INDEX SUPPLEMENT. J.P. Morgan Mozaic II SM Index

Transcription

1 INDEX SUPPLEMENT J.P. Morgan Mozac II SM Index Ths document contans nformaton solely about the J.P. Morgan Mozac II SM Index (the Index ), whch nformaton has been provded by J.P. Morgan Securtes LLC ( JPMS ) solely n ts capacty as a lcensor of the Index. The Index and certan relevant Rsk Factors are descrbed n further detal wthn the document and are qualfed n ther entrety by the ndex rules (the Rules ), whch are appended hereto. Please read the nformaton under the secton ttled Important Informaton below before readng any other materal n ths document. IMPORTANT INFORMATION The Index has been and may be lcensed to one or several lcensees (collectvely, the Lcensee ) for the Lcensee s beneft. Nether the Lcensee nor any product of the Lcensee (the Product ) s sponsored, operated, endorsed, sold or promoted by JPMS or any of ts afflates (together and ndvdually, J.P. Morgan ). J.P. Morgan makes no representaton and no warranty, express or mpled, to owners of the Product (or any person takng exposure to t) or any member of the publc n any other crcumstances (each a Contract Owner ): (a) regardng the advsablty of nvestng n securtes or other fnancal or nsurance products generally or n the Product partcularly; or (b) the sutablty or approprateness of an exposure to the Index n seekng to acheve any partcular objectve. It s for those takng an exposure to the Product and/or the Index to satsfy themselves of these matters and such persons should seek approprate professonal advce before makng any nvestment. J.P. Morgan s not responsble for and does not have any oblgaton or lablty n connecton wth the ssuance, admnstraton, marketng or tradng of the Product. The publcaton of the Index and the referencng of any asset, nstrument or other factor of any knd n the Index do not consttute any form of nvestment recommendaton or advce n respect of any such asset, nstrument or other factor by J.P. Morgan, and no person should rely upon t as such. J.P. Morgan does not act as an nvestment advser or nvestment manager n respect of the Index or the Product and does not accept any fducary dutes n relaton to the Index, the Lcensee, the Product or any Contract Owner. The Index has been desgned and s compled, calculated, mantaned and sponsored by J.P. Morgan wthout regard to the Lcensee, the Product or any Contract Owner. The ablty of the Lcensee to make use of the Index may be termnated on short notce and t s the responsblty of the Lcensee to provde for the consequences of that n the desgn of the Product. J.P. Morgan does not accept any legal oblgaton to take the needs of any person who may nvest n a Product nto account n desgnng, complng, calculatng, mantanng or sponsorng the Index or n any decson to cease dong so. J.P. Morgan does not gve any representaton, warranty or undertakng of any type (whether express or mpled, statutory or otherwse) n relaton to the Index, as to condton, satsfactory qualty, performance or ftness for purpose or as to the results to be acheved by an nvestment n the Product or any data ncluded n or omssons from the Index, or the use of the Index n connecton wth the Product or the veracty, currency, completeness or accuracy of the nformaton on whch the Index s based (and, wthout lmtaton, J.P. Morgan accepts no lablty to any Contract Owner for any errors or omssons n that nformaton or the results of any nterrupton to t and J.P. Morgan shall be under no oblgaton to advse any person of any such error, omsson or nterrupton). To the extent any such representaton, warranty or undertakng could be deemed to have been gven by J.P. Morgan, t s excluded save to the extent that such excluson s prohbted by law. To the fullest extent permtted by law, J.P. Morgan shall have no lablty or responsblty to any person or entty (ncludng, wthout lmtaton, to any Contract Owner) for any losses, damages, costs, charges, expenses or other labltes howsoever arsng, ncludng, wthout lmtaton, lablty for any specal, puntve, ndrect or consequental damages (ncludng loss of busness or loss of proft, loss of tme and loss of goodwll), even f notfed of the possblty of the same, arsng n connecton wth the desgn, complaton, calculaton, mantenance or sponsorng of the Index or n connecton wth the Product. The Index s the exclusve property of J.P. Morgan. J.P. Morgan s under no oblgaton to contnue complng, calculatng, mantanng or sponsorng the Index and may delegate or transfer to a thrd party some or

2 all of ts functons n relaton to the Index. J.P. Morgan may ndependently ssue or sponsor other ndces or products that are smlar to and may compete wth the Index and the Product. J.P. Morgan may also transact n assets or nstruments referenced n the Index (or n fnancal nstruments such as dervatves that reference those assets or nstruments). It s possble that these actvtes could have an effect (postve or negatve) on the value of the Index and the Product. Each of the above paragraphs s severable. If the contents of any such paragraph s held to be or becomes nvald or unenforceable n any respect n any jursdcton, t shall have no effect n that respect, but wthout prejudce to the remander of ths notce. January 6, 2017

3 TABLE OF CONTENTS Page Rsk Factors... 1 The J.P. Morgan Mozac II SM Index Background Relatng to the Basket Consttuents of the Index Background on Futures Contracts Background on the Bloomberg Commodty Sector Indces Background on the DAX Index Background on the FTSE 100 Index Background on the NASDAQ-100 Index Background on the Russell 2000 Index Background on the S&P 500 Index Background on the TOPIX Index Background on the Federal Republc of Germany Background on Japan Background on the Unted Kngdom Annex A: The J.P. Morgan Mozac II SM Index Rules... A-1

