutes of meetings of Trustees; |
e. | Provide appropriate personnel for Board of Trustees meetings; |
f. | Subject to supervision by counsel to the Trust, prepare, review and file the Trusts Registration Statement (on Form N-1A, Form N-14 or any replacements therefor), periodic supplements to the Registration Statement, proxy materials and other filings with the Commission; |
g. | Subject to supervision by counsel to the Trust, prepare and file, or supervise the preparation and filing of, Form N-CSR and Form N-Q and provide any sub-certifications which may reasonably be requested by the Trusts Principal Executive Officer or Principal Financial Officer in connection with the required certification of those filings and coordinate receipt of similar sub-certifications from other service providers that provide information to be included in such filings; |
h. | Subject to supervision by counsel to the Trust, prepare or supervise the preparation of, all press releases and notices to the relevant listing exchange, as necessary. |
i. | Prepare and file, or supervise the preparation and filing of, all necessary Blue Sky filings to the extent necessary; |
j. | Prepare and file, or supervise the preparation and filing of, annual Form N-PX; |
k. | Arrange for and coordinate the layout and printing of prospectuses, statements of additional information, semi-annual and annual reports to shareholders, and proxy materials; |
l. | Prepare, with the assistance of the Funds investment adviser, and sub-adviser, as applicable, communications to shareholders; |
m. | Coordinate the mailing of prospectuses, notices, proxy statements, proxies, semi-annual and annual reports to shareholders, and other reports to Trust shareholders, and supervise and facilitate the proxy solicitation process for all shareholder meetings, including the tabulation of shareholder votes; |
n. | Prepare for and conduct shareholder meetings, if necessary; |
o. | Assist with the design, development, and operation of Funds for the Trust, including new classes, investment objectives, policies and structure; |
p. | Prepare semi-annual and annual financial statements; |
q. | Prepare and file periodic reports to shareholders and the Commission on Form N-SAR or any replacement forms therefor; |
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r. | Prepare and file Notices to the Commission required pursuant to Rule 24f-2 of the 1940 Act; |
s. | Compile data for, assist the Trust or its designee in the preparation of, and file, all of the Funds federal and state tax returns and required tax filings other than those required to be made by the Trusts custodian and transfer agent; |
t. | Prepare and distribute year-end shareholder tax information letters and Forms 1099-MISC for trustee fees and vendor payments; |
u. | Identify and track book-tax differences; |
v. | Prepare quarterly tax compliance checklist for use by Fund managers; |
w. | Calculate declaration of income/capital gain distributions in compliance with income/excise tax distribution requirements and ensure that such distributions are not preferential under the Internal Revenue Code; |
x. | Review reports produced by, and the operations and performance of, the various organizations providing services to the Trust or any Fund of the Trust, including, without limitation, the Trusts investment adviser, distributor, custodian, sub-adviser, fund accountant, transfer agent, outside legal counsel, independent public accountants, and other entities providing services to the Trust, and at the request of the Trustees, report to the Trustees on the performance of such organizations; |
y. | Prepare, negotiate, and administer contracts on behalf of the Trust with, among others, the Trusts investment adviser, custodian, fund accountant, shareholder servicing agent, and transfer agent and oversee expense disbursement and any service provider conversions; |
z. | Calculate contractual Trust expenses and control all disbursements for the Trust, and as appropriate compute the Trusts yields, total return, expense ratios, portfolio turnover rate and, if required, portfolio average dollar weighted maturity; |
aa. | Prepare annual Trust expense budget and monthly accrual analyses, perform various expense savings analysis and expense benchmarking analysis; |
bb. | Prepare expense authorizations and review or prepare for management review all invoices for Trust expenses; |
cc. | Calculate performance data of the Funds for dissemination to information service providers covering the investment company industry; |
dd. | Review marketing material to verify that Fund information is accurate; |
ee. | Prepare and file proofs of claims in connection with Class Action notices; |
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ff. | Monitor the Trusts compliance with the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, so as to enable the Trust to maintain its status as a regulated investment company; |
gg. | Monitor the Trusts compliance with all applicable federal securities and other regulatory requirements; |
hh. | Monitor the Trusts compliance with its registration statement; |
ii. | Obtain and keep in effect fidelity bonds and directors and officers/errors and omissions insurance policies for the Trust in accordance with the requirements of Rules 17g-1 and 17d-1(d)(7) under the 1940 Act as such bonds and policies are approved by the Trusts Trustees; |
jj. | Provide information and assistance with inspections by the Commission; |
kk. | Coordinate annual audit activities, including providing information and assistance with respect to audits conducted by the Trusts independent auditors; |
ll. | Assist management with the administration of the trustees deferred compensation plans, if any; |
mm. | Design, implement and maintain a disaster recovery program for the Trusts records; |
nn. | Assist the Trusts Chief Compliance Officer with issues regarding the Trusts compliance program (as approved by the Board of Trustees of the Trust in accordance with Rule 38a-1 under the 1940 Act) as reasonably requested; |
oo. | Administer the implementation and required distribution of the Privacy Policy of the Trust as required under Regulation S-P, as applicable; and |
pp. | Perform all administrative services and functions of the Trust and each Fund to the extent administrative services and functions are not provided to the Trust or such Fund pursuant to the Trusts or such Funds investment advisory agreement, custodian agreement, fund accounting agreement, shareholder servicing agreement, and transfer agent agreement. |
The Administrator shall perform such other administrative services for the Trust that are mutually agreed upon by the parties from time to time.
ARTICLE 3. Additional Services; Delegation . The Administrator may provide additional reports and services upon the request of the Trust or a Funds investment adviser, which may result in an additional charge, the amount of which shall be agreed upon between the parties. The Administrator may delegate some or all of its responsibilities under this Agreement, as provided in Article 9.
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ARTICLE 4. Allocation of Charges and Expenses .
(A) The Administrator . The Administrator shall furnish at its own expense the executive, supervisory and clerical personnel necessary to perform its obligations under this Agreement. The Administrator shall also provide the items which it is obligated to provide under this Agreement, and shall pay all compensation, if any, of officers of the Trust as well as all Trustees of the Trust who are officers or employees of the Administrator or any affiliated company of the Administrator; provided, however, that unless otherwise specifically provided, the Administrator shall not be obligated to pay the compensation of any employee of the Trust retained by the Trustees of the Trust to perform services on behalf of the Trust and provided further that the parties may in the future mutually agree that the Trust may pay all or a portion of the compensation of the Trusts Chief Compliance Officer.
(B) The Trust . The Trust assumes and shall pay or cause to be paid all other expenses of the Trust not otherwise allocated herein, including, without limitation, organization costs, taxes, fees and expenses for legal and auditing services, fees and expenses of pricing services, transfer agency fees and expenses, the expenses of preparing (including typesetting), printing and mailing reports, prospectuses, statements of additional information, proxy solicitation material and notices to existing shareholders, all expenses incurred in connection with issuing and redeeming shares, the cost of custodial services, the cost of initial and ongoing registration of the shares under Federal and state securities laws, fees and out-of-pocket expenses of Trustees who are not officers or employees of the Administrator, the Distributor, or the Investment Adviser to the Trust or any affiliated company of the Administrator, the Distributor, or the Investment Adviser, insurance, interest, brokerage costs, litigation and other extraordinary or nonrecurring expenses, and all fees and charges of investment advisers to the Trust.
ARTICLE 5. Compensation of the Administrator .
(A) Administration Fee . In consideration of the services rendered, the facilities furnished and the expenses assumed by the Administrator pursuant to this Agreement, the Trust shall pay the Administrator compensation at an annual rate specified in Schedule A attached hereto. Such compensation shall be calculated and accrued daily, and paid to the Administrator on the first business day of each month, or at such time(s) as the Administrator shall request and the parties hereto shall agree. The Trust shall also reimburse the Administrator for its reasonable out-of-pocket expenses, including the travel and lodging expenses incurred by officers and employees of the Administrator in connection with attendance at Trustee meetings. If this Agreement terminates before the last day of a month, the Administrators compensation for that part of the month in which this Agreement is in effect shall be prorated according to the proportion which such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to the Administrator, the value of net assets of a particular Fund shall be computed in the manner described in the Trusts registration statement for the computation of the Trusts net assets in connection with the determination of the net asset value of the Trusts shares.
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(B) Survival of Compensation Rights . All rights of compensation under this Agreement for services performed as of the termination date shall survive the termination of this Agreement.
ARTICLE 6. Limitation of Liability of the Administrator . The duties of the Administrator shall be confined to those expressly set forth herein, and no implied duties are assumed by or may be asserted against the Administrator hereunder. The Administrator shall not be liable for any error of judgment or mistake of law or for any loss arising out of any act or omission in carrying out its duties hereunder, except a loss resulting from willful misfeasance, bad faith or negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder, except as may otherwise be provided under provisions of applicable law which cannot be waived or modified hereby. Any person, even though also an employee, or agent of the Administrator, who may be or become an officer, Trustee, employee or agent of the Trust or the Funds shall be deemed when acting in that capacity, when rendering services to the Trust or the Funds, or acting on any business of that party, to be rendering such services to or acting solely for that party and not as a partner, employee, or agent or one under the control or direction of the Administrator even though paid by it.
So long as the Administrator acts in good faith and with due diligence and without willful misfeasance, bad faith or negligence in the performance of its duties or without reckless disregard of its obligations and duties hereunder, the Trust, on behalf of each Fund, assumes full responsibility and shall indemnify the Administrator, its employees, agents, directors, officers and nominees and hold them harmless from and against any and all actions, suits and claims, whether groundless or otherwise, and from and against any and all losses, damages, costs, charges, reasonable counsel fees and disbursements, payments, expenses and liabilities (including reasonable investigation expenses) arising directly or indirectly out of the Administrators actions taken or non-actions with respect to the performance of services hereunder. The indemnity and defense provisions set forth herein shall indefinitely survive the termination of this Agreement.
The Administrator shall indemnify the Trust, its employees, agents, directors, officers and nominees and hold them harmless from and against any and all actions, suits and claims, whether groundless or otherwise, and from and against any and all losses, damages, costs, charges, reasonable counsel fees and disbursements, payments, expenses and liabilities (including reasonable investigation expenses) arising directly out of the Administrators actions taken or non-actions with respect to the performance of services hereunder to the extent that the Administrator does not act in good faith or acts with willful misfeasance, bad faith or negligence in the performance of its duties or with reckless disregard of its obligations and duties hereunder. The indemnity and defense provisions set forth herein shall indefinitely survive the termination of this Agreement.
Under no circumstances will the Administrator be liable for any indirect, incidental, consequential or special damages (including, without limitation, lost profits) of any form, whether or not foreseeable and regardless of the type of action in which such a claim may be brought, with respect to the Administrators performance hereunder.
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The rights hereunder shall include the right to reasonable advances of defense expenses in the event of any pending or threatened litigation with respect to which indemnification hereunder may ultimately be merited. In order that the indemnification provision contained herein shall apply, however, it is understood that if in any case the Trust may be asked to indemnify or hold the Administrator harmless, the Trust shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Administrator will use all reasonable care to identify and notify the Trust promptly concerning any situation which presents or appears likely to present the probability of such a claim for indemnification against the Trust, but failure to do so in good faith shall not affect the rights hereunder.
The Trust shall be entitled to participate at its own expense or, if it so elects, to assume the defense of any suit brought to enforce any claims subject to this indemnity provision. If the Trust elects to assume the defense of any such claim, the defense shall be conducted by counsel chosen by the Trust and satisfactory to the Administrator, whose approval shall not be unreasonably withheld. In the event that the Trust elects to assume the defense of any suit and retain counsel, the Administrator shall bear the fees and expenses of any additional counsel retained by it. If the Trust does not elect to assume the defense of a suit, it will reimburse the Administrator for the reasonable fees and expenses of any counsel retained by the Administrator.
The Administrator may apply to the Trust at any time for instructions and may consult counsel for the Trust or its own counsel and with accountants and other experts with respect to any matter arising in connection with the Administrators duties, and the Administrator shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with such instruction or with the opinion of such counsel, accountants or other experts.
The Administrator shall be protected in acting upon any document which it reasonably believes to be genuine and to have been signed or presented by the proper person or persons. The Administrator will not be held to have notice of any change of authority of any officers, employees or agents of the Trust until receipt of written notice thereof from the Trust.
ARTICLE 7. Activities of the Administrator . The services of the Administrator rendered to the Trust are not to be deemed to be exclusive. The Administrator is free to render such services to others and to have other businesses and interests. It is understood that trustees, officers, employees and shareholders of the Trust are or may be or become interested in the Administrator, as officers, employees or otherwise and that partners, officers and employees of the Administrator and its counsel are or may be or become similarly interested in the Trust, and that the Administrator may be or become interested in the Trust as an owner of Trust shares or otherwise.
ARTICLE 8. Term . This Agreement shall become effective May 9, 2014 and, unless sooner terminated as provided herein, shall continue until April 30, 2016. Thereafter, if not terminated, this Agreement shall continue automatically for successive one year terms, provided that such continuance is specifically approved at least annually by the vote of a majority of those members of the Trusts Board of Trustees who are not parties to this Agreement or interested persons of any such party. This Agreement may be terminated without penalty, on not less than 60 days prior written notice, by the Trusts Board of Trustees or by the Administrator. The
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termination of this Agreement with respect to one Fund or Trust shall not result in the termination of this Agreement with respect to any other Fund or Trust. The Administrator shall furnish to the Trust, promptly upon its request, such information (including the Administrators costs of delivering the services provided to the Trust hereunder) as may reasonably be necessary to enable the Trusts Board of Trustees to evaluate the terms of this Agreement or any extension, renewal or amendment hereof.
ARTICLE 9. Assignment . This Agreement shall not be assigned by either party without the written consent of the other party; provided, however, that the Administrator may, at its expense, subcontract with any entity or person concerning the provision of the services contemplated hereunder. The Administrator shall not, however, be relieved of any of its obligations under this Agreement by the appointment of such subcontractor and provided further, that the Administrator shall be responsible, to the extent provided in Article 6 hereof, for all acts of such subcontractor as if such acts were its own. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns.
ARTICLE 10. Amendments . This Agreement may be amended by the parties hereto only if such amendment is specifically approved (i) by the vote of a majority of the Trustees of the Trust, and (ii) by the vote of a majority of the Trustees of the Trust who are not parties to this Agreement or interested persons of any such party or its affiliates.
For special cases, the parties hereto may amend such procedures set forth herein as may be appropriate or practical under the circumstances.
ARTICLE 11. Certain Records . The Administrator shall maintain customary records in connection with its duties as specified in this Agreement. Any records required to be maintained and preserved pursuant to Rules 31a-1 and 31a-2 under the 1940 Act which are prepared or maintained by the Administrator on behalf of the Trust shall be prepared and maintained at the expense of the Administrator, but shall be the property of the Trust and will be made available to or surrendered promptly to the Trust on request.
In case of any request or demand for the inspection of such records by another party, the Administrator shall notify the Trust and follow the Trusts instructions as to permitting or refusing such inspection; provided that the Administrator may exhibit such records to any person in any case where it is advised by its counsel that it may be held liable for failure to do so.
ARTICLE 12. Compliance with Rule 38a-1 . The Administrator shall maintain policies and procedures that are reasonably designed to prevent violations of the federal securities laws, and shall employ personnel to administer the policies and procedures who have the same requisite level of skill and competence required to effectively discharge its responsibilities. The Administrator shall also provide the Trusts chief compliance officer with periodic reports regarding its compliance with the federal securities laws, and shall promptly provide special reports in the event of any material violation of the federal securities laws.
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ARTICLE 13. Definitions of Certain Terms . The term interested person, when used in this Agreement, shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Commission.
ARTICLE 14. Notice . Any notice required or permitted to be given by either party to the other shall be deemed sufficient if delivered to the other party at the following address: 1111 Polaris Parkway, Columbus, Ohio 43240, or at such other address as a party may from time to time specify in writing to the other party pursuant to this Section.
ARTICLE 15. Governing Law; Limitation of Liability of the Trustees and Shareholders . This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Delaware. The obligations of the Trust (or particular series or class thereof) entered into in the name or on behalf thereof by any Trustee, representative or agent of the Trust (or particular series or class thereof) are made not individually, but in such capacities, and are not binding upon any past, present or future Trustee, shareholder, representative or agent of the Trust (or particular series or class thereof) personally, but bind only the assets of the Trust (or particular series or class thereof), and all persons dealing with any series and/or class of shares of the Trust must look solely to the assets of the Trust belonging to such series and/or class for the enforcement of any claims against the Trust (or particular series or class thereof).
The execution and delivery of this Agreement have been authorized by the Trustees, and this Agreement has been signed and delivered by an authorized officer of the Trust, acting as such, and neither such authorization by the Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust (or particular series or class thereof) as provided in the Trusts charter.
ARTICLE 16. Use of Confidential Information . Notwithstanding anything in this Agreement to the contrary:
The Administrator will keep confidential and will not use or disclose to any other party (including, but not limited to, affiliates of the Administrator) any Customer Information (as defined below), except as authorized in writing by the Trust or as appropriate in connection with performing this Agreement and subject to any conditions set forth elsewhere in the Agreement.
The Administrator will maintain appropriate physical, electronic and procedural safeguards to store, dispose of (if applicable) and secure Customer Information to protect it from unauthorized access, use, disclosure, alteration, loss and destruction. The safeguards used by the Administrator to protect Customer Information will be no less than those used by the Administrator to protect its own confidential information. In addition, the Administrator will comply with any other security safeguards required by this Agreement.
The Administrator will control access to Customer Information and, except as required by law or as otherwise may be specifically permitted by this Agreement, permit access only to individuals who need access in connection with performing this Agreement and will cause such individuals to maintain the confidentiality of Customer Information.
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Except as necessary to conform to any record retention requirements imposed by this Agreement, the Company will, upon termination of this Agreement or the Trusts earlier request, return to the Trust all Customer Information or destroy it, as specified by the Trust. The Administrator will provide to the Trust a destruction certificate if so required.
As between the Trust and the Administrator, Customer Information and all applicable intellectual property rights embodied in the Customer Information shall remain the property of the Trust.
The Administrator acknowledges that it has received and reviewed a copy of the Trusts privacy policy applicable to Customer Information and it agrees that it will not act in a manner that is inconsistent with such policy.
Without limiting the foregoing, the Administrator shall not directly or through an affiliate, disclose any Customer Information, including account numbers, access numbers, or access codes for an account for use in telemarketing, direct mail marketing, or marketing through electronic mail, except as permitted by this Agreement, the Privacy Policy of the Trust, and as permitted in Section 248.12 of Regulation S-P.
The term Customer Information as used in this Article means information, in any form, provided to the Administrator by on or behalf of the Trust that uniquely identifies in any way a current, former or prospective Trust customer. Customer Information includes, but is not limited to, copies of such information or materials derived from such information.
ARTICLE 17. Counterparts . This Agreement may be executed by the parties on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written.
J.P. Morgan Exchange-Traded Fund Trust, on behalf of itself and each of its Funds |
||
/s/ Paul Shield | ||
By: | Paul Shield | |
Title: | Treasurer |
JPMORGAN FUNDS MANAGEMENT, INC. | ||
/s/ Robert L. Young | ||
By: | Robert L. Young | |
Title: | Managing Director |
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SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
(Effective as of May 9, 2014)
The Administrator receives a pro-rata portion of the following annual fee on behalf of each Fund for administrative services: 0.085% of the average daily net assets of each Fund.
Name |
JPMorgan Diversified Return Global Equity ETF |
JPMorgan Diversified Return International Ex-North Equity ETF |
JPMorgan Diversified Return Emerging Markets Equity ETF |
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AGENCY SERVICES AGREEMENT
THIS AGENCY SERVICES AGREEMENT made as of the 8th day of May, 2014 by and between J.P. Morgan Exchange-Traded Fund Trust, a Delaware statutory trust and registered investment company under the Investment Company Act of 1940, as amended (the 1940 Act), with offices at 270 Park Avenue, New York, New York 10017 (the Trust), on behalf of itself and its series listed on Exhibit A hereto (each a Fund or an ETF Series), and JPMORGAN CHASE BANK, N.A. a national banking association with a place of business at 383 Madison Avenue, New York, NY 10179 (J.P. Morgan).
PREMISE
J.P. Morgan, in its capacity as custodian of the Trust has been engaged to provide custody services to the Trust and its various portfolios pursuant to the terms of a Global Custody Agreement dated as May 7, 2014 (the Custody Agreement). The Trust intends to issue in respect of the ETF Series shares known as ETF 1 Shares for each ETF Series. The ETF Shares shall be created in bundles called Creation Units. The Trust, on behalf of the ETF Series, shall create and redeem ETF Shares of each ETF Series only in Creation Units in kind for portfolio securities of the particular ETF Series (Deposit Securities) and/or cash, as more fully described in the current prospectus and statement of additional information of the Trust, included in its registration statement on Form N-1A, No. 333-191837, 811-22903; and as authorized under the Order of Exemption dated February 25, 2014 of the Securities and Exchange Commission, Investment Company Act Release No. 30927; File No. 812-13760. Only brokers or dealers that are Authorized Participants and that have entered into an Authorized Participant Agreement with the Distributor, acting on behalf of the Trust, shall be authorized to create and redeem ETF Shares in Creation Units from the Trust. The Trust wishes to engage J.P. Morgan to perform certain services on behalf of the Trust with respect to the creation and redemption of ETF Shares, as the Trusts agent, namely: to provide transfer agent services for ETF Shares of each ETF Series; to act as Index Receipt Agent (as such term is defined in the rules of the National Securities Clearing Corporation) with respect to the settlement of trade orders with Authorized Participants; and to provide custody services under the terms of the Custody Agreement, as supplemented hereby, for the settlement of Creation Units against Deposit Securities and/or cash that shall be delivered by Authorized Participants in exchange for ETF Shares and the redemption of ETF Shares in Creation Unit size against the delivery of Redemption Securities and/or cash of each ETF Series.
NOW THEREFORE , in consideration of the promises herein and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Trust and J.P. Morgan agree as follows:
1. DEFINITIONS. The following terms as used in this Agreement shall have the meanings as set forth below:
Agreement: means this Agency Services Agreement.
1 | ETF is being shown in this document until the Trust has identified a tradename for its exchange traded fund product. |
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Applicable Law: means any applicable statute, including the 1940 Act, the Advisers Act, the Securities Act of 1933, as amended (the 1933 Act) and the Securities Exchange Act of 1934, as amended, (the 1934 Act) as well as any applicable statute, treaty, rule, regulation or common law and any applicable decree, injunction, judgment, order, formal interpretation or ruling issued by a court or governmental entity.
Authorized Participant: a broker or dealer that is a DTC participant and that has executed an Authorized Participant Agreement with the Distributor for the creation and redemption of Creation Units.
Authorized Participant Agreement: the agreement between the Distributor, on behalf of the Trust, and a broker or dealer that is a DTC Participant governing the creation and redemption of Creation Units.
Authorized Person: means any person who has been designated by written notice from the Trust (or by any agent designated by the Trust, including, without limitation, an Investment Adviser), to act on behalf of the Trust hereunder. Such persons will continue to be Authorized Persons until such time as J.P. Morgan receives Instructions from the Trust (or its agent) that any such person is no longer an Authorized Person.
Balancing Amount: means an amount of cash equal to the difference between the net asset value of a Creation Unit and the market value of the Deposit Securities (in the case of an creation) or the market value of the Redemption Securities (in the case of a redemption). For the creation of Creation Units, if the Balancing Amount is a positive number, then it will be an amount that is payable to the ETF Series by the Authorized Participant and if the Balancing Amount is a negative number, then it will be an amount that is payable by the ETF Series to the Authorized Participant. For redemptions of Creation Units, if the Balancing Amount is a positive number, then it will be an amount that is payable by the ETF Series to the Authorized Participant and if the Balancing Amount is a negative number, then it will be an amount that is payable to the ETF Series by the Authorized Participant.
Cash Component: means an amount of cash consisting of the Balancing Amount and a Transaction Fee.
Clearing Process: means CNS (defined below), the NSCC clearing and settlement process for the creation and redemption of Creation Units for securities in kind.
CNS: means the Continuous Net Settlement System of NSCC.
Confidential Information: means and includes all non-public information concerning the Trust which J.P. Morgan receives in the course of providing services under this Agreement.
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Creation Deposit: means the consideration for the creation of a Creation Unit consisting of Deposit Securities and the Balancing Amount.
Creation Unit: means a large block of a specified number of ETF Shares that makes up one unit of the ETF Series, as specified in the ETF Series prospectus. A Creation Unit is the minimum number of ETF Shares that may be created or redeemed at any one time.
Custodian: means J.P. Morgan acting in the capacity as securities custodian for the Trust.
Deposit Securities: means with respect to each business day the designated basket of securities that will generally be tendered to an ETF Series by an Authorized Participant to create one or more Creation Units of that Funds ETF Shares.
Distributor: means the party identified as distributor in the Trust prospectus that may sign the Authorized Participant Agreement on behalf of the Trust.
DTC: means The Depository Trust Company, a limited purpose trust company organized under the law of the State of New York.
DTC Participant: means a participant as such term is defined in the rules of DTC.
DTC Participant Account: means an account as such term is defined in the rules of DTC.
ETF Series : means the series of the Trust that are listed on Exhibit A hereto, as may be amended from time to time.
ETF Shares: means the shares of each ETF Series.
Fund Administrator : means the entity appointed to provide fund administration services to the Trust and/or Funds, as notified by the Trust to J.P. Morgan in writing.
Index Receipt Agent: means J.P. Morgan acting in the capacity as index receipt agent, as such term is defined in the rules of NSCC, for the Trust.
Instructions: means instructions which: (i) contain all necessary information required by J.P. Morgan to enable J.P. Morgan to carry out the Instructions; (ii) are received by J.P. Morgan in accordance with the prevailing Security Procedures; and (iii) J.P. Morgan reasonably believes have been given by an Authorized Person or are transmitted with proper testing or authentication pursuant to terms and conditions which J.P. Morgan may specify.
Investment Adviser: means any person or entity appointed as investment adviser or manager of any of the Funds, in accordance with the Registration Statement.
J.P. Morgan Indemnitees means J.P. Morgan, and its nominees, directors, officers, employees and agents.
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Liabilities: means any liabilities, losses, claims, costs, damages, penalties, fines, obligations, or expenses of any kind whatsoever (including, without limitation, reasonable attorneys fees and disbursements).
NSCC: National Securities Clearing Corporation, a clearing agency that is registered with the SEC.
Order Taker: means the entity appointed as order taker of the Funds, as notified by the Trust to J.P. Morgan in writing.
Outside the Clearing Process: means processing creation and redemption orders concerning Creation Units and Deposit Securities and Redemption Securities for settlement exclusively through DTC or, when the settlement is not DTC eligible, as a window delivery to the offices of the Custodian.
Redemption Securities: means the designated basket of securities provided by the Trust to an Authorized Participant redeeming a Creation Unit. On any given day, the Redemption Securities may or may not be identical to the Deposit Securities.
