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Free Writing Prospectus
Filed Pursuant to Rule 433
Registration Statement No. 333-177923
Dated April 5, 2013
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Free Writing Prospectus
Filed Pursuant to Rule 433
Registration Statement No. 333-177923
April 3, 2013
April 2013
J.P. Morgan Structured Investments
The J.P. Morgan ETF Efficiente DS 5 Index
Strategy Guide
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Important Information
JPMorgan Chase and Co. ("J.P. Morgan") has filed a registration statement
(including a prospectus) with the Securities and Exchange Commission (the "SEC")
for any offerings to which these materials relate. Before you invest in any
offering of securities by J.P. Morgan, you should read the prospectus in that
registration statement, the prospectus supplement, as well as the particular
product supplement, the relevant term sheet or pricing supplement, and any other
documents that J.P. Morgan will file with the SEC relating to such offering for
more complete information about J.P. Morgan and the offering of any securities.
You may get these documents without cost by visiting EDGAR on the SEC Website at
www.sec.gov. Alternatively, J.P. Morgan, any agent, or any dealer participating
in the particular offering will arrange to send you the prospectus and the
prospectus supplement, as well as any product supplement and term sheet or
pricing supplement, if you so request by calling toll-free (866) 535-9248.
To the extent there are any inconsistencies between this free writing prospectus
and the relevant term sheet or pricing supplement, the relevant term sheet or
pricing supplement, including any hyperlinked information, shall supersede this
free writing prospectus.
Securities linked to JPMorgan ETF Efficiente DS 5 Index (the "Index") are our
senior unsecured obligations and are not secured debt. Investing in these
securities is not equivalent to a direct investment in the Index or any index
fund that forms part of the Index.
Investments in securities linked to the Index require investors to assess
several characteristics and risk factors that may not be present in other types
of transactions. In reaching a determination as to the appropriateness of any
proposed transaction, clients should undertake a thorough independent review of
the legal, regulatory, credit, tax, accounting and economic consequences of such
transaction in relation to their particular circumstances. This free writing
prospectus contains market data from various sources other than us and our
affiliates, and, accordingly, we make no representation or warranty as to the
market data's accuracy or completeness. All information is subject to change
without notice. We or our affiliated companies may make a market or deal as
principal in the securities mentioned in this document or in options, futures or
other derivatives based thereon.
Use of Simulated Returns
Any historical composite performance records included in this free writing
prospectus are hypothetical and it should be noted that the constituents have
not traded together in the manner shown in the composite historical replication
of the Index included in this free writing prospectus. No representation is
being made that the Index will achieve a composite performance record similar to
that shown. In fact, there are frequently sharp difference between a
hypothetical historical composite performance record and the actual record that
the combination of those underlying elements subsequently achieved.
Back-testing and other statistical analysis material that is provided in this
document use simulated analysis and hypothetical circumstances to estimate how
the Index may have performed prior to its actual existence. For time periods
prior to the launch of any ETF included in the Index and such ETF's initial
satisfaction of a minimum liquidity standard, the hypothetical back-testing uses
alternative performance information derived from a related index, after
deducting hypothetical fund fees, rather than performance information of such
ETF.
The results obtained from "back-testing" information should not be considered
indicative of the actual results that might be obtained from an investment or
participation in a financial instrument or transaction referencing the Index.
J.P. Morgan provides no assurance or guarantee that the securities linked to the
Index will operate or would have operated in the past in a manner consistent
with these materials. The hypothetical historical levels presented herein have
not been verified by an independent third party, and such hypothetical
historical levels have inherent limitations. Alternative simulations,
techniques, modeling or assumptions might produce significantly differen
t2results and prove to be more appropriate. Actual results will vary, perhaps
materially, from the simulated returns presented in this 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 addressed 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 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. JPMS is a
member of FINRA, NYSE, and SIPC. 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.