4 RISK FACTORS Rsks Relatng to the Index J.P. Morgan Securtes plc ( JPMS plc ), the Index Sponsor and the Index Calculaton Agent, may adjust the Index n a way that affects ts level, and JPMS plc has no oblgaton to consder any person s nterests. JPMS plc, an afflate of JPMorgan Chase & Co., currently acts as the Index Sponsor and the Index Calculaton Agent (each as defned below) and s responsble for calculatng and mantanng the Index and developng the gudelnes and polces governng ts composton and calculaton. The rules governng the Index may be amended at any tme by JPMS plc, n ts sole dscreton, and the rules permt the use of dscreton by JPMS plc n relaton to the Index n specfc nstances, ncludng but not lmted to the determnaton of the levels to be used n the event of market dsruptons that affect ts ablty to calculate and publsh the levels of the Index and the nterpretaton of rules governng the Index. Although JPMS plc actng as the Index Sponsor or the Index Calculaton Agent wll make all determnatons and take all acton n relaton to the Index actng n good fath, t should be noted that the polces and judgments for whch JPMS plc s responsble could have an mpact, postve or negatve, on the level of the Index and therefore on the value of any nvestments or nstruments lnked to the Index. JPMS plc may also amend the rules governng the Index n certan crcumstances. Although judgments, polces and determnatons concernng the Index are made by JPMS plc, JPMorgan Chase Bank, N.A., as the parent company of JPMS plc, ultmately controls JPMS plc. JPMS plc has no oblgaton to consder any person s nterests n takng any actons that mght affect the value of any nstrument lnked to the Index. Furthermore, the ncluson of the Basket Consttuents (as defned below) n the Index s not an nvestment recommendaton by JPMS or JPMS plc of the Basket Consttuents or any of the futures contracts underlyng the Basket Consttuents. See The J.P. Morgan Mozac II SM Index. The Index may not be successful or outperform any alternatve strategy that mght be employed n respect of the Basket Consttuents. The Index follows a notonal rules-based propretary strategy that operates on the bass of pre-determned rules. No assurance can be gven that the nvestment strategy on whch the Index s based wll be successful or that the Index wll outperform any alternatve strategy that mght be employed n respect of the Basket Consttuents. The Index should not be compared to any other ndex or strategy sponsored by any of JPMorgan Chase & Co. s afflates (each, a J.P. Morgan Index ) and cannot necessarly be consdered a revsed, enhanced or modfed verson of any other J.P. Morgan Index. The Index follows a notonal rules-based propretary strategy that may have objectves, features and/or consttuents that are smlar to those of other J.P. Morgan Indces. No assurance can be gven that these smlartes wll form a bass for comparson between the Index and any other J.P. Morgan Index, and no assurance can be gven that the Index would be more successful than or outperform any other J.P. Morgan Index. The Index operates ndependently and does not necessarly revse, enhance, modfy or seek to outperform any other J.P. Morgan Index. There are rsks assocated wth the Index s momentum nvestment strategy. The Index s constructed usng what s generally known as a momentum nvestment strategy. Momentum nvestng generally seeks to captalze on postve trends n the returns of fnancal nstruments. As such, the weghts of the Basket Consttuents are based on the performance of the Basket Consttuents from the mmedately precedng sx months. However, there s no guarantee that trends exstng n the precedng sx months wll contnue n the future. A momentum strategy s dfferent from a strategy that seeks long-term exposure to a notonal portfolo consstng of constant components wth fxed weghts. The Index may fal to realze gans that could occur as a result of obtanng exposures to fnancal nstruments that have experenced negatve returns, but whch subsequently experence a sudden spke n postve returns. As a result, f market condtons do not represent a contnuaton of pror observed trends, the level of the Index, whch s rebalanced based on pror trends, may declne. Addtonally, even when the values of the Basket Consttuents are trendng downwards, the Index wll not reduce the number of Basket Consttuents t tracks n order to avod trackng Basket Consttuents wth negatve performance. Due to the long-only constructon of the Index, the weght of each Basket Consttuent wll not fall below zero at A-1

5 any tme even f the relevant Basket Consttuent dsplayed a negatve performance over the relevant sx-month perod. No assurance can be gven that the nvestment strategy used to construct the Index wll cause the Index to outperform any alternatve ndex that mght be constructed from the Basket Consttuents. The Index may perform poorly durng perods characterzed by short-term volatlty. The Index s strategy s based on momentum nvestng. Momentum nvestng strateges are effectve at dentfyng the current market drecton n trendng markets. However, n non-trendng, sdeways markets, momentum nvestment strateges are subject to whpsaws. A whpsaw occurs when the market reverses and does the opposte of what s ndcated by the trend ndcator, resultng n a tradng loss durng the partcular perod. Consequently, the Index may perform poorly n non-trendng, choppy markets characterzed by short-term volatlty. The Index may not approxmate ts target volatlty. No assurance can be gven that the Index wll approxmate ts target volatlty. The actual realzed volatlty of the Index may be greater or less than ts target volatlty. The monthly weghts of the Basket Consttuents tracked by the Index are based on ther hstorcal volatlty (and ther collectve hstorcal volatlty as a portfolo) over specfed measurement perods and are subject to maxmum aggregate and ndvdual weghtng constrants. However, there s no guarantee that trends exstng n the relevant measurement perods wll contnue n the future. The volatlty of the notonal portfolo on any day may change quckly and unexpectedly. Accordngly, the actual realzed volatlty of the Index on a daly bass may be greater than or less than the target volatlty, whch may adversely affect the level of the Index. The Index may be subject to ncreased volatlty due to the potental use of sgnfcant leverage. The Index may use leverage to ncrease the return from any of ts Basket Consttuents because the sum of the weghts of the Basket Consttuents may be greater than 100%, up to a maxmum total weght of 300%. In addton, the weghts of some of the Bond Consttuents (as defned below) can reflect sgnfcant leverage, up to 250%. Where a Basket Component s leveraged, any prce movements n that Basket Consttuent wll result n greater changes n ts value than f leverage were not used. In partcular, the use of leverage wll magnfy any negatve performance of the relevant Basket Consttuents, whch, n turn, could adversely affect the level of the Index. The Index may be partally unnvested or become entrely unnvested, whch wll result n a porton or all of the Index reflectng no return. Because of the method by whch the weght of each Basket Consttuent selected for ncluson n the Index s determned, the weght of a selected Basket Consttuent generally decreases as ts hstorcal volatlty and the correlatons between the Basket Consttuents over the specfed measurement perods ncrease. If one or more of the selected Basket Consttuents experences hstorcal volatlty over the specfed measurement perods greater than the target volatlty of 4.2%, the total weght of the Basket Consttuents ncluded n the Index may be less than 100%. A total weght of less than 100% means that the Index s partally unnvested. The Index wll reflect no return wth respect to the unnvested porton. In addton, the exposure flattenng feature of the Index descrbed n the mmedately followng rsk factor may cause the Index to reduce or elmnate ts exposure to each Basket Consttuent for a short perod. Durng any perod of exposure flattenng, the Index may be partally or entrely unnvested. The Index wll reflect no return wth respect to the unnvested porton and, f the Index s entrely unnvested, the Index wll reflect no return. The exposure flattenng feature of the Index may adversely affect the performance of the Index. If the level of the Index falls by more than 3% over a one-week perod, subject to the condtons descrbed under The J.P. Morgan Mozac II SM Index Exposure Flattenng below, the Index wll attempt to elmnate ts exposure to each Basket Consttuent for a short perod by progressvely decreasng the exposure of each Basket Consttuent to 0%. Ths decrease n the exposure of the Basket Consttuents s referred to n ths ndex supplement as exposure flattenng. After fve weekdays, the Index wll attempt to restore ts exposure to each Basket 2

