Free Writing Prospectus - Filing Under Securities Act Rules 163/433 (fwp)
September 02 2015 - 1:40PM
Edgar (US Regulatory)
Free
Writing Prospectus
Filed Pursuant
to Rule 433
Registration
Statement No. 333-199966
Dated September
2, 2015
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Free Writing Prospectus Filed Pursuant to Rule 433 Registration Statement No.
333-199966 August 3, 2015
J. P. Morgan Structured Investments
August 2015
The J.P. Morgan Strategic Volatility Dynamic Index
Strategy Guide
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IRS Circular 230 Disclosure
We and our affiliates do not provide tax advice. Accordingly, any discussion of
U.S. tax matters contained herein is not intended or written to be used, and
cannot be used, in connection with the promotion, marketing or recommendation
by anyone unaffiliated with J.P. Morgan of any of the matters address herein or
for the purpose of avoiding U.S. tax-related penalties.
Investment suitability must be determined individually for each investor, and
the financial instruments described herein may not be suitable for all
investors. This information is not intended to provide and should not be
relied upon as providing accounting, legal, regulatory or tax advice. Investors
should consult with their own advisors as to these matters.
This material is not a product of J.P. Morgan Research Departments. Structured
Investments may involve a high degree of risk, and may be appropriate
investments only for sophisticated investors who are capable of understanding
and assuming the risks involved. J.P. Morgan and its affiliates may have
positions (long or short), effect transactions or make markets in securities or
financial instruments mentioned herein or that may compose the Index or to
which the Index relates directly or indirectly (or options with respect
thereto), or provide advice or loans to, or participate in the underwriting or
restructuring of the obligations of, issuers mentioned herein. J.P. Morgan is
the marketing name for the Issuer and its subsidiaries and affiliates
worldwide. J.P. Morgan Securities LLC is a member of the Financial Industry
Regulatory Authority, the New York Stock Exchange and the Securities Investor
Protection Corporation. Clients should contact their salespersons at, and
execute transactions through, a J.P. Morgan entity qualified in their home
jurisdiction unless governing law permits otherwise.
Index Disclaimers
J.P. Morgan has entered into an agreement with the Chicago Board Options
Exchange, Incorporated (the "CBOE") and Standard and Poor's Financial Services
LLC ("SandP") that provides it and certain of its affiliates or subsidiaries
identified in that agreement with a non-exclusive license and, for a fee, with
the right to use the CBOE Volatility Index([R]) (the "VIX Index") in connection
with certain securities. J.P. Morgan securities linked to the Index are not
sponsored, endorsed, sold or promoted by SandP or the CBOE. SandP and the CBOE
make no representation, condition or warranty, express or implied, to the
owners of these securities or any member of the public regarding the
advisability of investing in securities generally or in these securities.
SandP's and the CBOE's only relationship to J.P. Morgan and its affiliates, is
the licensing of certain trademarks and trade names of SandP, CBOE and the VIX
Index which is determined, composed and calculated by CBOE without regard to
J.P. Morgan and its affiliates or these securities. The CBOE has no obligation
to take the needs of J.P. Morgan and its affiliates or the owners of these
securities into consideration in determining, composing or calculating the VIX
Index. SandP and the CBOE are not responsible for and have not participated in
the determination of the timing of, prices, or quantities of these securities
to be issued or in the determination or calculation of the equation by which
these securities are to be converted into cash. SandP and the CBOE have no
obligation or liability in connection with the administration, marketing or
trading of these securities.
THE CBOE SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE
CALCULATION OF THE VIX INDEX FROM SOURCES THAT THE CBOE CONSIDERS RELIABLE, BUT
SandP AND THE CBOE ACCEPT NO RESPONSIBILITY FOR, AND SHALL HAVE NO LIABILITY
FOR, ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. SandP AND THE CBOE DO NOT
GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
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OF THE VIX INDEX OR ANY DATA INCLUDED THEREIN. SandP AND THE CBOE MAKE NO
WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY ANY PERSON OR
ENTITY FROM THE USE OF THE VIX INDEX OR ANY DATA INCLUDED THEREIN. SandP AND
THE CBOE MAKE NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIM ALL
CONDITIONS AND WARRANTIES IMPLIED BY STATUTE, GENERAL LAW OR CUSTOM WITH
RESPECT TO THE VIX INDEX OR ANY DATA INCLUDED THEREIN.
