The Index Provider obtains ESG
factor valuations for each issuer in the parent index from RepRisk and Sustainalytics, which are investment research providers dedicated to responsible investing and ESG research. These ESG factor valuations are
obtained from each provider and translated by the Index Provider to a range of 0 – 100, with 100 being the best possible score. The Index Provider’s finalized ESG score for each issuer incorporates a
3-month rolling average of the scores from each individual provider. The Index Provider calculates ESG scores daily.
In addition, if an instrument is
categorized as “green” by the Climate Bond Initiative (“CBI”) under the criteria used by the CBI to certify bonds as being closely linked with green and climate friendly assets or projects, the
security will be upgraded one quintile from the quintile to which it originally was assigned. Issuers involved in thermal coal, tobacco, weapons, or UN Global Compact principle violation are excluded from the index
regardless of their ESG score.
The Underlying Index consists of
fixed rate bonds, floating rate bonds, hybrid bonds, step-up bonds (securities that pay an initial interest rate but also have a feature where the rate increases at periodic intervals), payment-in-kind
(“PIK”) bonds, toggle bonds (PIK bonds where the issuer has an option to defer an interest payment by paying an increased coupon in the future), amortizer bonds (bonds where the principal on the debt is
paid down regularly), perpetual bonds (a bond with no maturity date), Sukuk bonds (Islamic financial certificates) and all subordinated financial bonds excluding AT1 bonds (a category of bonds issued by banks designed
to absorb losses if the bank’s equity capital dips below a certain threshold), structured bonds, credit enhanced bonds, and securities issued by sovereign and quasi-sovereign entities (bonds issued by entities
wholly-owned or guaranteed by the government). Additional exclusions include bonds with less than two years to maturity to enter the Underlying Index, less than 13 months to maturity if already part of the Underlying
Index, and have less than $250 million of minimum issue size. The Underling Index only includes eligible bonds issued by countries in developed markets which are Australia, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Japan, Malta, the Netherlands, New Zealand, Norway, Spain, Sweden, the United Kingdom and the United States.
Inclusion in the Underlying Index
is limited to USD denominated high yield securities of developed market issuers. Credit rating will be determined based on the following rules: (i) the middle rating of the S&P Global Ratings
(“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) or Fitch Investors Services, Inc. (“Fitch”); (ii) the lower rating when two ratings are available; and (iii)
the sole rating when only one rating is provided. Under normal circumstances, the Underlying Index is rebalanced on a monthly basis. The fund rebalances its portfolio in accordance with
the Underlying Index, and, therefore, any changes
to the Underlying Index’s rebalance schedule will result in corresponding changes to the fund’s rebalance schedule.
As of March 31, 2020, a
significant percentage of the Underlying Index was comprised of securities of issuers from the United States (82.5%).
As of March 31, 2020, the
Underlying Index was comprised of 1,711 bonds issued by 778 different issuers.
The fund uses a representative
sampling indexing strategy in seeking to track the Underlying Index, meaning it generally will invest in a sample of securities in the index whose risk, return and other characteristics resemble the risk, return and
other characteristics of the Underlying Index as a whole.
The fund will normally invest at
least 80% of its net assets, plus the amount of any borrowings for investment purposes, in corporate bonds rated high yield by credit rating agencies (e.g., S&P rating below BBB-). In addition, the fund will
invest at least 80% of its total assets, but typically far more, in instruments that comprise the Underlying Index.
The fund will concentrate its
investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors may change over time.
The fund is not sponsored,
endorsed, or promoted by J.P. Morgan Chase & Co., and J.P. Morgan Chase & Co. bears no liability with respect to any index on which the fund is based.
Securities lending. The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection
with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio
securities in an amount up to 33 1/3% of its total assets.
Main Risks
As with any investment, you could
lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the
fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of
this Prospectus entitled “Additional Information About Fund Strategies, Underlying Index Information and Risks” and in the Statement of Additional Information (“SAI”).