6 Consttuent by progressvely ncreasng ts exposure to each Basket Consttuent untl that exposure has been fully restored, subject to the ntaton of further exposure flattenng. There can be no assurance that the tmng of any exposure flattenng wll avod any declnes n the values of the Basket Consttuents. Even f the Index has been declnng steadly, the Index wll begn to restore exposure to the Basket Consttuents on the ffth weekday after exposure flattenng has been trggered, and exposure flattenng cannot be trggered agan untl the followng weekday (.e., the sxth weekday after exposure flattenng has been trggered). In addton, whether exposure flattenng s trggered wll be based on changes n the level of the Index and not on changes n the values of the underlyng Basket Consttuents. As a result, followng an occurrence of exposure flattenng, the determnaton of whether addtonal exposure flattenng wll be trggered wll be based on a level of the Index that reflects the effects of exposure flattenng. Furthermore, the exposure flattenng feature of the Index may adversely affect the performance of the Index. For example, f, after the level of the Index falls and exposure flattenng s trggered, the values of the Basket Consttuents ncluded n the Index recover durng the perod n whch the Index s exposure to the Basket Consttuents has been reduced or elmnated, the Index wll not partcpate n the recovery of the Basket Consttuents. As a result, the level of the Index may tral the value of a hypothetcal dentcally consttuted notonal portfolo that does not nclude an exposure flattenng feature. In partcular, for the perod from November 1, 1996 (the Index base date ) to the establshment of the Index on December 28, 2016, the exposure flattenng feature has caused the hypothetcal back-tested performance of the Index to tral the performance of a hypothetcal dentcally consttuted notonal portfolo that does not nclude an exposure flattenng feature. The Index may not track any partcular Basket Consttuent for any perod of tme. The level of the Index wll be based on the monthly performance of a notonal portfolo of the Basket Consttuents selected each month. Except for rebalancng perods durng whch the Index s exposure s splt between the pror month s and the current month s selected Basket Consttuents, the Index wll typcally provde exposure to nne Basket Consttuents. Accordngly, the Index may not track any partcular Basket Consttuent for any perod of tme. The exposure of the Index to Bond Consttuents may be greater, perhaps sgnfcantly greater, than ts exposure to Equty Consttuents and Commodty Consttuents. Under the method by whch the weght of each Basket Consttuent selected for ncluson n the Index s determned, the weght of a selected Basket Consttuent generally ncreases as ts hstorcal volatlty over the specfed measurement perods decreases, subject to the maxmum weght of that Basket Consttuent. The maxmum weght of each Equty Consttuent and Commodty Consttuent (each as defned below) s 15%, whle the maxmum weghts of the Bond Consttuents range from 45% to 250%. Accordngly, the exposure of the Index to Bond Consttuents may be greater, perhaps sgnfcantly greater, than ts exposure to Equty Consttuents and Commodty Consttuents. If the Index has greater exposure to Bond Consttuents than to Equty Consttuents and Commodty Consttuents, then a 1% change n the value of those Bond Consttuents wll have a greater mpact on the Index s return than a 1% change n the values of those Equty Consttuents and Commodty Consttuents. However, the returns of those Bond Consttuents may be sgnfcantly lower than the returns of those Equty Consttuents and Commodty Consttuents, whch may adversely affect the level of the Index. The nvestment strategy used to construct the Index nvolves monthly rebalancng and weghtng constrants that are appled to the Basket Consttuents. The Basket Consttuents are subject to monthly rebalancng based on hstorcal performance and volatlty and weghtng constrants. By contrast, a notonal portfolo that does not rebalance monthly and s not subject to any weghtng constrants could see greater compounded gans over tme through exposure to a consstently and rapdly apprecatng portfolo consstng of the Basket Consttuents. Therefore, the return on an nstrument lnked to the Index realzed by an nvestor or by others that may have exposure to the Index may be less than the return that could be realzed on an alternatve nvestment n the Basket Consttuents that s not subject to monthly rebalancng or weghtng constrants. No assurance can be gven that the nvestment strategy used to construct the Index wll outperform any alternatve nvestment n the Basket Consttuents. 3