SEC: means the Securities and Exchange Commission
Security Procedure: means any security procedure to be followed by the Trust upon the issuance of an Instruction and/or by J.P. Morgan upon the receipt of an Instruction, so as to enable J.P. Morgan to verify that such Instruction is authorized, as set forth in operating procedures documentation in effect from time to time between the parties with respect to the services set forth in this Agreement, or as otherwise agreed in writing by the parties. A Security Procedure may, without limitation, involve the use of algorithms, codes, passwords, encryption or telephone call backs and may be updated by J.P. Morgan from time to time upon notice to the Trust. Trust acknowledges that Security Procedures are designed to verify the authenticity of, and not detect errors in, Instructions. For the avoidance of doubt, the parties agree that a SWIFT message issued in the name of Trust through any third party utility agreed upon by the parties as being a method for providing Instructions and authenticated in accordance with that utilitys customary procedures, shall be deemed to be an authorized Instruction.
Shareholder: means DTC or its nominee. A single global certificate for each ETF Series will be issued in the name of DTC or its nominee. DTC or its nominee shall be the sole registered holder of ETF Shares of each ETF Series.
Transaction Fee: means a transaction fee imposed by the Trust and payable by the Authorized Participant in connection with the creation or redemption of Creation Units.
Transfer Agent: means J.P. Morgan acting in the capacity as transfer agent for the ETF Shares of each ETF Series of the Trust.
2. APPOINTMENT . The Trust hereby appoints J.P. Morgan to provide services for the Trust, as described hereinafter, subject to the supervision of the Board of Trustees of the Trust (the Board), on the terms set forth in this Agreement. J.P. Morgan accepts such appointment and agrees to furnish the services herein set forth in return for the compensation as provided in Section 6 of this Agreement.
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3. REPRESENTATIONS AND WARRANTIES .
(a) | J.P. Morgan represents and warrants to the Trust that: |
(i) J.P. Morgan is a national bank duly organized and existing as a banking association under the laws of the United States;
(ii) J.P. Morgan is duly qualified to carry on its business in the State of New York;
(iii) J.P. Morgan is empowered under Applicable Laws and by its charter and by-laws to enter into and perform the services described in this Agreement;
(iv) J.P. Morgan is a transfer agent registered with the SEC.
(v) all requisite corporate action has been taken to authorize J.P. Morgan to enter into and perform this Agreement;
(vi) J.P. Morgan has, and shall continue to have, access to the facilities, personnel and equipment required to fully perform its duties and obligations hereunder;
(vii) no legal or administrative proceedings have been instituted or threatened against J.P. Morgan which would impair J.P. Morgans ability to perform its duties and obligations under this Agreement;
(viii) J.P. Morgans entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of J.P. Morgan or any law or regulation applicable to J.P. Morgan;
(ix) J.P. Morgan has established pursuant to the Bank Secrecy Act and other U.S. laws and regulations applicable to it, Anti-Money Laundering (AML) compliance programs, including but not limited to: (1) the development of internal policies, procedures, and controls; (2) the designation of a compliance officer; (3) the implementation of ongoing employee training programs; and (4) the creation of an independent audit function to test such programs;
(x) J.P. Morgan has a customer identification program (CIP) consistent with the rules under Section 326 of the USA Patriot Act with respect to the services performed by it under this Agreement;
(xi) To the extent that J.P. Morgan is required to effect currency transactions related to the services under this Agency Services Agreement, J.P. Morgan, in respect of those transactions, will (1) file all necessary anti-money laundering reports including, but not limited to, currency transaction reports and suspicious activity reports; (2) screen all new and existing customers against the Office of Foreign Asset Control list and any other government list that is or becomes required under the USA Patriot Act; and (3) allow appropriate regulators to examine its anti-money laundering books and records;
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(xii) J.P. Morgan: (i) has in place policies and procedures reasonably designed to ensure compliance with the transfer agent rules of the Securities Exchange Act of 1934, as amended; (ii) will upon reasonable request provide certifications, reports of any material violations of, and any material changes to such policies and procedures to the Trusts Chief Compliance Officer, and (iii) will maintain appropriate records in accordance with said transfer agent rules and any other applicable laws;
(xiii) J.P. Morgan will comply with the Trusts portfolio holdings disclosure policy; and
(xiv) J.P. Morgan is not affiliated with any listing exchange for any ETF Series.
J.P. Morgan further agrees that upon the Trusts request, but no more frequently than annually, it will provide the Trusts Chief Compliance Officer with an assurance letter regarding compliance with J.P. Morgans AML programs.
(b) | The Trust represents and warrants to J.P. Morgan that: |
(i) the Trust is duly organized and existing and in good standing under the laws of the State of Delaware;
(ii) the Trust is empowered under Applicable Laws and by its charter document and by-laws to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize the Trust to enter into and perform this Agreement;
(iv) the Trust is an open-end management investment company properly registered under the 1940 Act;
(v) a registration statement under the 1933 Act and the 1940 Act on Form N-1A (the Registration Statement) has been filed and shall be effective and shall remain effective during the term of this Agreement, and all necessary filings under the laws of the states shall have been made and shall be current during the term of this Agreement;
(vi) no legal or administrative proceedings have been instituted or threatened which would impair the Trusts ability to perform its duties and obligations under this Agreement, other than as described in the Trusts registration statement;
(vii) the Trusts Registration Statement complies in all material respects with the 1933 Act and the 1940 Act and none of the Trusts prospectuses and/or statements of additional information, and any amendments and supplements thereto (such prospectuses and statements of additional information, as in effect and as may be amended and supplemented from time to time (herein called the Prospectus) contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein not misleading in the context in which they were made; and
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(viii) the Trusts entrance into this Agreement shall not cause a material breach of or be in material conflict with any other agreement or obligation of the Trust or any law or regulation applicable to it.
4. DELIVERY OF DOCUMENTS.
The Trust shall promptly furnish to J.P. Morgan such copies, properly certified or authenticated, of contracts, documents and other related information that J.P. Morgan may request or require to properly discharge its duties. Such documents may include but are not limited to the following:
(i) Resolutions of the Board authorizing the appointment of J.P. Morgan to provide certain services to the Trust;
(ii) the Trusts charter document;
(iii) the Trusts by-laws;
(iv) the Trusts Notification of Registration on Form N-8A under the 1940 Act as filed with the SEC;
(v) the Trusts Registration Statement, as filed with the SEC;
(vi) the Trusts final application for an Order of Exemption with respect to the ETF Series and ETF Shares, and the Order of Exemption of the SEC granting the relief requested in the application.
(vii) opinions of counsel regarding the Trusts securities creation and auditors reports;
(viii) the Trusts Prospectus relating to all funds, series, portfolios and classes, as applicable;
(ix) the Trusts annual and semi-annual reports for the current year and annually while this Agreement is in effect; and
(x) such other material agreements as the Trust may enter into from time to time including securities lending agreements, futures and commodities account agreements, brokerage agreements and options agreements.
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5. SERVICES PROVIDED.
J.P. Morgan shall provide the following services subject to the control, direction and supervision of the Board and its designated agents and in compliance with the objectives, policies and limitations set forth in the Trusts Registration Statement, charter document and by-laws; Applicable Laws and regulations; and all resolutions and policies adopted by the Board:
(i) Transfer Agency Services described in Schedule A to this Agreement;
(ii) Index Receipt Agent Services described in Schedule B to this Agreement, and
(iii) such other services in connection with ETF Shares as the parties may mutually agree in writing.
6. FEES AND EXPENSES.
(a) As compensation for the services rendered to the Trust pursuant to this Agreement the Trust shall pay J.P. Morgan the fees outlined on Exhibit B, as may be amended from time to time, together with J.P. Morgans reasonable out-of-pocket or incidental expenses, including, but not limited to, legal fees. All fees and expenses are to be billed monthly (unless another period is agreed upon) and shall be due and payable upon receipt of the invoice. Upon any termination of the provision of services under this Agreement before the end of any month, the fee for the part of the month before such termination shall be prorated according to the proportion which such part bears to the full monthly period and shall be payable upon the date of such termination.
(b) J.P. Morgan shall render, after the close of each month in which services have been furnished, a statement reflecting all of the fees and expenses for such month (or other agreed upon billing period).
(c) In the event that the Trust is more than sixty (60) days delinquent in payments of monthly billings in connection with this Agreement (with the exception of specific amounts which may be contested in good faith by the Trust), this Agreement may be terminated by J.P. Morgan upon thirty (30) days written notice to the Trust. The Trust must notify J.P. Morgan in writing of any disputed amounts within thirty (30) days of its receipt of the billing for such amounts. Amounts disputed in good faith are not due and payable while they are being investigated.
7. INSTRUCTIONS.
(a) The Trust authorizes J.P. Morgan to accept and act upon any Instructions received by it without inquiry. The Trust will indemnify J.P. Morgan Indemnitees against, and hold each of them harmless from, any Liabilities that may be imposed on, incurred by, or asserted against J.P. Morgan Indemnitees as a result of any action or omission taken in accordance with any Instructions or other directions upon which J.P. Morgan is authorized to rely under the terms of this Agreement unless the Liabilities result from the willful misfeasance, bad faith or negligence, or reckless disregard of its obligations and duties under this Agreement on the part of a J.P. Morgan Indemnitee with respect to the manner in which such Instructions or directions are followed.
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(b) Unless otherwise expressly provided, all Instructions shall continue in full force and effect until canceled or suspended.
(c) J.P. Morgan may (in its sole discretion and without affecting any part of this Section 7) seek clarification or confirmation of an Instruction from an Authorized Person and may decline to act upon the Instruction if it does not receive clarification or confirmation satisfactory to it. J.P. Morgan shall not be liable for any loss arising from any delay while it seeks such clarification or confirmation, except to the extent such delays result from the willful misfeasance, bad faith or negligence, or reckless disregard of its obligations and duties under this Agreement of J.P. Morgan or J.P. Morgan Indemnitee.
(d) J.P. Morgan may tape or record in other form telephone conversations or other forms of electronic communications with the Trust, its agents or any investor, so long as such taping or form of recording is in compliance with Applicable Laws.
8. LIMITATIONS OF LIABILITY AND INDEMNIFICATION.
(a) J.P. Morgan shall exercise reasonable care, prudence and diligence in carrying out all its duties and obligations under this Agreement, and shall be liable to the Trust for any and all claims, liabilities, losses, damages, fines, penalties and expenses (Losses) suffered or incurred by the Trust or the Funds resulting from the failure of J.P. Morgan to exercise such reasonable care, prudence and diligence or resulting from J.P. Morgans willful misfeasance, bad faith or negligence, or reckless disregard of its obligations and duties under this Agreement. In addition, J.P. Morgan shall be liable to the Trust for all Losses representing reasonable costs and expenses incurred by the Trust in connection with any claim by the Trust against J.P. Morgan arising from the obligations of J.P. Morgan hereunder, including, without limitation, all reasonable attorneys fees and expenses incurred by the Trust in connection with any investigations, lawsuits or proceedings relating to such claim; provided that the Trust has recovered from J.P. Morgan for such claim.
Upon the occurrence of any event that causes or may cause any loss, damage or expense to the Trust, J.P. Morgan shall (i) promptly notify the Trust of the occurrence of such event and (ii) use its commercially reasonable best efforts and take all reasonable steps under the circumstances to mitigate the effects of such event and to avoid continuing harm to the Trust.
Nevertheless, under no circumstances will J.P. Morgan be liable for any indirect, incidental, consequential or special damages (including, without limitation, lost profits) of any form , whether or not foreseeable and regardless of the type of action in which such a claim may be brought, with respect to J.P. Morgans performance hereunder.
(b) Trust on behalf of itself and each Fund will indemnify J.P. Morgan, its officers, employees and agents against, and hold them harmless from, any Liabilities that may be imposed on, incurred by or asserted against any of J.P. Morgan, its officers, employees and agents in connection with or arising out of J.P. Morgans performance under this Agreement, provided the J.P. Morgan, its officers, employees and agents have acted with reasonable care and have not acted with willful misfeasance, bad faith or negligence, or reckless disregard of their obligations and duties under this Agreement in connection with the Liabilities in question.
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Trust shall have no liability whatsoever for any indirect, incidental, consequential, special or speculative loss or damages (including, without limitation, lost profits) of any form whether or not foreseeable and regardless of the type of action in which such a claim may be brought.
(c) Without limiting subsections (a) and (b) above, J.P. Morgan shall not be responsible for, and the Trust shall indemnify and hold J.P. Morgan, its officers, employees and agents harmless from and against, any and all Liabilities, incurred by J.P. Morgan, any of its officers, employees or agents, or the Trusts agents in the performance of its/their duties hereunder, including but not limited to those arising out of or attributable to:
(i) any and all actions of J.P. Morgan or its officers, employees or agents required to be taken pursuant to this Agreement;
(ii) the reasonable reliance on or use by J.P. Morgan or its officers, employees or agents of information, records, or documents which are received by J.P. Morgan or its officers, employees or agents and furnished to it or them by or on behalf of the Trust, and which have been prepared or maintained by the Trust or any third party on behalf of the Trust;
(iii) the Trusts refusal or failure to comply with the terms of this Agreement or the Trusts actions, or lack thereof, involving negligence or willful misconduct;
(iv) the breach of any representation or warranty of the Trust hereunder;
(v) the reliance by J.P. Morgan, its officers, employees or agents on any share certificates which are reasonably believed to bear the proper manual or facsimile signature of an Authorized Person of the Trust;
(vi) any delays, inaccuracies, errors in or omissions from information or data provided to J.P. Morgan by data, corporate action or pricing services, depositories or clearing systems, or securities brokers or dealers;
(vii) the offer or sale of ETF Shares by the Trust in violation of any requirement under the Federal securities laws or regulations or the securities laws or regulations of any state, or in violation of any stop order or other determination or ruling by any Federal agency or any state agency with respect to the offer or sale of such ETF Shares in such state (1) resulting from activities, actions, or omissions by the Trust or its other service providers and agents, or (2) existing or arising out of activities, actions or omissions by or on behalf of the Trust prior to the effective date of this Agreement;
(viii) any failure of the Trusts registration statement to comply with the 1933 Act and the 1940 Act and any other Applicable Laws, or any untrue statement of a material fact or omission of a material fact necessary to make any statement therein not misleading in the Trusts Prospectus;
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(ix) the actions taken by the Trust, the Distributor or by the Trusts investment advisers in compliance with applicable securities, tax, commodities and other laws, rules and regulations, or the failure to so comply; and
(x) all actions, omissions, or errors caused by third parties to whom J.P. Morgan or the Trust have assigned any rights and/or delegated any duties under this Agreement at the request of or as required by the Trust or the Distributor, or by the Trusts investment advisers, administrator or sponsor.
Notwithstanding subsection (a) above, J.P. Morgan shall have no duty or obligation of reasonable care with respect to any of the activities described in clauses (vii), (viii) (ix) or (x) of this subsection (c).
(d) The Trust shall defend J.P. Morgan or, at Trusts option, settle any claim, demand or cause of action, whether groundless or otherwise, that ETF Shares or any of the services provided herein for the Trust infringes on, violates or misappropriates any patent, copyright, trademark, trade secret or any other proprietary right, and shall indemnify and hold harmless J.P. Morgan, its officers, employees and agents against all Liabilities, including court and settlement costs incurred by J.P. Morgan or any of them as a result of or relating to such claim, demand or cause of action (Third Party Claim). J.P. Morgan shall notify the Trust in writing of any such Third Party Claim, and give the Trust all reasonably necessary information and assistance to defend or settle such Third Party Claim. J.P. Morgan may participate in the defense or settlement of the Third Party Claim at any time and may retain its own counsel but Trust shall not be liable for any legal fees or expenses subsequently incurred by J.P. Morgan in connection with the defense thereof, unless (i) Trust has agreed to pay such fees and expenses, (ii) Trust shall have failed to employ counsel satisfactory to J.P. Morgan in a timely manner or (iii) J.P. Morgan shall have reasonably determined that representation of J.P. Morgan by counsel provided by Trust pursuant to the foregoing would be inappropriate due to actual or potential conflicting interests between the Trust and J.P. Morgan, including, without limitation, situations in which there are one or more legal defenses available to J.P. Morgan that are different from or additional to those available to the Trust. J.P. Morgan shall not settle or compromise any Third Party Claim subject to indemnification hereunder without the written consent of the Trust (which consent shall not be unreasonably withheld or delayed).
(e) This Section 8 shall survive the termination of this Agreement, regardless of the party that terminated the Agreement or the reason therefor.
9. TERM AND TERMINATION.
This Agreement shall become effective on the date first herein-above written. The Agreement may be modified or amended from time to time by mutual agreement between the parties hereto. In the event of the termination of the Custody Agreement between J.P. Morgan and the Trust, J.P. Morgan may terminate this Agreement in whole or in part simultaneously with the transition of the assets to a successor custodian. Subject to the foregoing, this Agreement shall continue in
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effect until terminated by either party on at least sixty (60) days prior written notice to the other party. The terminating party in its notice to the other party shall specify the date of termination. Upon termination of this Agreement, the Trust shall pay to J.P. Morgan such compensation and any reasonable out-of-pocket or other reimbursable expenses which may become due or payable under the terms of this Agreement as of the date of termination or after the date that the provision of services ceases, whichever is later.
10. NOTICES.
Any notice required or permitted hereunder shall be in writing and shall be deemed effective on the date of personal delivery (by private messenger, courier service or otherwise) or upon confirmed receipt of telex or facsimile, whichever occurs first, or upon receipt if by mail to the parties at the following address (or such other address as a party may specify by notice to the other):
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11. WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver nor shall it deprive such party of the right thereafter to insist upon strict adherence to that term or any term of this Agreement. Any waiver must be in writing signed by the waiving party.
12. FORCE MAJEURE. J.P. Morgan shall maintain and update from time to time business continuation and disaster recovery procedures with respect to its Transfer Agent, Index Receipt Agent and custody business that are required by Applicable Law and that it determines from time to time meet reasonable commercial standards. Neither party shall have any liability, however, for any damage, loss or expense of any nature that the other party may suffer or incur, caused by an act of God, fire, flood, civil or labor disturbance, war, act of any governmental authority or other act or threat of any authority (de jure or de facto), legal constraint, malfunction of equipment or software (except to the extent such malfunction is primarily attributable to the other partys negligence in selecting, operating or maintaining the equipment or software), failure of or the effect of rules or operations of any external funds transfer system, inability to obtain or interruption of external communications facilities, or any cause beyond the reasonable control of the party (including without limitation, in the case of J.P. Morgan, the non-availability of appropriate foreign exchange); provided, however, that the party must notify the other party promptly when it becomes aware of a specific occurrence or event and uses commercially reasonable efforts to resolve the adverse effects of the occurrence or event.
13. AMENDMENTS. This Agreement may be modified or amended from time to time by mutual written agreement between the parties. No provision of this Agreement may be changed, discharged, or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, discharge or termination is sought.
14. ASSIGNMENT; DELEGATION. This Agreement will be binding on each of the parties successors and assigns, but except as noted below, the parties agree that neither party can assign its rights and obligations under this Agreement without the prior written consent of the other party, which consent will not be unreasonably withheld; provided, however, that any corporation or banking association into which J.P. Morgan may be merged or with which J.P. Morgan may be consolidated, or any corporation or banking association resulting from any merger or consolidation to which J.P. Morgan shall be a party, or any corporation or banking association succeeding to J.P. Morgans corporate custody business, shall succeed to all J.P. Morgans rights, obligations and immunities hereunder without the execution or filing of any consent or further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.
J.P. Morgan may delegate to a reputable agent any of its functions herein. J.P. Morgan shall act in good faith in the selection, use and monitoring of delegate, and any delegation or appointment hereunder shall not relieve J.P. Morgan of any of its obligations under this Agreement. To the extent reasonably practicable, J.P. Morgan shall consult with the Customer before it implements the delegation of a material portion of the Services.
15. SEVERABILITY. If any provision of this Agreement is invalid or unenforceable, the balance of the Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance it shall nevertheless remain applicable to all other persons and circumstances.
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16. GOVERNING LAW AND JURISDICTION. This Agreement shall be construed, regulated, and administered under the laws of the United States or State of New York, as applicable, without regard to New Yorks principles regarding conflict of laws. The United States District Court for the Southern District of New York shall have the sole and exclusive jurisdiction over any lawsuit or other judicial proceeding relating to or arising from this Agreement. If that court lacks federal subject matter jurisdiction, the Supreme Court of the State of New York, New York County shall have sole and exclusive jurisdiction. Either of these courts shall have proper venue for any such lawsuit or judicial proceeding, and the parties waive any objection to venue or their convenience as a forum. The parties agree to submit to the jurisdiction of either of the courts specified and to accept service of process to vest personal jurisdiction over them in such courts. The parties further hereby knowingly, voluntarily and intentionally waive, to the fullest extent permitted by Applicable Law, any right to a trial by jury with respect to any such lawsuit or judicial proceeding arising or relating to this Agreement or the transactions contemplated hereby.
17. USE OF THE OTHER PARTYS NAME. The Trust shall not use J.P. Morgans name in any offering material, shareholder report, advertisement or other material relating to the Trust, other than for the purpose of merely identifying and describing the functions of J.P. Morgan hereunder, in a manner not approved by J.P. Morgan in writing prior to such use; provided, however, that J.P. Morgan shall consent to all uses of its name required by the SEC, any state securities commission, or any federal or state regulatory authority; and provided, further, that in no case shall such approval be unreasonably withheld.
J.P. Morgan shall not use the Trusts name in any material relating to J.P. Morgan unless approved by the Trust in writing prior to such use; provided, however, that the Trust shall consent to all uses of its name required by the SEC, any state securities commission, or any federal or state regulatory authority; and provided, further, that in no case shall such approval be unreasonably withheld.
18. CONFIDENTIALITY.
(a) Subject to Section 18(b), J.P. Morgan will hold all Confidential Information in confidence and will not disclose any Confidential Information except as may be required by Applicable Law, a regulator with jurisdiction over J.P. Morgans or Funds business, or with the consent of the Trust.
(b) The Trust authorizes J.P. Morgan to disclose Confidential Information to the extent necessary to provide the relevant services to the Funds to:
(i) | its professional advisers, auditors or public accountants; |
(ii) | its Affiliates; and |
(iii) | any revenue authority or any governmental entity. |
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(c) Except as otherwise required by Applicable Law or as needed to enforce the terms of this Agreement, the parties shall hold the terms and conditions of this Agreement, including, without limitation, any commercial terms, in confidence.
19. COUNTERPARTS. This Agreement may be executed in counterparts each of which shall be an original and together shall constitute one and the same agreement.
20. HEADINGS. Headings are for convenience only and are not intended to affect interpretation. References to sections are to sections of this Agreement and references to sub-sections and paragraphs are to sub-sections of the sections and paragraphs of the sub-sections in which they appear.
21. ENTIRE AGREEMENT. This Agreement, including the Schedules and Exhibits, and also including the Custody Agreement to the extent custody services are provided in conjunction with Index Receipt Agent services for ETF Shares, sets out the entire Agreement between the parties in connection with the subject matter, and this Agreement supersedes any other agreement, statement, or representation relating to the services provided herein for the Trust, Funds and ETF Shares, whether oral or written.
22. SEVERAL OBLIGATIONS OF THE FUNDS. This Agreement is executed on behalf of the Trust and not on behalf of the Board or Trustees personally or individually. The obligations of this Agreement are not binding upon any of the Trustees, officers or shareholders personally but are binding only upon the assets and property of the Trust and Funds. With respect to the obligations of each Fund arising hereunder, J.P. Morgan shall look for payment or satisfaction of any such obligation solely to the assets of the Fund to which such obligation relates as though J.P. Morgan had separately contracted by separate written instrument with respect to each Fund, and in no event shall J.P. Morgan have recourse, by set-off or otherwise, to or against any assets of any other Funds. Upon request of J.P. Morgan, the Trust shall promptly inform J.P. Morgan of the proper attribution amongst the Funds of any outstanding obligations due hereunder. J.P. Morgan may rely on such allocation stipulated by the Trust without further inquiry or liability.
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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above.
J.P. MORGAN EXCHANGE-TRADED FUND TRUST | JPMORGAN CHASE BANK, N. A. | |||||||
By: | /s/ Paul Shield | By: | /s/ Anna Maria Calla Minniti |
Name: |
Paul Shield |
Name: |
Anna Maria Calla Minniti | |||||
Title: |
Treasurer |
Title: |
Vice President | |||||
Date: | 5/9/14 | Date: | 5/9/2014 |
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AGENCY SERVICES AGREEMENT
SCHEDULE A
TRANSFER AGENCY SERVICES
FOR ETF SERIES
J.P. Morgan shall provide the following services for the Trust in its capacity as Transfer Agent for each ETF Series, as well as the transfer agent services included in the Form of Authorized Participant Agreement and Form of Authorized Participant Handbook, attached to this Schedule A as Exhibits A-1 and A-2, respectively. Unless otherwise defined in this Schedule A, defined terms will have the same meaning as set forth in Section I of this Agreement.
A. Creation and Redemption of ETF Shares of each ETF Series.
1. Pursuant to such creation orders that Index Receipt Agent shall receive from the Distributor, Trust or its agent, Transfer Agent shall register the appropriate number of book entry only ETF Shares in the name of DTC or its nominee as the sole shareholder (the Shareholder) for each ETF Series and deliver the shares of the applicable ETF Series in Creation Units on the business day next following the trade date (T+1) to the DTC Participant Account of the Custodian for settlement. It is understood and agreed that J.P. Morgan, in its capacity as Transfer Agent, Index Receipt Agent or Custodian, shall not be responsible for determining whether any order, if accepted, shall result in the depositor of the Creation Deposit owning or appearing to own eighty percent (80%) or more of the outstanding ETF Shares of such ETF Series.
2. Pursuant to such redemption orders that Index Receipt Agent shall receive from the Distributor on behalf of the Trust or other designated agent of the Trust, Transfer Agent shall redeem the appropriate number of ETF Shares of the applicable ETF Series in Creation Units that are delivered to the designated DTC Participant Account of Custodian for redemption and debit such shares from the account of the Shareholder on the register of the applicable ETF Series.
3. Transfer Agent shall issue ETF Shares of the applicable ETF Series in Creation Units for settlement with purchasers through DTC as the purchaser is authorized to receive. Beneficial ownership of ETF Shares shall be shown on the records of DTC and DTC Participants and not on any records maintained by the Transfer Agent. In issuing ETF Shares of the applicable ETF Series through DTC to a purchaser, Transfer Agent shall be entitled to rely upon the latest Instructions that are received from the Distributor, Trust or its agent by the Index Receipt Agent (as set forth in Schedule B, Section A. Subsection 3(b) of this Agreement) concerning the creation and delivery of such shares for settlement.
4. Transfer Agent shall not issue any ETF Shares for a particular ETF Series where it has received an Instruction from the Trust or written notification from any federal or state authority that the sale of the ETF Shares of such ETF Series has been suspended or discontinued, and Transfer Agent shall be entitled to rely upon such Instructions or written notification.
5. Upon the creation of ETF Shares of any ETF Series as provided herein, Transfer Agent shall not be responsible for the payment of any original create or other taxes, if any, required to be paid by the Trust in connection with such creation.
6. ETF Shares of any ETF Series may be redeemed in accordance with the procedures set forth in the Prospectus of the Trust and in the Authorized Participant Agreement and J.P. Morgan shall duly process all redemption requests.