In addition, (i) the CBOE has no relationship to the notes other than
authorizing SandP to grant a license to J.P. Morgan and its affiliates to use
the VIX Index as the basis for the notes; (ii) the CBOE has no obligation to
take the needs of J.P. Morgan and its affiliates, purchasers or sellers of the
notes or any other persons into consideration in maintaining the VIX Index or
modifying the methodology underlying the VIX Index and (iii) the CBOE has no
obligation or liability in connection with the administration, marketing or
trading of the VIX Index, the notes or any other investment product of any kind
or character that is based thereon.
"STANDARD and POOR'S([R])," "SandP([R],)" "SandP 500([R])," AND "STANDARD and
POOR'S 500" ARE TRADEMARKS OF STANDARD and POOR'S, A DIVISION OF THE
MCGRAW-HILL COMPANIES, INC., AND "CBOE VOLATILITY INDEX([R])" AND "VIX([R])"
ARE TRADEMARKS OF THE CHICAGO BOARD OPTIONS EXCHANGE, INCORPORATED. THESE MARKS
HAVE BEEN LICENSED FOR USE BY JPMORGAN CHASE BANK, NATIONAL ASSOCIATION AND
SUB-LICENSED FOR USE BY JPMORGAN CHASE and CO. THE SECURITIES ARE NOT
SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD and POOR'S OR THE CBOE AND
STANDARD and POOR'S AND THE CBOE MAKE NO REPRESENTATION REGARDING THE
ADVISABILITY OFINVESTING IN THE SECURITIES.
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Background on Volatility
Volatility is a measure of the variability of the returns of a given financial
asset. One common approach to estimating volatility is to measure the
variability of the historical returns of the asset ("historical volatility").
In the context of investments, volatility is commonly thought of as a measure
of risk because assets with a higher measure of historical volatility would
have exhibited a higher variability of returns in the past. Another approach to
estimating volatility is to infer the market's expectation of the volatility of
an asset from the prices of listed option contracts that reference the asset
("implied volatility"). For example, the implied volatility of the SandP
500([R]) Index can be inferred from the prices of listed options on the SandP
500([R]) Index. The VIX Index, published by the Chicago Board of Options
Exchange, Incorporated ("CBOE"), is viewed to be the benchmark for measuring
the near term (30 days) implied volatility of the SandP 500([R]) Index.
In general, volatility has tended to be negatively correlated to the equity
markets. Specifically, for large-cap U.S. equities, the VIX Index has
historically tended to increase sharply during periods of turbulence in the
equity markets, while it has typically declined when the market recovers. In
the first chart below, which shows the historical performance of the SandP
500([R]) Index and the VIX Index, it can be observed that periods of declines
(especially steep declines) in the SandP 500([R]) Index are often accompanied
by increases in the VIX index. The chart on the following page shows the 30-day
historical returns of the SandP 500([R]) Index plotted on the horizontal axis
against the 30-day historical returns of the VIX Index plotted on the vertical
axis. As can be seen in this chart, negative returns for the SandP 500([R])
Index have often been accompanied with positive returns in the VIX Index.
Historical performance of the SandP 500([R]) Index and the VIX Index Jul 29,
2005 -- Jul 31, 2015
Source: Bloomberg. As of 7/31/2015. PAST PERFORMANCE IS NOT INDICATIVE OF
FUTURE RESULTS. The VIX Index is not an investable Index. The J.P. Morgan
Strategic Volatility Dynamic Index is not linked to the VIX Index.
The information in the above chart is provided solely for illustration.
