Free Writing Prospectus
Filed Pursuant to Rule 433
Registration Statement No. 333-177923
Dated December 15, 2011
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Free Writing Prospectus
Filed Pursuant to Rule 433
Registration Statement No. 333-177923
Dated December 15, 2011
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J.P. Morgan Strategic Volatility Index
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OVERVIEW
The J.P. Morgan Strategic Volatility Index (the "Index" or "Strategic Vol
Index") provides long exposure to VIX futures at the 2-month point, and aims to
offset and potentially profit from the "negative roll yield"(1) often associated
with a long VIX futures position by activating a short position in VIX futures
at the 1-month point during certain market conditions. The Index is rules-based,
with daily levels published to Bloomberg under the ticker JPUSSTVL.
Hypothetical historical performance comparison: Strategic Vol Index and SandP
500[R] Index - Sep 2006 to Nov 2011
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Source: J.P. Morgan. As of 11/30/11. PAST PERFORMANCE AND BACK-TESTED
PERFOMANCE ARE NOT INDICATIVE OF FUTURE RESULTS. The Strategic Vol Index was
launched on 7/30/2010; therefore any data shown for that index prior to that
date is back-tested. The information in this chart is provided solely for
reference.
Brief Background on Volatility Investing
[] The VIX Index, published by the Chicago Board of Options Exchange ("CBOE"),
is viewed as the benchmark index for measuring the market's expectation of the
near-term (30 days) volatility of the SandP 500[R] Index.
[] Volatility, as measured by the VIX Index, has historically increased during
periods of decline in the equity markets. (See the chart below. ) However, the
VIX 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.
[] The VIX futures curve is often in "contango"(2) which can, all else being
equal, result in negative returns for a strategy that is long VIX futures.
Hypothetical historical returns and volatilities: Strategic Vol Index and SandP
500[R] Index - Sep 2006 to Nov 2011
Annualized Annualized
Return Volatility
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Strategic Vol Index 35.50% 34.09%
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SandP 500[R] Index -1.06% 26.09%
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80/20 SandP 500[R] Index / Strategic
Vol Index 8.71% 17.31%
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Source: J.P. Morgan. As of 11/30/11. PAST PERFORMANCE AND BACK-TESTED
PERFORMANCE ARE NOT INDICATIVE OF FUTURE RESULTS. Annualized Return is based on
compounded performance of returns over the specified period. Annualized
Volatility represents the standard deviation of daily returns scaled to one
year. "80/20 SandP 500[R] Index / Strategic Vol Index" means a portfolio that is
allocated 80% to SandP 500[R] Index and 20% to Strategic Vol Index that is
rebalanced quarterly. The Strategic Vol Index was launched on 7/30/2010,
therefore any data used for that index prior to that date is back-tested. The
information in this chart is provided solely for reference.
Historical performance comparison of the SandP 500[R] Index and the VIX Index:
Jan 2000 to Nov 2011
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Source: J.P. Morgan. As of 11/30/11. PAST PERFORMANCE IS NOT INDICATIVE OF
FUTURE RESULTS. The VIX Index is not an investable Index. The Strategic Vol
Index is not linked to the VIX Index. The information in this chart is provided
solely for reference.
Illustration of a futures curve in contango
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How the Index Works
[] Maintains long exposure to the 2-month point on the VIX futures curve.
[] An opportunistic short position at the 1-month point on the VIX futures
curve is activated during certain market scenarios (as described below),
which aims to offset and potentially profit from the negative roll yield
associated with the VIX curve in those market conditions.
[] When activated, the short position is increased in 20% daily increments;
when de-activated it is decreased in 20% daily decrements. The short
position ranges from 0% to 100%.
[] Activation/De-activation signal: If the level of the VIX Index is below the
1-month point on the VIX futures curve (as would typically be the case when
the curve is in contango) for 3 consecutive days, the short position is
activated (in 20% increments) and if it is above the 1- month point on the
VIX futures curve for 3 consecutive days, the short position is
de-activated (in 20% decrements).
[] The Index level incorporates a 0.75% per annum index fee, as well as
additional deductions related to the notional rebalancing of the VIX
futures contracts(3)
1. See the section labelled "Glossary" on the following page for the
definition of "negative roll yield".
2. See the section labelled "Glossary" on the following page for the
definition of "contango".
3. The level of the Index incorporates the daily deduction of (a) the 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. Please review the relevant product supplement we have filed and
any relevant term sheet or pricing supplement for further details on the
J.P. Morgan Strategic Volatility Index, including the daily rebalancing
adjustment amount.