7 The Index s an excess return ndex and not a total return ndex because t does not reflect nterest that could be earned on funds notonally commtted to the tradng of futures contracts. The Index s an excess return ndex and not a total return ndex. The return from nvestng n futures contracts derves from three sources: (a) changes n the prce of the relevant futures contracts (whch s known as the prce return ); (b) any proft or loss realzed when rollng the relevant futures contracts (whch s known as the roll return ); and (c) any nterest earned on the cash deposted as collateral for the purchase of the relevant futures contracts (whch s known as the collateral return ). Some ndces, ncludng the Index, that track futures contracts are excess return ndces that measure the returns accrued from nvestng n uncollateralzed futures contracts (.e., the sum of the prce return and the roll return assocated wth an nvestment n futures contracts). By contrast, a total return ndex, n addton to reflectng those returns, also reflects nterest that could be earned on funds commtted to the tradng of the underlyng futures contracts (.e., the collateral return assocated wth an nvestment n futures contracts). Investng n nstruments lnked to the Index wll not generate the same return as would be generated from nvestng drectly n the relevant futures contracts or n a total return ndex related to those futures contracts. If the values of the Basket Consttuents change, the level of the Index may not change n the same manner. Changes n the values of the Basket Consttuents may not result n a comparable change n the level of the Index or the market value of any nvestment or nstrument lnked to the Index. The Index comprses notonal assets. The exposures to the futures contracts underlyng the Basket Consttuents are purely notonal and wll exst solely n the records mantaned by or on behalf of the Index Calculaton Agent. There s no actual portfolo of assets to whch any person s enttled or n whch any person has any ownershp nterest. Consequently, there s no clam aganst any of the reference assets that compose the Index. The Index has a lmted operatng hstory and may perform n unantcpated ways. The Index was establshed on December 28, 2016 and therefore has a lmted operatng hstory. Past performance should not be consdered ndcatve of future performance. The Index s subject to market rsks. The performance of the Index s dependent on the performance of the Basket Consttuents. As a consequence, any nvestment or nstrument lnked to the Index s exposed to the performance of the Basket Consttuents. The Basket Consttuents composng the Index may be replaced by a substtute upon the occurrence of certan extraordnary events. As descrbed under The J.P. Morgan Mozac II SM Index Successon Events and Extraordnary Events below, followng the occurrence of certan extraordnary events wth respect to a Basket Consttuent, the affected Basket Consttuent may be replaced by a substtute poston n a futures contract or a substtute ndex. These extraordnary events generally nclude events that could materally nterfere wth the ablty of market partcpants to transact n, or events that could materally change the underlyng economc exposure of, postons wth respect to the Index, a Basket Consttuent or ts underlyng components, where that materal nterference or change s not acceptable to the Index Calculaton Agent. See The J.P. Morgan Mozac II SM Index Successon Events and Extraordnary Events below for a lst of numerous other events that could trgger an extraordnary event and cause a Basket Consttuent to be replaced by a substtute. If the Index Calculaton Agent determnes n ts dscreton that no sutable substtute s avalable for an affected Basket Consttuent, then the level of the Basket Consttuent wll be fxed at a level determned by the Index Calculaton Agent untl the next rebalancng of the Index, at whch tme that Basket Consttuent wll be removed from the Index. 4

8 The changng of a Basket Consttuent may affect the performance of the Index, and therefore, the return on any nvestment or nstrument lnked to the Index, as the replacement Basket Consttuent may perform sgnfcantly better or worse than the affected Basket Consttuent. Correlaton of performances among the Basket Consttuents may reduce the performance of the Index. Performances of the Basket Consttuents may become hghly correlated from tme to tme, ncludng, but not lmted to, a perod n whch there s a substantal declne n the assets represented by one or more of the Basket Consttuents that have a hgher weghtng n the Index relatve to any of the other assets. Hgh correlaton durng perods of negatve returns among Basket Consttuents representng any one or more assets and that have a substantal percentage weghtng n the Index could have an adverse effect on the performance of the Index. Changes n the value of the Basket Consttuents may offset each other. Because the Index s lnked to the performance of the Basket Consttuents, whch collectvely represent futures contracts on dfferent assets, prce movements between the Basket Consttuents representng dfferent assets may not correlate wth each other. At a tme when the value of a Basket Consttuent representng a partcular asset ncreases, the value of other Basket Consttuents representng dfferent assets may not ncrease as much or may declne. Therefore, n calculatng the level of the Index, ncreases n the values of some of the Basket Consttuents may be moderated, or more than offset, by lesser ncreases or declnes n the values of other Basket Consttuents. Rsks Relatng to the Basket Consttuents Generally The Index s subject to sgnfcant rsks assocated wth futures contracts. The Basket Consttuents each track the returns of futures contracts. The prce of a futures contract depends not only on the prce of the underlyng asset referenced by the futures contract, but also on a range of other factors, ncludng but not lmted to changng supply and demand relatonshps, nterest rates, governmental and regulatory polces and the polces of the exchanges on whch the futures contracts trade. In addton, the futures markets are subject to temporary dstortons or other dsruptons due to varous factors, ncludng the lack of lqudty n the markets, the partcpaton of speculators and government regulaton and nterventon. These factors and others can cause the prces of futures contracts to be volatle and could adversely affect the level of the Index. Suspenson or dsruptons of market tradng n futures contracts may adversely affect the value of any nstruments lnked to the Index. Futures markets are subject to temporary dstortons or other dsruptons due to varous factors, ncludng lack of lqudty, the partcpaton of speculators, and government regulaton and nterventon. In addton, futures exchanges generally have regulatons that lmt the amount of futures contract prce fluctuatons that may occur n a sngle day. These lmts are generally referred to as daly prce fluctuaton lmts and the maxmum or mnmum prce of a contract on any gven day as a result of these lmts s referred to as a lmt prce. Once the lmt prce has been reached n a partcular contract, no trades may be made at a prce beyond the lmt, or tradng may be lmted for a set perod of tme. Lmt prces have the effect of precludng tradng n a partcular contract or forcng the lqudaton of contracts at potentally dsadvantageous tmes or prces. These crcumstances could delay the publcaton of the level of the Index and could adversely affect the level of the Index. An ncrease n the margn requrements for futures contracts ncluded n the Basket Consttuents may adversely affect the level of the Index. Futures exchanges requre market partcpants to post collateral n order to open and keep open postons n futures contracts. If an exchange ncreases the amount of collateral requred to be posted to hold postons n futures contracts underlyng the Basket Consttuents, market partcpants who are unwllng or unable to post addtonal collateral may lqudate ther postons, whch may cause the prce of the relevant futures contracts to declne sgnfcantly. As a result, the level of the Index may be adversely affected. 5