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Historical 30-day returns of the SandP 500([R]) Index versus 30-day returns of
the VIX Index Jul 2005 -- Jul 2015
Source: J.P. Morgan; Bloomberg. As of 7/31/2015. The chart shows the 30-day
returns of the SandP 500([R]) Index on the horizontal axis plotted against the
30-day returns of the VIX Index on the vertical axis from Jul 2005 to Jul 2015.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. The VIX Index is not an
investable Index. The J.P.
Morgan Strategic Volatility Dynamic Index is not linked to the VIX Index. The
information in the above chart is provided solely for illustration.
Unlike other financial assets, such as equities and bonds, that are generally
expected to increase over the long term, there is no expectation that
volatility will increase in the long term. Rather, volatility is generally
expected, over the long term, to decline from any highs and recover from any
lows. Such behavior is often described as mean reverting because the asset is
expected to revert from highs or lows towards its long-term average. The mean
reverting behavior of volatility can be observed in the historical performance
of the VIX Index displayed in the first chart on the next page.
Increases in volatility have historically tended to occur suddenly, while
declines in volatility have tended to be gradual. As a result, a distribution
of the historical returns of the VIX Index shows that large positive returns
have occurred more frequently than large negative returns over a relatively
short period of time, a feature that is often described as "positively skewed"
or having a "right fat tail." The possibility of a large increase in volatility
when markets are stressed may make volatility products of interest to investors
as possible hedging tools.
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Historical performance of the VIX Index Jan 2002 -- Jul 2015
Source: Bloomberg. As of 7/31/2015. PAST PERFORMANCE IS NOT INDICATIVE OF
FUTURE RESULTS. The VIX Index is not an investable Index. The J.P. Morgan
Strategic Volatility Dynamic Index is not linked to the VIX Index.
The information in the above chart is provided solely for illustration.
Historical 30-day returns of the VIX Index Jan 1998-- Jul 2015
Volatility spikes have historically resulted in a postively skewed distribution
of 30-day returns of the VIX index
Source: J.P. Morgan; Bloomberg. As of 7/31/2015. The chart shows the frequency
with which the VIX Index attained a particular given 30 Calendar return level
over the historical period from Jan 2005 to Jan 2015. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS. The VIX Index is not an investable Index. The
J.P. Morgan Strategic Volatility Dynamic Index is not linked to the VIX Index.
The information in the above chart is provided solely for illustration.
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Investing in Volatility
The VIX Index, which is viewed as the benchmark for measuring the volatility of
the SandP 500([R]) Index, is not an investable index. Futures contracts on the
VIX Index were introduced by the CBOE in 2004 to provide investable access to
volatility. Because futures contracts have specific expiration dates, in order
for an investor to maintain exposure, the investor needs to sell a futures
contracts as it gets close to expiration and purchase another contract with a
later expiration date. This process is known as "rolling" the futures
position.
In general, futures curves typically exhibit one of two distinct "shapes." The
term "contango" is used to describe the shape of a futures curve when the price
of a futures contract with a later expiration is higher than that of a futures
contract with an earlier expiration; the term "backwardation" is used to
describe the shape of a futures curve when the price of a futures contract with
a later expiration is lower than the price of a futures contract with an
earlier expiration. The charts below show snapshots of the VIX futures curve on
January 23, 2012 and August 8, 2011. January 23, 2012 occurred during a period
of increasing equity market performance and the VIX futures curve is shown to
be in contango on that day. August 8, 2011 occurred during a stressed period in
the equity markets and the VIX futures curve is shown to be in backwardation on
that day.
Snapshots of the VIX Futures Curve in Contango and in Backwardation
VIX Futures Curve on Jan 23, 2012
Contango
VIX Futures Curve on Aug 8, 2011
Backwardation
Source: Bloomberg. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. The
J.P. Morgan Strategic Volatility Dynamic Index is not linked to the VIX Index.
The information in the above chart is provided solely for illustration.