B. Payment of Dividends and Distributions on ETF Shares of each ETF Series.
1. J.P. Morgan shall prepare and make payments for dividends and distributions declared by the Trust on behalf of the ETF Series.
2. The Trust or its designated agent shall promptly notify both the Custodian and the Transfer Agent of the declaration of any dividend or distribution in respect of each ETF Series. The Trust or its designated agent shall furnish to J.P. Morgan a statement signed by an Authorized Person: (i) indicating that dividends have been declared on a specific periodic basis and Instructions specifying the date of the declaration of such dividend or distribution, the date of payment thereof, the record date as of which the Shareholder shall be entitled to payment, the total amount payable to the Shareholder and the total amount payable to J.P. Morgan as Transfer Agent on the payment date; or (ii) setting forth the date of the declaration of any dividend or distribution by ETF Series, the date of payment thereof, the record date as of which the Shareholder is entitled to payment, and the amount payable per share to the Shareholder as of that date and the total amount payable to Transfer Agent on the payment date. The Trusts Board of Trustees shall approve the Authorized Persons to provide such information to J.P. Morgan.
3. Upon its receipt from the Trust of the information set forth in Subsection 2 immediately above, the Fund Administrator, based upon the amount of ETF Shares outstanding on its books and records, shall calculate the total dollar amount of the dividend or distribution on each ETF Series and notify the Trust of this amount. The Trust shall verify this total dollar amount as calculated by the Fund Administrator. Provided the Trust is in agreement with the Fund Administrator, the Trust shall instruct the Custodian to place in a dividend disbursing account maintained by the Transfer Agent funds equal to the total cash amount of the dividend or distribution to be paid out in respect of each ETF Series. Should Custodian determine that it does not have sufficient cash in the Custody Account to pay the total amount of the dividend or distribution to the Transfer Agent, Custodian shall advise the Trust and the Trust shall either adjust the rate of the dividend or distribution or provide additional cash to Custodian for credit to the dividend disbursing account maintained by Transfer Agent. The Transfer Agent shall credit such dividend or distribution to the account of the Shareholder.
4. Should Transfer Agent not receive from Custodian sufficient cash to make payment as provided in the immediately preceding Subsection, Transfer Agent or Custodian shall notify the Trust, and Transfer Agent shall withhold payment to the Shareholder until sufficient cash is provided to J.P. Morgan and J.P. Morgan shall not be liable for any claim arising out of such withholding.
C. Recordkeeping.
1. J.P. Morgan shall create and maintain such records in accordance with laws, rules and regulations applicable to J.P. Morgan as a registered transfer agent. All records shall be available for inspection and use by the Trust. J.P. Morgan shall maintain such records for at least six years or for such other period as J.P. Morgan and the Trust may mutually agree.
2. Upon reasonable notice by the Trust, J.P. Morgan shall make available during regular business hours all records and other data created and maintained by J.P. Morgan as Transfer Agent for reasonable audit and inspection by the Trust, any person retained by the Trust or the SEC.
3. J.P. Morgan shall record the creation of ETF Shares of each ETF Series and maintain, pursuant to Rule 17Ad-10(e) under the 1934 Act, a record of the total number of ETF Shares of each ETF Series that are authorized, based upon data provided to J.P. Morgan by the Trust or the ETF Series, issued and outstanding. Also, J.P. Morgan shall provide the Trust on a regular basis with the total number of ETF Shares authorized, issued and outstanding in respect of each ETF Series but shall not be responsible for, when recording the creation of ETF Shares, monitoring the creation of such shares or compliance with any laws relating to the validity of the creation or the legality of the sale of such shares.
D. Establish Procedures.
Procedures applicable to the transfer agent services to be performed hereunder may be established from time to time by agreement between the Trust and J.P. Morgan. J.P. Morgan shall have the right to utilize any shareholder accounting and record-keeping systems that, in its opinion, enables it to perform any services to be performed hereunder, provided that their usage does not, among other things, compromise the confidentiality of the Trusts records or otherwise breach this Agreement.
AGENCY SERVICES AGREEMENT
SCHEDULE A
EXHIBIT A-1
Form of Authorized Participant Agreement
J.P. MORGAN EXCHANGE-TRADED FUND TRUST
AUTHORIZED PARTICIPANT AGREEMENT
This Authorized Participant Agreement (this Agreement ) is entered into as of this day of 20 (the Effective Date ), by and between (the Participant ) and SEI Investments Distribution Co. (together with its affiliates, the Distributor), principal underwriter of J.P. Morgan Exchange-Traded Fund Trust (the Trust ), and is subject to acceptance by (the Transfer Agent ) in its capacity as transfer agent of the Trust. Capitalized terms used herein and not otherwise defined have the meaning assigned to them in SECTION 14 of this Agreement.
WHEREAS, the Trust is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the 1940 Act ), as an open-end management company;
WHEREAS, the Trust offers shares of one or more individual investment portfolios that relate solely to the assets specifically allocated to such portfolios (each, a Series );
WHEREAS, each Series is listed for trading on one or more U.S. national securities exchanges or associations and operates as an Exchange Traded Fund or ETF ;
WHEREAS, the Distributor serves as the principal underwriter of the Trust acting on an agency basis in connection with the sale and distribution of shares of beneficial interest of each Series of the Trust ( Shares );
WHEREAS, the Transfer Agent serves as the transfer agent for the Trust;
WHEREAS, the Shares of any Series offered by the Trust (now or in the future) may be directly purchased from or redeemed to the Trust at a price based on the net asset value per Share (subject to applicable Law and the terms hereof) only by or through a registered broker-dealer and member of The Depository Trust Company that has entered into an authorized participant agreement with the Distributor; and
WHEREAS the Distributor and the Participant intend that the Trust shall be a third party beneficiary of this Agreement and shall receive the benefits contemplated by this Agreement.
NOW THEREFORE, the parties hereto in consideration of the premises and of the mutual agreements contained herein, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, agree as follows:
SECTION 1 ORDERS FOR PURCHASE AND REDEMPTION
1.01 Creation Units . The Shares of any Series offered by the Trust may only be directly purchased from or redeemed to the Distributor in Creation Units. The number of Shares of a Series constituting a Creation Unit will be stated in the Prospectus of the applicable Series, as may be amended from time to time. The Participant is authorized to purchase and redeem Creation Units of such Series as determined in the discretion of the Trust and/or the Distributor, subject to applicable law and the terms hereof. The Participant acknowledges and agrees that (i) the Trust and/or the Distributor from time to time may change or adjust the number of Series available to the Participant in the Trusts or the Distributors discretion; provided , however , that the Distributor will make reasonable efforts to provide notice to the Participant prior to any such adjustment to the Series available to the Participant, and (ii) the Series that the Participant is authorized to purchase or redeem Creation Units of may be different than the Series available to other participants executing an authorized participant agreement similar to this Agreement. The Participant may obtain a list of authorized Series from the Distributor upon request. Neither the Distributor nor the Trust will unreasonably reduce the number of Series available to the Participant.
1.02 Procedures for Orders . The procedures for placing and executing Purchase Orders and Redemption Requests are described in the Prospectus for each Series and in the AP Handbook. All Orders shall be placed and executed in accordance with the terms and procedures set forth in the Prospectus and the AP Handbook. Orders received in proper form in accordance with such terms and procedures shall be processed at the net asset value per Share of the relevant Series next determined after such Order is received in proper form. The Participant agrees to comply with any and all requirements stated in the Prospectus and in the AP Handbook to the extent applicable to it. The Trust reserves the right to revise or augment the procedures relating to the manner of purchasing or redeeming Creation Units. The Distributor will make commercially reasonable efforts to provide prior notice to the Participant of any material changes to the AP Handbook with respect to the placement of Orders. Revised procedures shall not apply retroactively to Orders submitted prior to such change in procedure, unless required by applicable Law. The Participant agrees to comply with such procedures as they may be revised or augmented from time to time. Such revised or additional procedures may be implemented by the Trust, with respect to any or all Series, due to changing Law, market conditions, administrative or operational processes or requirements for new or existing Series, or any other purposes.
Any Series may, subject to applicable Law, change the manner in which a Purchase Order and/or Redemption Request may be placed and/or executed by the Participant, including, without limitation, requiring that a Purchase Order or Redemption Request be cleared outside the CNS Clearing Process or any non-CNS Clearing Process.
1.03 NSCC Authorization . Solely with respect to Orders processed through the CNS Clearing Process, the Participant, as a Participating Party, hereby authorizes the Transfer Agent to transmit to the NSCC on behalf of the Participant instructions, including without limitation instructions regarding the transfer of Deposit Securities, Cash Amounts and Cash Components, consistent with the Order instructions issued by the Participant to the Distributor. The Participant agrees to be bound by the terms of such instructions issued by the Transfer Agent and reported to NSCC as though such instructions were issued by the Participant directly to NSCC.
1.04 Consent to Recording . It is contemplated that the phone lines used by the Distributor, the Trust, the Transfer Agent or their respective Affiliated Persons with respect to any Orders will be recorded, and the Parties hereby consent to the recording of all calls with any of those persons or entities. The Participant also acknowledges and agrees that its access to, and actions taken on, the Website may be recorded.
1.05 Irrevocability . All Orders are irrevocable and considered final when placed by a Participant. Accordingly, the Participant acknowledges and agrees that it will not be possible to cancel or modify an Order once the Participant has placed it unless the Trust consents to such cancellation or modification in its sole discretion. The Participant agrees to exercise caution before placing all Orders. The Participant shall be responsible for any and all reasonable expenses and costs incurred by the Trust or the Distributor in connection with any modified or cancelled Order. It is acknowledged and agreed that the Trust has the absolute right to reject any Purchase Order or Redemption Request (to the extent permitted by Law and the Prospectus) transmitted to it by the Distributor. The Distributor shall notify the Participant as soon as reasonably practicable of any such rejection of an Order. It is acknowledged and agreed that notice may not be reasonably practicable until after the time the Distributor stops accepting Orders for that day.
1.06 Prospectus and Trade Confirmation Delivery . The Participant consents to the delivery of the Prospectus and trade confirmations electronically, and understands that unless the Participant notifies the Distributor in writing that this consent is revoked, the Participant can only obtain access to Prospectuses from the Distributor electronically. The Trust makes the current Prospectuses and annual and semi-annual shareholder reports for each applicable Series available on the Trusts website: www. .com. The Participant agrees to maintain a valid electronic mail address for purposes of receiving Prospectuses and trade confirmations and further agrees to promptly notify the Distributor if its electronic mail address for this purpose changes. The Participant understands that it must have regular and continuous Internet access to access all documents relating to a Prospectus.
SECTION 2 EXECUTION OF PURCHASE ORDERS
2.01 Fund Deposit . To effect the purchase of a Creation Unit of a Series, the Participant agrees to deliver to the Series a Fund Deposit plus any applicable Cash Amount.
2.02 Cash in Lieu . The Trust may, in its sole discretion and to the extent permitted by Law, permit or require the substitution of an amount of cash to be added to any Cash Component to replace any Deposit Security ( cash in lieu ). The Trust may suspend the ability of the Participant to engage in cash in lieu transactions with respect to any Series at any time, without prior notice.
2.03 Delivery of Collateral or Fund Deposit . As described in the Prospectus and the AP Handbook from time to time, the Trust may, in its sole discretion, permit collateral to be posted to the Custodian (or such other agent as may be agreed in writing by the Participant and the Trust from time to time) for the benefit of a Series in anticipation of delivery of all or a portion of the requisite Deposit Securities, and may require additional collateral to be posted if, in the sole discretion of the Trust, the existing collateral is insufficient to protect the Series from market or other risks relating to the undelivered security. The Series may at any time use such cash or collateral to purchase Deposit Securities without further consultation with the Participant. To the extent permitted by the Prospectus, the Participant shall be responsible for any and all expenses and costs incurred by the Trust, including all Cash Amounts, in connection with any Purchase Orders. The Participant understands and agrees that in the event collateral or the Fund Deposit are not fully transferred to the Trust by the time specified, a Purchase Order may be cancelled by the Trust and the Participant will be solely responsible for any and all expenses and costs incurred by the applicable Series, the Transfer Agent or the Distributor related to the cancelled Purchase Order.
2.04 Title to Securities; Restricted Shares . The Participant represents that upon delivery of a portfolio of Deposit Securities to the Custodian and/or the relevant subcustodian in accordance with the terms of the Prospectus, the Trust will acquire good, marketable and unencumbered title to such securities, free and clear of any and all liens, restrictions, hypothecations, charges, duties imposed on the transfer of assets and encumbrances and not subject to any adverse claims, including, without limitation, any restriction upon the sale or transfer of such securities imposed by (A) any agreement or arrangement entered into by the Participant or any Participant Client, (B) any provision of the 1933 Act, and any regulations thereunder (except that (I) securities of issuers other than U.S. issuers shall not be required to have been registered under the 1933 Act if exempt from such registration and (II) securities of U.S. issuers shall not be required to have been registered under the 1933 Act if (1) exempt from such registration or (2) eligible for sale without registration pursuant to Rule 144A under the 1933 Act and such security is included by a Series as a Deposit Security (a Rule 144A Security )), or of the applicable laws or regulations of any other applicable jurisdiction or (C) any such securities being restricted securities as such term is used in Rule 144(a)(3)(i) promulgated under the 1933 Act.
2.05 Corporate Actions . With respect to any Purchase Order, the Trust, on behalf of each applicable Series, shall return to the Participant or the Participant Client any dividend, distribution or other corporate action paid to the Trust in respect of any Deposit Security that is transferred to the Trust that, based on the valuation of such Deposit Security on the Business Day on which the Trust receives and accepts the Purchase Order in proper form, should have been paid to the Participant or the Participant Client. Likewise, the Participant acknowledges and agrees to return to the Trust any dividend, distribution or other corporate action paid to the Participant or any Participant Client in respect of any Deposit Security that is transferred to the Participant that, based on the valuation of such Deposit Security on the Business Day on which the Trust receives and accepts the Purchase Order in proper form, should have been paid to the Trust.
2.06 Cash Amount and Cash Component . In situations where a Cash Amount and/or a Cash Component will be applied to a Purchase Order, the Participant hereby agrees it will transfer same day funds for each purchase of Shares in an amount equal to the Cash Amount and/or Cash Component, as applicable. Computation of this amount shall exclude any stamp duty and other similar fees and expenses payable upon the transfer of beneficial ownership of the Deposit Securities, which shall be the sole responsibility of the Participant and not of the Trust or the Distributor. The Participant hereby agrees to deliver the Cash Amount and/or Cash Component through DTC to an account designated by the Trust on or before the Contractual Settlement Date or such earlier time as may be designated by the Trust.
2.07 Ownership of Deposit Securities . Notwithstanding anything to the contrary contained herein, and subject to the provisions of Section 2.02 , the Participant agrees that this Agreement is a contract for the sale of the Deposit Securities in praesenti , and that ownership of, and all attendant rights to and benefits of, the Deposit Securities shall be vested in the Trust as of the Business Day on which the Trust receives and accepts the related Purchase Order in proper form and in accordance with the foregoing terms and procedures.
SECTION 3 EXECUTION OF REDEMPTION REQUESTS
3.01 Creation Units . To effect the redemption of a Creation Unit of a Series, the Participant agrees to deliver to the Trust, the requisite number of Shares comprising the number of Creation Units being redeemed plus any applicable Cash Amount and/or Cash Component. Proceeds of redemption of a Creation Unit shall consist of Fund Securities and/or any applicable Cash Component, less any applicable Cash Amount. As described in the Prospectus and the AP Handbook, from time to time, the Trust may, in its sole discretion, permit the Participant to redeem a Creation Unit when the Participant is unable to deliver all or part of a Creation Unit by posting collateral to the Custodian (or such other agent as may be agreed in writing by the Participant and the Trust from time to time) for the benefit of a Series in anticipation of delivery of all or a portion of the Creation Unit, and may require additional collateral to be posted if, in the sole discretion of the Trust, the existing collateral is insufficient to protect the Series from market or other risks relating to the undelivered Shares. The Series may at any time use such cash or collateral to purchase Shares without further consultation with Participant. To the extent permitted by the Prospectus, the Participant shall be responsible for any and all expenses and costs incurred by the Trust, including all Cash Amounts, in connection with any Redemption Request.
3.02 Delivery of Collateral or Shares . The Participant understands and agrees that in the event collateral or Shares are not transferred to the Trust (or the Custodian for the benefit of the Trust) by the time specified, a Redemption Request may be cancelled by the Trust and the Participant will be solely responsible for all expenses and costs incurred by the Trust, the Transfer Agent or the Distributor related to the cancelled Order. The Distributor will provide notice to the Participant, as soon as reasonably practicable, of any such cancellation of a Redemption Request.
3.03 Legal and Beneficial Ownership . The Participant represents and warrants that it will not attempt to place a Redemption Request for the purpose of redeeming any Creation Unit of Shares of any Series unless it has first ascertained that it or the Participant Client, as the case may be, owns outright or has full legal authority and legal right to tender for redemption the requisite number of Shares of the relevant Series to be redeemed as a Creation Unit and to the entire proceeds of the redemption and that such Shares have not been loaned or pledged to another party and are not the subject of a repurchase agreement, securities lending agreement or any other arrangement affecting legal or beneficial ownership or precluding the tender of such Shares for redemption. In the event that the Distributor and/or the Trust have reason to believe that the Participant does not have the requisite number of Shares of the relevant Series to be redeemed as a Creation Unit, the Distributor and/or the Trust may require the Participant to deliver or execute supporting documentation in order for the Redemption Request to be in proper form. Failure to deliver or execute the requested supporting documentation may result in a Participants Redemption Request being rejected as not in proper form.
3.04 Same Business Day Purchase and Redemption . Notwithstanding anything to the contrary contained herein, except as otherwise specifically advised by the Participant in writing to the Distributor and the Trust, the Participant represents and warrants on behalf of itself and any Participant Client that in the case of any Redemption Request that is placed on the same Business Day as any Purchase Order is placed by the Participant for the same Series: (i) the Redeeming Shareholder is not the same Participant or Participant Client as the Purchasing Shareholder; (ii) the Redeeming Shareholder is not affiliated in any manner to or with the Purchasing Shareholder; (iii) the Redeeming Shareholder and the Purchasing Shareholder are acting for their own respective beneficial interests; (iv) the placing of such Redemption Request and such Purchase Order is not for the beneficial interest of the same person; and (v) the placing of such Redemption Request and such Purchase Order is not pursuant to any common plan, mutual agreement, or understanding.
3.05 Corporate Actions . With respect to any Redemption Request, the Participant acknowledges and agrees to return to the Trust any dividend, distribution or other corporate action paid to it or a Participant Client in respect of any Fund Security that is transferred to the Participant or any Participant Client that, based on the valuation of such Fund Security at the time of transfer, should have been paid to the Series. It is acknowledged and agreed that the Trust is entitled to reduce the amount of money or other proceeds due to the Participant or any Participant Client by an amount equal to any dividend, distribution or other corporate action to be paid to the Participant or to the Participant Client in respect of any Fund Security that is transferred to the Participant or any Participant Client that, based on the valuation of such Fund Security at the time of transfer, should be paid to the Series. Likewise, the Trust, on behalf of the applicable Series, shall return to the Participant or any Participant Client any dividend, distribution or other corporate action paid to it in respect of any Fund Security that is transferred to the Trust, on behalf of the applicable Series, that, based on the valuation of such Fund Security at the time of transfer, should have been paid to the Participant or the Participant Client.
3.06 Cash Amount and Cash Component . In situations where a Cash Amount and/or a Cash Component will be applied to a Redemption Request, the Participant hereby agrees that it will make available or transfer funds in an amount equal to the Cash Amount and/or Cash Component, as applicable. Computation of this amount shall exclude any stamp duty and other similar fees and expenses payable upon the transfer of beneficial ownership of the Fund Securities, which shall be the sole responsibility of the Participant and not of the Trust or the Distributor. The Participant hereby agrees to ensure that the Cash Amount and/or Cash Component will be received by the Trust on or before the Contractual Settlement Date or such earlier time as may be designated by the Trust.
SECTION 4 BENEFICIAL OWNERSHIP LIMITATION
4.01 Beneficial Ownership . The Participant represents and warrants to the Distributor and the Trust that any portfolio securities deposited with the Trust will have an adjusted tax basis equal to the fair market value of such securities at the time of the contributions. The Participant represents and warrants to the Distributor and the Trust that immediately after each acquisition of Shares by the Participant pursuant to this Agreement (based upon the number of outstanding Shares of such Series made publicly available by the Trust) it does not hold for its account or the account of any single Beneficial Owner of Shares of the relevant Series eighty percent (80%) or more of the outstanding Shares of such relevant Series. The Participant agrees that the confirmation relating to any Order for one or more Creation Units of Shares of a Series shall state as follows: Purchaser represents and warrants that, immediately after giving effect to the purchase of Shares to which this confirmation relates, it will not own or hold eighty percent (80%) or more of the outstanding Shares of the relevant Series of the [Trust]. If the Participant acts as agent for another party or parties in acquiring Shares, then Participant agrees that no party or parties on behalf of whom Participant acquired Shares in the transaction to which the confirmation relates holds or owns through the Participant account, immediately after such acquisition, eighty percent (80%) or more of the outstanding Shares of the relevant Series. The Trust and the Transfer Agent and Distributor shall have the right to require information from the Participant regarding Share ownership of each Series, and to rely thereon to the extent necessary to make a determination regarding ownership of eighty percent (80%) or more of the currently outstanding Shares of any Series by a Beneficial Owner as a condition to the acceptance of a deposit of Deposit Securities.
4.02 Rule 144A Securities . The Participant represents and warrants to the Distributor and the Trust that immediately after each acquisition of a Rule 144A Security by the Participant pursuant to this Agreement, it or any Beneficial Owner of the Rule 144A Security will be a qualified institutional buyer as defined in Rule 144A under the 1933 Act.
SECTION 5 AUTHORIZED PERSONS
5.01 Phone Orders and Website Orders . When placing Orders by phone, an Authorized Person, on behalf of the Participant, will be required to provide their personal ID and submit a valid PIN Number (with such personal ID and PIN Number to be issued by the Distributor). When placing Orders through the Website, an Authorized Person on behalf of the Participant, will be required to enter a valid firm PIN Number, a valid personal ID and password (with such password provided by the Distributor) for Website access and trade order processing. The Participant will only have access to certain section(s) of the Website, as determined by the Trust or the Distributor, in their sole discretion. The Participant will adhere to the security procedures mandated by the Distributor from time to time in all material respects. The PIN Number, personal ID and password shall be kept confidential and shall not be shared with any third party unless otherwise required by applicable Law. It is acknowledged and agreed that these procedures may be revised and updated from time to time and made available in the AP Handbook.
5.02 PIN Numbers and Password . Upon the execution of this Agreement by the Participant and the acceptance thereof by the Distributor, the Participant shall be issued a PIN Number by the Distributor and each Authorized Person will be issued a personal ID and password for use on the Website. To place Orders through the Distributor, the Authorized Person must provide the Participants valid PIN Number and must also enter a valid personal ID and password to access the Website. The PIN Number is used to identify the Participant and validate instructions issued by the Participant pursuant to this Agreement. The Distributor shall be entitled to assume that all instructions issued to it using the Participants PIN Number have been properly placed by Authorized Persons, unless the Participant has revoked its PIN Number (and, with respect to the Website, its password) and such revocation has been acknowledged by the Distributor. The Distributor shall be under no obligation to verify that an Order is being placed by an Authorized Person. The Participant agrees that neither the Distributor nor the Trust shall be responsible for any losses incurred by the Participant as a result of an Authorized Person identifying himself or herself as a different Authorized Person or an unauthorized person identifying himself or herself as an Authorized Person. The PIN Number and password shall be kept confidential and only provided to Authorized Persons unless otherwise required by applicable Law. The Participant may revoke the PIN Number and password at any time upon written notice to the Distributor and the Trust, and the Participant shall be responsible for doing so in the event that it becomes aware that an unauthorized person has received access to its PIN Number and/or password or has used the PIN Number and/or password in an unauthorized manner. Upon receipt of such written request, the Distributor shall promptly de-activate the PIN Number and/or password. If a Participants PIN Number and/or password is changed, the new PIN Number and/or password will become effective on a date mutually agreed upon by the Participant and the Distributor.
5.03 Certification . Concurrently with the execution of this Agreement and as requested from time to time by the Trust and/or Distributor but no less frequently than annually, the Participant shall deliver to the Distributor and the Trust, with copies to the Transfer Agent, a certificate (the form of which is set forth in Annex I ) signed by the Participants Secretary or other duly authorized official setting forth the names, electronic mail addresses and telephone and facsimile numbers of all Authorized Persons. Such certificate may be accepted and relied upon by the Distributor and the Trust as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the Distributor and the Trust of a superseding certificate in a form approved by the Trust bearing a subsequent date. It shall be the responsibility of the Participant to ensure that the Distributor has a current list of all Authorized Persons. Upon the termination or revocation of authority of an Authorized Person by the Participant, the Participant shall give prompt written notice of such fact to the Distributor and such notice shall be effective upon receipt by the Distributor.
SECTION 6 STATUS OF PARTICIPANT AND DISTRIBUTOR
6.01 Ability to Enter Into Agreement . Each of the Participant and Distributor hereby represents and warrants that it (i) is duly organized, validly existing and in good standing under the laws of its state of organization, (ii) has the power and authority, and the legal right, to own its assets and to transact the business in which it is engaged, and (iii) has the power and authority, and the legal right, to execute,
deliver and perform its obligations under this Agreement and has taken all necessary action required by its governing documents or other applicable requirements of law to authorize the execution, delivery and performance of this Agreement. Each of the Participant and Distributor hereby represents and warrants that this Agreement, when executed and delivered by the Participant or the Distributor, as applicable, will constitute a legal, valid and binding obligation of it and be enforceable against it in accordance with the terms of the Agreement, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
6.02 Clearing Status . The Participant hereby represents and warrants that with respect to (i) all Orders of Creation Units of any Series, it is a DTC Participant, (ii) any Order of Creation Units of any Series initiated through the CNS Clearing Process, it is a Participating Party and (iii) any Order of Creation Units of any Series initiated through the applicable Non-CNS Clearing Process, it has the ability to transact through such processes designated by such Series. Any change in the status of the Participant with respect to subsection (i) of this Section 6.02 shall terminate this Agreement and the Participant shall give prompt written notice to the Distributor and the Trust of such change. If, at any time, the Participants representation and warranty made in subsections (ii) or (iii) of this Section 6.02 becomes inaccurate, Participant shall give prompt (but in any event within two Business Days) written notice to the Distributor and the Trust in writing, and, notwithstanding anything to the contrary herein, the Distributor or the Trust may elect to immediately terminate this Agreement in their sole discretion.
6.03 Broker Dealer Status . The Participant hereby represents and warrants that it is (i) registered as a broker-dealer under the 1934 Act, (ii) qualified to act as a broker or dealer in the states or other jurisdictions where it is so required to be qualified in accordance with all applicable laws, rules and regulations, and (iii) a member in good standing of FINRA. The Participant agrees that it will maintain such registrations, qualifications, and membership in good standing and in full force and effect throughout the term of this Agreement. The Participant further agrees to comply with all applicable Federal laws, the laws of the states or other jurisdictions concerned, and the rules and regulations promulgated thereunder and with the Constitution, By-Laws and NASD/FINRA Conduct Rules, to the extent such laws, rules and regulations relate to Participants Orders and related transactions in, and activities with respect to, the Shares, and that it will not offer or sell Shares of any Series of the Trust in any state or jurisdiction where they may not lawfully be offered and/or sold. The Participant also agrees that it will not offer or sell Shares of any Series of the Trust in any non-U.S. jurisdiction or to any person who (or whose registered office) is located in any jurisdiction outside of the U.S.