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J.P. Morgan Structured Investments | 800 576 3529 |
JPM_Structured_Investments@jpmorgan.com December 15, 2011
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Hypothetical historical illustration of the exposure to the short component of
the Strategic Vol Index: Sep 2006 to Nov 2011
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Source: J.P. Morgan. As of 11/30/11. PAST PERFORMANCE AND BACK-TESTED
PERFORMANCE ARE NOT INDICATIVE OF FUTURE LEVELS. The Strategic Vol Index was
launched on 7/30/2010; therefore any data used for that Index prior to that
date is back-tested. The hypothetical, exposure to the short leg obtained from
such back-testing should not be considered indicative of the actual exposure
that would be realized during an investment in the Index. The information in
this chart is provided solely for reference.
Index fee and deductions for rebalancing adjustments
[] 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 contemplated by the Index
at prices that approximate the official settlement prices (which are not
generally tradable) of the relevant VIX futures contracts.
Glossary of Select Terms
"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.
"backwardation" is the opposite of contango and 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.
"negative roll yield" / "positive roll yield": 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. When a futures curve is in "contango" (see
above), all else being equal, an investor in a long futures position pays a
higher price to buy a later expiration futures contract than the price at which
the investor sells the contract as it nears expiration, thus suffering negative
returns ("negative roll yield"). Whereas when the futures curve is in
"backwardation" (see above), all else being equal, an investor in a long futures
position pays a lower price to buy a later expiration futures contract than the
price at which the investor sells the contract as it nears expiration thus
generating positive returns ("positive roll yield").
What are the main risks in the Index?
[] Any securities we may issue linked to the Index may result in a loss, and
are exposed to the credit risk of J. P. Morgan Chase and Co.
[] The Index has limited operating history.
[] 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" (as described above).
[] The daily rebalancing adjustment amount is likely to have a substantial
adverse effect on the level of the Index.
[] The Index may not be successful and may not outperform any alternative
strategy.
[] Strategies that provide exposure to equity volatility, which are subject to
significant fluctuations, are not suitable for all investors.
[] When the synthetic short position is activated, your return on the notes is
dependent on the net performance, not the absolute performance, of the long
and short positions.
[] Due to the time lag inherent in the Index, the exposure to the synthetic
short position may not be adjusted quickly enough to offset loss or
generate profit.
[] The Index comprises only notional assets and liabilities.
[] The Index is an excess return index and reflects the performance of an
uncollateralized investment in futures contracts.
[] Our affiliate, J. P. Morgan Securities Ltd. ("JPMSL"), is the Sponsor and
Calculation Agent for the Index and may adjust the Index in a way that
affects its level.
[] The Index is subject to risks associated with futures contracts.
These risk factors are not exhaustive. Please review the relevant product
supplement we have filed and any relevant term sheet or pricing supplement for
further information on risk factors associated with the J.P. Morgan Strategic
Volatility Index.
Disclaimer
SEC Legend: JPMorgan Chase and Co. has filed a registration statement (including
a prospectus) with the SEC for any offerings to which these materials relate.
Before you invest, you should read the prospectus in that registration statement
and the other documents relating to this offering that JPMorgan Chase and Co.
has filed with the SEC for more complete information about JPMorgan Chase and
Co. and this offering. You may get these documents without cost by visiting
EDGAR on the SEC Web site at www.sec.gov. Alternatively, JPMorgan Chase and Co.,
any agent or any dealer participating in this offering will arrange to send you
the prospectus and each prospectus supplement as well as any product supplement,
pricing supplement and term sheet if you so request by calling toll-free
800-576-3529.
Free Writing Prospectus Filed Pursuant to Rule 433 Registration Statement No.
333-177923 To the extent there are any inconsistencies between this free writing
prospectus and the relevant pricing supplement, the relevant pricing supplement,
including any hyperlinked information, shall supersede this free writing
prospectus.
Investment suitability must be determined individually for each investor. 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
their own advisors on these matters.
IRS Circular 230 Disclosure: JPMorgan Chase and Co. and its affiliates do not
provide tax advice. Accordingly, any discussion of U.S. tax matters contained
herein (including any attachments) is not intended or written to be used, and
cannot be used, in connection with the promotion, marketing or recommendation by
anyone unaffiliated with JPMorgan Chase and Co. of any of the matters address
herein or for the purpose of avoiding U.S. tax-related penalties.
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J.P. Morgan Structured Investments | 800 576 3529 |
JPM_Structured_Investments@jpmorgan.com December 15, 201
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