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Overview
The J.P. Morgan ETF Efficiente DS 5 Index (the "Index" or "ETF Efficiente DS")
is a sequel to the JPMorgan ETF Efficiente 5 Index ("ETF Efficiente"). ETF
Efficiente DS employs the same framework based on momentum and modern portfolio
theory that underlies ETF Efficiente to determine a monthly asset allocation
("Monthly Reference Portfolio") that targets 5% volatility. In ETF Efficiente DS
we introduce a daily volatility targeting mechanism which is overlaid on the
monthly asset allocation. ETF Efficiente DS targets the 5% volatility on a daily
basis by varying the exposure the Index takes to the Monthly Reference Portfolio
daily -- increasing the exposure to the Monthly Reference Portfolio when the
volatility of the portfolio decreases, and decreasing the exposure when the
volatility of the portfolio increases.
Key features of the Index include:
[] the use of ETFs to provide access to a broad range of asset classes and
geographic regions;
[] exposure to developed market equities, bonds (including Treasuries and
corporate bonds), emerging markets, alternative investments (broad
commodities exposure, gold and real estate) and inflation;
[] the weights allocated to the Basket Constituents with the Monthly Reference
Portfolio are dynamic and are determined monthly based on a rules-based
methodology that targets an annualized volatility of 5% or less;
[] an algorithmic portfolio construction which utilizes momentum and
correlation across asset classes;
[] The Index aims to target the volatility of 5% on a daily basis by
overlaying onto the monthly asset selection a mechanism that varies the
exposure the Index takes to the Monthly Reference Portfolio daily, based on
historical volatility. The exposure ranges from 0% to 150%, increasing when
the volatility of the portfolio decreases and decreasing when the
volatility increases;
[] the Index is an excess return index and reflects the weighted performance
of its underlying assets (including reinvested dividends for the ETF
Constituents) in excess of the performance of the JPMorgan Cash Index USD 3
Month (the "Cash Index"); and
[] The Index levels incorporate the daily deduction fee of 1.0% per annum and
are published on Bloomberg under the ticker EEJPDS5E.
The table and graph on the following page illustrate the performance of the
Index based on the hypothetical back-tested closing levels from March 31, 2003
through September 24, 2012 and actual performance from September 25, 2012 to
March 28, 2013. Based on the hypothetical back-tested and historical
performance, the Index realized annualized returns of 7.50% per annum over the
period, and outperformed "hypothetical excess return versions" of the SandP 500
Index and the Barclays Capital U.S. Aggregate Bond Index (the "Barclays
Aggregate Bond Index"). The "hypothetical excess return version" of an asset
refers to a hypothetical index constructed from the returns of such asset with
the returns of the Cash Index deducted. The hypothetical excess return versions
of the SandP 500 Index and the Barclays Aggregate Bond Index will be referred to
as the "SandP 500 Index (Excess Return)" and "Barclays Aggregate Bond Index
(Excess Return)", respectively. There is no guarantee that ETF Efficiente DS
will outperform the SandP 500 Index (Excess Return) or the Barclays Aggregate
Bond Index (Excess Return) during the term of your investment in securities
linked to the Index.
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Hypothetical Comparison of ETF Efficiente DS
-------------------------------------------- ------------------ ------------------
J.P. Morgan ETF SandP 500([R]) Index Barclays Aggregate
--------------------- ---------------------- ------------------ ------------------
Efficiente DS 5 Index (Excess Return) Bond Index (Excess
--------------------- ---------------------- ------------------ ------------------
Return)
===================== ====================== ================== ==================
12 Month Return 5.79% 10.67% 3.08%
--------------------- ====================== ------------------ ------------------
3 Year Return 7.94% 9.67% 4.91%
----------------------
(Annualized)
--------------------- ====================== ------------------ ------------------
10 Year Return 7.50% 3.86% 2.57%
----------------------
(Annualized)
--------------------- ====================== ------------------ ------------------
Annualized volatility 5.57% 20.57% 3.86%
--------------------- ====================== ------------------ ------------------
Sharpe Ratio 1.35 0.18 0.67
----------------------
Source: Bloomberg and J.P. Morgan. Data as of March 28, 2013. Please see notes
immediately following the graph below.