6.04 Distributor Status . The Participant understands and acknowledges that the method by which Shares will be created and traded may raise certain issues under applicable securities laws. For example, because new Creation Units may be issued and sold by the Trust on an ongoing basis, at any point a distribution, as such term is used in the 1933 Act, may occur. The Distributor and the Trust hereby caution Participant that some activities on its part, depending on the circumstances, may result in its being deemed a participant in a distribution in a manner which could render it a statutory underwriter and subject it to the prospectus delivery and liability provisions of the 1933 Act. The Participant also understands and acknowledges that dealers who are not underwriters but are effecting transactions in Shares, whether or not participating in the distribution of Shares, are generally required to deliver a Prospectus.
6.05 Anti-Money Laundering . The Participant represents, warrants and covenants that it has established and presently maintains, and will continue to maintain throughout the term of this Agreement, an anti-money laundering program (the Program ) reasonably designed to prevent the Participant from being used as a conduit for money laundering or other illicit purposes or the financing of terrorist activities, and is in compliance with the Program and all anti-money laundering laws, regulations and rules applicable to it including, without limitation, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the USA PATRIOT Act ).
SECTION 7 ROLE OF PARTICIPANT
7.01 Independent Contractor . The Participant acknowledges and agrees that for all purposes of this Agreement, the Participant will be deemed to be an independent contractor, and will have no authority to act as agent for the Trust or the Distributor in any matter or in any respect. The Participant agrees to make itself and its employees available, upon reasonable request, during normal business hours to consult with the Distributor, and if requested, the Trust or their designees concerning the performance of the Participants responsibilities under this Agreement.
7.02 Maintenance of Records . The Participant agrees to maintain records of all Orders relating to Shares made by or through it and, to the extent it can do so in a manner consistent with any contractual obligations of Participant to any clients and applicable Laws, to furnish copies of such records to the Trust or the Distributor upon the reasonable request of the Trust or the Distributor.
SECTION 8 MARKETING MATERIALS AND REPRESENTATIONS
The Participant represents, warrants and agrees that it will not make any representations concerning Shares, the Trust or any Series other than those contained in or consistent with the Prospectus for each Series or in any promotional materials or sales literature furnished to the Participant by the Trust or the Distributor. The Participant agrees not to furnish or cause to be furnished to any person or display or publish any information or materials relating to Shares (including, without limitation, promotional materials and sales literature, advertisements, press releases, announcements, statements, posters, signs or other similar materials), except such information and materials as may be furnished to the Participant by the Trust or the Distributor and such other information and materials as may be approved in writing by the Trust and the Distributor. The Participant understands that the Trust or any of its Series will not be advertised or marketed as open-end investment companies (i.e., as mutual funds) which offer redeemable securities, and that any advertising materials will prominently disclose that the individual Shares are not redeemable units of beneficial interest in the Trust. In addition, the Participant understands that any advertising material that addresses redemptions of Shares, including the Prospectus, will disclose that the owners of Shares may acquire Shares and tender Shares for redemption to the Trust in Creation Unit aggregations only. Notwithstanding the foregoing, the Participant may without the written approval of the Trust or the Distributor prepare and circulate in the regular course of its business or for internal use, research reports institutional sales literature (as such term in defined in NASD Rule 2211 or any successor rule), correspondence (as such term is defined in NASD Rule 2211 or any successor rule) and other similar materials that include information, opinions or recommendations relating to Shares, provided that such materials comply with applicable NASD rules (or comparable FINRA rules, if such NASD rules are subsequently repealed, rescinded, or are otherwise replaced by FINRA rules). The Participant agrees that any representation or statement in such reports, sales literature, correspondence, communications or other similar materials will not contain any untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and, to the extent such materials include statements of fact regarding the Shares, such statements of fact will be consistent with the Prospectus of the Series to which such Shares relate. As between the Trust and Distributor on one hand and the Participant on the other, Participant agrees that Participant shall be fully responsible and liable for such reports, sales literature, correspondence, communications or other similar materials.
Participant agrees that, so long as this Agreement remains in effect, it may be identified or named as an Authorized Participant, or any similar designation, in any materials relating to any Series, the Trust or as may be necessary to meet applicable legal requirements.
SECTION 9 IRREVOCABLE PROXY
9.01 Appointment of Irrevocable Proxy . The Participant, from time to time, may be a beneficial owner and/or an owner of record of Shares. To the extent that it is a beneficial owner of Shares, the Participant does hereby irrevocably appoint the Distributor as its attorney and proxy with full authorization and power to vote (or abstain from voting) the Participants beneficially owned Shares of a Series, which
the Participant is or may be entitled to vote at any meeting of a Series held after the date this Agreement is executed, whether annual or special and whether or not an adjourned meeting, or, if applicable, to give written consent with respect thereto. The Distributor shall echo vote (or abstain from voting) the Participants beneficially owned Shares ( i.e. , vote such Shares in the same manner and in the same proportion as the votes (or abstentions) of other holders of the corresponding Series) on any matter, question or resolution submitted to the vote of shareholders of the applicable Series and with complete independence from and without any regard to any views, statements or interests of the Participant, its affiliates or any other person.
9.02 Powers of Attorney and Proxy . The Distributor, as attorney and proxy for the Participant under this SECTION 9 : (i) is hereby given full power of substitution and revocation, (ii) may act through such agents, nominees or substitute attorneys as it may from time to time appoint, and (iii) may provide voting instructions to such agents, nominees or substitute attorneys in any lawful manner deemed appropriate by it, including in writing, by telephone, telex, facsimile, electronically (including through the Internet) or otherwise. The powers of the Distributor as attorney and proxy under this paragraph shall include (without limiting its general powers hereunder) the power to receive and waive any notice of any meeting on behalf of the Participant.
9.03 Term of Power of Attorney and Proxy . The appointment of the Distributor as attorney and proxy shall be deemed renewed each time Participant acquires Shares as a beneficial owner. The Distributor shall serve as an irrevocable attorney and proxy for the Participant under this Section for so long (and only so long) as this Agreement remains in effect. In the event applicable law prevents the assignment of the irrevocable power of attorney and proxy, or deems such power of attorney and proxy to expire due to the passage of time, the Participant hereby agrees to execute and deliver such additional documentation as may be necessary to cause the Distributor to serve as its attorney and proxy for the purposes discussed in this Agreement. This irrevocable proxy automatically shall terminate with respect to any Series or the Trust as a whole, if the Distributor ceases to act as Distributor to any Series or the Trust, as applicable. The Distributor may terminate this irrevocable proxy with sixty (60) days written notice to the Participant.
SECTION 10 INDEMNIFICATION; LIMITATION OF LIABILITY
10.01 Indemnification of Distributor . The Participant hereby agrees to indemnify and hold harmless the Distributor, the Trust, the Transfer Agent, their respective subsidiaries, Affiliated Persons, directors, officers, employees and agents, and each person, if any, who controls such persons within the meaning of Section 15 of the 1933 Act (each a Distributor Indemnified Party ) from and against any loss, liability, cost and expense (including reasonable attorneys fees, collectively Losses ) incurred by such Distributor Indemnified Party as a result of (i) any breach by the Participant of any provision of this Agreement; (ii) any failure by the Participant to comply with applicable laws, including rules and regulations of self-regulatory organizations such as the NASD/FINRA Conduct Rules; or (iii) actions of such Distributor Indemnified Party in reliance upon any instructions issued over the phone or the Website reasonably believed by the Trust, the Distributor and/or the Transfer Agent to be genuine and to have been given by the Participant or an Authorized Person. The foregoing shall not apply to any Losses incurred by such Distributor Indemnified Party arising out of the Distributor Indemnified Partys own fraud, willful misconduct or reckless disregard of its duties hereunder.
10.02 Limitation of Liability . The Participant agrees that the Distributor, the Transfer Agent and the Trust shall not be liable, absent fraud or willful misconduct, for losses incurred by the Participant in connection with the placement of Orders or otherwise, including as a result of unauthorized use of the Participants PIN Number.
10.03 Survival . This SECTION 10 shall survive the termination of this Agreement.
SECTION 11 THIRD PARTY BENEFICIARIES
The Distributor and the Participant acknowledge and agree that this Agreement is entered into for, among other things, the benefit of the Trust and intend that the Trust shall be a third-party beneficiary of this Agreement and be entitled to enforce all of the terms hereof, including, without limitation, the rights granted in its favor and in favor of the Distributor, the Transfer Agent or the Custodian under this Agreement.
SECTION 12 NOTICES
All notices, communications, requests and demands to or upon the respective parties hereto to be effective shall be in writing (and if sent by mail, sent via certified or registered mail, return receipt requested) or be by confirmed facsimile transmission or electronic mail with confirmed delivery status notification. All notices shall be deemed to have been duly given or made when delivered by hand, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of electronic mail transmission, when sent, addressed as follows or at such other address as such party may designate in writing. Notwithstanding the above, delivery of any amendment or supplement to the Prospectus or AP Handbook shall be made via email to the Participant.
SECTION 13 COMMENCEMENT OF TRADING
The Participant may not submit an Order pursuant to this Agreement until five Business Days after effectiveness of this Agreement or a date agreed upon by the Distributor and the Participant; provided, however, that this Agreement shall be immediately effective if the execution of this Agreement supersedes any other authorized participant agreement among the Parties that is currently in effect.
SECTION 14 DEFINITIONS
The capitalized terms used in this Agreement are defined below. Any capitalized terms used herein that are not defined shall have the meaning set forth in the Prospectus or in the AP Handbook.
14.01 1933 Act means the Securities Act of 1933, as amended.
14.02 1934 Act means the Securities Exchange Act of 1934, as amended.
14.03 1940 Act has the meaning set forth in the preamble of this Agreement.
14.04 Affiliated Person shall have the meaning given to it by Section 2(a)(3) of the 1940 Act, subject to such exemptions as may be granted by the Securities and Exchange Commission by any rule, regulation or order applicable to the Trust or their investment adviser.
14.05 | Agreement has the meaning set forth in the preamble of this Agreement. |
14.06 AP Handbook means the handbook and other supplemental materials that accompany, or are made available in connection with, this Agreement that clarify and provide revised or additional procedures with respect to a Participants transactions with the Distributor and the Trust, as they may be amended from time to time by the Distributor or the Trust and made available to the Participant. The AP Handbook is incorporated by reference into this Agreement and hereby made a part hereof. It is acknowledged and agreed that the AP Handbook may be made available solely in an electronic format accessible via the internet. Any changes to the AP Handbook made available to the Participant subsequent to the date of this Agreement shall also be deemed incorporated by reference herein.
14.07 Authorized Person means a person that is authorized to give instructions relating to any activity contemplated by this Agreement or any other notice, request or instruction on behalf of the Participant.
14.08 Beneficial Owner shall have the meaning given to it by Rule 16a-1(a)(2) of the 1934 Act.
14.09 Business Day shall mean each day the exchange on which a Series is listed is open for regular trading.
14.10 Cash Amount means an amount of cash sufficient to pay any applicable transaction fee, redemption fee and any additional fixed and/or variable charges applicable to purchase or redemption transactions effected fully or partially in cash (when, in the sole discretion of the Trust, cash transactions are available or specified), in each case, as disclosed in the applicable Prospectus. Without limiting the generality of the foregoing, the term Cash Amount shall also include any fees, costs and expenses (including, without limitation, reasonable attorneys fees) incurred by the Trust in taking possession of, liquidation of or other use of any collateral posted in lieu of delivery of Deposit Securities or Shares.
14.11 Cash Component means, (1) in the case of a purchase of a Creation Unit, an amount of cash equal to the difference between the total aggregate value of the Deposit Securities and the net asset value of the Creation Unit; and (2) in the case of a redemption of a Creation Unit, an amount of cash equal to the difference between the net asset value of the Creation Unit being redeemed and the total aggregate value of the Fund Securities delivered by the Series in consideration for the Creation Unit, in such case including any cash in lieu amounts.
14.12 cash in lieu shall have the meaning given such term in Section 2.02 of this Agreement.
14.13 CNS Clearing Process means the Continuous Net Settlement clearing processes of NSCC, as such processes have been enhanced to effect purchases and redemptions of Creation Units.
14.14 CNS System means the Continuous Net Settlement clearing processes of NSCC.
14.15 Contractual Settlement Date means the date as specified in the Prospectus or in the AP Handbook upon which delivery of Deposit Securities, Shares and/or any Cash Component, as applicable, must be made by the Participant to the Trust.
14.16 Creation Unit means an aggregation of a specified number of Shares of a Series, as specified in the applicable Prospectus.
14.17 Custodian means [name of Custodian] or such other custodian as the Trust may specify from time to time.
14.18 Deposit Securities means an in-kind deposit of a designated portfolio of equity or fixed-income securities or other financial instruments as determined from time to time in the sole discretion of the Trust in accordance with the terms of the Prospectus.
14.19 Distributor Indemnified Party shall have the meaning set forth in Section 10.01 .
14.20 Distributor has the meaning set forth in the preamble hereto.
14.21 DTC Participant means a person that is eligible and authorized to participate in the DTC direct registration system.
14.22 DTC means The Depository Trust Company.
14.23 Effective Date has the meaning set forth in the preamble hereto.
14.24 Exchange Traded Fund or ETF has the meaning set forth in the preamble hereto.
14.25 Federal Reserve System means the central banking system of the United States.
14.26 FINRA means the Financial Industry Regulatory Authority, Inc.
14.27 Fund Deposit means the requisite Deposit Securities and, if applicable, a Cash Component.
14.28 Fund Securities means in-kind redemption proceeds of a designated portfolio of securities or other financial instruments as determined from time to time in the sole discretion of the Trust
14.29 Law means any rule, regulation, statute, order, ordinance, guideline, pronouncement, code or other legally enforceable requirement, including common law, state and federal laws or securities laws and laws of foreign jurisdictions and, with respect to a Party, the rules and regulations of any self regulatory organization of which such Party or, to the extent relevant to the performance of a Partys obligations under this Agreement, such Partys Affiliate, is a member or securities market on which Shares are listed.
14.30 Losses has the meaning set forth in Section 10.01 hereto.
14.31 non-CNS Clearing Process means the applicable clearing process specified for any Series, including but not limited to those affected through the facilities of DTC, the Federal Reserve System, Euroclear, the custodian, local subcustodians and/or any subset or combination thereof.
14.32 NSCC means the National Securities Clearing Corporation.
14.33 Orders means Purchase Orders and Redemption Requests.
14.34 Participant Client means any party on whose behalf the Participant acts in connection with an Order (whether a customer or otherwise).
14.35 Participant has the meaning set forth in the preamble hereto.
14.36 Participating Party means a Participant who is a member of the NSCC and a participant in the CNS System of NSCC
14.37 Party means the Distributor, the Participant and the third-party beneficiaries named in SECTION 11 .
14.38 PIN Number means a unique personal identification number issued to the Participant pursuant to this Agreement.
14.39 Prospectus means each Series current prospectus and statement of additional information included in the Trusts effective registration statement, as supplemented and/or amended from time to time, the contents of which are hereby incorporated into this Agreement by reference.
14.40 Purchase Order means an irrevocable order to purchase one or more Creation Units by a Participant.
14.41 Purchasing Shareholder means, in the case of a same Business Day Purchase Order and Redemption Request as described in Section 3.04 , the Participant (in the case of a Purchase Order that is placed for the Participants own beneficial interest) or Participant Client (in the case of a Purchase Order that is placed for the Participant Clients beneficial interest).
14.42 Redeeming Shareholder means, in the case of a same Business Day Purchase Order and Redemption Request as described in Section 3.04 , the Participant (in the case of a Redemption Request that is placed for the Participants own beneficial interest) or Participant Client (in the case of a Redemption Request that is placed for the Participant Clients beneficial interest).
14.43 Redemption Request means a request to redeem one or more Creation Units by a Participant.
14.44 Rule 144A Security has the meaning set forth in Section 2.04 hereof.
14.45 Series has the meaning set forth in the recitals and includes Series that are formed and offered after the date of this Agreement.
14.46 Shares has the meaning set forth in the recitals.
14.47 Transfer Agent has the meaning set forth in the preamble of this Agreement and shall apply to any other transfer agent as the Trust may specify from time to time upon notice to the Participant.
14.48 Trust has the meaning set forth in the preamble of this Agreement.
14.49 Website means the website: https://etfwebservices.seic.com/ETF (or such other web address as may be communicated by the Distributor or the Trust to the Participant from time to time) established and maintained by the Trust or their affiliates for purposes of allowing Participants to place Orders, as it may be updated from time to time.
SECTION 15 INCORPORATION BY REFERENCE AND PROSPECTUS CONTROLLING
The Participant acknowledges receipt of the AP Handbook, represents that it has reviewed such document and understands the terms thereof, and further acknowledges that the information and procedures contained therein are incorporated herein by reference. The Participant also acknowledges and agrees that the Prospectus for each Series may contain, among other things, procedures relating to the creation and redemption of Shares. The Participant hereby acknowledges and agrees that it has the responsibility of reviewing and obtaining familiarity with the Prospectus for the Shares of each Series in which it transacts. In the event that any information contained in the AP Handbook or posted on the Website is in conflict with the information disclosed in the Prospectus for a Series, the information contained in the Prospectus shall be controlling. In the event that any information posted on the Website (for the avoidance of doubt, it is acknowledged and agreed that the Website is deemed not to include the Prospectus or the AP Handbook) is in conflict with the terms and conditions of this Agreement, the terms and conditions of this Agreement shall be controlling. The Trust will make reasonable efforts to keep the information contained in the AP Handbook or posted on the Website and contained in the Prospectus consistent.
SECTION 16 EFFECTIVENESS, TERMINATION, AMENDMENT AND ASSIGNMENT
This Agreement shall become effective in this form upon delivery to and execution by the Distributor. This Agreement may be terminated at any time by any Party upon sixty days prior written notice to the other Parties and may be terminated earlier by a Party at any time in the event of a breach by the other Party of any provision of this Agreement or the procedures described or incorporated herein. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof. This Agreement supersedes all prior or contemporaneous representations, discussions, negotiations, letters, proposals, agreements and understandings between the parties hereto with respect to the subject matter hereof, whether written or oral. This Agreement may be amended, modified or supplemented only by a written instrument duly executed by an authorized representative of each Party. For the avoidance of doubt, it is acknowledged and agreed that changes in procedures stated in the Prospectus or AP Handbook shall not be considered an amendment to this Agreement and shall be effective immediately. This Agreement may not be assigned by the Participant, except in connection with the sale of all or substantially all of the Participants business to another party.
SECTION 17 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction. To the extent that the applicable laws of the Commonwealth of Pennsylvania, or any of the provisions of this Agreement, conflict with the applicable provisions of the 1940 Act, the 1933 Act or the 1934 Act, the latter shall control. Each party to this Agreement, by its execution hereof, (i) hereby irrevocably submits to the nonexclusive jurisdiction of the state courts of the Commonwealth of Pennsylvania or the United States District Courts for the Eastern District of Pennsylvania for the purpose of any action between the parties arising in whole or in part under or in connection with this Agreement, and (ii) hereby waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such action brought in one of the above-named courts should be dismissed on grounds of forum non conveniens, should be transferred or removed to any court other than one of the above-named courts, or should be stayed by reason of the pendency of some other proceeding in any other court other than one of the above-named courts, or that this Agreement or the subject matter hereof may not be enforced in or by such court.
SECTION 18 COUNTERPARTS
This Agreement may be executed in two or more counterparts, all of which shall constitute one and the same instrument. Each such counterpart shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. This Agreement shall be deemed executed by both parties when any one or more counterparts hereof or thereof, individually or taken together, bears the original facsimile or scanned signatures of each of the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year written below.
SEI INVESTMENTS DISTRIBUTION CO. | [NAME OF PARTICIPANT] | |||||||
By: | By: | |||||||
Name: | Name: | |||||||
Title: | Title: | |||||||
ACKNOWLEDGED BY:
J.P. MORGAN EXCHANGE-TRADED FUND TRUST |
, as Transfer Agent |
|||||||
By: | By: | |||||||
Name: | Name: | |||||||
Title: | Title: |
ANNEX I
CERTIFICATE DESIGNATING AUTHORIZED PERSONS
The following employees of [NAME OF PARTICIPANT] (each, an Authorized Person) are authorized, in accordance with the Authorized Participant Agreement between [NAME OF PARTICIPANT] and SEI Investments Distribution Co., as such Agreement may be amended from time to time, to act as agent of [NAME OF PARTICIPANT] to submit purchase orders and redemption requests (Orders) on behalf of [NAME OF PARTICIPANT] and to give instructions or any other notice or request on behalf of [NAME OF PARTICIPANT] with respect to such Orders or any other activity contemplated by the Authorized Participant Agreement.
SECTION A List of Current Authorized Persons
Name:
e-mail Address:
Telephone:
Fax:
Name:
e-mail Address:
Telephone:
Fax:
Name:
e-mail Address:
Telephone:
Fax:
Name:
e-mail Address:
Telephone:
Fax:
SECTION B List of Changes to Authorized Persons
The following persons who were not designated as Authorized Persons on Participants previous Certificate have been added as Authorized Persons: | The following persons who were included on the Participants previous Certificate are no longer Authorized Persons: |
The undersigned, [name of secretary or authorized officer], [title] of [name of PARTICIPANT], does hereby certify that the persons listed in Section A above have been duly authorized to act as Authorized Persons pursuant to the Authorized Participant Agreement.
By: | ||
Name: | ||
Title: |
Date:
AGENCY SERVICES AGREEMENT
SCHEDULE A
EXHIBIT A-2
Form of Authorized Participant Handbook
J.P. Morgan
Exchange-Traded
Fund Trust
AUTHORIZED PARTICIPANT
PROCEDURES HANDBOOK
TABLE OF CONTENTS
Introduction |
3 | |||
PIN Number Information |
4 | |||
Initial Issuance |
4 | |||
Revocation and Reissuance |
4 | |||
Purchase of Creation Units |
5 | |||
Eligibility |
5 | |||
Cut-Off Time for Purchase Orders |
5 | |||
Transmittal of Purchase Orders |
5 | |||
Receipt/Delivery of Creation Order |
5 | |||
Transaction Fees |
5 | |||
Delivery of Creation Units |
6 | |||
Settlement |
6 | |||
Right to Reject Purchase Orders for Creation Unit Aggregations |
6 | |||
Redemption of Shares |
7 | |||
Eligibility |
7 | |||
Cut-Off Time for Redemption Orders |
7 | |||
Transmittal of Redemption Orders |
7 | |||
Transaction Fees |
7 | |||
Receipt/Delivery of Redemption Order |
7 | |||
Settlement |
8 | |||
Suspension of Right to Redeem Creation Unit Aggregations |
8 | |||
Placing Creation/Redemption Orders with SEI |
9 | |||
Placing a phone order |
9 | |||
Placing ETF Order via the SEI ETF Order Taking Platform |
11 | |||
Non Standard Orders |
13 | |||
Orders Placed on T-1 |
13 | |||
Cash in Lieu Amount |
13 | |||
Collateral for Missing Deposit Securities |
13 | |||
Transaction Fees |
14 | |||
NAV Errors |
14 | |||
APPENDIX A GLOSSARY OF TERMS |
15 | |||
APPENDIX B FUND INFORMATION |
16 | |||
JPMorgan Diversified Return Global Equity ETF |
16 |
Introduction
J.P. Morgan Investment Management Inc. (JPMIM or Sponsor) and SEI Investments Distribution Co. (SEI) welcome you as an Authorized Participant (AP) for J.P. Morgan Exchange-Traded Fund Trust (JPM ETF). Only APs are permitted to directly purchase or redeem Shares of the Funds directly with the Trust. Definitions used in this Procedures Handbook can be found in the Glossary in Appendix A.
This Procedures Handbook details the procedures for placing and processing Purchase Orders and Redemption Orders in Creation Units. All Orders must be made in accordance with terms and procedures set forth herein. Sponsor or SEI may send you updates or supplements to this Procedures Handbook from time to time, as necessary.
THE PROCEDURES SET FORTH IN THIS HANDBOOK ARE BASED UPON AND SUBJECT TO EACH FUNDS THEN CURRENT PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND ALL APPLICABLE EXEMPTIVE ORDERS ISSUED BY THE SECURITIES AND EXCHANGE COMMISSION (COLLECTIVELY THE REGULATORY DOCUMENTS). IN THE EVENT THAT THE TERMS OF ANY PROCEDURE DESCRIBED IN THIS HANDBOOK CONFLICTS WITH THE TERMS OF ANY REGULATORY DOCUMENT OR ANY APPLICABLE LAW OR REGULATION, THE TERMS OF SUCH REGULATORY DOCUMENT, LAW OR REGULATION SUPERSEDE SUCH PROCEDURE AND SHALL BE CONSIDERED PART OF THIS HANDBOOK.
3
PIN Number Information
Please note that before an AP may place any Purchase Order, it must sign the Authorized Participant Agreement and return it to SEI.
Only authorized traders of the AP will be allowed to place Orders for Fund Shares. The unique Personal Identification Number (PIN) helps identify the AP and authenticate instructions the AP provides to SEI. An APs PIN must be kept confidential and be provided only to those persons who are authorized to give instructions relating to Orders on behalf of the AP. A list of all authorized traders must be sent to SEI with the Authorized Participant Agreement, but may be supplemented and/or amended in writing as set forth in the Authorized Participant Agreement.
Initial Issuance
Before an AP may place an Order, it must receive a unique PIN from SEI. This PIN serves to identify an AP. SEI will issue each AP a PIN once a fully executed Authorized Participant Agreement is received by SEI. This PIN is to be used by all authorized traders within the firm. If an AP does not receive a PIN in a timely manner, it should contact SEI at 844-999-6225.
In addition to placing order telephonically using the PIN, each authorized trader for the AP will be able to place orders via a secure ETF Order taking platform website (Platform). Each trader will be issued a personal username and a personal password. Using the firm PIN and his or her username and password, the trader will be able to place creation and redemption orders via this Platform.
Revocation and Reissuance
An AP may revoke its PIN at any time. In addition, an AP must revoke its PIN:
| in the event that it becomes aware that an unauthorized person has received access to its PIN or has or intends to use the PIN in an unauthorized manner; or |
| upon the termination or revocation of authority of an authorized person of the AP. |
To revoke a PIN, an AP must provide written notice to SEI. Written notice must be provided by an officer or principal of the AP acting in his or her capacity as such. An AP may initially provide written notice by email to ETFOPS@seic.com , but an original hard copy must be sent by overnight courier to:
SEI Investments Distribution Co.
Attn: ETF Operations
1 Freedom Valley Drive
Oaks, PA 19456
The written notice should contain the address and person to whose attention SEI should issue the replacement PIN and, if applicable, a secure fax number to which SEI should transmit the PIN.