The VIX futures curve is typically in contango, reflecting a "normal" market
scenario. When a futures curve is in contango, all else being equal, an
investor seeking to maintain a long position pays a higher price to buy a later
expiration futures contract than the price at which the investor is able to
sell the contract as it nears expiration, thus suffering negative returns
("negative roll yield"). For this reason, a systematic long position in VIX
futures can suffer periods of large negative returns associated with negative
roll yield. The chart on the next page shows the hypothetical back-tested
performance (for periods before January 22, 2009) and actual historical
performance (for periods on and after January 22, 2009) of the SandP 500([R])
Short-Term VIX Futures Index. This index simulates a systematic long position
in VIX futures at the 1-month
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point on the VIX futures curve and is a popular underlying for several
exchange-traded notes and exchange-traded funds on the market. As can be
observed in the chart below, although the index generally increases when VIX
increases, during periods between any such increases, the SandP 500([R])
Short-Term VIX Futures Index declines, sometimes significantly. The periods of
decline in the SandP 500([R]) Short-Term VIX Futures Index reflect both the
reversion of volatility to its long-term average and the negative roll yield of
the VIX futures curve in normal markets.
Hypothetical, historical performance of the SandP 500 Short Term VIX Futures
Index Sep 2007 -- Jul 2015
Source: J.P. Morgan; Bloomberg. As of 7/31/2015. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS. The J.P. Morgan Strategic Volatility Dynamic
Index is not linked to the VIX Index or the SandP 500([R]) Short-Term VIX
Futures Index. The information in the above chart is provided solely for
illustration.
Note: The SandP 500 Short-Term VIX Futures Index was launched on January 22,
2009, and therefore any data for that index prior to that date is back-tested
and does not represent actual historical data. Alternative modeling techniques
or assumptions may produce different hypothetical historical information that
might prove to be more appropriate and that might differ significantly from the
hypothetical historical information of the index. In addition, back-tested,
hypothetical historical results have inherent limitations in that back-tested
results may be achieved by means of a retroactive application of a back-tested
model designed with the benefit of hindsight.
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The J.P. Morgan Strategic Volatility Dynamic Index
The J.P. Morgan Strategic Volatility Dynamic Index (the "Index") aims to
provide exposure to volatility via VIX futures contracts by combining a long
position in VIX futures at the 4-month point on the VIX futures curve with a
contingent, scaled short position in VIX futures at the 2-month point on the
VIX futures curve. The Index targets a flat to positive sensitivity to
volatility by (a) scaling the exposure to the short position, based on a
measure of recent relative returns of the short position (assuming the
synthetic short position is activated at all times) compared to the synthetic
long position, which we refer to as the Average Beta Weight, in an attempt to
avoid or mitigate the negative sensitivity to volatility that could result from
constant 100% exposure to the synthetic short position and (b) progressively
de-activating the synthetic short position under certain market conditions
The synthetic long position in the futures contracts measures the return from
rolling a synthetic position throughout each month from the third-month VIX
futures contract into the six-month VIX futures contracts (while maintaining
positions in the four-month and fifth-month VIX futures contracts).
The synthetic short exposure to the futures contracts, when activated, measures
the return from rolling a synthetic short position in the second-month VIX
futures contract into the third month VIX futures contract and is designed to
be activated when the VIX futures curve is upward-sloping.
Exposure to the synthetic short position will vary between 0% and 100%.
[] On any Index Business Day (as defined in the relevant underlying
supplement), the exposure to the synthetic short position that will be used in
the calculation of the level of the Index on the following Index Business Day
will be adjusted based on the Average Beta Weight on that Index Business Day if
the level of the VIX Index was less than the rolling, weighted average of the
second-month and third-month VIX futures contracts included in the synthetic
short position (whether activated or not) for each of the three immediately
preceding Index Business Days, subject to a maximum of 100%, a minimum of 0%
and a maximum daily change in the exposure of 25%.
[] Conversely, the exposure to the synthetic short position will be decreased
by 25% on any Index Business Day if the level of the VIX Index was greater than
or equal to the rolling, weighted average of the second-month and third-month
VIX futures contracts included in the synthetic short position for each of the
three immediately preceding Index Business Days, subject to a minimum of 0%.
[] On any Index Business Day for which these conditions are not met, the
synthetic short position will not be increased or decreased.