Hypothetical Performance of ETF Efficiente DS (March 31, 2003 to March 28,
2013)
[GRAPHIC OMITTED]
Source: Bloomberg and J.P. Morgan
Note: Because the Index did not exist prior to September 25, 2012, all
retrospective levels provided in the graph and table above are simulated and
must be considered illustrative only. The simulated data was constructed using
certain procedures that may vary from the procedures used to calculate the
Index going forward, and on the basis of certain assumptions that may not hold
during future periods. The variations in procedures used in producing simulated
historical data from those used to calculate the Index going forward could
produce differences in returns of indeterminate direction and amount. Past
hypothetical performance results are neither indicative of nor a guarantee of
future returns. Actual results will vary, potentially materially, from the
hypothetical historical performance described herein. Please see "Important
Information" at the front of this publication for a discussion of certain
assumptions used for the Index and additional limitations of back-testing and
simulated returns.
"Return" is the percentage return of the relevant index over the period
indicated, and where "Annualized" is indicated, is the annual compounded return
of the relevant index over the period.
"Annualized volatility" is the annualized standard deviation of the daily
returns of the relevant index for the 10-year period from March 31, 2003
through March 31, 2013.
Sharpe Ratio means the 10-Year Return divided by the annualized volatility
which is also determined over 10 years.
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Index Description
The construction of the Index follows a two-step process:
[] Step 1: Construction of the Monthly Reference Portfolio:
On a monthly basis, the Index employs an allocation strategy based on
modern portfolio theory to construct a Monthly Reference Portfolio as more
fully described in the section "Monthly Reference Portfolio Construction."
The Index seeks to identify the weights for each Basket Constituent within
the Monthly Reference Portfolio that would have resulted in the
hypothetical portfolio with the highest return over the previous six months
while realizing an annualized volatility over the same period of 5% or
less. If no such portfolio exists, the target volatility is increased in
increments of 1%, and the selection procedure is repeated until a portfolio
is identified.
The methodology used in constructing the Monthly Reference Portfolio for
ETF Efficiente DS 5 is identical to that used in selecting the monthly
asset portfolio in the JPMorgan ETF Efficiente 5 Index.
[] Step 2: Daily Dynamic Exposure
The Index targets a volatility of 5% on a daily basis by varying the
Index's exposure to the Monthly Reference Portfolio on a daily basis. On
each day, the Index's exposure to the Monthly Reference Portfolio is equal
to the ratio of the 5% target volatility to the historical 1-month
volatility of the Monthly Reference Portfolio, capped at 150%, as more
fully described in the section "Daily Dynamic Exposure."
Monthly Reference Portfolio Construction
On a monthly basis, the Index employs an allocation strategy based on modern
portfolio theory to construct a Monthly Reference Portfolio. The modern
portfolio theory approach to asset allocation suggests how a rational investor
should allocate capital across the available universe of assets to maximize
return for a given risk appetite. The Index uses the concept of an "efficient
frontier" to define the Monthly Reference Portfolio. An efficient frontier for a
portfolio of assets defines the optimal return of the portfolio for a given
amount of risk, using the volatility of returns of hypothetical portfolios as
the measure of risk.
On a monthly basis, J.P. Morgan Securities plc, acting as the ETF Efficiente DS
calculation agent, will determine the allocations to the Basket Constituents
within the new Monthly Reference Portfolio based on the mathematical rules that
govern the selection of the Monthly Reference Portfolio. The weight for each
Basket Constituent will be determined subject to certain weighting constraints,
including constraints on the weight of each Basket Constituent as well as, in
some cases, constraints on the sum of the weights of Basket Constituents within
a sector. For more information on the weighting constraints related to the
Basket Constituents comprising the Index, see "What are the Basket
Constituents?"
The Index seeks to identify the weight for each Basket Constituent that would
have resulted in the hypothetical portfolio with the highest return over the
previous six months while realizing an annualized volatility over the same
period of 5% or less. Thus, the portfolio exhibiting the highest return with an
annualized volatility of 5% or less is selected, and the weighting for such
portfolio is applied to the Basket Constituents.
Illustration of the Efficient Frontier
[GRAPHIC OMITTED]
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No assurance can be given that the ETF Efficiente DS Index will achieve its
target volatility of 5%. The actual realized volatility of the ETF Efficiente
DS Index may be greater or less than 5%.
