JPMorgan plans return notes on Long Equity Dynamic Overlay 80 index

By Marisa Wong

Madison, Wis., March 5 - JPMorgan Chase & Co. plans to price 0% return notes due April 9, 2015 linked to the J.P. Morgan U.S. Long Equity Dynamic Overlay 80 Index (Series 1), according to an FWP filing with the Securities and Exchange Commission.

The payout at maturity will be par plus the index return, which could be positive or negative, minus a deduction amount of 1%.

The index is designed to provide a synthetic long position in an underlying equity index, the S&P 500 index, and limited downside protection against adverse movements of the equity index through a synthetic collar strategy as an overlay to the synthetic long position in the equity index.

The index return is determined based on

• The performance of the "total return" version of the equity index, the S&P 500 Total Return index;

• The return of a synthetic rolling collar strategy applied to the "price return" version of the S&P 500, consisting of (i) a monthly rolled synthetic short call position of a one-month maturity with target strike prices varying from 103% to 108% of the closing levels of the price return equity index and (ii) quarterly rolled synthetic long put positions of an 11-month maturity with a target strike price of 80% of the closing levels of the price return equity index, with each synthetic option position referencing European-style option contracts that can only be exercised upon the option contracts' expiry; and

• A synthetic delta hedge position with respect to the synthetic short call position consisting of a variable synthetic exposure (i.e., adjusted up or down) to futures contracts referencing the price return equity index.

The index is subject to three types of fees and deductions: a daily index fee, a call deduction and put deduction and a delta deduction.

Each day the calculation of the index reflects the deduction of an adjustment factor of 0.75% per year.

On a monthly or quarterly basis, as applicable, when the index's synthetic short call or long put exposure is rolled into a new option contract on the S&P 500, a call deduction or put deduction is subtracted. The applicable deduction is calculated by multiplying (a) the applicable volatility spread - between 30 basis points and 300 bps - by (b) the vega of the applicable option contract, subject to specified minimum and maximum amounts. The applicable volatility spread depends on the level of the CBOE Volatility index on the relevant determination date. Unlike the daily index fee, the call deduction and put deduction are not per annum percentage deductions.

On each day the delta hedge is implemented, 0.03% of any increase or decrease in the index's exposure to the futures contracts on the S&P 500 is deducted. Unlike the daily index fee, the call deduction and put deduction are not per annum percentage deductions.

The filing noted that the level of the index and the value of the notes will be adversely affected, possibly significantly, if the performance of the S&P 500 Total Return index and the option contracts and futures contracts on the S&P 500 included in the index, in aggregate, is not sufficient to offset these fees and deductions.

J.P. Morgan Securities LLC is the agent.

The notes are expected to price on March 28 and settle on April 2.

The Cusip number is 48127DAR9.

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