The Average Beta Weight is based on the 10-day average of the "beta" of the
synthetic short position (assuming the synthetic short position is activated at
all times) relative to the synthetic long position, where each of the 10
"betas" are, in turn, determined by referencing the daily return of the
synthetic long position and the synthetic short position (assuming the
synthetic short position is activated at all times) over a 10-day period.
The reported level of the Index incorporates the daily deduction of (a) an
index fee of 0.75% per annum and (b) a "daily rebalancing adjustment amount"
that is determined by applying a rebalancing adjustment factor of between 0.20%
and 0.50% per day, both to the aggregate notional amount of each of the VIX
futures contracts hypothetically traded that day and the amount of the change,
if any, in the level of the exposure to the synthetic short position.
The daily rebalancing adjustment amount is intended to approximate the
"slippage costs" that would be experienced by a professional investor seeking
to replicate the hypothetical portfolio
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contemplated by the Index at prices that approximate the official settlement
prices (which are not generally tradable) of the relevant VIX futures
contracts.
The chart immediately below shows the hypothetical back-tested performance (for
periods prior to August 31, 2012) and actual historical performance (for
periods on and after August 31, 2012) of the J.P. Morgan Strategic Volatility
Dynamic Index and the historical performance of the SandP 500([R]) Index while
the chart on the following page shows the hypothetical historical and actual
historical activation/de-activation of the contingent short position in the
J.P. Morgan Strategic Volatility Dynamic Index.
Hypothetical, historical performance of the J.P. Morgan Strategic Volatility
Dynamic Index and the SandP 500([R]) Index (Sep 2008 -- Jul 2015)
Source: J.P. Morgan; Bloomberg. As of 7/31/2015. PAST PERFORMANCE AND
BACK-TESTED PERFOMANCE ARE NOT INDICATIVE OF FUTURE RESULTS. The information in
this chart is provided solely for reference.
Note: The J.P. Morgan Strategic Volatility Dynamic Index was launched on
8/31/2012, and therefore any data used for that index prior to that date is
back-tested and does not represent actual historical data. The hypothetical
back-tested performance of the Index is calculated on materially the same basis
as the performance of the Index is now calculated, but does not represent the
actual historical performance of the Index and has not been verified by an
independent third party. Alternative modeling techniques or assumptions may
produce different hypothetical historical information that might prove to be
more appropriate and that might differ significantly from the hypothetical
historical information of the Index. In addition, back-tested, hypothetical
historical results have inherent limitations. These back-tested results are
achieved by means of a retroactive application of a back-tested model designed
with the benefit of hindsight.
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Hypothetical, back-tested and historical illustration of the exposure of the
J.P. Morgan Strategic Volatility Dynamic Index to the opportunistic short
position (Sep 2008 -- Jul 2015)
Source: J.P. Morgan. As of 7/31/2015. PAST PERFORMANCE AND BACK-TESTED
PERFORMANCE ARE NOT
INDICATIVE OF FUTURE LEVELS. The J.P. Morgan Strategic Volatility Dynamic Index
was launched on 8/31/2012; therefore any data used for that Index prior to that
date is back-tested and does not represent actual historical performance. The
information in this chart is provided solely for reference.
Note: The J.P. Morgan Strategic Volatility Dynamic Index was launched on
8/31/2012, and therefore any data used for that index prior to that date is
back-tested and does not represent actual historical data. The hypothetical
back-tested performance of the Index is calculated on materially the same basis
as the performance of the Index is now calculated, but does not represent the
actual historical performance of the Index and has not been verified by an
independent third party. Alternative modeling techniques or assumptions may
produce different hypothetical historical information that might prove to be
more appropriate and that might differ significantly from the hypothetical
historical information of the Index. In addition, back-tested, hypothetical
historical results have inherent limitations. These back-tested results are
achieved by means of a retroactive application of a back-tested model designed
with the benefit of hindsight.
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The table below shows the monthly and full year hypothetical back-tested
returns and actual historical returns of the J.P. Morgan Strategic Volatility
Dynamic Index and the historical returns of the SandP 500([R]) Index.