On each selection date, the weighting algorithm implements the following steps:
[] The Index calculation agent identifies all Eligible Portfolios as described
under "What are the Basket Constituents?" and calculates the performance
for each portfolio for an observation period over the previous three
months.
[] For each Eligible Portfolio, the Index calculation agent calculates the
annualized realized volatility over the three-month period.
[] The performance and the volatilities of the Eligible Portfolios are used to
construct the "efficient frontier."
[] The Index calculation agent selects the Eligible Portfolio with the
strongest performance that has an annualized realized volatility equal to
or less than 5%. If no such portfolio exists, the target volatility is
increased in increments of 1%, and the selection procedure is repeated
until a portfolio is identified.
There is no guarantee that the concept of an efficient frontier combined with
modern portfolio theory will generate positive returns for the Index or that
other theories applied to the portfolio of the Basket Constituents would not
produce a better result than an investment linked to the Index.
What are the Basket Constituents?
The following table sets forth the Basket Constituents that compose the Index
and the maximum weighting constraints assigned to each asset as well as
specific groups of assets ("sectors").
Basket Constituents
============================================ ---------------------------------------- ======== =====
Sector / Asset
-------------------------- --------
Asset Class Assets Ticker
----------------- -----
Sector Cap Cap
================= ========================== ======================================== ======== =====
U.S. Equities SPDR SandP 500([R]) ETF Trust SPY 20%
-------------------------- ---------------------------------------- -------- -----
Developed Equity U.S. Small Cap Equities iShares([R]) Russell 2000 Index Fund IWM 10%
-------------------------- ---------------------------------------- -------- -----
50% Developed Market iShares([R]) MSCI EAFE Index Fund EFA 20%
Equities (excluding U.S.)
----------------- -------------------------- ---------------------------------------- -------- -----
iShares([R]) Barclays 20+ Year Treasury
Treasuries TLT 20%
Bond Fund
-------------------------- ---------------------------------------- -------- -----
Bonds iShares([R]) iBOXX$ Investment Grade
Investment Grade Bonds LQD 20%
50% Corporate Bond Fund
-------------------------- ---------------------------------------- -------- -----
iShares([R]) iBOXX$ High Yield Corporate
High Yield Bonds HYG 20%
Bond Fund
----------------- -------------------------- ---------------------------------------- -------- -----
iShares([R]) MSCI Emerging Markets
Emerging Market
Emerging Index Fund EEM 20%
Equities
Markets
-------------------------- ---------------------------------------- -------- -----
25% iShares([R]) JPMorgan USD Emerging
Emerging Market Bonds EMB 20%
Markets Bond Fund
----------------- -------------------------- ---------------------------------------- -------- -----
iShares([R]) Dow Jones Real Estate Index
Real Estate IYR 20%
Alternative Fund
-------------------------- ---------------------------------------- -------- -----
Investments iShares([R]) SandP GSCI[] Commodity-
Broad Commodities GSG 10%
25% Indexed Trust
-------------------------- ---------------------------------------- -------- -----
Gold SPDR([R]) Gold Trust GLD 10%
----------------- -------------------------- ---------------------------------------- -------- -----
Inflation Protected Bonds iShares([R]) Barclays TIPS Bond Fund TIP 50%
-------------------------- ---------------------------------------- -------- -----
50% Cash JPMorgan Cash Index USD 3 Month JPCAUS3M 50%
----------------- -------------------------- ---------------------------------------- -------- -----
Note: See the relevant disclosure statement for more information on the Index
and the Basket Constituents.
An Eligible Portfolio is any hypothetical portfolio composed of the above
Basket Constituents whose weights satisfy the following weighting con
7straints:
[] The minimum possible weight assigned to any Basket Constituent is 0%.
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[] The weight assigned to each Basket Constituent is an integral multiple of
5%.