9 The Index may n the future nclude contracts that are not traded on regulated futures exchanges. The Index, through ts exposure to the Basket Consttuents, s currently based solely on futures contracts traded on regulated futures exchanges (referred to n the Unted States as desgnated contract markets ). If these exchange-traded futures contracts cease to exst, or f the calculaton agent for the Basket Consttuents substtutes a futures contract n certan crcumstances, the Index may n the future nclude futures contracts or over-the-counter contracts traded on tradng facltes that are subject to lesser degrees of regulaton or, n some cases, no substantve regulaton. As a result, tradng n such contracts, and the manner n whch prces and volumes are reported by the relevant tradng facltes, may not be subject to the provsons of, and the protectons afforded by, the U.S. Commodty Exchange Act, or other applcable statutes and related regulatons that govern tradng on regulated U.S. futures exchanges or smlar statutes and regulatons that govern tradng on regulated non-u.s. futures exchanges. In addton, many electronc tradng facltes have only recently ntated tradng and do not have sgnfcant tradng hstores. As a result, the tradng of contracts on such facltes, and the ncluson of such contracts n the Index, through ts exposure to the Basket Consttuents, may be subject to certan rsks not presented by futures contracts traded on regulated futures exchanges, ncludng rsks related to the lqudty and prce hstores of the relevant contracts. Negatve roll returns assocated wth the futures contracts consttutng the Basket Consttuents may adversely affect the performance of the Basket Consttuents. The Basket Consttuents each reference futures contracts. Unlke common equty securtes, futures contracts, by ther terms, have stated expratons. As the exchange-traded futures contracts that compose the Basket Consttuents approach expraton, they are replaced by smlar contracts that have a later expraton. For example, a futures contract notonally purchased and held n June may specfy a September expraton date. As tme passes, the contract exprng n September s replaced by a contract for delvery n December. Ths s accomplshed by notonally sellng the September contract and notonally purchasng the December contract. Ths process s referred to as rollng. Excludng other consderatons, f prces are hgher n the dstant delvery months than n the nearer delvery months, the notonal purchase of the December contract would take place at a prce that s hgher than the prce of the September contract, thereby creatng a negatve roll return. Negatve roll returns adversely affect the returns of the Basket Consttuents and, therefore, the level of the Index. Because of the potental effects of negatve roll returns, t s possble for the value of a Basket Consttuent to decrease sgnfcantly over tme, even when the near-term or spot prces of the underlyng assets or nstruments are stable or ncreasng. In addton, nterest rates have been hstorcally low for an extended perod and, f nterest rates revert to ther hstorcal means, the lkelhood that a roll return related to any Basket Consttuent wll be negatve, as well as the adverse effect of negatve roll returns on any Basket Consttuent, wll ncrease. Rsks Relatng to the Futures Consttuents There are rsks assocated wth non-u.s. securtes markets. The equty securtes composng the ndces referenced by some of the Underlyng Futures Contracts (as defned below) and the government bonds referenced by other Underlyng Futures Contracts (such equty securtes and government bonds, the underlyng securtes ) have been ssued by non-u.s. companes or governments. There are, therefore, rsks assocated wth the securtes markets n those countres where the non-u.s. underlyng securtes are traded, ncludng rsks of volatlty n those markets, governmental nterventon n those markets and cross shareholdngs n companes n certan countres. Also, there s generally less publcly avalable nformaton about companes and governments n some of these jursdctons than about U.S. companes that are subject to the reportng requrements of the Securtes and Exchange Commsson (the SEC ), and generally non-u.s. companes and governments are subject to accountng, audtng and fnancal reportng standards and requrements and securtes tradng rules dfferent from those applcable to U.S. reportng companes. The prces of securtes n non-u.s. markets may be affected by poltcal, economc, fnancal and socal factors n those markets, ncludng changes n a country s government, economc and fscal polces, currency exchange laws or other laws or restrctons. Moreover, the economes of these countres may dffer favorably or unfavorably from the economy of the Unted States n such respects as growth of gross natonal product, rate of nflaton, captal renvestment, resources and self-suffcency. These countres may be subjected to dfferent and, n some cases, more adverse economc envronments. 6