Hypothetical, back-tested and historical illustration of monthly and full-year
returns of the J.P.
Morgan Strategic Volatility Dynamic Index and the SandP 500([R]) Index (Sep
2008 -- Jul 2015)
2008 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Full Year
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
SVD (2.88%) (4.21%) 1.72% 7.57% 50.37% 17.01% (0.48%) 81.92%
SandP 500 (8.60%) (0.99%) 1.22% (9.08%) (16.94%) (7.48%) 0.78% (31.46%)
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
2009 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Full Year
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
SVD 2.39% 6.71% 3.39% (2.84%) (3.38%) (0.36%) (0.34%) 0.36% 1.83% 0.10% 1.36% (1.84%) 7.19%
SandP 500 (8.57%) (10.99%) 8.54% 9.39% 5.31% 0.02% 7.41% 3.36% 3.57% (1.98%) 5.74% 1.78% 23.45%
--------- ---------------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
2010 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Full Year
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
SVD 1.48% (3.50%) 3.75% 3.05% 9.47% (1.16%) 1.73% 2.98% 2.38% (2.23%) 2.98% 2.93% 25.92%
SandP 500 (3.70%) 2.85% 5.88% 1.48% (8.20%) (5.39%) 6.88% (4.74%) 8.76% 3.69% (0.23%) 6.53% 12.78%
--------- ---------------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
2011 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Full Year
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
SVD 0.22% (1.59%) (6.70%) 3.68% 0.76% 2.24% (4.23%) 29.52% 19.38% (16.75%) 14.34% (0.22%) 38.24%
SandP 500 2.26% 3.20% (0.10%) 2.85% (1.35%) (1.83%) (2.15%) (5.68%) (7.18%) 10.77% (0.51%) 0.85% 0.00%
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
2012 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Full Year
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
SVD 1.80% 0.36% (1.44%) (0.94%) (1.16%) 1.06% 0.23% 2.38% (2.26%) (6.69%) (0.25%) (3.15%) (10.13%)
SandP 500 4.36% 4.06% 3.29% (0.63%) (6.27%) 3.96% 1.26% 1.98% 2.42% (1.98%) 0.28% 0.7% 13.31%
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
2013 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Full Year
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
SVD (3.69%) (2.07%) 1.11% (2.84%) 1.19% 2.33% (0.10%) (0.91%) (0.03%) 0.27% 1.93% (1.58%) (4.51%)
SandP 500 5.04% 1.11% 3.60% 1.81% 2.08% (1.50%) 4.95% (3.13%) 2.97% 4.46% 2.80% 2.36% 17.91%
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Full Year
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
SVD (3.20%) (7.62%) (1.84%) (1.56%) 1.53% 0.03% (2.70%) 0.32% (1.24%) (13.42) 0.01% (11.93) (35.48%)
SandP 500 (3.56%) 4.31% 0.69% 0.62% 2.10% 1.91% (1.51%) 3.77% (1.55%) 2.32% 2.45% (0.42%) 17.91%
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Full Year
--------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
SVD (6.27%) (0.42%) (0.37%) 1.06% (1.11%) (1.99%) 0.11% (8.82%)
SandP 500 (3.10%) 5.49% (1.74%) 0.85% 1.05% (2.10%) 1.97% 2.18%
--------- ---------------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
Source: J.P. Morgan; Bloomberg. As of 7/31/2015. PAST PERFORMANCE AND
BACK-TESTED PERFOMANCE ARE
NOT INDICATIVE OF FUTURE RESULTS. The information in this chart is provided
solely for reference.
Note: The J.P. Morgan Strategic Volatility Dynamic Index was launched on
8/31/2012, and therefore any data used for that index prior to that date is
back-tested and does not represent actual historical data. The hypothetical
back-tested performance of the Index is calculated on materially the same basis
as the performance of the Index is now calculated, but does not represent the
actual historical performance of the Index and has not been verified by an
independent third party. Alternative modeling techniques or assumptions may
produce different hypothetical historical information that might prove to be
more appropriate and that might differ significantly from the hypothetical
historical information of the Index. In addition, back-tested, hypothetical
historical results have inherent limitations. These back-tested results are
achieved by means of a retroactive application of a back-tested model designed
with the benefit of hindsight.