[] The maximum possible weight assigned to any Basket Constituent is 20%, with
the exception of (i) the JPMorgan Cash Index USD 3 Month or the
iShares([R]) Barclays TIPS Bond Fund, each of which have a maximum possible
weight of 50%; and (ii) the iShares([R]) Russell 2000 Index Fund, the
iShares[R] SandP GSCI Commodity-Indexed Trust or the SPDR([R]) Gold Trust,
each of which have a maximum possible weight of 10%. Under certain
circumstances, the weighting of the JPMorgan Cash Index USD 3 Month may be
greater than 50%. The weight of the JPMorgan Cash Index USD 3 Month at any
given time represents the portion of the Index that is uninvested at that
time.
[] The maximum possible weight assigned to (i) either the Developed Equity or
the Bonds sector is 50%; and (ii) either the Emerging Markets or the
Alternative Investments sector is 25%. In addition, the sum of the weights
assigned to the JPMorgan Cash Index USD 3 Month and the iShares([R])
Barclays TIPS Bond Fund cannot exceed 50%.
[] The sum of the weights assigned to all Basket Constituents will be equal to
100%.
Daily Dynamic Exposure
ETF Efficiente DS targets the desired volatility of 5% on a daily basis by
varying the exposure the Index takes to the Monthly Reference Portfolio daily.
On each day, the exposure the Index takes to the Monthly Reference Portfolio
ranges from 0% to 150% and is determined by dividing the 5% target volatility
by the historical 1-month volatility of the Monthly Reference Portfolio. The
exposure increases when the 1-month volatility of the Monthly Reference
Portfolio decreases, and decreases when the volatility increases, employing
leverage up to 150% when the volatility is less than 5%. When the daily
exposure to the Monthly Reference Portfolio is less than one, the balance of
the exposure is uninvested.
The figure below illustrates how the exposure to the Monthly Reference
Portfolios varies with volatility.
[GRAPHIC OMITTED]
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Historical analysis
Diversified exposure
The Index aims to provide exposure across a diverse spectrum of asset classes
and geographic regions.
Diversified exposure
As illustrated in the table below, equities (as represented by the SandP 500
Index) and bonds (as represented by the Barclays Capital Aggregate Index) have
historically displayed negative correlation. Correlation can be described as a
measure of the degree to which two components change relative to each other. A
diversified approach to investing would stipulate maintaining exposure to a
variety of asset classes to attempt to generate positive returns in a wide range
of market environments.
Based on the rebalancing methodology and the constraints described in "What are
the Basket Constituents?", ETF Efficiente DS can dynamically allocate to the
Basket Constituents in response to the changes in the market environment, with
the potential to exploit any low historical correlations exhibited by the
Basket Constituents. The hypothetical correlations below illustrate that
returns of the Index have historically not been highly correlated to either
bonds or equities.
Summary of hypothetical correlations for ETF Efficiente DS (Mar 31, 2003 -- Mar
28, 2013)
Barclays Capital U.S.
------------------------ ----------------- ------------- ---------------------
ETF Efficiente DS SandP 500 Index Aggregate Bond Index
======================== ================= ============= =====================
ETF Efficiente DS 100% 29.16% 27.29%
----------------- ------------- ---------------------
SandP 500 Index 100% -26.81%
------------- ---------------------
Barclays Aggregate Index 100%
Source: Bloomberg and J.P. Morgan
Note: Based on the daily hypothetical back-tested and historical returns. Future
correlations may be higher or lower than the hypothetical, historical
correlations in the summary above. Because the Index did not exist prior to
September 25, 2012, all retrospective levels provided in the graph and table
above are simulated and must be considered illustrative only. The simulated data
was constructed using certain procedures that may vary from the procedures used
to calculate the Index going forward, and on the basis of certain assumptions
that may not hold during future periods. The variations in procedures used in
producing simulated historical data from those used to calculate the Index going
forward could produce differences in returns of indeterminate direction and
amount. Past hypothetical performance results are neither indicative of nor a
guarantee of future returns. Actual results will vary, potentially materially,
from the hypothetical historical performance described herein. Please see
"Important Information" at the front of this publication for a discussion of
certain assumptions used for the Index and additional limitations of
back-testing and simulated returns. The correlations shown above are for
informational purposes only.