SEI will immediately de-activate the APs PIN upon receipt of such written notice (by email or original hard copy, whichever is received first), and, if appropriate, shall issue a new PIN promptly. SEI will issue the new PIN via overnight courier (to the address provided in the written notice) unless the written notice specifically requests that the PIN be provided via secure fax (in which case, the PIN will be sent via the secure fax provided in the written notice). The new PIN will be effective upon delivery. If the original copy of the notice is not received by the AP within two (2) business days, SEI reserves the right to revoke the newly issued PIN.
The AP should be aware that revocation of its PIN will temporarily prevent it from being able to place orders until the new PIN is activated.
4
Purchase of Creation Units
The Funds will offer, issue and sell Shares only in Creation Unit Aggregations of a specified number of Shares, or such other amount of Shares as designated in the relevant Funds Prospectus, through SEI on a continuous basis, without a sales load, at their NAV per Share next determined after receipt of a Purchase Order in proper form on any Business Day. Creation Units are sold at their NAV, plus a transaction fee (if applicable).
Eligibility
To be eligible to place a Purchase Order with SEI, an AP must be a DTC Participant.
Cut-Off Time for Purchase Orders
SEI must receive all Purchase Orders to purchase Creation Unit Aggregations no later than 4:00pm EST. (or such earlier times if so designated in a Funds Prospectus or such earlier time that the Listing Exchange closes). If Purchase Orders are received by a Funds identified Cut-off Time and are accepted by SEI, the Purchase Order will be processed based on the NAV of the Fund as next determined on such date. The date on which a Purchase Order to purchase Creation Unit Aggregations is placed is referred to as the Transmittal Date. An AP placing orders for Creation Unit Aggregations of the Funds should afford sufficient time to permit proper submission of the order to SEI prior to the identified Cut-off Time on the Transmittal Date. Purchase Orders received after the Cut-off Time will be processed the next Business Day.
An AP may, under certain circumstances, submit a non-standard order or an order on Transmittal Date T-1. In order to submit such order, the Participant must acknowledge the additional procedures described below.
Transmittal of Purchase Orders
Purchase Orders may be transmitted by an AP to SEI via telephone or the internet.
By telephone: |
844-999-6225 | |
By internet: |
https://etfwebservices.seic.com/ETF |
Economic or market disruptions, or telephone or other communication failure may impede the ability to reach SEI.
Receipt/Delivery of Creation Order
A Creation Order is deemed received by SEI on the Transmittal Date if (i) such order is deemed received by SEI not later than the specified Cut-Off Time on such Transmittal Date; and (ii) all other applicable procedures set forth in this Procedures Handbook are properly followed. Each Fund reserves the right to reject a Creation Order for the reasons set forth in each Funds Prospectus.
When applicable, JPMorgan Chase Bank, N.A. (JPMCB), the Custodian, will settle cash and security Creation Units and cash-only Creation Units via the CNS Process. If the CNS Process is not applicable, JPMCB and the AP will settle cash via a Fed Funds wire and securities in the local market(s) as appropriate. If the Custodian does not receive the Cash or Shares by the market close on the settlement date, such order may be charged interest for delayed settlement or cancelled. In the event a Purchase Order is cancelled, the AP will be responsible for reimbursing the Fund for all costs associated with canceling the order including costs for repositioning the portfolio. Notwithstanding the above, the AP shall not be charged interest for delayed settlement or cancellation, and shall not be responsible for costs associated with canceling an order, if the delayed settlement or cancellation was for reasons outside of the APs control or the AP was not otherwise responsible or at fault for such cancellation.
Transaction Fees
A Transaction Fee may be charged for each Creation Unit as set forth in each Funds Prospectus. If applicable, the Transaction Fee may consist of a fixed fee and may also include a variable fee.
5
Delivery of Creation Units
When Cash and / or the Deposit Securities are received by the Custodian on the third (3rd) Business Day (or earlier) after the Creation, the Shares will be released.
Settlement
Purchase Orders for the Funds normally settle on a T+3 basis. At its sole discretion, the Sponsor may agree on a settlement cycle shorter than T+3, provided the AP is given advance notice by the Sponsor and/or the Distributor of any decision to settle Purchase Orders on a settlement cycle shorter than T+3.
The Participant bears 100% of the liability for any stamp duties and related charges.
Right to Reject Purchase Orders for Creation Unit Aggregations
Each Fund reserves the right to reject a Purchase Order transmitted to it by SEI if:
| it determines that the Purchase Order is not in proper form; |
| the purchaser or group of related purchasers, upon obtaining the Creation Units of Shares, would own 80% or more of the outstanding Shares of such Fund |
| the Sponsor believes that the Purchase Order would have adverse tax consequences to any Fund or its shareholders; |
| the Purchase Order would in the opinion of counsel be unlawful; |
| the acceptance of the Portfolio Deposit would otherwise, in the discretion of the Fund, JPMIM and/or any sub-advisers, have an adverse effect on the Fund or on the rights of the Funds beneficial owners; or |
| circumstances outside the control of the Fund make it, for all practical purposes, not feasible to process creations of Creation Units. |
SEI shall promptly notify an AP of the rejection of a Purchase Order.
6
Redemption of Shares
Shares of the Funds may be redeemed only in Creation Unit Aggregations of a specified number of Shares as designated in the relevant Funds Prospectus, through SEI on a continuous basis, without a sales load, at their NAV next determined after receipt of a Redemption Order on any Business Day. The Trust will not redeem Shares in amounts less than the Creation Unit Aggregation.
Eligibility
To be eligible to place Redemption Orders with SEI, an AP must be a DTC Participant.
Cut-Off Time for Redemption Orders
SEI must receive all Redemption Orders to purchase Creation Unit Aggregations no later than 4:00 pm EST (or such earlier times if so designated). If Redemption Orders are received by a Funds identified Cut-off Time and are accepted by SEI, the Redemption Order will be processed based on the NAV of the Fund as next determined on such date. The date on which a Redemption Order to redeemCreation Unit Aggregations is placed is referred to as the Transmittal Date. An AP placing a Redemption Order for Creation Unit Aggregations of the Funds should afford sufficient time to permit proper submission of the order to SEI prior to the identified Cut-off Time on the Transmittal Date. Redemption Orders received after the Cut-off Time will be processed the next Business Day.
An AP may, under certain circumstances, submit a non-standard order or an order on Transmittal Date T-1. In order to submit such order, the Participant must acknowledge the additional procedures described below.
Transmittal of Redemption Orders
Redemption Orders may be transmitted by an AP to SEI via telephone or the internet.
By telephone: | 844-999-6225 | |
By internet: | https://etfwebservices.seic.com/ETF |
Economic or market disruptions, or telephone or other communication failure may impede the ability to reach SEI or an AP.
Transaction Fees
A Transaction Fee may be charged for each Creation Unit redeemed as set forth in each Funds Prospectus. If applicable, the Transaction Fee may consist of a fixed fee and may also include a variable fee.
Receipt/Delivery of Redemption Order
A Redemption Order for Creation Unit Aggregations is deemed received by SEI on the Transmittal Date if (i) such request is received by SEI not later than the Funds identified Cut-off Time on such Transmittal Date (or such earlier time if so designated); and (ii) all other applicable procedures set forth in this Procedures Handbook are properly followed. The Funds reserve the right to reject a Redemption Order for the reasons set forth in each Funds Prospectus.
When applicable, JPMCB, the Custodian, will settle cash and security Redemption units and cash-only Redemption units via the CNS Process. If the CNS Process is not applicable, JPMCB and the AP will settle cash via a Fed Funds wire and securities will settle in the local market as appropriate. The AP shall deliver Shares of Funds containing global securities to the Custodian through DTC no later than 10:00 am Eastern Time of the next Business Day immediately following the Transmittal Date. If the Custodian does not receive the Cash or Shares by the market close on the settlement date, such order may be charged interest for delayed settlement or cancelled. If delivery fails, the Redemption Order may be cancelled. If
7
a Redemption Order is cancelled, the AP will be required to reimburse the Fund for all costs associated with the cancellation including the cost to reposition the portfolio, provided, however, that the AP shall not be responsible for such costs if the order was cancelled for reasons outside of its control or it was not otherwise responsible or at fault for such cancellation. The Trust will not settle partial Creation Unit Aggregations.
Settlement
Redemption Orders customarily settle on a T+3 basis. Redemption Orders which may settle earlier than T+3 may be subject to a charge, which shall be calculated as determined by the Fund or Sponsor.
The Participant bears 100% of the liability for any stamp duties and related charges.
Suspension of Right to Redeem Creation Unit Aggregations
The right of redemption may be suspended or the date of payment postponed with respect to any Fund (i) for any period during which NYSE Arca is closed (other than for customary holidays or weekend closings); (ii) for any period during which an emergency exists as a result of which disposal of the Shares of the Funds portfolio securities or determination of its NAV is not reasonably practicable; (iii) for any period during which trading on NYSA Arca is suspended or restricted; or (iv) in such other circumstances as is permitted by the SEC or such other period as the Sponsor determines to be necessary for the protection of the shareholders. The Sponsor will not be liable to any person or in any way for any loss or damages that may result from any such suspension or postponement.
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Placing Creation/Redemption Orders with SEI
SEI offers 2 ways to enter in creation and redemption of the Shares via the phone and via a secure order taking web platform. Below are how-to instructions and guidelines with respect to both ways. For additional procedures, contact SEI at 844-999-6225 or at etfops@seic.com
Placing a phone order
The following is an overview of the process necessary to places Orders with SEI via the phone:
Step 1 |
An authorized trader of an AP calls 844-999-6225, SEIs recorded JPM ETF trade line. The trader must place and complete an order between 9:00 a.m. EST and the Funds Cut-off Time, as set forth in the applicable Funds Registration Statement.
Incoming telephone calls are queued and will be handled in the sequence received. Orders to create or redeem units must be completed prior to the applicable Funds Cut-off Time. If the entire order process cannot be completed by the applicable Funds Cut-off Time, the order cannot be accepted. When calling in orders near the end of the day, please allow sufficient time for the process to be completed prior to the close. |
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Step 2 |
The trader will provide his/her name, the name of the AP that he/she represents and the APs PIN to the SEI Phone Representative.
The SEI representative will verify that the name provided by the trader is a person authorized to place trades on behalf of the AP and that the PIN is accurate. If this information is not correct, the SEI representative will not process the Order. |
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Step 3 |
The authorized trader communicates to the SEI representative all the necessary information to place an order. The information should include a minimum of the below, in addition to any other information that would assist in completion of the call:
Indicate if the trade is a Creation or Redemption
Ticker Symbol
Number of Units |
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Step 4 |
Once the trades are initially requested, the SEI representative will restate this information to the trader to verify that the Order information is accurate. After the order has been verbally verified by the SEI representative, the SEI representative will complete the order in the ETF System.
Following the verification process, the SEI representative will submit the Order to SEIs order entry system, which will then generate a Trade ID. The SEI representative will confirm to the authorized trader before completing the phone call that the order has been received. This will complete the call.
AN ORDER IS NOT CONSIDERED COMPLETE UNTIL THIS TRADE ID IS GENERATED BY THE SYSTEM. FOR EACH FUND, SEIS ORDER ENTRY SYSTEM AUTOMATICALLY CLOSES AT EACH FUNDS CUT-OFF TIME AND WILL NOT ACCEPT ORDERS. THEREFORE, NO ORDER WILL BE ACCEPTED BY SEI AFTER A FUNDS CUT-OFF TIME EVEN IF THE TRADER CALLED SEI AND INITIATED THE ORDER ENTRY PROCESS PRIOR TO THE FUNDS CUT-OFF TIME. |
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Step 5 |
After generating a Trade ID, SEIs Platform will automatically send the authorized trader an e-mail Affirmation detailing the contents of the Order.
Note: As set forth in the Regulatory Documents, SEI and each Fund have the right to reject an Order transmitted to it under certain circumstances. |
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Step 6 |
SEI delivers trade Confirmations to all APs via e-mail once the applicable Funds have accepted the orders and SEI Fund Accounting, the Funds administrator, calculates the Funds Net Asset Value (NAV) for that day. These email(s) are generated typically around 6 pm EST.
This information is similar to the Affirmation, but includes Final Cash for settlement purposes. |
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Placing ETF Order via the SEI ETF Order Taking Platform
In addition to the PIN each authorized trader for the AP will be able to place orders via a secure ETF Order taking platform website (Platform). Each trader will be issued a personal username and a personal password. Along with the firm PIN, the trader will be able to place creation and redemption orders following the instructions stated above regarding cut-off times, etc.
Website link: https://etfwebservices.seic.com/ETF
In order to utilize the Platform the trader must agree to the Agreement of Use and the Terms of Use. The Platform utilizes multi-factorial authorization to ensure a secure order taking experience.
The authorized traders personal password will expire every 30 days, at which time the password must be reset. Should the trader forget or misplace their password, they must contact SEI to have it reset.
SEI will de-activate an authorized traders username upon receipt of such written notice. It is the AP responsibility to notify SEI if a trader is no longer with the AP firm and the username must be deactivated.
The following is an overview of the process necessary to places Orders with SEI via the Platform:
Step 1 |
An authorized trader of an AP logs into the SEI Platform using this link: https://etfwebservices.seic.com/ETF.
The trader must log in with their personal username, personal password and JPM ETF PIN. The trader must place and complete an order between 9:00 a.m. EST and the Funds closing time, as set forth in the applicable Funds Registration Statement. |
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Step 2 |
In the Enter New Trade screen, the authorized trader will complete the page with:
Creation or Redemption
Ticker Symbol
Number of Units |
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Step 4 |
Once the trade is entered, click the Submit button at the bottom of the screen. Then another box will appear. This box is for the trader to review the new order. If the trade is in good order, the trade must click the Submit button. If they want to go back, click the Cancel button.
AN ORDER IS NOT CONSIDERED COMPLETE UNTIL THIS TRADE ID IS GENERATED BY THE SYSTEM AND THE TRADE BLOTTER DISPLAYS THE ORDER WITH THE ID AND TIME STAMP. FOR EACH FUND, SEIS ORDER ENTRY SYSTEM AUTOMATICALLY CLOSES AT EACH FUNDS CUT-OFF TIME AND WILL NOT ACCEPT ORDERS. THEREFORE, NO ORDER WILL BE ACCEPTED BY SEI AFTER A FUNDS CUT-OFF TIME EVEN IF THE TRADER INITIATED THE ORDER ENTRY PROCESS PRIOR TO THE FUNDS CUT-OFF TIME. |
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Step 5 |
After generating a Trade ID, SEIs Platform will automatically send the authorized trader an e-mail Affirmation detailing the contents of the Order.
Note: As set forth in the Regulatory Documents, SEI and each Fund have the right to reject an Order transmitted to it under certain circumstances. |
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Step 6 |
SEI delivers trade Confirmations to all APs via e-mail once the applicable Funds have accepted the orders and SEI Fund Accounting, the Funds administrator, calculates the Funds Net Asset Value (NAV) for that day. These email(s) are generated typically around 6 pm EST.
This information is similar to the Affirmation, but includes Final Cash for settlement purposes |
For additional procedures or to set up a demo or the SEI order taking platform, contact SEI at 844-999-6225 or etfops@seic.com .
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Non Standard Orders
The following guidelines must be followed by the AP when placing a non-standard order (e.g., substituting cash-in-lieu of one or more Deposit Securities):
Prior to placing a Non-Standard Order, the AP must contact SEI at the JPM ETF Trade line to discuss the cash and/or the securities (together, the Non Standard Consideration) expected to be delivered by (in the case of a Creation Order) or received by (in the case of a Redemption Order) the AP per the Non-Standard Order on settlement date. SEI will then communicate the details of the requested Non-Standard Order to JPMIM. If JPMIM provides authorization to SEI regarding the use of the Non-Standard Consideration, SEI will continue processing the Order as described in Placing Phone Orders. If JPMIM rejects the Order, SEI will communicate such action to the AP.
Notwithstanding the Order Cut-off Time described in Appendix B, the Order Cut-off Time for Non-Standard Orders will be one hour prior to the closing time of the regular trading session on the NYSE on a Transmittal Day; provided that, when the NYSE closes early on a Transmittal Day prior to a holiday, or for any other reason, the Order Cut-off Time shall be one hour prior to the earlier NYSE close on such Transmittal Day (Non-Standard Order Cut-off Time). Non-Standard Orders will not be processed if received after the applicable Non-Standard Order Cut-off Time.
Orders Placed on T-1
An AP wishing to place an Order on Transmittal Date T-1 must contact SEI at the JPM ETF Trade line before 5:00 p.m., Eastern time (or by one hour after the close of the Listing Exchange, if earlier). SEI will then communicate the details of the requested T-1 Order to JPMIM. If JPMIM provides authorization, SEI will continue processing the Order as described in Placing Phone Orders. If JPMIM rejects the Order, SEI will communicate such action to the AP.
Cash in Lieu Amount
In addition, each Fund reserves the right to permit or require the substitution of an amount of cash (Cash In Lieu) to be added to the Balancing Amount to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer. For example, this will be used in the event of halted or illiquid securities or in other circumstances. If a security is halted for a time period, cash-in-lieu will be implemented based on a fair value pricing. An additional Variable Fee may be charged to the AP and retained by the Fund to compensate for transaction costs related to the order.
Collateral for Missing Deposit Securities
Creation Units may be created in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities as described below. In these circumstances, the initial deposit will have a value greater than the NAV of the shares on the date the order is placed since, in addition to available Deposit Securities, U.S. cash (or an equivalent amount of non-U.S. currency) must be deposited in an amount equal to the sum of (i) the Cash Component, plus (ii) at least 105%, which the Trust may change from time to time, of the market value of the undelivered Deposit Securities (the Additional Cash Deposit) with a fund pending delivery of any missing Deposit Securities. The AP must deposit with the custodian the appropriate amount of US dollars by 10:00 a.m. New York time (or such other time as specified by the Trust) on the settlement date.
If the Custodian does not receive the Additional Cash Deposit in the appropriate amount by such time, then the order may be deemed to be rejected and the AP shall be liable to a fund for losses, if any, resulting therefrom. An additional amount of U.S. cash shall be required to be deposited with the Custodian, pending delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to 105% as required, which the Trust may change from time to time, of the daily marked to market value of the missing Deposit Securities. To the extent that missing Deposit Securities are not received by the specified time on the settlement date, or in the event a marked-to market payment is not made within one Business Day following notification by the Distributor that such a payment is required, the Trust may use the cash on deposit to purchase the missing Deposit Securities. The AP will be liable to the Trust for the costs incurred by the Trust in connection with any such purchases. These costs will be deemed to include the amount by which the
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actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the transmittal date plus the brokerage and related transaction costs associated with such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit Securities have been properly received by the Distributor or purchased by the Trust and deposited into the Trust. In addition, a transaction fee, as described below, will be charged in all cases.
Transaction Fees
In connection with the creation or redemption of Creation Units, the AP agrees to pay the Transaction Fee prescribed in the Prospectus applicable to creations or redemptions. Transaction Fees will differ for each Fund, depending on the transaction expenses related to each Funds portfolio instruments. The AP will receive a Prospectus that contains complete disclosure about Transaction Fees, including the maximum amount of the Transaction Fee charged by a Fund. Variations in the Transaction Fee may be imposed in the sole discretion of the Trust from time to time, as disclosed in the Prospectus, and the method of determining such variations will be disclosed in the SAI.
NAV Errors
The AP is advised that, pursuant to the JPM ETFs Valuation Procedures, if an error occurs in calculating a Funds net asset value after an AP receives a Order confirmation but prior to the settlement date and the error results in a difference between the originally computed net asset value and the corrected net asset value that equals or exceeds $0.01 per share, the Custodian will reprocess the Order and notify the AP.
If there is a loss to the Fund as a result of the error in calculating the net asset value for a Purchase Order, the AP will be required to pay the additional value in cash on or prior to the settlement date. If there is a Fund benefit, the amount of the benefit will be returned to the AP on the settlement date. If there is an error for a Redemption Order, the amount the AP will receive will be adjusted prior to settlement.
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APPENDIX A GLOSSARY OF TERMS
AP refers to Authorized Participant.
JPMorgan Chase Bank, N.A. or JPMCB refers to the Funds custodian and transfer agent.
Business Day means each day the New York Stock Exchange is open for regular trading and the Fund and the Custodian are open for business.
Cash shall mean same day funds in United States dollars.
CNS Process means the Continuous Net Settlement clearing processes of NSCC, as such processes have been enhanced to effect purchases and redemptions of Creation Units.
Creation refers to the act of creating a Creation Unit Aggregation.
Creation Unit and Creation Unit Aggregation refers to an aggregation of a specified number of Shares of a particular Fund of the Trust as stated in the Prospectus.
Custodian refers to the Funds custodian, JPMorgan Chase Bank, N. A.
Cut-off Time refers to the time that a Purchase Order must be transmitted to SEI to be deemed received. All times are Eastern Time.
Deposit Securities refers to an in-kind deposit of a designated portfolio of securities as selected by the Sponsor
DTC refers to The Depository Trust Company.
DTC Participant refers to a participant in the facilities of the Depository Trust Company.
DVP refers to Delivery Versus Payment.
Fund refers to a series of J.P. Morgan Exchange-Traded Fund Trust.
Procedures Handbook refers to the J.P. Morgan Exchange-Traded Fund Trust Authorized Participant Procedures Handbook, as supplemented or amended from time to time.
IIV refers to Intraday Indicative Value.
NAV refers to net Asset value per share.
NYSE Arca refers to New York Stock Exchange Arca.
Orders refers to any order to purchase or redeem Creation Unit Aggregations.
PIN refers to a unique personal identification number assigned to each AP that helps identify the AP and authenticate instructions.
Prospectus refers to the Trusts then current prospectus and statement of additional information included in its effective registration statement, as supplemented or amended from time to time.
Purchase Orders refers to the action of placing and processing orders to purchase Creation Unit Aggregations.
Redemption Orders refers to the action of placing and processing orders to redeem Creation Unit Aggregations.
Shares refers to the shares represented in a Creation Unit Aggregation.
SEC refers to the Securities and Exchange Commission.
SEI refers to SEI Investments Distribution Co.
SEI FA refers to SEI Investments Fund Accounting and Administration of the Fund.
Sponsor refers to the Funds sponsor, J.P. Morgan Investment Management Inc.
Transaction Fee is a fixed dollar fee charged for each Creation Unit regardless of the number of Creations per Fund per Business Day for an AP and applicable variable fee charged based on the total value of Creation Aggregation Units purchased or redeemed.
Transmittal Date refers to the date on which a Purchase Order to purchase Creation Unit Aggregations is placed.
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APPENDIX B FUND INFORMATION
JPMorgan Diversified Return Global Equity ETF
Tickers | ||
Exchange Trading Symbol |
JPGE | |
Intraday Value (IOPV) |
JPGE.IV | |
NAV Symbol |
JPGE.NV | |
Div Equivalent Payment (Est. Cash Component) Symbol |
JPGE.EU | |
Balancing Amount per Creation Unit Symbol |
JPGE.TC | |
Shares Outstanding Symbol |
JPGE.SO | |
WSJ Price/Bloomberg Symbol |
TBD | |
Other Information | ||
NSCC Instruction Symbol |
Q100SI1 | |
CUSIP # |
46641Q100 | |
NSCC Instruction CUSIP # |
01S991743 | |
Tax ID # |
46-4862287 | |
Shares Per Creation Unit |
100,000 | |
Lead Market Maker |
TBD | |
Listing Exchange |
NYSEArca | |
Creation/Redemption cut-off Time |
4PM ET | |
Non Standard Order cut-off time |
3PM ET | |
Cut-off time for orders placed on T-1 for next business day (T) |
5PM ET | |
Settlement Cycle |
T+3 | |
Cash fund v. In-Kind fund |
Partial Cash |
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AGENCY SERVICES AGREEMENT
SCHEDULE B
INDEX RECEIPT AGENT SERVICES
AND RELATED CUSTODY SERVICES FOR ETF SERIES
Following are the Index Receipt Agent services that shall be provided by J.P. Morgan for the Trust in respect of each Fund and their respective ETF Series. J.P. Morgan shall perform these services as Index Receipt Agent in conjunction with the custody services that are currently provided by J.P. Morgan, as Custodian, to each Fund under the terms of the Custody Agreement. J.P. Morgan shall be entitled to all the protective provisions in the Custody Agreement in respect of its duties and its performance as Index Receipt Agent and Custodian for the settlement of creations and redemptions of Creation Units of each ETF Series. If there are any inconsistencies between the terms of the Custody Agreement and the terms herein with respect to processing, clearance and the settlement of creation and redemption orders for ETF Shares of each ETF Series, the terms herein shall govern. Unless otherwise defined in this Schedule B, defined terms will have the same meaning as set forth in Section I of this Agreement.
A. Index Receipt Agent Services.
1. J.P. Morgan, with the assistance of the Trust, shall make application to NSCC to be the Index Receipt Agent on behalf of the Trust and each ETF Series for the processing, clearance and the settlement of creation and redemption orders for ETF Shares of each ETF Series and Creation Deposits through the facilities of NSCC and DTC.
2. The Distributor, on behalf of the Trust, shall enter into an Authorized Participant Agreement with each Authorized Participant, which shall be delivered to the J.P. Morgan and which J.P. Morgan, in its capacity as Index Receipt Agent, shall acknowledge.
3. In connection with the procedures that may be established from time to time between J.P. Morgan and the Trust on behalf of each ETF Series for the processing, clearance and settlement of the creation and redemption of Creation Units through the Clearing Process, J.P. Morgan shall:
(a) receive from the Investment Adviser daily, a computer generated file that is in form and substance acceptable to NSCC containing a list of the Deposit Securities (if applicable) for each ETF Series, (ii) receive from the Order Taker daily, a computer generated file that is in form and substance acceptable to NSCC containing the Balancing Amount and the Transaction Fee for each ETF Series and (iii) transmit both files (referenced in subparagraphs (i) and (ii) herein) as received to NSCC;
EXECUTION
(b) receive from the Distributor on each trade date a computer generated file that is in form and substance acceptable to NSCC and that contains creation orders from Authorized Participants that have been received and accepted by the Distributor on behalf of the Trust and each ETF Series, for the creation of Creation Units against delivery of Deposit Securities and a Cash Component; transmit the file of creation orders as received from the Distributor to NSCC; receive back from NSCC the file of creation orders enhanced with NSCC generated prices for the Deposit Securities contained in the file and deliver the enhanced file to Custodian for settlement; and, pursuant to such creation orders, instruct the Transfer Agent to create the appropriate number of ETF Shares of the applicable ETF Series for deposit to the Custodians DTC Participant Account;
(c) receive from the Distributor on each trade date a computer generated file that is in form and substance acceptable to NSCC and that contains redemption orders from Authorized Participants that have been received and accepted by the Distributor on behalf of the Trust for each Fund; transmit the file of redemption orders as received from the Distributor to NSCC; receive back from NSCC the file of redemption orders enhanced with NSCC generated prices for the Redemption Securities that are in the file and deliver the enhanced file to Custodian for settlement; and, pursuant to such redemption orders, instruct the Transfer Agent to redeem the appropriate number of ETF Shares of the applicable ETF Series in Creation Units and reduce the account of the Shareholder accordingly; and
(d) at the appropriate times, cause to be paid over to Authorized Participants Balancing Amounts on the creation or redemption of Creation Units, as instructed by the Distributor or the Trust on behalf of each ETF Series.