10 Some or all of these factors may nfluence the value of the relevant Futures Consttuents (as defned below), and therefore, the Index. The mpact of any of the factors set forth above may enhance or offset some or all of any change resultng from another factor or factors. The future performance of a Futures Consttuent cannot be predcted based on ts hstorcal performance. The value of any Futures Consttuent may decrease. There are sgnfcant rsks assocated wth fxed-ncome securtes, ncludng nterest rate-related rsks. Investng n or otherwse obtanng exposure n part to the Bond Consttuents, dffers sgnfcantly from nvestng drectly n bonds to be held to maturty, as the values of the Bond Consttuents change, at tmes sgnfcantly, durng each tradng day based upon the current market prces of the government bonds referenced by the Underlyng Futures Contracts of the Bond Consttuents (such government bonds, the underlyng bonds ). The market prces of the underlyng bonds are volatle and sgnfcantly nfluenced by a number of factors, partcularly the duraton of the underlyng bonds, the yelds on the underlyng bonds as compared to current market nterest rates and the actual or perceved credt qualty of the governmental ssuers of the underlyng bonds. In general, fxed-ncome securtes are sgnfcantly affected by changes n current market nterest rates. As nterest rates rse, the prces of fxed-ncome securtes, such as the underlyng bonds, are lkely to decrease. Instruments wth longer duratons tend to be more senstve to nterest rate changes, usually makng them more volatle than securtes wth shorter duratons. As a result, rsng nterest rates may cause the value of the long-dated bonds underlyng the relevant Bond Consttuents to declne, possbly sgnfcantly. Interest rates are subject to volatlty due to a varety of factors, ncludng: sentment regardng underlyng strength or weakness n economes of the governments ssung the underlyng bonds and global economes; expectatons regardng the level of prce nflaton; sentment regardng credt qualty of the governments ssung the underlyng bonds and global credt markets; central bank polces regardng nterest rates; and the performance of global captal markets. The underlyng bonds have traded at mpled nomnal yelds near hstorcal lows for an extended perod of tme. If the yelds of the underlyng bonds revert to ther hstorcal means as a result of a general ncrease n nterest rates, government polces or actons, or perceptons of reduced credt qualty of the relevant governments or otherwse, the value of the underlyng bonds wll declne. The markets and economes of the local governments of the ssuers of the underlyng bonds are subject to unpredctable changes. The market prces of the Underlyng Futures Contracts of the Bond Consttuents generally ncrease or decrease n connecton wth, among other factors, the market s expectatons about ncreases or decreases n the market prce of the underlyng bonds. Accordngly, the level of the Index may be affected by unpredctable changes, or expectatons of changes, n the local markets for the underlyng bonds. Changes n the governments ssung the underlyng bonds nclude changes n: economc performance, ncludng any fnancal or economc crses and changes n the gross domestc product, the prncpal sectors, nflaton, employment and labor, and prevalng prces and wages; the monetary system, ncludng the monetary polcy, the exchange rate polcy, the economc and tax polces, bankng regulaton, credt allocaton and exchange controls; the external sector, ncludng the amount and types of foregn trade, the geographc dstrbuton of trade, the balance of payments, and reserves and exchange rates; publc fnance, ncludng the budget process, any entry nto or termnaton of any economc or monetary agreement or unon (ncludng the Unted Kngdom vote to ext the European Unon, commonly known as 7

11 Brext ), the prevalng accountng methodology, the measures of fscal balance, revenues and expendtures, and any government enterprse or prvatzaton program; and publc debt, ncludng external debt, debt servce and the debt record. These factors nterrelate n complex ways, and the effect of one factor on the market value of the underlyng bonds, and therefore on the Underlyng Futures Contracts that reference the underlyng bonds, may offset or enhance the effect of another factor, whch could have a negatve mpact on the performance of the Index. The Bond Consttuents may be affected by changes n the perceved credtworthness of the governments that ssue the underlyng bonds. The prces of each underlyng bond and the related Underlyng Futures Contracts are sgnfcantly nfluenced by the credtworthness of the government that ssues that underlyng bond. U.S. ratng agences have downgraded the credt ratngs and/or assgned negatve outlooks to many governments worldwde, ncludng the Unted States, the Unted Kngdom, Germany and Japan, and may contnue to do so n the future. Any perceved declne n the credtworthness of the governments that ssue the underlyng bonds, as a result of a credt ratng downgrade or otherwse, may cause the yeld on the relevant underlyng bonds to ncrease and the prces of such underlyng bonds to fall, perhaps sgnfcantly, and may cause ncreased volatlty n local or global credt markets. In addton, any perceved mprovement n the credtworthness of the governments that ssue the underlyng bonds may result n an ncrease n the rsk tolerance of market partcpants, whch may cause the yeld on the relevant underlyng bonds to ncrease and the prces of such underlyng bonds to fall. Any such declne over the term of any nvestment or nstrument lnked to the Index would adversely mpact the prces of the relevant Underlyng Futures Contracts and could have a negatve mpact on the level of the Index. Currency exchange rsk. The prces of the Underlyng Futures Contracts of some of the Futures Consttuents are denomnated n non- U.S. currences, and the returns, but not the notonal values, of those non-u.s. currency-denomnated Underlyng Futures Contracts are converted nto U.S. dollars for the purposes of calculatng the levels of those Futures Consttuents. Accordngly, there s exposure to currency exchange rate rsk wth respect to the returns of those non- U.S. currency-denomnated Underlyng Futures Contracts n each of the relevant currences. That currency exchange rsk wll depend on the extent to whch those currences strengthen or weaken aganst the U.S. dollar, together wth whether each such non-u.s. currency-denomnated Underlyng Futures Contract apprecates or declnes n value, as adjusted by the applcable Index weghts of the assocated Futures Consttuents n the Index. For example, f a non-u.s. currency-denomnated Underlyng Futures Contract has a postve daly return (as measured n ts local currency), and the U.S. dollar strengthens aganst that non-u.s. currency-denomnated Underlyng Futures Contract s currency, the assocated Futures Consttuent s contrbuton to the Index s return would be less than t would have been had ts contrbuton been based solely on ts local currency return. In addton, f a non-u.s. currency-denomnated Underlyng Futures Contract has a negatve daly return (as measured n ts local currency), and the U.S. dollar weakens aganst that non-u.s. currency-denomnated Underlyng Futures Contract s currency, the assocated Futures Consttuent s negatve contrbuton to the Index s return would be greater than t would have been had ts contrbuton been based solely on ts local currency return. Of partcular mportance to potental currency exchange rsk are: exstng and expected rates of nflaton; exstng and expected nterest rate levels; the balance of payments; poltcal, cvl or mltary unrest; and the extent of governmental surpluses or defcts n the relevant countres and the Unted States. 8