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Target volatility and daily dynamic exposure
As described in "Index description", the Index targets an annualized realized
volatility of 5% via a two-step process. First, the Index selects on a monthly
basis a Monthly Reference Portfolio that targets a 5% volatility. Second, the
Index adjusts its exposure to the Monthly Reference Portfolio on a daily basis
to target the 5% volatility. The graph below illustrates the 1-month volatility
of the Monthly Reference Portfolio and the exposure that the Index would take to
the portfolio.
Volatility is a measurement of the variability of returns. The historical or
"realized" volatility of a portfolio can be measured in a number of ways. For
the purposes of the graph below, the volatility of the Monthly Reference
Portfolio is measured for a 1-month period and is calculated in the same manner
as more fully described in the relevant disclosure statement or underlying
supplement.
Hypothetical volatility of and exposure to the Monthly Reference Portfolio
(March 31, 2003 to March 28, 2013)
[GRAPHIC OMITTED]
Source: Bloomberg and J.P. Morgan
Note: The hypothetical, historical annualized volatility of the Monthly
Reference Portfolios and exposure to the Monthly Reference Portfolios are
presented for informational purposes only. The back-tested, hypothetical,
historical annualized volatility and exposures have inherent limitations. These
volatility and exposure levels reflect hypothetical historical performance. No
representation is made that in the future the Monthly Reference Portfolios in
ETF Efficiente DS will have the volatilities as shown above or that ETF
Efficiente DS will have the exposures shown above to the Monthly Reference
Portfolios. There is no guarantee that ETF Efficiente DS will outperform any
alternative investment strategy. Alternative modeling techniques or assumptions
might produce significantly different results and may prove to be more
appropriate. Actual 1-month annualized volatilities and exposures will vary,
perhaps materially, from this analysis. Please see "Important Information" at
the front of this publication for a discussion of certain additional limitations
of back-testing and simulated returns.
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Hypothetical historical sector allocations
The graph below illustrates the hypothetical historical allocation to the
various sectors in the Monthly Reference Portfolio over time. For a detailed
description of which Basket Constituents make up each sector displayed in this
graph, please see "What are the Basket Constituents?" The graph on the
following page shows the hypothetical average weight allocated to each sector
over the time period.
Hypothetical sector allocations within the Monthly Reference Portfolio: Mar 03
to Mar 13
[GRAPHIC OMITTED]
Source: J.P. Morgan
Note: The hypothetical allocations are obtained from hypothetical back-testing
of the ETF Efficiente DS algorithm and should not be considered indicative of
the actual weights that would be assigned to the sectors or the applicable
Basket Constituents during your investment in securities linked to the Index.
J.P. Morgan provides no assurance or guarantee that the actual performance of
the Index would result in allocations among the sectors or the applicable Basket
Constituents consistent with the hypothetical allocations displayed in the
preceding graphs. Actual results will vary, perhaps materially, from those in
the hypothetical historical allocations contained in this hypothetical backtest.
Please see "Important Information" at the front of this publication for a
discussion of certain additional limitations of back-testing and simulated
returns.
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Hypothetical average allocations within the Monthly Reference Portfolios in
declining equity markets
[GRAPHIC OMITTED]
Hypothetical average allocations within the Monthly Reference Portfolios in
rising equity markets
[GRAPHIC OMITTED]
Source: J.P. Morgan. Numbers have been rounded for convenience.
Note: The hypothetical allocations are obtained from back-testing and should not
be considered indicative of the actual weights that would be assigned to the
sectors or the applicable Basket Constituents during the term of your investment
in securities linked to the Index. J.P. Morgan provides no assurance or
guarantee that the actual performance of the Index would result in allocations
among the sectors or the applicable Basket Constituents consistent with the
hypothetical allocations displayed in the preceding graphs. Actual results will
vary, perhaps materially, from those arising from the hypothetical historical
allocations contained in this hypothetical backtest. Please see "Important
Information" at the front of this publication for a discussion of certain
additional limitations of back-testing and simulated returns.