4. The Trust understands and agrees that all risk associated with the processing, clearance and settlement of the creation and redemption of ETF Shares, Deposit Securities and Redemption Securities and cash through the Clearing Process shall be that of the Trust and each ETF Series irrespective of whether in effecting such creations and redemptions for the Trust on behalf of each ETF Series through the Clearing Process, J.P. Morgan, as a member of NSCC, is acting as principal or as agent; and, in respect hereof, the Trust and each ETF Series, shall be bound by all the rules and procedures of NSCC and DTC as though it were the member or participant of such clearing and settlement systems.
B. Outside the Clearing Process.
1. The following transactions shall be handled Outside the Clearing Process:
(a) any creation or redemption of Creation Units that the Trust, its Distributor or another authorized agent shall instruct J.P. Morgan to settle Outside the Clearing Process; and
(b) any security create that is part of a Creation Deposit or redemption of Creation Units and that according to NSCC rules is deemed to be ineligible for the Clearing Process, including securities that are not eligible to be settled through DTC.
2. All such transactions shall be effected by J.P. Morgan on a delivery versus payment and receive versus payment basis through DTC and according to DTCs rules, and the Trust or the ETF Series shall provide to J.P. Morgan the information and terms that are necessary to settle each transaction, including the cash value of each security settlement, unless the Trusts or the ETF Series Instruction is that delivery is to be made free of payment; provided, however, that any security that is not DTC eligible shall be settled as a window delivery pursuant to street practice. All such transactions shall be effected by J.P. Morgan as Custodian and subject to the terms of the Custody Agreement. US fixed income securities that are not DTC eligible will be settled free of payment via the Fed or similar US clearing structure. Foreign equity and fixed income securities will be settled locally free of payment where permitted in such market.
3. The Trust recognizes that fails to receive may occur from time to time with respect to one or more of the security creates/redemptions among Deposit/Redemption Securities settled outside the Clearing Process.
(a) In the event an Authorized Participant has submitted a Creation Order for an ETF Series outside the clearing process, but is unable to transfer all or part of the Deposit Securities to J.P. Morgan at or prior to the required time, the Distributor or its agent will nonetheless accept the creation order if it is otherwise acceptable in form and substance, and rely on an undertaking by such Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participants delivery and maintenance of collateral having a percentage value as specified by that Trust, provided that the Trust shall in no event specify a collateral value less than 105% of the value of the missing Deposit Securities. J.P. Morgan will calculate the requisite collateral level on each business day, using (i) prices and foreign exchange rates as furnished to J.P. Morgan by the Fund Administrator or its agent on behalf of the Trust and (ii) the collateral value specified by the Trust. The amount of required collateral may change from time to time and will be notified to the Authorized Participant by J.P. Morgan. Any collateral shall be in the form of US dollars and will be held by J.P. Morgan subject to the terms of the Custody Agreement.
(b) In the event an Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the Creation Unit to be redeemed to an ETF Series, the Distributor or its agent will nonetheless accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing shares as soon as possible, which such undertaking shall be secured by the Authorized Participants delivery and maintenance of collateral having a value at least equal to 105% of the value of the missing shares. J.P. Morgan will calculate the requisite collateral level on each business day, using (i) prices and foreign exchange rates as furnished to J.P. Morgan by the Fund Administrator or its agent on behalf of the Trust and (ii) the collateral value specified by the Trust. The amount of required collateral may change from time to time and will be notified to the Authorized Participant by J.P. Morgan. Any collateral shall be in the form of US dollars and will be held by J.P. Morgan subject to the terms of the Custody Agreement.
(c) The Trust acknowledges and agrees that J.P. Morgans calculation of the requisite collateral will be based solely on the information it receives pursuant to the preceding clauses B.3.(i)-(ii) and will not reflect any adjustment for purchase interest on debt securities or any other such adjustments. The Trust further agrees that it shall instruct the Fund Administrator to furnish prices and foreign exchange rates to J.P. Morgan, including in respect of unsettled positions in securities which are no longer Deposit Securities.
C. Settlement of Cash Component.
Any Cash Component to a particular transaction shall be handled over the funds transfer wire (Fedwire) or as part of J.P. Morgans overall daily net cash settlement at DTC.
D. Creation Deposits through the Clearing Process: Allocation of Fails; Posting of Accounts.
1. The Trust recognizes that fails to receive (including partial fails) may occur from time to time with respect to one or more of the security creates in a basket of Deposit Securities settled through the Clearing Process. The Trust acknowledges and agrees that, whenever a fail to receive shall occur on a settlement date, J.P. Morgan shall book to a single control account maintained for all funds for which J.P. Morgan provides Index Receipt Agent services (the Control Account), the quantity of the security that it failed to receive (each such fail a short receive position) and the cash value of that short position that it receives from NSCC (and that NSCC, pursuant to its rules, marks to market daily) pending settlement. J.P. Morgan shall not post to any ETF Series account any cash that it receives from NSCC on a short receive position pending settlement.
2. J.P. Morgan shall make available to the Trust a daily listing of all short receive positions that are in the Control Account and that relate to any ETF Series. J.P. Morgan will allocate daily, on a pro-rata or other basis deemed by it to be fair and equitable, short receive positions in the same security that is common to the securities accounts of such ETF Series and to the securities accounts of such other funds for which J.P. Morgan is acting as Index Receipt Agent. The Trust agrees that any such allocation shall be conclusive on the Trust and the affected ETF Series. When the Deposit Securities that are subject of the short receive positions are received by J.P. Morgan, they will be credited by J.P. Morgan on a FIFO basis to the custody accounts of the applicable funds. J.P. Morgan shall not process a securities transaction in a security having a short receive position in the Control Account to the extent the Trust does not have a sufficient quantity of that security in its ETF Series accounts with J.P. Morgan to settle the transaction. Custodian shall post Deposit Securities to the applicable ETF Series custody accounts on a contractual settlement basis pursuant to the terms of the Custody Agreement.
3. Should a short receive position in a security remain in the Control Account for two (2) or more NSCC business days, the Trust may elect to instruct J.P. Morgan to exercise NSCCs buy-in rules with respect to that short position. If an ETF Series needs to sell a short security in its account, the Trust may request that J.P. Morgan exercise a buy-in of the short security under applicable NSCC rules.
E. Redemptions through the Clearing Process: Delivery Fails; Posting of Cash.
1. The Trust recognizes that on the redemption of Creation Units of an ETF Series through the Clearing Process J.P. Morgan, on behalf of the applicable ETF Series, is obligated to deliver to NSCC on the settlement date the required type and amount of Redemption Securities to redeem the Creation Units of the applicable ETF Series. It shall be the responsibility of the Trust and each ETF Series to maintain in the custody account the required type and amount of Redemption Securities for the redemption of Creation Units of each ETF Series. Should the custody account of an ETF Series for any reason ( for example, through the Trusts participation in a securities lending program on behalf of the ETF Series) have a short position in respect of any of the securities creates comprising the basket of Redemption Securities (a short delivery position) with the result that, on settlement date, J.P. Morgan is unable to deliver a sufficient quantity of the Redemption Securities to NSCC, the Trust acknowledges that J.P. Morgan shall be obligated under NSCCs rules to fund the short delivery position with cash pending delivery of the quantity of securities needed to cover the short delivery position. J.P. Morgan shall be entitled to charge to the account of the applicable ETF Series the amount of cash needed to cover the short delivery position. In the event that J.P. Morgan advances its own funds to cover an ETF Series short delivery position, J.P. Morgan, in its discretion, may charge the applicable EFT Series interest on the amount of the advance at the rate that J.P. Morgan charges for advances of a similar nature to similar customers of J.P. Morgan, unless J.P. Morgan and the Trust have mutually agreed in writing upon another rate.
2. In the event that J.P. Morgan shall have advanced its own funds to cover a short delivery position at NSCC for an ETF Series, J.P. Morgan shall have, to the extent of the amount of the advance, a security interest in the securities that remain in the ETF Series custody account and J.P. Morgan shall have all the rights and remedies of a secured party under the New York Uniform Commercial Code. Nothing herein or in the Custody Agreement shall be construed to mandate that J.P. Morgan, acting as Index Receipt Agent for the Trust and each ETF Series, effect redemptions of Creation Units where J.P. Morgan, acting in good faith, believes that it may not be repaid an advance by the Trust or the ETF Series or otherwise not receive from the ETF Series delivery of the Redemption Securities that are the subject of a short delivery position.
F. Establish Procedures.
The Trust and J.P. Morgan, from time to time, may establish written procedures for the processing and settlement and related activities effected for ETF Shares of each ETF Series through the Clearing Process and Outside the Clearing Process.
AGENCY SERVICES AGREEMENT
EXHIBIT A
LIST OF ETF SERIES
JPMorgan Diversified Return Global Equity ETF
JPMorgan Diversified Return International Ex-North America Equity ETF
JPMorgan Diversified Return Emerging Markets Equity ETF
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AGENCY SERVICES AGREEMENT
EXHIBIT B
FEES
ETF Authorized Participant Fees The Authorized Participant fees are based on net create/redeem activity per account per broker order. |
Fee per Transaction | |||
Transaction Fee per create / redeem |
250.00 |
Fee Terms and Conditions
J.P. Morgans fees shall remain in place for a period of 3 years from May 7, 2014. J.P. Morgan reserves the right to renegotiate its fee schedule at any time, should the Trusts actual investment portfolio and/or trading activity differ significantly from the assumptions used to develop our fee proposal. The fee schedule may also be amended by mutual agreement of the parties if the Trusts service requirements change; each party agrees to negotiate, diligently and in good faith, to agree upon new fees for such service requirement changes.
Fees for additional service(s) added at the request of the Trust while this fee schedule is in effect will be assessed at J.P. Morgans standard price(s), unless an alternative pricing arrangement is agreed upon in advance by the Trust and J.P. Morgan.
J.P. Morgan requires invoices to be paid in U.S. Dollars, unless J.P. Morgan and the Trust have agreed upon alternative payment arrangements in advance of remittance.
May 9, 2014
J.P. Morgan Exchange-Traded Fund Trust
270 Park Avenue
New York, NY 10017
Dear Sirs:
J.P. Morgan Investment Management Inc, JPMorgan Funds Management, Inc. (collectively, JPMorgan Service Providers) hereby agree to waive fees owed to each JPMorgan Service Provider or to reimburse each Fund listed on Schedule A through February 29, 2016. The JPMorgan Service Providers will waive fees or reimburse expenses to the extent total operating expenses exceed the rate of average daily net assets indicated on Schedule A. This expense limitation does not include acquired fund fees and expenses, dividend expenses on securities sold short, interest, taxes, expenses related to litigation and potential litigation, and extraordinary expenses not incurred in the ordinary course of the Funds business.
The JPMorgan Service Providers understand and intend that the Funds will rely on this agreement in preparing and filing their registration statements on Form N-1A and in accruing the Funds expenses for purposes of calculating net asset value and for other purposes, and expressly permit the Funds to do so.
Please acknowledge acceptance on the enclosed copy of this letter.
Very truly yours, | ||
J.P. Morgan Investment Management Inc. | ||
By: | /s/ George C.W. Gatch | |
George C.W. Gatch |
JPMorgan Funds Management, Inc. | ||
By: | /s/ Robert L. Young | |
Robert L. Young |
Accepted by: | ||
J.P. Morgan Exchange-Traded Fund Trust | ||
By: | /s/ Paul Shield | |
Paul Shield |
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SCHEDULE A
Fund Name |
Expense Cap | |||
JPMorgan Diversified Return Global Equity ETF |
0.38 | % | ||
JPMorgan Diversified Return International Ex-North America Equity ETF |
0.43 | % |
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1095 Avenue of the Americas New York, NY 10036-6797 +1 212 698 3500 Main +1 212 698 3599 Fax www.dechert.com |
May 14, 2014
J.P. Morgan Exchange-Traded Fund Trust
270 Park Avenue
New York, New York 10017
Re: |
J.P. Morgan Exchange-Traded Fund Trust | |
File Nos. 333-191837 and 811-22903 |
Dear Ladies and Gentlemen:
We have acted as counsel for J.P. Morgan Exchange-Traded Fund Trust, a Delaware statutory trust (the Trust ), and its separate series, JPMorgan Diversified Return Global Equity ETF and JPMorgan Diversified Return International Ex-North America Equity ETF (the Funds ), in connection with Pre-Effective Amendment No. 2 to the Trusts Registration Statement on Form N-1A (the Registration Statement ) filed with the Securities and Exchange Commission (the Commission ) under the Securities Act of 1933, as amended (the Securities Act ).
We have examined and relied upon originals, copies or electronic mail transmissions of, among other things, the following: the Registration Statement; the Certificate of Trust of the Trust as filed with the Secretary of State of the State of Delaware; the Declaration of Trust of the Trust dated as of as of February 19, 2014, as amended to date; and the By-Laws of the Trust dated as of February 19, 2014, as amended to date. We have also examined such documents and questions of law as we have deemed necessary or appropriate for the purposes of the opinions expressed herein.
In rendering this opinion we have assumed, without independent verification, (i) the due authority of all individuals signing in representative capacities and the genuineness of signatures; (ii) the authenticity, completeness and continued effectiveness of all documents or copies furnished to us; (iii) that any resolutions provided have been duly adopted by the Funds Board of Trustees; (iv) that the facts contained in the instruments and certificates or statements of public officials, officers and representatives of the Funds on which we have relied for the purposes of this opinion are true and correct; and (v) that no amendments, agreements, resolutions or actions have been approved, executed or adopted which would limit, supersede or modify the items described above.
Based upon the foregoing, we are of the opinion that the Funds shares registered under the Securities Act, when issued and sold in accordance with the terms of purchase described in the Registration Statement, will be validly issued, fully paid and non-assessable.
The opinions expressed herein are given as of the date hereof and we undertake no obligation and hereby disclaim any obligation to advise you of any change after the date of this opinion pertaining to any matter referred to herein. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the Registration Statement, unless and until we revoke such consent. In giving such consent, however, we do not admit that we are within the category of persons whose consent is required by Section 7 of the Securities Act or the rules and regulations thereunder.
We are members of the Bar of the State of New York and do not hold ourselves out as being conversant with the laws of any jurisdiction other than those of the United States of America and the State of New York. We note that we are not licensed to practice law in the State of Delaware, and to the extent that any opinion herein involves the laws of the State of Delaware, such opinion should be understood to be based solely upon our review of the documents referred to above and the published statutes of the State of Delaware.
Very truly yours, |
/s/ Dechert LLP |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion in this Registration Statement on Form N-1A of our report dated May 13, 2014, relating to the May 9, 2014 Statement of Assets and Liabilities of JPMorgan Diversified Return Global Equity ETF. We also consent to the references to us under the heading Financial Statements and Independent Registered Public Accounting Firm in such Registration Statement.
/s/ PricewaterhouseCoopers LLP |
New York, New York |
May 13, 2014 |
J.P. MORGAN EXCHANGE-TRADED FUND TRUST
CODE OF ETHICS
A. Legal Requirements .
Rule 17j-1 under the Investment Company Act of 1940 (the Act) makes it unlawful for any officer or trustee/director (as well as other access persons) of J.P. Morgan Exchange-Traded Fund Trust (the Trust), in connection with the purchase or sale 1 by such person of a security held or to be acquired by any investment portfolio of the Trust (a Fund):
(1) To employ any device, scheme or artifice to defraud the Trust or a Fund;
(2) To make to the Trust or a Fund any untrue statement of a material fact or omit to state to the Trust or a Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
(3) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Trust or a Fund; or
(4) To engage in any manipulative practice with respect to the Trust or a Fund.
A security is held or to be acquired if it is a covered security 2 (or an option for or exchangeable for a covered security) and within the most recent 15 days (i) the covered security is or has been held by the Trust or a Fund, or (ii) the covered security is being or has been considered by the Trust or a Fund or the investment adviser for the Trust or a Fund for purchase by the Trust or the Fund.
B. Trust Policies .
1. It is the policy of the Trust that no access person 3 of the Trust or of a Fund shall engage in any act, practice or course or conduct that would violate the provisions of Rule 17j-1(b) set forth above.
1 | A purchase or sale includes the writing of an option to purchase or sell. |
2 | A covered security is any security under the broad definition of Section 2(a)(36) of the Act except: (i) direct obligations of the United States government, (ii) bankers acceptances, bank CDs, commercial paper, and high quality short-term debt instruments (including repurchase agreements), and (iii) shares of open-end investment companies, other than non-money market shares issued by the Trust. |
3 | An access person is (i) each trustee/director or officer of the Trust, (ii) each employee (if any) of the Trust who, in connection with his regular duties, makes, participates in, or obtains information about the purchase or sale of a covered security by the Trust or a Fund or whose functions relate to the making of any recommendations with respect to such purchases or sales, and (iii) any natural person in a control relationship to the Trust or a Fund who obtains information concerning recommendations made to the Trust or to a Fund with regard to the purchase or sale of covered securities. |
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2. In keeping with the recommendations of the Board of Governors of the Investment Company Institute, the following general policies shall govern personal investment activities of access persons of the Trust or of a Fund:
(a) It is the duty of all access persons of the Trust or of a Fund to place the interest of Trust shareholders first;
(b) All access persons of the Trust or of a Fund shall conduct personal securities transactions in a manner that is consistent with this Code of Ethics and that avoids any actual or potential conflict of interest or any abuse of a position of trust and responsibility; and
(c) No access person of the Trust or of a Fund shall take inappropriate advantage of his or her position with the Trust or with a Fund.
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C. Reporting Requirements . 4
In order to provide the Trust with information to enable it to determine with reasonable assurance whether the Trusts policies are being observed by its access persons:
(a) Each person becoming an access person of the Trust or of a Fund, other than a trustee who is not an interested person of the Trust (as defined in the Act), shall no later than 10 days after becoming such an access person submit a report in the form attached hereto as Exhibit A (an Initial Holdings Report) to the Trusts Chief Compliance Officer or his/her delegate (CCO) showing all holdings in covered securities in which the person had any direct or indirect beneficial ownership 5 (which information must be
4 | An access person of the Trust who is also an access person of an investment adviser or sub-adviser to the Trust need not submit reports otherwise required by this Section C provided that either (i) such person submits to such investment adviser or sub-adviser forms prescribed by the Code of Ethics of such adviser or sub-adviser containing substantially the same information as called for in the forms required by this Section C, or (ii) the information in such report would duplicate information required to be recorded under Rule 204-2(a)(13) under the Investment Advisers Act of 1940. An access person of the Trust who is also an access person of the Trusts principal underwriter need not submit reports otherwise required by this Section C provided that such person submits to the principal underwriter forms prescribed by the Code of Ethics of such principal underwriter containing substantially the same information as called for in the forms required by this Section C. An access person of the Trust who is also an access person of the Trusts administrator may submit reports required by this Section C on forms prescribed by the Code of Ethics of such administrator provided that such forms contain substantially the same information as called for in the forms required by this Section C and comply with the requirements of Rule 17j-1(d)(1). Moreover, in the case of reports under paragraph (b) of this Section C, any access person may supply to the Trust in lieu of such reports with duplicate copies of broker trade confirmations or account statements with respect to the access person provided such confirmations and/or account statements are: (i) received by the Trust within the time period and (ii) contain all the information required by paragraph (b) of Section C. No Trustee is required to file a report if the sole purpose for doing so would be to indicate the absence of reportable transactions in covered securities during the relevant period. |
5 | Beneficial ownership of a security as used in this Section C is determined in the same manner as it would be for the purposes of Section 16 of the Securities Exchange Act of 1934, except that such determination should apply to all covered securities. Generally, a person should consider himself the beneficial owner of covered securities held by his spouse, his minor children, a relative who shares his home, or other persons if by reason of any contract, understanding, relationship, agreement or other arrangement, he obtains from such covered securities benefits substantially equivalent to those of ownership. He should also consider himself the beneficial owner of securities if he can vest or revest title in himself now or in the future. |
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current as of a date no more than 45 days prior to the date the person becomes an access person). Such Initial Holdings Report shall also indicate all broker/dealers and banks with which the access person held direct or indirect ownership of securities. Such reports need not show holdings over which such person had no direct or indirect influence or control.
(b) Each access person of the Trust or of a Fund, other than a trustee who is not an interested person of the Trust (as defined in the Act), shall submit reports each quarter in the form attached hereto as Exhibit B (a Securities Transaction Report) to the Trusts CCO showing all transactions in covered securities in which the person had, or by reason of such transaction acquired, any direct or indirect beneficial ownership. Such reports shall be filed no later than 30 days after the end of each calendar quarter, but need not show transactions over which such person had no direct or indirect influence or control.
(c) Each trustee who is not an interested person of the Trust (as defined in the Act) shall submit the same quarterly report as required under paragraph (b), but only for a transaction in a covered security where he knew at the time of the transaction or, in the ordinary course of fulfilling his official duties as a trustee, should have known that during the 15-day period immediately preceding or after the date of the transaction such security is or was purchased or sold, or considered for purchase or sale, by the Trust or the Fund; provided that, because monitoring the publication of a Funds portfolio holdings is not construed to be within the ordinary course of fulfilling the duties of a trustee, the publication or availability of a Funds portfolio holdings shall not be construed to impart actual of constructive knowledge of the Funds portfolio transactions on a trustee. No report is required if the trustee had no direct or indirect influence or control (e.g., automatic dividend reinvestment accounts, automatic employer-sponsored savings and stock programs, blind trust accounts and money market sweep accounts) over the transaction.
(d) Each access person of the Trust or of a Fund, other than a trustee who is not an interested person (as defined in the Act), shall by January 10 of each year submit to the Trusts CCO a report in the form attached hereto as Exhibit A (an Annual Holdings Report) showing all holdings in covered securities in which the person had any direct or indirect beneficial ownership as of a date no more than 45 days before the report is submitted. Such report need not show holdings over which such person had no direct or indirect influence or control.
D. Preclearance Procedures .
Investment personnel of the Trust or a Fund shall obtain approval from the CCO or the relevant investment adviser or sub-adviser (if applicable) before directly or indirectly acquiring beneficial ownership in any securities in an initial public offering or in a limited offering. 6
6 | Investment personnel of the Trust or a Fund means (i) any employee of the Trust (or of a company in a control relationship to the Fund) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Trust or a Fund, and (ii) any natural person who controls the Trust or a Fund and who obtains information concerning recommendations made to the Trust or a Fund regarding the purchase or sale of securities. Initial public offering and limited offering shall have the same meaning as set forth in Rule 17j-1(a)(6) and (8), respectively. |
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E. Notice to, and Review of, Holdings Reports by Access Persons .
1. The CCO shall notify each access person of the Trust or of a Fund who may be required to make reports pursuant to this Code that such person is subject to this reporting requirement and shall deliver a copy of this Code to each such person.
2. The CCO shall review reports submitted under Section C of this Code within 21 days of submission.
3. The CCO shall establish and maintain records of access persons of the Trust who are required to make reports under Section C of this Code and shall establish and maintain records of any delegate responsible for reviewing such reports.
F. Reports to Trustees .
1. The President of the Trust or his or her delegate shall report to the Board of Trustees:
(a) at the next meeting following the receipt of any Securities Transaction Report with respect to each reported transaction in a security which was held or acquired by the Trust or a Fund within 15 days before or after the date of the reported transaction or at a time when, to the knowledge of the Secretary, the Trust, a Fund, or the respective investment adviser or sub-adviser for the Trust or a Fund, was considering the purchase or sale of such security, unless the amount involved in the transaction was less than $50,000;
(b) with respect to any transaction or holdings not required to be reported to the Board by the operation of subparagraph (a) that the President of the Trust or his or her delegate believes nonetheless may evidence a violation of this Code; and
(c) any apparent violation of the reporting requirements of Section C of this Code.
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2. The Board shall consider reports made to it hereunder and shall determine whether the policies established in section B of this Code have been violated, and what sanctions, if any, should be imposed.
G. Approval of Codes and Material Amendments Thereto .
1. The Board of Trustees of the Trust, including a majority of the independent Trustees thereof, shall approve the Codes of Ethics of the Trust, of any principal underwriter of the Trust, and of each investment adviser and sub-adviser to any Fund. No principal underwriter of the Trust or investment adviser or sub-adviser to any Fund may be appointed unless and until the Code of Ethics of that entity has been approved by the Board of Trustees of the Trust, including a majority of the independent Trustees thereof. Following initial approval of the Code of Ethics of any principal underwriter of the Trust or any investment adviser or sub-adviser to any Fund, any material change to such Code must be approved by the Board of Trustees of the Trust, including a majority of the independent Trustees thereof, within six months of said amendment. No amendment of this Code may be made unless and until approved by the Board of Trustees of the Trust, including a majority of the independent Trustees thereof.
2. In approving a Code of Ethics, the Board of Trustees shall have secured a certificate from the entity that adopted the Code that it has adopted procedures reasonably necessary to prevent its access persons from violating the Code in question.
H. Annual Report
The Trust, any principal underwriter thereof, and any investment adviser or sub-adviser to any Fund shall, not less frequently than annually, furnish the Board of Trustees of the Trust with a written report that:
1. | describes any issues arising under its Code of Ethics or procedures since the last report to the Board of Trustees, including, but not limited to, information about material violations of such Code or procedures and sanctions imposed in response, and |
2. | certifies that the Fund, principal underwriter, or investment adviser or sub-adviser, as applicable, has adopted procedures reasonably necessary to prevent its access persons from violating its Code of Ethics. |
This Code, a copy of each Securities Transaction and Holdings Report by an access person, any written report hereunder by the President of the Trust or his or her delegate, and lists of all persons required to make reports shall be preserved with the Trusts records for the period required by Rule 17j-1.
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Exhibit A
Holdings Report
¨ | Initial Holdings Report of , 200 |
(date a reporting person became an access person) |
¨ | Annual Holdings Report as of , 200 |
(date not more than 45 days prior to submission) |
I. To the President or Presidents delegate of the Funds*:
¨ | As of the above date, I had direct or indirect beneficial ownership of the following covered securities: |
Title |
Number of Shares |
Principal Amount of Security |
||
¨ | I have no covered securities to report. |
II. As of that same date, I held direct or indirect beneficial ownership of securities with the following broker/dealer(s) or bank(s) (note: list accounts, not securities)
¨ | I have no accounts to report. |
This report (i) excludes securities with respect to which I had no direct or indirect influence or control, including investments through an automatic investment plan, (ii) excludes securities not required to be reported, and (iii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above.
Date: Signature:
J.P. Morgan Exchange-Traded Fund Trust
Exhibit B
Securities Transaction Report
For the Calendar Quarter Ended: , 200
To the President or Presidents delegate of the Funds*:
I. ¨ During the quarter referred to above, the following transactions were effected in securities of which I had, or by reason of such transaction acquired, direct or indirect beneficial ownership, and which are required to be reported pursuant to the Trusts Code of Ethics:
Title of Security (and interest rate and maturity date, if applicable) |
Date of
Transaction |
No. of Shares and
Principal Dollar Amount of Transaction (Price) |
Nature of
Transaction (Purchase, Sale, Other) |
Price at
Which Transaction Effected |
Broker/
Dealer or Bank Through Whom Effected |
¨ | I have no securities transactions to report. |
II. ¨ During the quarter referred to above, I established the following account in which securities were held for my direct or indirect benefit during the quarter (note: list accounts, not securities):
Broker/Dealer or Bank With Whom Account Established |
Date the Account Was Established |
¨ | I have no accounts to report. |
This report (i) excludes transactions with respect to which I had no direct or indirect influence or control, including investments through an automatic investment plan, (ii) excludes transactions not required to be reported, and (iii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above.