12 All of these factors are, n turn, senstve to the monetary, fscal and trade polces pursued by the governments of the relevant countres, the Unted States and other countres mportant to nternatonal trade and fnance. J.P. Morgan has no control over exchange rates. Foregn exchange rates can ether float or be fxed by soveregn governments. Exchange rates of the currences used by most economcally developed natons are permtted to fluctuate n value relatve to the U.S. dollar and to each other. However, from tme to tme governments and, n the case of countres usng the euro, the European Central Bank, may use a varety of technques, such as nterventon by a central bank, the mposton of regulatory controls or taxes or changes n nterest rates to nfluence the exchange rates of ther currences. Governments may also ssue a new currency to replace an exstng currency or alter the exchange rate or relatve exchange characterstcs by a devaluaton or revaluaton of a currency. These governmental actons could change or nterfere wth currency valuatons and currency fluctuatons that would otherwse occur n response to economc forces, as well as n response to the movement of currences across borders. As a consequence, these governmental actons could adversely affect the performance of the Index. JPMorgan Chase & Co. s currently one of the companes that makes up the S&P 500 Index. JPMorgan Chase & Co., and the other ssuers of the securtes ncluded n the ndces referenced by the Underlyng Futures Contracts, wll have no oblgaton to consder the nterests of a holder of any nvestments or nstruments lnked to the Index n takng any acton that mght affect the performance of the Index. JPMS s a prmary dealer n connecton wth purchases and sales of U.S. Treasury securtes by the U.S. Federal Reserve and JPMS s actons n that capacty may affect the level of the Index. JPMS s one of the prmary dealers through whch the U.S. Federal Reserve conducts open-market purchases and sales of U.S. Treasury and federal agency securtes, ncludng U.S. Treasury notes. These actvtes may affect the prces and yelds on the U.S. Treasury notes, whch may n turn affect the level of the Bond Consttuents that reference Underlyng Futures Contracts on U.S. Treasury notes and the level of the Index. JPMS has no oblgaton to take nto consderaton any person s nterests as a holder of any nstrument lnked to the Index when undertakng these actvtes. JPMS and ts afflates cannot provde assurance that the publc nformaton provded on the ssuer of an underlyng bond s accurate or complete. All dsclosures contaned n ths ndex supplement are derved from publcly avalable documents and other publcly avalable nformaton, wthout ndependent verfcaton. JPMS has not partcpated, and wll not partcpate, n the preparaton of such documents or made any due dlgence nqury wth respect to the ssuer of an underlyng bond. JPMS does not make any representaton that such publcly avalable documents or any other publcly avalable nformaton regardng the ssuer of an underlyng bond s accurate or complete, and s not responsble for publc dsclosure of nformaton by the ssuer of an underlyng bond, whether contaned n flngs wth the SEC or otherwse. Furthermore, JPMS cannot gve any assurance that all events occurrng pror to the date of ths ndex supplement (ncludng events that would affect the accuracy or completeness of the publcly avalable documents of the ssuer of an underlyng bond) that would affect the prce of that underlyng bond wll have been publcly dsclosed. Subsequent dsclosure of any of those events or the dsclosure of or falure to dsclose materal future events concernng the ssuer of any underlyng bond could adversely affect the Index. Any prospectve purchaser of an nstrument lnked to the Index should undertake an ndependent nvestgaton of the ssuer of any underlyng bond as n ts judgment s approprate to make an nformed decson wth respect to such nvestment. Rsks Relatng to the Commodty Consttuents The commodty futures contracts underlyng the Commodty Consttuents are subject to legal and regulatory regmes that may change n ways that may have an adverse effect on the level of the Index. Futures contracts and optons on futures contracts markets, ncludng the futures contracts underlyng the Commodty Consttuents, are subject to extensve regulaton and margn requrements. The Commodty Futures Tradng Commsson (the CFTC ) and the exchanges on whch those futures contracts trade are authorzed to take 9

13 extraordnary actons n the event of a market emergency, ncludng, for example, the retroactve mplementaton of speculatve poston lmts or hgher margn requrements, the establshment of daly lmts and the suspenson of tradng. Furthermore, certan exchanges have regulatons that lmt the amount of fluctuaton n futures contract prces that may occur. These lmts could adversely affect the market prces of relevant futures contracts and forward contracts. The regulaton of commodty transactons n the Unted States s subject to ongong modfcaton by governmental and judcal acton. In addton, varous non-u.s. governments have expressed concern regardng the dsruptve effects of speculatve tradng n the commodty markets and the need to regulate the dervatve markets n general. The effect on the level of the Index of any future regulatory change s mpossble to predct but could be substantal and adverse to the nterests of nvestors n nstruments referencng the Index. Notably, wth respect to agrcultural and exempt commodtes as defned n the Commodty Exchange Act (generally, physcal commodtes such as agrcultural commodtes, energy commodtes and metals), the Dodd- Frank Wall Street Reform and Consumer Protecton Act, whch was enacted on July 21, 2010, amended the Commodty Exchange Act to provde the CFTC wth addtonal authorty to establsh lmts on the number of postons, other than bona fde hedge postons, that may be held by any person n a commodty through futures contracts, optons on futures contracts and other related dervatves, such as swaps, that are economcally equvalent to those contracts. In addton, desgnated contract markets and swap executon facltes, as defned n the Commodty Exchange Act, are authorzed to establsh and enforce poston lmts or poston accountablty requrements on ther own markets or facltes, whch must be at least as strngent as the CFTC s where CFTC lmts also apply. On December 5, 2016, the CFTC proposed rules to establsh poston lmts that wll apply to 25 agrcultural, metals and energy futures contracts and futures, optons and swaps that are economcally equvalent to those futures contracts. Whle the Commodty Consttuents do not provde exposure to agrculture-based futures contracts, they do provde exposure to metals- and energy-based futures contracts, and therefore the proposed lmts would apply to a number of commodty futures contracts underlyng the Commodty Consttuents, such as NYMEX Lght Sweet Crude Ol, NYMEX NY Harbor USLD, NY Harbor Gasolne Blendstock and Henry Hub Natural Gas futures; and COMEX Gold, Slver and Copper futures and NYMEX Palladum futures. The lmts wll apply to a person s combned poston n futures, optons and swaps on the same underlyng commodty. The rules, f enacted n ther proposed form, may reduce lqudty n the exchange-traded market for those commodty-based futures contracts, whch may, n turn, have an adverse effect on the performance of the Index. Commodty futures prces may change unpredctably, affectng the values of the Commodty Consttuents and the Index n unforeseeable ways. Tradng n commodty futures contracts underlyng the Commodty Consttuents s speculatve and can be extremely volatle. A decrease n the prce of any of the commodtes upon whch the futures contracts that compose the Commodty Consttuents are based may have a materal adverse effect on the performance of the Index and the return on an nvestment or nstrument lnked to the Index. Market prces of the commodtes on whch the futures contracts that compose the Commodty Consttuents are based may fluctuate rapdly based on numerous factors, ncludng: changes n supply and demand relatonshps, governmental programs and polces, natonal and nternatonal monetary, trade, poltcal and economc events, wars and acts of terror, changes n nterest and exchange rates, speculaton and tradng actvtes n commodtes and related contracts, weather, and agrcultural, trade, fscal and exchange control polces. The prce volatlty of each commodty also affects the value of the futures and forward contracts related to that commodty and therefore ts prce at any partcular tme. The prce of any one commodty may be correlated to a greater or lesser degree wth the prces of any other commodty and factors affectng the general supply and demand as well as the prces of other commodtes may affect the partcular commodty n queston. The commodtes markets are subject to temporary dstortons or other dsruptons due to varous factors, ncludng the lack of lqudty n the markets, the partcpaton of speculators and government regulaton and nterventon. Many commodtes are also hghly cyclcal. These factors, some of whch are specfc to the nature of each such commodty, may affect the value of the dfferent commodtes upon whch the futures contracts that compose the Commodty Consttuents are based, and may cause the values of the futures contracts themselves to move n nconsstent drectons at nconsstent rates. Ths, n turn, wll affect the values of the Commodty Consttuents and the performance of the Index. It s not possble to predct the aggregate effect of all or any combnaton of these factors. 10