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Risks associated with the J.P. Morgan Strategic Volatility Dynamic Index
The reported level of the Index incorporates the daily deduction of an index
fee and a daily rebalancing adjustment
The reported level of the Index incorporates the daily deduction of (a) an
index fee of 0.75% per annum and (b) a "daily rebalancing adjustment amount"
that is determined by applying a rebalancing adjustment factor of between 0.20%
and 0.50% per day, both to the aggregate notional amount of each of the VIX
futures contracts hypothetically traded that day and the amount of the change,
if any, in the level of the exposure to the synthetic short position. The daily
rebalancing adjustment amount is likely to have a substantial adverse effect on
the level of the Index.
Our affiliate, J.P. Morgan Securities plc, or JPMS plc, is the sponsor and
index calculation agent and may adjust the Index in a way that affects its
level
The policies and judgments for which JPMS plc is responsible could have an
impact, positive or negative, on the level of the Index and the value of your
notes. JPMS plc is under no obligation to consider your interests as an
investor in the securities linked to the Index.
Strategies that provide exposure to equity volatility, which are subject to
significant fluctuations, are not suitable for all investors
Securities linked to the Index should be purchased only by sophisticated
investors who understand risks associated with investments linked to equity
volatility and who intend to monitor and manage their investments actively.
There are risks associated with the synthetic short position
Due to the time lag inherent in the Index, the exposure to the synthetic short
position may not be adjusted quickly enough for the investment strategy on
which the Index is based to be successful. Because exposure to the synthetic
short position is adjusted only if the applicable conditions are satisfied for
three consecutive Index Business Days, the exposure to the synthetic short
position may not be adjusted during non-trending market conditions. In
addition, when the synthetic short position is activated, your return on any
securities linked to the Index is dependent on the net performance, not the
absolute performance, of long and short positions. The net performance will
depend on, among other factors, the dynamic weighting applied to the synthetic
short position. Furthermore, there is unlimited loss exposure to the synthetic
short position, when activated.
The Index may not be successful, may not outperform any alternative strategy
The Index holds a synthetic long position in VIX futures contracts and employs
a mathematical algorithm designed to activate and deactivate a synthetic short
position in VIX futures when certain conditions are met. No assurance can be
given that the strategy will be successful or that the Index will outperform
any alternative strategy.
The Index has a limited history
The Index began publishing on August 31, 2012 and, therefore, has a limited
historical performance. Past performance should not be considered indicative of
future performance.
Hypothetical back-tested data relating to the Index do not represent actual
historical data and are subject to inherent limitations
The hypothetical back-tested performance of the Index is calculated on
materially the same basis as the performance of the Index is now calculated,
but does not represent the actual historical performance of the Index and has
not been verified by an independent third party.
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Alternative modeling techniques or assumptions may produce different
hypothetical historical information that might prove to be more appropriate and
that might differ significantly from the hypothetical historical information of
the Index. In addition, back-tested, hypothetical historical results have
inherent limitations. These back-tested results are achieved by means of a
retroactive application of a back-tested model designed with the benefit of
hindsight.
Other key risks
[] Changing prices of the VIX futures contracts included in the Index may
reduce the level of the Index
[] The level of the Index may not increase even when the synthetic long
position or the synthetic short position, when activated, generates a positive
return
[] The Index is an excess return index and not a total return index
[] Daily rebalancing of the Index may affect trading in the relevant VIX
futures contracts
[] An increase in the margin requirements for VIX futures contracts in the
Index may affect the market for those VIX futures contracts
[] VIX futures contracts have limited historical information
The risks identified above are not exhaustive. You should also carefully
review the related "Risk Factors" section in the relevant underlying supplement
and the "Selected Risk Considerations" in the relevant term sheet or pricing
supplement.
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