Date: Signature:
J.P. Morgan Exchange-Traded Fund Trust
COMPLIANCE
Policy
Code of Ethics for JPMAM
Effective Date: 01/07/2005 | Last Revision Date: 08/01/2013
Last Review Date: 08/01/2013
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COMPLIANCE
TABLE OF CONTENTS
1. | Summary | 3 | ||||
2. | Changes from Previous Version | 3 | ||||
3. | Scope | 3 | ||||
4. | Policy Statements | 4 | ||||
5. | Reporting Requirements | 4 | ||||
5.1. | Holdings Reports | 4 | ||||
5.2. | Transaction Reports | 5 | ||||
5.3. | Consolidated Report | 5 | ||||
5.4. | Exceptions from Reporting Requirements | 5 | ||||
6. | Pre-approval of Certain Investments | 5 | ||||
7. | Personal Trading Policies and Procedures | 6 | ||||
7.1. | Designated Broker Requirement | 6 | ||||
7.2. | Blackout Provisions | 6 | ||||
7.3. | Minimum Investment Holding Period and Market Timing Prohibition | 6 | ||||
7.4. | Trade Reversals and Disciplinary Action | 6 | ||||
8. | Books and Records to be maintained by Investment Advisers | 7 | ||||
9. | Privacy | 7 | ||||
10. | Conflicts of Interest | 7 | ||||
10.1. | Trading in Securities of Clients | 8 | ||||
10.2. | Trading in Securities of Suppliers | 8 | ||||
10.3. | Pre-clearance Procedures for Value-Added Investors | 8 | ||||
10.4. | Gifts | 8 | ||||
10.5. | Entertainment | 8 | ||||
10.6. | Political Contributions and Activities | 9 | ||||
10.7. | Charitable Contributions | 9 | ||||
10.8. | Outside Business Activities | 9 | ||||
11. | Training | 10 | ||||
12. | Escalation Guidelines | 10 | ||||
12.1. | Violation prior to Material Violation | 10 | ||||
12.2. | Material Violations | 10 | ||||
13. | Policy Oversight (required) | 10 | ||||
14. | Control Types (required) | 11 | ||||
15. | Defined Terms (optional) | 11 | ||||
16. | References (required) | 12 | ||||
17. | Document Information (required) | 13 | ||||
18. | Appendix A: Policy Approval and Retirement | 14 | ||||
18.1. | Approval and Retirement Steps | 14 | ||||
18.2. | Approval and Retirement Forms | 14 |
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COMPLIANCE
1. | Summary |
Standards
This Code of Ethics for JPMAM (the Code) has been adopted by the registered investment advisers named on the cover hereof in accordance with Rule 204A-1 under the Investment Advisers Act of 1940 (the Advisers Act). Rule 204A-1 requires, at a minimum, that an advisers code of ethics set forth standards of conduct, require compliance with federal securities laws and address personal trading by advisory personnel.
While all J.P. Morgan Chase & Co. (JPMC) staff, including JPMAM Supervised Persons as defined below, are subject to the personal trading policies under the JPMC Code of Conduct, the JPMAM Code establishes more stringent standards reflecting the fiduciary obligations of JPMAM and its Supervised Persons. Where matters are addressed by both the JPMC Code of Conduct and this Code, Supervised Persons of JPMAM must observe and comply with the stricter standards set forth in this Code.
JPMAM hereby designates the staff of its Compliance Department to act as designees for the respective chief compliance officers of the JPMAM registered investment advisers (CCO) in administering this Code. Anyone with questions regarding the Code or its application should contact the Compliance Department.
2. | Changes from Previous Version |
From April 4, 2013
3. | Scope |
Business Conduct
It is the duty of all Supervised Persons to place the interests of JPMAM clients before their own personal interests at all times and avoid any actual or potential conflict of interest. Given the access that Supervised Persons may have to proprietary and client information, JPMAM and its Supervised Persons must avoid even the appearance of impropriety with respect to personal trading, which must be oriented toward investment rather than short-term or speculative trading. Supervised Persons must also comply with applicable federal securities laws and report any violations of the Code promptly to the Compliance Department, which shall report any such violation promptly to the CCO.
Access Persons, as defined below, must report, and JPMAM must review, their personal securities transactions and holdings periodically. See section 2. Reporting Requirements and the Personal Trading Policy for Investment Management Americas Staff (for internal use only), as defined below, for details regarding reporting procedures.
Compliance with the Code, and other applicable policies and procedures, is a condition of employment. The rules, procedures, reporting and recordkeeping requirements contained in the Code are designed to prevent employees from violating the provisions of the Code. Failure by a Supervised Person to comply with the Code may adversely impact JPMAM and may constitute a violation of federal securities laws.
The Compliance Department shall distribute to each Supervised Person a copy of the Code and any amendments, receipt of which shall be acknowledged in writing by the Supervised Person. Written acknowledgements shall be maintained by the Compliance Department in accordance with section 5. Books and Records to be maintained by Investment Advisers. The form of acknowledgment shall be determined by the Compliance Department.
At least annually, each CCO must review the adequacy of the Code and the policies and the procedures herein referenced.
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COMPLIANCE
4. | Policy Statements |
| This Code of Ethics for JPMAM (the Code) has been adopted by the registered investment advisers named on the cover hereof in accordance with Rule 204A-1 under the Investment Advisers Act of 1940 (the Advisers Act). Rule 204A-1 requires, at a minimum, that an advisers code of ethics set forth standards of conduct, require compliance with federal securities laws and address personal trading by advisory personnel. |
| Reporting Requirements |
| Pre-approval of Certain Investments |
| Personal Trading Policies and Procedures |
| Books and Records to be maintained by Investment Advisers |
| Privacy |
| Conflicts of Interest |
| Training |
| Escalation Guidelines |
5. | Reporting Requirements |
5.1. | Holdings Reports |
Access Persons must submit to the Compliance Department a report, in the form designated by the Compliance Department, of the Access Persons current securities holdings that meets the following requirements:
a) | Content of Holdings Reports |
Each holdings report must contain, at a minimum:
1) | The name of any broker, dealer or bank with which the Access Person maintains an Associated Account in which any Reportable Securities are held for the Access Persons direct or indirect benefit, as well as all pertinent Associated Account details (e.g., account title, account number, etc.); |
2) | The title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each Reportable Security in which the Access Person has any direct or indirect beneficial ownership; and |
3) | The date the Access Person submits the report. |
b) | Timing of Holdings Reports |
Access Persons must each submit a holdings report:
1) | No later than 10 days after the person becomes an Access Person, and the information must be current as of a date no more than 45 days prior to the date the person becomes an Access Person. |
2) | At least once each 12-month period thereafter on January 30, and the information must be current as of a date no more than 45 days prior to the date the report was submitted |
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COMPLIANCE
5.2. | Transaction Reports |
Access Persons must submit to the Compliance Department quarterly securities transactions reports, in the form designated by the Compliance Department, that meet the following requirements:
a) | Content of Transaction Reports |
Each transaction report must contain, at a minimum, the following information about each transaction involving a Reportable Security in which the Access Person had, or as a result of the transaction acquired, any direct or indirect beneficial ownership:
1) | The date of the transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each Reportable Security involved; |
2) | The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); |
3) | The price of the security at which the transaction was effected; |
4) | The name of the broker, dealer or bank with or through which the transaction was effected; and |
5) | The date the Access Person submits the report. |
b) | Timing of Transaction Reports |
Each Access Person must submit a transaction report no later than 30 days after the end of each calendar quarter, which report must cover, at a minimum, all transactions during the quarter.
5.3. | Consolidated Report |
At the discretion of the Compliance Department, the form of annual holdings report may be combined with the form of the concurrent quarterly transaction report, provided that such consolidated holdings and transaction report meets, at a minimum, the timing requirements of both such reports if submitted separately.
5.4. | Exceptions from Reporting Requirements |
An Access Person need not submit:
a) | Any report with respect to securities held in accounts over which the Access Person had no direct or indirect influence or control; |
b) | A transaction report with respect to transactions effected pursuant to an automatic investment plan; |
c) | A transaction report if the report would duplicate information contained in broker trade confirmations or account statements that the Compliance Department holds in its records so long as the Compliance Department receives the confirmations or statements no later than 30 days after the end of the applicable calendar quarter. |
6. | Pre-approval of Certain Investments |
Supervised Persons must obtain approval from the Compliance Department before they directly or indirectly acquire beneficial ownership in any reportable security, including initial public offerings and limited offerings. The Personal Trading Policy shall set forth the Compliance pre-clearance procedures as well as any exceptions to the pre-clearance requirement.
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COMPLIANCE
7. | Personal Trading Policies and Procedures |
In furtherance of the standards for personal trading set forth herein, JPMAM shall maintain a Personal Trading Policy with respect to the trading restrictions and corrective actions discussed under this section 4, and such other restrictions as may be deemed necessary or appropriate by JPMAM.
7.1. | Designated Broker Requirement |
Any Associated Account, except as otherwise indicated in the Personal Trading Policy, must be maintained with a Designated Broker, as provided under the JPMC Code of Conduct and the Personal Trading Policy.
7.2. | Blackout Provisions |
The personal trading and investment activities of Supervised Persons are subject to particular scrutiny because of the fiduciary nature of the business. Specifically, JPMAM must avoid even the appearance that its Supervised Persons conduct personal transactions in a manner that conflicts with the firms investment activities on behalf of clients. Towards this end, Supervised Persons may be restricted from conducting personal investment transactions during certain periods (Blackout Periods), and may be instructed to reverse previously completed personal investment transactions (see section 4.4). Additionally, the Compliance Department may restrict the personal trading activity of any Supervised Person if such activity has the appearance of violating the intent of the blackout provision or is deemed to present a possible conflict of interest.
The Blackout Periods set forth in the Personal Trading Policy may reflect varying levels of restriction appropriate for different categories of Supervised Persons based upon their level of access to non-public client or proprietary information.
7.3. | Minimum Investment Holding Period and Market Timing Prohibition |
Supervised Persons are subject to a minimum holding period, as set forth under the Personal Trading Policy, for all transactions in Reportable Securities, as defined under section 1.3.
Supervised Persons are not permitted to conduct transactions for the purpose of market timing in any Reportable Security. Market timing is defined as an investment strategy using frequent purchases, redemptions, and/or exchanges in an attempt to profit from short-term market movements.
Please see the Personal Trading Policy for further details on transactions covered or exempted from the minimum investment holding period.
7.4. | Trade Reversals and Disciplinary Action |
Transactions by Supervised Persons are subject to reversal due to a conflict (or appearance of a conflict) with the firms fiduciary responsibility or a violation of the Code or the Personal Trading Policy. Such a reversal may be required even for a pre-cleared transaction that results in an inadvertent conflict or a breach of black out period requirements under the Personal Trading Policy.
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Disciplinary actions resulting from a violation of the Code will be administered in accordance with related JPMAM policies governing disciplinary action and escalation. All violations and disciplinary actions will be reported promptly by the Compliance Department to the JPMAM CCO. Violations will be reported at least quarterly to the firms executive committee and, where applicable, to the directors or trustees of an affected Fund.
Violations by Supervised Persons of any laws that relate to JPMAMs operation of its business or any failure to cooperate with an internal investigation may result in disciplinary action up to and including immediate dismissal and, if applicable, termination of registration. Policy Oversight (required)
8. | Books and Records to be maintained by Investment Advisers |
a) | A copy of this Code and any other code of ethics adopted by JPMAM pursuant to Rule 204A-1 that has been in effect during the past five years; |
b) | A record of any violation of the Code, and any action taken as a result of that violation; |
c) | A record of all written acknowledgments for each person who is currently, or within the past five years was, a Supervised Person of JPMAM ; |
d) | A record of each report made by an Access Persons required under section 2. Reporting Requirements ; |
e) | A record of the names of persons who are currently, or within the past five years were, Access Persons; |
f) | A record of any decision, and the reasons supporting the decision, to approve the acquisition of securities by Supervised Persons under section 3. Pre-approval of Certain Investments , for at least five years after the end of the fiscal year in which the approval is granted; and |
g) | Any other such record as may be required under the Code or the Personal Trading Policy. |
9. | Privacy |
Supervised Persons have a special responsibility to protect the confidentiality of information related to customers. This responsibility may be imposed by law, may arise out of agreements with customers, or may be based on policies or practices adopted by the firm. Certain jurisdictions have regulations relating specifically to the privacy of individuals and/or business and institutional customers. Various business units and geographic areas within JPMC have internal policies regarding customer privacy.
The foregoing notwithstanding, JPMAM and its Supervised Persons must comply with all provisions under the Bank Secrecy Act, the USA Patriot Act and all other applicable federal securities laws , as well as applicable anti-money laundering and know your client policies, procedures and training requirements of JPMAM and JPMC.
10. | Conflicts of Interest |
With regards to each of the following restrictions, more detailed guidelines may be found under the applicable JPMAM policy and/or the JPMC Code of Conduct.
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10.1. | Trading in Securities of Clients |
Supervised Persons should not invest in any securities of a client with which the Supervised Person has or recently had significant dealings or responsibility on behalf of JPMAM if such investment could be perceived as based on confidential information.
10.2. | Trading in Securities of Suppliers |
Supervised Persons in possession of information regarding, or directly involved in negotiating, a contract material to a supplier of JPMAM may not invest in the securities of such supplier. If you own the securities of a company with which we are dealing and you are asked to represent JPMorgan Chase in such dealings you must:
a) | Disclose this fact to your department head and the Compliance Department; and |
b) | Obtain prior approval from the Compliance Department before selling such securities. |
10.3. | Pre-clearance Procedures for Value-Added Investors |
Prior to any telephone calls, video, and in-person meetings between a Portfolio Manager and a Value-Added Investor who is meeting to discuss his/her personal investment (or prospective investment) in the JPMAM Private Investment Fund managed by the Portfolio Manager, the manager must obtain preclearance from Compliance. The following information must be provided to Compliance prior to the meeting (email: IM Institutional Compliance Group):
a) | Date and place of meeting; |
b) | Name of Value-added Investor, their employer, and job title; |
c) | Name of private fund the Value-Added Investor is invested in (or may invest in); |
d) | Names of all J.P. Morgan employees in attendance and job titles; |
e) | Purpose of the meeting. |
Compliance will respond within 24 hours via email and will ensure that appropriate controls are instituted.
10.4. | Gifts |
A conflict of interest occurs when the personal interests of Supervised Persons interfere or could potentially interfere with their responsibilities to the firm and its clients. Supervised Persons should not accept inappropriate gifts, favors, entertainment, special accommodations, or other things of material value that could influence their decision-making or make them feel beholden to a person or firm. Similarly, Supervised Persons should not offer gifts, favors, entertainment or other things of value that could be viewed as overly generous or aimed at influencing decision-making or making a client feel beholden to the firm or the Supervised Person . Guidelines that are more specific are set forth under the JPMC Code of Conduct and the JPM Investment Management Americas Gift and Entertainment Policy. Supervised Persons are required to log all entertainment subject to reporting into the JPMAM Gift, Entertainment and Political Contributions Database and any violations of the Policy are subject to the Escalation Guidelines.
10.5. | Entertainment |
No Supervised Person may provide or accept extravagant or excessive entertainment to or from a client, prospective client, or any person or entity that does or seeks to do business with or on behalf of JPMAM. Supervised Persons may provide or accept a business entertainment event, such as dinner or a sporting event, of reasonable value, if the person or entity providing the entertainment is present, and only to the extent that such
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entertainment is permissible under the JPMC Code of Conduct and the JPM Investment Management Americas Gift and Entertainment Policy. Supervised Persons are required to log all entertainment subject to reporting into the JPMAM Gift, Entertainment and Political Contributions Database and any violations of the Policy are subject to the Escalation Guidelines.
10.6. | Political Contributions and Activities |
JPMorgan Chase has a strict policy that no political contributions made on behalf of JPMorgan Chase are allowed unless pre-approved. Supervised Persons are prohibited from making political contributions for the purpose of obtaining or retaining advisory contracts with government entities. In addition, Supervised Persons are prohibited from considering JPMAMs current or anticipated business relationships as a factor in making political or charitable donations. Additional requirements, restrictions, and other disclosures regarding all political activities are described under the JPMC Code of Conduct and the Political Contributions and Activities Policy for Investment Management Americas. Supervised Persons are required to pre-clear all political contributions subject to the policy into the JPMAM Gift, Entertainment and Political Contributions Database and any violations of the Policy are subject to the Escalation Guidelines. Contributions to the JPMorgan PACs are excluded from pre-clearance and reporting requirements.
10.7. | Charitable Contributions |
Charitable contributions made on behalf of the Firm must adhere to the JPMC Global Philanthropy policy.
10.8. | Outside Business Activities |
A Supervised Persons outside activities must not reflect adversely on the firm or give rise to a real or apparent conflict of interest with the Supervised Persons duties to the firm or its clients. Supervised Persons must be alert to potential conflicts of interest and be aware that they may be asked to discontinue any outside activity if a potential conflict arises. Supervised Persons may not, directly or indirectly:
a) | Accept a business opportunity from someone doing business or seeking to do business with JPMAM that is made available to the Supervised Person because of the individuals position with the firm. |
b) | Take for oneself a business opportunity belonging to the firm. |
c) | Engage in a business opportunity that competes with any of the firms businesses. |
Guidelines that are more specific are set forth under the conflicts of interest policy of JPMAM and under the JPMC Code of Conduct. Procedures for pre-clearance of these activities by Compliance and the JPMC Office of the Secretary are available in the JPMC Procedures for Pre-clearance of Outside Activities referenced in the JPMC Code of Conduct. Supervised Persons must seek a new clearance for a previously approved activity whenever there is any material change in relevant circumstances, whether arising from a change in your job or association with JPMAM or in your role with respect to that activity or organization. You are required to be continually alert to any real or apparent conflicts of interest with respect to investment management activities and promptly disclose any such conflicts to Compliance and the Office of the Secretary. You must also notify the Office of the Secretary when any approved outside activity terminates.
Regardless of whether an activity is specifically addressed under JPMAM policies or the JPMC Code of Conduct, Supervised Persons should disclose any personal interest that might present a conflict of interest or harm the reputation of the firm.
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11. | Training |
All employees of the firm are required to take several mandatory training courses given each year by Compliance (e.g., AML, Privacy, and Code of Conduct). Failure to attend and/or complete required Compliance training courses will be subject to the Escalation Guidelines.
12. | Escalation Guidelines |
Compliance maintains the Escalation Guidelines, which is applicable to employees of J.P. Morgan Alternative Asset Management, J.P. Morgan Investment Management and Security Capital Research & Management. Please note, the Escalation Guidelines document is an internal Compliance document and is used to notify Group Heads and/or Managers of appropriate action that needs to be taken.
12.1. | Violation prior to Material Violation |
While the Group Head is notified of all violations, he/she is required to have a meeting with the employee when the employees next violation would be considered material, in order to stress the importance of the requirement and inform the employee about the ramifications for not following the policy. The employee is also required to acknowledge, in writing, (form to be provided by Compliance) that he/she is aware of the ramifications for noncompliance and he/she will be compliant going forward. The written acknowledgement is signed by both the employee and Group Head, and returned to Compliance for record keeping.
12.2. | Material Violations |
All material violations require the Group Head and HR to have a meeting with the employee and to document the meeting specifics in the employees personnel file. Once again, the employee will be required to acknowledge in writing the material nature of the violation and that he/she will be compliant going forward. The written acknowledgement, signed by the employee, Group Head and HR, will be returned to Compliance for record keeping.
There will be a mandated suspension of trading privileges for six months for all material violations of the Personal Trading Policy or Access Persons reporting requirement. Compliance and the Group Head may allow transactions for hardship reasons, but require documentation for pre-clearance.
A list of all individuals who have received material violations will be circulated to the appropriate Group Head and Senior Management on a periodic basis and will be a factor in the employees annual compensation.
13. | Policy Oversight |
Functional Area Responsible |
Existing/To be Developed/Not Applicable |
|||
Training/Awareness |
GIMA Code of Conduct and Ethics Team | Existing | ||
Monitoring/Testing |
GIMA Compliance Testing Team | Existing | ||
Reporting |
Code of Conduct and Ethics Team | Existing |
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14. | Control Types |
Policy Statement | Control Types | Existing or New | ||
Code of Ethics | Management approval or review of process. | Existing |
15. | Defined Terms |
JPMAM | Is an abbreviation for JPMorgan Asset Management, a marketing name for the Investment Management subsidiaries of JPMorgan Chase & Co. Within the context of this document, JPMAM refers to the U.S. registered investment advisers of JPMorgan Asset Management identified on the cover of this Code | |
Supervised Persons |
1) Any partner, officer, director (or other person occupying a similar status or performing similar functions) and employees of JPMAM;
2) All employees of entities affiliated with JPMAM that have been authorized by the Office of the Corporate Secretary to act in an official capacity on behalf of a legal entity within JPMAM, sometimes referred to as dual hatted employees;
3) Certain consultants as well as any other persons who provide advice on behalf of JPMAM and are subject to JPMAMs supervision and control; and
4) All Access Persons |
|
Access Persons |
Include any partner, officer, director (or other person occupying a similar status or performing similar functions) of JPMAM, as well as any other Supervised Person who:
1) Has access to non-public information regarding any clients purchase or sale of securities, or non-public information regarding the portfolio holdings of any registered fund advised or sub-advised by JPMAM; or
2) Is involved in making securities recommendations to clients, including Funds, or who has access to such recommendations that are non-public. |
|
Associated Account | Refers to an account in the name or for the direct or indirect benefit of a Supervised Person or a Supervised Persons spouse, domestic partner, minor children and any other person for whom the Supervised Person provides significant financial support, as well as to any other account over which the Supervised Person or any of these other persons exercise investment discretion, regardless of beneficial interest. Excluded from Associated Accounts are any 401(k) and deferred compensation plan accounts for which the Supervised Person has no investment discretion. | |
Automatic Investment Plan | Means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An automatic investment plan includes a dividend reinvestment plan. | |
Beneficial ownership | Is interpreted to mean any interest held directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, or any pecuniary interest in equity securities held or shared directly or indirectly, subject to the terms and conditions set forth under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934. A Supervised Person who has questions regarding the definition of this term should consult the Compliance Department. Please note: Any report required under section 2. Reporting Requirements may contain a statement that the report will not be construed as an admission that the person making the report has any direct or indirect beneficial ownership in the security to which the report relates. | |
Client | Refers to any entity (e.g., person, corporation or Fund) for which JPMAM provides a service or has a fiduciary responsibility. |
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Federal Securities Laws | Means the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940 (1940 Act), the Advisers Act, Title V of the Gramm-Leach-Bliley Act (1999), any rules adopted by the Securities and Exchange Commission (SEC) under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted there under by the SEC or the Department of the Treasury. | |
Fund | Means an investment company registered under the 1940 Act. | |
Initial public offering | Means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934.. | |
Limited offering | Means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or pursuant to Rules 504, 505 or 506 there under. | |
Personal Trading Policy | Refers to the Personal Trading Policy for Investment Management Americas Staff and/or the Personal Investment Policy for JPMAM Employees in EMEA, Asia and Japan, as applicable, and the procedures there under. | |
Reportable Security |
Means a security as defined under section 202(a)(18) of the Advisers Act held for the direct or indirect benefit of an Access Person, including any note, stock, treasury stock, security future fund, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guaranty of, or warrant or right to subscribe to or purchase any of the foregoing. Also included in this definition are exchange traded funds. Excluded from this definition are:
1) Direct obligations of the Government of the United States;
2) Bankers acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements;
3) Shares issued by money market funds; and
4) Third Party open-end Mutual funds
5) Structured notes linked to broad based indices |
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ValueAdded Investor |
Means an executive level officer (i.e., president, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer or Partner) or director of a company, who, due to the nature of his/her position, may obtain material, non-public information. |
16. | References |
Regulations and External
Guidance (required) |
Rule 204A-1 Investment Advisor Code of Ethics
Rule 17j-1 investment company act 1940 |
|
Systems/Links (optional) |
https://portal.jpmchase.net/sites/wpr/Policy/Pages/
http://legalweb.legal.chase.com/Legal/ctcprepo.nsf/ |
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17. | Document Information |
Applicable Lines of Business |
Investment Management Americas |
|||||
Locations |
Americas (Including LATAM) |
|||||
Legal Entities |
J.P. Morgan Alternative Asset Management, Inc.
JPMorgan Asset Management (UK) Ltd.
J.P. Morgan Investment Management Inc.
Security Capital Research & Management Inc.
Bear Stearns Asset Management Inc. |
|||||
Compliance Category |
Corporate Governance/Compliance Program |
|||||
Owner / Primary Contact / Secondary Contact | Kelly Devlin, VP | Dakota Browne, VP | Kelly Devlin, VP | |||
Owners Function or Line of Business/Region/Country | Compliance Manager | |||||
Approved By |
Joseph J. Bertini
Nina D. Mettelman
Leonard F. Wallace |
|||||
Contact Group Email or Hotline (optional) |
JPMAM Compliance Mailbox 1-201-595-1999 |
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18. | Appendix A: Policy Approval and Retirement |
18.1. | Approval and Retirement Steps |
Firmwide
Policies |
Non-
Firmwide
|
|||
Review by any function or Line of Business/Region/Country that has a significant role or responsibility or that may be impacted |
ü | ü | ||
Review and approval by Firmwide policy owner if subordinate to a Firmwide policy. Non-Firmwide policies that are subordinate to Firmwide policies cannot be less restrictive than Firmwide policies. |
ü | |||
Compliance Policy Group review of draft policy and a completed Policy Approval Form or Policy Retirement Request Form |
ü | ü | ||
Compliance Policy Forum review of draft policy and a completed Policy Approval Form or Policy Retirement Request Form |
ü | |||
Compliance Senior Management Committee review of draft policy and a completed Policy Approval Form or Policy Retirement Request Form |
ü | |||
Review in accordance with process established by the relevant Line of Business/Region/Country Compliance team (policy approvers must be Compliance employees at the Managing Director or equivalent level) |
ü | |||
Upon approval, post on the Compliance policy repository or archive in the case of retirement |
ü | ü |
18.2. | Approval and Retirement Forms |
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SEI INVESTMENTS DISTRIBUTION CO.
RULE 17j-1 CODE OF ETHICS
A copy of this Code may be accessed on the SEI intranet site under the Corporate Governance section.
This is an important document. You should take the time to read it thoroughly before you submit the required annual certification.