14 The Commodty Consttuents do not offer drect exposure to commodty spot prces. The values of the Commodty Consttuents are ntended to track generally the performance of commodtyfutures contracts on physcal commodtes, not physcal commodtes (or ther spot prces). The prce of a futures contract reflects the expected value of the commodty upon delvery n the future, whereas the spot prce of a commodty reflects the mmedate delvery value of the commodty. A varety of factors can lead to a dsparty between the expected future prce of a commodty and the spot prce at a gven pont n tme, such as the cost of storng the commodty for the term of the futures contract, nterest charges ncurred to fnance the purchase of the commodty and expectatons concernng supply and demand for the commodty. The prce movements of a futures contract are typcally correlated wth the movements of the spot prce of the reference commodty, but the correlaton s generally mperfect and prce movements n the spot market may not be reflected n the futures market (and vce versa). Accordngly, nvestments or nstruments lnked to the Index may underperform a smlar nvestment that reflects the return on physcal commodtes. The prces of commodtes are volatle and are affected by numerous factors, some of whch are specfc to the commodty sector for each commodty futures contract underlyng the Commodty Consttuents. A change n the prce of any of the commodty futures contracts underlyng the Commodty Consttuents may have a materal adverse effect on the performance of the Index and the return on an nvestment or nstrument lnked to the Index. Commodtes futures contracts are subject to the effect of numerous factors, certan of whch are specfc to the commodty sector for each commodty futures contract underlyng the Commodty Consttuents, as dscussed below. Energy Sector Global prces of energy commodtes, ncludng WTI crude ol, Brent crude ol, RBOB gasolne, heatng ol and natural gas, are prmarly affected by the global demand for and supply of these commodtes, but they are also sgnfcantly nfluenced by speculatve actons and by currency exchange rates. In addton, prces for energy commodtes are affected by governmental programs and polces, natonal and nternatonal poltcal and economc events, changes n nterest and exchange rates, tradng actvtes n commodtes and related contracts, trade, fscal, monetary and exchange control polces, and wth respect to ol, drought, floods, weather, government nterventon, envronmental polces, embargoes and tarffs. Demand for refned petroleum products by consumers, as well as by the agrcultural, manufacturng and transportaton ndustres, affects the prce of energy commodtes. Sudden dsruptons n the supples of energy commodtes, such as those caused by war, natural events, accdents or acts of terrorsm, may cause prces of energy commodty futures contracts to become extremely volatle and unpredctable. Also, sudden and dramatc changes n the futures market may occur, for example, upon a cessaton of hostltes that may exst n countres producng energy commodtes, the ntroducton of new or prevously wthheld supples nto the market or the ntroducton of substtute products or commodtes. In partcular, supples of crude ol may ncrease or decrease dependng on, among other factors, producton decsons by the Organzaton of the Ol and Petroleum Exportng Countres ( OPEC ) and other crude ol producers. Crude ol prces are determned wth sgnfcant nfluence by OPEC, whch has the capacty to nfluence ol prces worldwde because ts members possess a sgnfcant porton of the world s ol supply. Demand for energy commodtes such as ol and gasolne s generally lnked to economc actvty and wll tend to reflect general economc condtons. Industral Metals Sector Global prces of ndustral metals commodtes, ncludng alumnum, copper and znc, are prmarly affected by the global demand for and supply of these commodtes, but they are also sgnfcantly nfluenced by speculatve actons and by currency exchange rates. Demand for ndustral metals s sgnfcantly nfluenced by the level of global ndustral economc actvty. Prces for ndustral metals commodtes are affected by governmental programs and polces, natonal and nternatonal poltcal and economc events, changes n nterest and exchange rates, tradng actvtes n commodtes and related contracts, trade, fscal, monetary and exchange control polces, government nterventon, embargoes and tarffs. An addtonal, but hghly volatle, component of demand for ndustral metals s adjustments to nventory n response to changes n economc actvty and/or prcng levels, whch wll nfluence decsons to nvest n new mnes and smelters. Sudden dsruptons n the supples of ndustral metals, such as those caused by war, natural events, accdents, acts of terrorsm, transportaton problems, labor strkes and shortages of power, may cause prces of ndustral metals futures contracts to become extremely volatle and 11