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Risks associated with the Index
THERE ARE RISKS ASSOCIATED WITH A MOMENTUM-BASED INVESTMENT STRATEGY-- The
Index employs a mathematical model intended to implement what is known as a
momentum- based strategy, which seeks to capitalize on positive market price
trends based on the supposition that positive market price trends may continue.
This Index is different from a strategy that seeks long-term exposure to a
portfolio with fixed weights. The Index may fail to realize gains that could
occur from holding assets that have experienced price declines, but experience
a sudden price spike thereafter.
THE INDEX MAY NOT ACHIEVE ITS TARGET VOLATILITY-- The exposure of the Index to
the synthetic portfolio of Basket Constituents is determined by a two-step
process, composed of a monthly selection process to determine the weighting
assigned to each Basket Constituent in the synthetic portfolio and a daily
adjustment of the exposure to the synthetic portfolio intended to achieve a
target annualized volatility of 5% on a daily basis. The monthly weights and
daily adjustments are based on the historical volatility of the synthetic
portfolio and are subject to certain constraints. However, there is no
guarantee that historical trends will continue in the future. Accordingly, the
actual realized annualized volatility of the Index may be greater than or less
than 5%, which may adversely affect the level of the Index.
THE COMMODITY FUTURES CONTRACTS UNDERLYING THE ISHARES SandP GSCI
COMMODITY-INDEXED TRUST ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY
REGIMES--The commodity futures contracts that underlie the iShares SandP GSCI
Commodity- Indexed Trust are subject to legal and regulatory regimes that may
change in ways that could adversely affect our ability to hedge our obligations
under the Index or your investment linked to the Index. Under these
circumstances, we may, in our sole and absolute discretion, determine your
payment at maturity early. Because we will not make this early determination
payment until the maturity date, the amount you receive at maturity will not
reflect any further appreciation of the Strategy after such early
determination.
THE DAILY ADJUSTMENT OF THE EXPOSURE OF THE INDEX TO THE SYNTHETIC PORTFOLIO OF
BASKET CONSTITUENTS MAY IMPACT PERFORMANCE -- Due to the daily exposure
adjustments, the Index may fail to realize gains due to price appreciation of
the synthetic portfolio at a time when the exposure is less than 100% or may
suffer increased losses due to price depreciation of the synthetic portfolio
when the exposure is above 100%. As a result, the Index may underperform an
index that does not include a daily exposure adjustment.
THE INDEX MAY BE PARTIALLY UNINVESTED -- The aggregate weight of the Cash Index
at any given time represents the portion of the synthetic portfolio that is
uninvested. In addition, when the exposure of the Index to the synthetic
portfolio is less than 100%, a portion of the synthetic portfolio will be
uninvested. The Index will reflect no return for any uninvested portion.
OUR AFFILIATE, J.P. MORGAN SECURITIES PLC, OR JPMS PLC, IS THE CALCULATION
AGENT AND MAY ADJUST THE INDEX IN A WAY THAT AFFECTS ITS LEVEL--The policies
and judgments of JPMS plc could have an impact, positive or negative, on the
Index. JPMS plc is under no obligation to consider the interests of investors
in securities linked to the Index.
OTHER KEY RISKS:
[] The Index may not be successful and may not outperform any alternative
strategy.
[] The Index comprises notional assets and liabilities and therefore there is
no actual portfolio of assets to which any person is entitled or in which any
person has any ownership interest.
[] The Index rebalances monthly and applies weighting caps to the Basket
Constituents and sectors.
[] The Index may be subject to increased volatility due to the use of leverage.
[] Changes in the value of the Basket Constituents may offset each other, and
correlation of performances among the Basket Constituents may reduce the
performance of the Index.
[] An investment in securities linked to the Index is subject to risks
associated with non-U.S. markets, including emerging markets, and is subject to
currency exchange risk.
[] The Index was established on September 25, 2012, and therefore has limited
operating history.
[] JPMS, one of our affiliates, is the sponsor of the Cash Index and a reference
index for one of the ETFs.
[] The Index Levels incorporate the deduction of a fee of 1.0% per annum.
[] You should review carefully the related "Risk Factors" section in the
relevant disclosure statement of underlying supplement and the "Selected Risk
Considerations" in the relevant term sheet.
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