Any questions regarding this Code of Ethics should be referred to a member of the SIDCO Compliance Department
September 20, 2013
I. |
General Policy |
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II. |
Code of Ethics |
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A. Purpose of Code |
||||
B. Employee Categories |
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C. Prohibitions and Restrictions |
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D. Pre-clearance of Personal Securities Transactions |
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E. Reporting Requirements |
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F. Detection and Reporting of Code Violations |
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G. Violations of the Code of Ethics |
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H. Confidential Treatment |
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I. Recordkeeping |
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J. Definitions Applicable to the Code of Ethics |
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III. |
Exhibits Code of Ethics Reporting Forms |
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SEI Investments Distribution Co. (SIDCO) serves as principal underwriter for investment companies that are registered under the Investment Company Act of 1940 (Investment Vehicles). In addition, certain employees of SIDCO may serve as directors and/or officers of certain Investment Vehicles. This Code of Ethics (Code) sets forth the procedures and restrictions governing personal securities transactions for certain SIDCO personnel.
SIDCO has a highly ethical business culture and expects that its personnel will conduct any personal securities transactions consistent with this Code and in such a manner as to avoid any actual or potential conflict of interest or abuse of a position of trust and responsibility. Thus, SIDCO personnel must conduct themselves and their personal securities transactions in a manner that does not create conflicts of interest with the firms clients.
Pursuant to this Code, SIDCO personnel, their family members, and other persons associated with SIMC may be subject to various pre-clearance and reporting standards for their personal securities transactions based on their status as defined by this Code. Therefore, it is important that every person pay special attention to the categories set forth to determine which provisions of this Code applies to him or her, as well as to the sections on restrictions, pre-clearance, and reporting of personal securities transactions.
Each person subject to this Code must read and retain a copy of this Code and agree to abide by its terms. Failure to comply with the provisions of this Code may result in the imposition of serious sanctions, including, but not limited to, disgorgement of profits, penalties, dismissal, substantial personal liability and/or referral to regulatory or law enforcement agencies.
Please note that employees and registered representatives of SIDCO are subject to the supervisory procedures and other policies and procedures of SIDCO, and are also subject to the Code of Conduct of SEI Investments Company, which is the parent company of SIDCO. The requirements and limitations of this Code of Ethics are in addition to any requirements or limitations contained in these other policies and procedures. All employees are required to comply with federal securities laws and any regulations set forth by self-regulatory organizations (NASD, MSRB, etc.) of which SIDCO is a member.
Any questions regarding this Code of Ethics should be directed to a member of the SIDCO Compliance Department.
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II. CODE OF ETHICS
A. Purpose of Code
This Code is intended to conform to the provisions of Section 17(j) of the Investment Company Act of 1940 (the 1940 Act), as amended, and Rule 17j-1 thereunder, as amended, to the extent applicable to SIDCOs role as principal underwriter to Investment Vehicles. Those provisions of the U.S. securities laws are designed to prevent persons who are actively engaged in the management, portfolio selection or underwriting of registered investment companies from participating in fraudulent, deceptive or manipulative acts, practices or courses of conduct in connection with the purchase or sale of securities held or to be acquired by such companies. Certain SIDCO personnel will be subject to various requirements based on their responsibilities within SIDCO and accessibility to certain information. Those functions are set forth in the categories below.
B. Access Persons
(1) any director, officer or employee of SIDCO who serves as a director or officer of an Investment Vehicle for which SIDCO serves as principal underwriter;
(2) any director or officer of SIDCO who, in the ordinary course of business, makes, participates in or obtains information regarding, the purchase or sale of Covered Securities by an Investment Vehicle for which SIDCO serves as principal underwriter, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to the Investment Vehicle regarding the purchase or sale of a Covered Security.
C. Prohibitions and Restrictions
1. | Prohibition Against Fraud, Deceit and Manipulation |
Access Persons may not, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by an Investment Vehicle for which SIDCO serves as principal underwriter:
(a) employ any device, scheme or artifice to defraud the Investment Vehicle;
(b) make to the Investment Vehicle any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;
(c) engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Investment Vehicle; or
(d) engage in any manipulative practice with respect to the Investment Vehicle.
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2. | Excessive Trading of Mutual Fund Shares |
Access Persons may not, directly or indirectly, engage in excessive short-term trading of shares of Investment Vehicles for which SIDCO serves as principal underwriter. Exhibit 6 hereto provides a list of the Investment Vehicles for which SIDCO provided such services. For purposes of this section, a persons trades shall be considered excessive if made in violation of any stated policy in the mutual funds prospectus or if the trading involves multiple short-term round trip trades in a Fund for the purpose of taking advantage of short-term market movements.
Note that the SEI Funds are Covered Securities. 1 Trades in the SEI Funds do not have to be pre-cleared but do have to be reported in accordance with this Code. Trades in SEI Funds done through the SEI Capital Accumulation (401(k)) Plan and trades done through an employee account established at SEI Private Trust Company will be deemed to satisfy the reporting requirements of the Code. Any trades in SEI Funds done in a different channel must be reported to the SIDCO Compliance Officer or the designated representative of the SIDCO Compliance Department.
3. | Personal Securities Restrictions |
Access Persons:
| may not purchase or sell, directly or indirectly, any Covered Security within 24 hours before or after the time that the same Covered Security (including any equity related security of the same issuer such as preferred stock, options, warrants and convertible bonds) is being purchased or sold by any Investment Vehicle for which SIDCO serves as principal underwriter. |
| may not acquire securities as part of an Initial Public Offering (IPO) without obtaining the written approval of the SIDCO Compliance Officer or the designated representative of the SIDCO Compliance Department before directly or indirectly acquiring a beneficial ownership in such securities. |
| may not acquire a Beneficial Ownership interest in securities issued in a private placement transaction without obtaining prior written approval from the SIDCO Compliance Officer or the designated representative of the SIDCO Compliance Department. |
| may not profit from the purchase and sale or sale and purchase of a Covered Security within 60 days of acquiring or disposing of Beneficial Ownership of that Covered Security. This prohibition does not apply to transactions resulting in a loss, or to futures or options on futures on broad-based securities indexes or U.S. Government securities. This prohibition also does not apply to transactions in the SEI Funds, which are separately covered under the Excessive Trading of Mutual Fund Shares discussed in Section II.C.2 above. |
1 | The SEI Family of Funds includes the following Trusts: SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust. |
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| may not serve on the board of directors of any publicly traded company. |
D. Pre-Clearance of Personal Securities Transactions
1. | Transactions Required to be Pre-Cleared: |
| Access Persons must pre-clear with the SIDCO Compliance Officer or the designated representative of the SIDCO Compliance Department a proposed transaction in a Covered Security if he or she has actual knowledge at the time of the transaction that, during the 24 hour period immediately preceding or following the transaction, the Covered Security was purchased or sold or was being considered for purchase or sale by any Investment Vehicle . The pre-clearance obligation applies to all Accounts held in the persons name or in the name of others in which they hold a Beneficial Ownership interest. Note that, among other things, this means that these persons must pre-clear such proposed securities transactions by their spouse or domestic partner, minor children, and relatives who reside in the persons household. |
| The SIDCO Compliance Officer or designated representative of the SIDCO Compliance Department may authorize a Pre-clearing Person to conduct the requested trade upon determining that the transaction for which pre-clearance is requested would not result in a conflict of interest or violate any other policy embodied in this Code. Factors to be considered may include: the discussion with the requesting person as to the background for the exemption request, the requesting persons work role, the size and holding period of the requesting persons position in the security, the market capitalization of the issuer, the liquidity of the security, the reason for the requesting persons requested transaction, the amount and timing of client trading in the same or a related security, and other relevant factors. The person granting the authorization must document the basis for the authorization. |
2. | Transactions that do no have to be pre-cleared: |
| purchases or sales over which the person pre-clearing the transactions (the Pre-clearing Person) has no direct or indirect influence or control; |
| purchases, sales or other acquisitions of Covered Securities which are non-volitional on the part of the Pre-clearing Person or any Investment Vehicle, such as purchases or sales upon exercise or puts or calls written by Pre-clearing Person, sales from a margin account pursuant to a bona fide margin call, stock dividends, stock splits, mergers consolidations, spin-offs, or other similar corporate reorganizations or distributions; |
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| purchases or withdrawals made pursuant to an Automatic Investment Program; however, any transaction that overrides the preset schedule or allocations of the automatic investment plan must be reported in a quarterly transaction report; |
| purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired for such issuer; and |
| acquisitions of Covered Securities through gifts or bequests. |
3. | Pre-clearance Procedures: |
| All requests for pre-clearance of securities transactions must be submitted to the SIDCO Compliance Officer or designated representative of the SIDCO Compliance Department by using the SEI Automated Pre-Clearance Trading system . |
| The following information must be provided for each request: |
a. Name, date, phone extension and job title
b. Transaction detail, i.e. whether the transaction is a buy or sell; the security name and security type; number of shares; price; date acquired if a sale; and whether the security is traded in a portfolio or Investment Vehicle, part of an initial public offering, or part of a private placement transaction; and
c. Signature and date; if electronically submitted, initial and date.
| The SIDCO Compliance Officer or designated representative of the SIDCO Compliance Department will notify the requesting person whether the trading request is approved or denied through the SEI Automated Pre-Clearance Trading system. |
| A Pre-clearance Request should not be submitted for a transaction that the requesting person does not intend to execute. |
| Pre-clearance trading authorization is valid from the time when approval is granted through the next business day. If the transaction is not executed within this period, an explanation of why the previous pre-cleared transaction was not completed must be submitted to the SIDCO Compliance department or entered into the SEI Automated Pre-clearance Trading system. Also, Open and Limit Orders must be resubmitted for pre-clearance approval if not executed within the permitted time period. |
|
With respect to any transaction requiring pre-clearance, the person subject to pre-clearance must submit to the SIDCO Compliance Officer or designated representative of the SIDCO Compliance Department transaction reports showing the transactions for all the Investment |
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Vehicles with respect to which such person has knowledge regarding purchases and sales that triggered the requirement to pre-clear under Section D.1. The transaction information must be provided for the 24 hour period before and after the date on which their securities transactions were effected. These reports may be submitted in hard copy or viewed through the SEI Pre-clearance Trading system. Transaction reports need only cover the Investment Vehicles that hold or are eligible to purchase and sell the types of securities proposed to be bought or sold by person subject to pre-clearance requirements. For example, if a person seeks approval for a proposed equity trade, only the transactions reports for the Investment Vehicles effecting or eligible to effect transactions in equity securities are required. |
| The SIDCO Compliance Department will maintain pre-clearance records and records of exemptions granted for 5 years. |
1. | Duplicate Brokerage Statements |
| Access Persons are required to instruct their broker/dealer to file duplicate statements with the SIDCO Compliance Department at SEI Oaks. Statements must be filed for all Accounts (including those in which the person has a Beneficial Ownership interest), except those that trade exclusively in open-end funds other than Reportable Funds, government securities or Automatic Investment Plans. Failure of a broker/dealer to send duplicate statements will not excuse a violation of this Section. |
| Sample letters instructing the broker/dealer firms to send the statements to SIDCO are attached in Exhibit 1 of this Code. If the broker/dealer requires a letter authorizing a SIDCO employee to open an account, the permission letter may also be found in Exhibit 1. Please complete the necessary brokerage information and forward a signature ready copy to the SIDCO Compliance Officer. |
| If no such duplicate statement can be supplied, the employee should contact the SIDCO Compliance Department. |
2. | Initial Holdings Report |
| Access Persons must submit an Initial Holdings Report to the SIDCO Compliance Officer or designated representative of the SIDCO Compliance Department disclosing every Covered Security, including mutual fund accounts, beneficially owned directly or indirectly by such person within 10 days of becoming an Access Person. Any person who returns the report late may be subject to the penalties in Section G regarding Code of Ethics violations. |
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| The following information must be provided on the report: |
a. the title of the security;
b. the number of shares held;
c. the principal amount of the security;
d. the name of the broker, dealer, transfer agent; bank or other location where the security is held; and
e. the date the report is submitted.
The information disclosed in the report should be current as of a date no more than 45 days prior to the date the person becomes an Access Person. If the above information is contained on the Access Persons brokerage statement, he or she may attach the statement and sign the Initial Holdings Report.
| The Initial Holdings Report is attached as Exhibit 2 to this Code. |
3. | Quarterly Report of Securities Transactions |
| Access Persons must submit quarterly transaction reports of the purchases and/or sales of Covered Securities in which such persons have a direct or indirect Beneficial Ownership interest. The report will be provided to all of the above defined persons before the end of each quarter by the SIDCO Compliance Officer or designated representative of the SIDCO Compliance Department and must be completed and returned no later than 30 days after the end of each calendar quarter. Quarterly Transaction Reports that are not returned by the date they are due will be considered late and will be noted as violations of the Code of Ethics. Any person who repeatedly returns the reports late may be subject to the penalties in Section G regarding Code of Ethics violations. |
| The following information must be provided on the report: |
a. the date of the transaction, the description and number of shares, and the principal amount of each security involved;
b. whether the transaction is a purchase, sale or other acquisition or disposition;
c. the transaction price;
d. the name of the broker, dealer or bank through whom the transaction was effected;
e. a list of securities accounts opened during the quarterly including the name of the broker, dealer or bank and account number; and
f. the date the report is submitted.
| The Quarterly Report of Securities Transaction is attached as Exhibit 3 to this Code. |
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4. | Annual Report of Securities Holdings |
| On an annual basis, Access Persons must submit to the SIDCO Compliance Officer or designated representative of the SIDCO Compliance Department an Annual Report of Securities Holdings that contains a list of all Covered Securities, including mutual fund accounts, in which they have any direct or indirect Beneficial Ownership interest. |
| The following information must be provided on the report: |
a. the title of the security;
b. the number of shares held;
c. the principal amount of the security;
d. the name of the broker, dealer, transfer agent, bank or other location where the security is held; and
e. the date the report is submitted.
The information disclosed in the report should be current as of a date no more than 45 days before the report is submitted. If the above information is contained on the Access Persons brokerage statement, he or she may attach the statement and sign the annual holdings report.
| Annual Reports must be completed and returned to the SIDCO Compliance Officer or designated representative of the SIDCO Compliance Department within 30 days after the end of the calendar year-end. Annual Reports that are not returned by the date they are due will be considered late and will be noted as violations of the Code of Ethics. Any person who repeatedly returns the reports late may be subject to the penalties in Section G regarding Code of Ethics violations. |
| The Annual Report of Securities Holdings is attached as Exhibit 4 to this Code. |
5. | Annual Certification of Compliance |
| Access Persons will be required to certify annually that they: |
-have read the Code of Ethics;
-understand the Code of Ethics; and
-have complied with the provisions of the Code of Ethics.
| The SIDCO Compliance Officer or designated representative from the SIDCO Compliance Department will send out annual forms to all Access Persons that must be completed and returned no later than 30 days after the end of the calendar year. Any person who repeatedly returns the forms late may be subject to the penalties in Section G regarding Code of Ethics violations. |
| The Annual Certification of Compliance is attached as Exhibit 5 to this Code. |
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6. | Exception to Reporting Requirements |
| An Access Person who is subject to the Code of Ethics of an affiliate of SIDCO (Affiliate Code), and who pursuant to the Affiliate Code submits reports consistent with the reporting requirements of paragraphs 1 through 4 above, will not be required to submit such reports under this Code. |
F. Detection and Reporting of Code Violations
1. | The SIDCO Compliance Officer or designated representative of the SIDCO Compliance Department will: |
| review the personal securities transaction reports or duplicate statements filed by Access Persons and compare the reports or statements of the Investment Vehicles completed portfolio transactions. The review will be performed on a quarterly basis. If the SIDCO Compliance Officer or the designated representative of the SIDCO Compliance Department determines that a compliance violation may have occurred, the Officer will give the person an opportunity to supply explanatory material; |
| prepare an Annual Issues and Certification Report to the Board of Trustees or Directors of any Investment Vehicle that (1) describes the issues that arose during the year under this Code, including, but not limited to, material violations of and sanctions under the Code, and (2) certifies that SIDCO has adopted procedures reasonably necessary to prevent its Access Persons from violating this Code; |
| prepare a written report to SIDCO management outlining any violations of the Code together with recommendations for the appropriate penalties; and |
| prepare a written report detailing any approval(s) granted for the purchase of securities offered in connection with an IPO or a private placement. The report must include the rationale supporting any decision to approve such a purchase. |
2. | An employee who in good faith reports illegal or unethical behavior will not be subject to reprisal or retaliation for making the report. Retaliation is a serious violation of this policy and any concern about retaliation should be reported immediately. Any person found to have retaliated against an employee for reporting violations will be subject to appropriate disciplinary action. |
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G. Violations of the Code of Ethics
1. | Penalties: |
| Persons who violate the Code of Ethics may be subject to serious penalties, which may include: |
| written warning; |
| reversal of securities transactions; |
| restriction of trading privileges; |
| disgorgement of trading profits; |
| fines; |
| suspension or termination of employment; and/or |
| referral to regulatory or law enforcement agencies. |
2. | Penalty Factors: |
| Factors which may be considered in determining an appropriate penalty include, but are not limited to: |
| the harm to clients; |
| the frequency of occurrence; |
| the degree of personal benefit to the employee; |
| the degree of conflict of interest; |
| the extent of unjust enrichment; |
| evidence of fraud, violation of law, or reckless disregard of a regulatory requirement; and/or |
| the level of accurate, honest and timely cooperation from the employee. |
| The SIDCO Compliance Officer or designated representative from the SIDCO Compliance Department will use their best efforts to assure that all requests for pre-clearance, all personal securities reports and all reports for securities holding are treated as personal and confidential. However, such documents will be available for inspection by appropriate regulatory agencies and other parties, such as counsel, within and outside SIDCO as necessary to evaluate compliance with or sanctions under this Code. |
| SIDCO will maintain records relating to this Code of Ethics in accordance with Rule 31a-2 under the 1940 Act. They will be available for examination by representatives of the Securities and Exchange Commission and other regulatory agencies. |
| A copy of this Code that is, or at any time within the past five years has been, in effect will be preserved in an easily accessible place for a period of five years. |
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| A record of any Code violation and of any sanctions taken will be preserved in an easily accessible place for a period of at least five years following the end of the fiscal year in which the violation occurred. |
| A copy of each Quarterly Transaction Report, Initial Holdings Report, and Annual Holdings Report submitted under this Code, including any information provided in lieu of any such reports made under the Code, will be preserved for a period of at least five years from the end of the fiscal year in which it is made, for the first two years in an easily accessible place. |
| A record of all persons, currently or within the past five years, who are or were required to submit reports under this Code, or who are or were responsible for reviewing these reports, will be maintained in an easily accessible place for a period of at least five years from the end of the calendar year in which it is made. |
J. Definitions Applicable to the Code of Ethics
| Account - a securities trading account held by a person and by any such persons spouse, minor children and adults residing in his or her household (each such person, an immediate family member); any trust for which the person is a trustee or from which the person benefits directly or indirectly; any partnership (general, limited or otherwise) of which the person is a general partner or a principal of the general partner; and any other account over which the person exercises investment discretion. |
| Automatic Investment Plan a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan. |
| Beneficial Ownership Covered Security ownership in which a person has a direct or indirect financial interest. Generally, a person will be regarded as a beneficial owner of Covered Securities that are held in the name of: |
a. a spouse or domestic partner;
c. a relative who resides in the persons household; or
d. any other person IF : (a) the person obtains from the securities benefits substantially similar to those of ownership (for example, income from securities that are held by a spouse); or (b) the person can obtain title to the securities now or in the future.
| Covered Security except as noted below, includes any interest or instrument commonly known as a security, including notes, bonds, stocks (including closed-end funds), debentures, convertibles, preferred stock, security future, warrants, rights, and any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities. The term Covered Securities specifically includes the SEI Funds. See the definition of Reportable Funds below. |
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A Covered Security does not include (i) direct obligations of the U.S. Government, (ii) bankers acceptances, (iii) bank certificates of deposit, (iv) commercial paper and other high quality short-term debt instruments, including repurchase agreements, (v) shares issued by money market funds and (vi) shares issued by open-end investment companies other than a Reportable Fund.
| Initial Public Offering an offering of securities for which a registration statement has not been previously filed with the U.S. SEC and for which there is no active public market in the shares. |
| Purchase or sale of a Covered Security includes the writing of an option to purchase or sell a security. |
| Reportable Fund Any non-money market fund for which SIDCO serves as principal underwriter. |
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SEI INVESTMENTS DISTRIBUTION CO.
CODE OF ETHICS EXHIBITS
Exhibit 1 | Account Opening Letters to Brokers/Dealers | |
Exhibit 2 | Initial Holdings Report | |
Exhibit 3 | Quarterly Transaction Report | |
Exhibit 4 | Annual Securities Holdings Report | |
Exhibit 5 | Annual Compliance Certification | |
Exhibit 6 | SIDCO Client List |
EXHIBIT 1
Date:
Your Broker
street address
city, state zip code
Re: | Your Name |
your S.S. number or account number
Dear Sir or Madam:
Please be advised that I am an employee of SEI Investments Distribution Co. Please send duplicate statements only of this brokerage account to the attention of:
SEI Investments Distribution Co.
Attn: The Compliance Department
One Freedom Valley Drive
Oaks, PA 19456
This request is made pursuant to SEIs Code of Ethics.
Thank you for your cooperation.
Sincerely,
Your name
Date:
[Address]
Re: | Employee Name |
Account #
SS#
Dear Sir or Madam:
Please be advised that the above referenced person is an employee of SEI Investments Distribution Co. We grant permission for him/her to open a brokerage account with your firm, provided that you agree to send duplicate statements only of this employees brokerage account to:
SEI Investments Distribution Co.
Attn: The Compliance Department
One Freedom Valley Drive
Oaks, PA 19456
This request is made pursuant to SEIs Code of Ethics.
Thank you for your cooperation.
Sincerely,
SEI Compliance Officer
EXHIBIT 2
SEI INVESTMENTS DISTRIBUTION CO.
INITIAL HOLDINGS REPORT
Name of Reporting
Person:
Date Person Became Subject to the Codes Reporting
Requirements:
Information in Report Dated as of:
Date Report Due:
Date Report Submitted:
Securities Holdings
Name of Issuer and Title of Security |
No. of Shares (if applicable) |
Principal Amount, Maturity Date and Interest Rate (if applicable) |
Name of Broker, Dealer or Bank Where Security Held |
|||
If you have no securities holdings to report, please check here. ¨
Securities Accounts
Name of Broker, Dealer or Bank |
Account Number | Names on Account | Type of Account | |||
If you have no securities accounts to report, please check here. ¨
I certify that I have included on this report all securities holdings and accounts in which I have a direct or indirect beneficial interest and required to be reported pursuant to the Code of Ethics and that I will comply with the Code of Ethics.
Signature: | Date: | |||||||||
Received by: |
EXHIBIT 3
SEI INVESTMENTS DISTRIBUTION CO.
QUARTERLY TRANSACTION REPORT
Transaction Record of Securities Directly or Indirectly Beneficially Owned
For the Quarter Ended
Name:
Submission Date:
Securities Transactions
Date of Transaction |
Name of Issuer and Title of Security |
No. of Shares (if applicable) |
Principal Amount, Maturity Date and Interest Rate (if applicable) |
Type of Transaction |
Price |
Name of Broker, Dealer or Bank Effecting Transaction |
||||||
If you had no reportable transactions during the quarter, please check here. ¨
NOTE: Trades in SEI Funds done through the SEI Capital Accumulation (401(k)) Plan and trades done through an employee account established at SEI Private Trust Company will be deemed to satisfy the reporting requirements of the Code and do not have to be reported here. Any trades in SEI Funds done in a different channel must be reported.
This report is required of all officers, directors and certain other persons under Rule 17j-1 of the Investment Company Act of 1940 and is subject to examination. Transactions in direct obligations of the U.S. Government need not be reported. In addition, persons need not report transactions in bankers acceptances, certificates of deposit, commercial paper or open-end investment companies other than Reportable Funds. The report must be returned within 30 days of the applicable calendar quarter end. The reporting of transactions on this record shall not be construed as an admission that the reporting person has any direct or indirect beneficial ownership in the security listed.
Securities Accounts
If you established an account within the quarter, please provide the following information:
Name of Broker, Dealer or Bank | Account Number | Names on Account |
Date Account was Established |
Type of Account | ||||
If you did not establish a securities account during the quarter, please check here. ¨
By signing this document, I represent that all reported transactions were pre-cleared through the Compliance Department or the designated Compliance Officer in compliance with the SIDCO Code of Ethics. In addition, I certify that I have included on this report all securities transactions and accounts required to be reported pursuant to the Policy.
Signature: | ||
Received by: |
EXHIBIT 4
SEI INVESTMENTS DISTRIBUTION CO.
ANNUAL SECURITIES HOLDINGS REPORT
As of December 31,
Name of Reporting Person:
Securities Holdings
Name of Issuer and Title of Security |
No. of Shares (if applicable) |
Principal Amount, Maturity Date and Interest Rate (if applicable) |
Name of Broker, Dealer or Bank Where Security Held |
|||
If you had no securities holding to report this year, please check here. ¨
Securities Accounts
If you established an account during the year, please provide the following information:
Name of Broker, Dealer or Bank |
Date Account was Established |
Account Number | Names on Account | Type of Account | ||||
If you have no securities accounts to report this year, please check here. ¨
I certify that the above list is an accurate and complete listing of all securities in which I have a direct or indirect beneficial interest.
Signature | Received by | |||||||
Date |
Note: Do not report holdings of U.S. Government securities, bankers acceptances, certificates of deposit, commercial paper and mutual funds other than Reportable Funds.
EXHIBIT 5
SEI INVESTMENTS DISTRIBUTION CO.
RULE 17J-1 CODE OF ETHICS
ANNUAL COMPLIANCE CERTIFICATION
Please return the signed form via email or
interoffice the form to SEI Compliance Department Meadowlands Two
1. | I hereby acknowledge receipt of a copy of the Code of Ethics. |
2. | I have read and understand the Code of Ethics and recognize that I am subject thereto. In addition, I have raised any questions I may have on the Code of Ethics with the SIDCO Compliance Officer and have received a satisfactory response[s]. |
3. | For all securities/accounts beneficially owned by me, I hereby declare that I have complied with the terms of the Code of Ethics during the prior year. |
Print Name:
Signature:
Date:
Received by SIDCO:
EXHIBIT 6
As of September 20, 2013, SIDCO acts as distributor for the following:
SEI Daily Income Trust
SEI Liquid Asset Trust
SEI Tax Exempt Trust
SEI Institutional Managed Trust
SEI Institutional International Trust
The Advisors Inner Circle Fund
The Advisors Inner Circle Fund II
Bishop Street Funds
SEI Asset Allocation Trust
SEI Institutional Investments Trust
City National Rochdale Funds (f/k/a CNI Charter Funds)
Causeway Capital Management Trust
ProShares Trust
ProShares Trust II
Community Capital Trust
(f/k/a Community Reinvestment Act Qualified Investment Fund)
SEI Alpha Strategy Portfolios, LP
TD Asset Management USA Funds
SEI Structured Credit Fund LP
Wilshire Mutual Funds, Inc.
Wilshire Variable Insurance Trust
Global X Funds
Exchange Traded Concepts Trust (f/k/a FaithShares Trust)
Schwab Strategic Trust
RiverPark Funds
Adviser Managed Trust Fund
Huntington Strategy Shares
New Covenant Funds
Cambria ETF Trust
Highland Funds I (f/k/a Pyxis Funds I)
KraneShares Trust
LocalShares Investment Trust
SEI Insurance Products Trust
KP Funds