Term sheet
To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011,
product supplement no. 4-I dated November 14, 2011 and
underlying supplement no. 1-I dated November 14, 2011
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Term Sheet to
Product Supplement No. 4-I
Registration Statement No. 333-177923
Dated August 13, 2014; Rule 433
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Structured
Investments
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$
Dual Directional Knock-Out Buffered Equity Notes Linked to the S&P 500® Index due August 31, 2016
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The notes are designed for investors who seek an uncapped, unleveraged return equal to any appreciation, or a capped, unleveraged return equal to the absolute value of any depreciation (up to the Knock-Out Buffer Amount of at least 19.35%*), of the S&P 500® Index at maturity, and who anticipate that the Index closing level will not be less than the Initial Index Level by more than the Knock-Out Buffer Amount on any day during the Monitoring Period. Investors should be willing to forgo interest and dividend payments, and, if the Index closing level is less than the Initial Index Level by more than the Knock-Out Buffer Amount on any day during the Monitoring Period, be willing to lose some or all of their principal at maturity. Any payment on the notes is subject to the credit risk of JPMorgan Chase & Co.
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Unsecured and unsubordinated obligations of JPMorgan Chase & Co. maturing August 31, 2016†
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Minimum denominations of $1,000 and integral multiples thereof
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The notes are expected to price on or about August 26, 2014 and are expected to settle on or about August 29, 2014.
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Index:
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The S&P 500® Index (Bloomberg ticker: SPX)
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Knock-Out Event:
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A Knock-Out Event occurs if, on any day during the Monitoring Period, the Index closing level is less than the Initial Index Level by more than the Knock-Out Buffer Amount.
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Knock-Out Buffer Amount:
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At least 19.35%*
* The actual Knock-Out Buffer Amount will be provided in the pricing supplement and will not be less than 19.35%.
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Payment at Maturity:
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If the Ending Index Level is greater than the Initial Index Level, you will receive at maturity a cash payment that provides you with a return per $1,000 principal amount note equal to the Index Return, and your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Index Return)
If the Ending Index Level is equal to the Initial Index Level, you will receive at maturity a cash payment of $1,000 per $1,000 principal amount note.
If the Ending Index Level is less than the Initial Index Level and a Knock-Out Event has not occurred, you will receive at maturity a cash payment that provides you with a return per $1,000 principal amount note equal to the Absolute Index Return, and your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Absolute Index Return)
Because a Knock-Out Event will occur if the Index closing level is less than the Initial Index Level by more than the Knock-Out Buffer Amount of at least 19.35%* on any day during the Monitoring Period, your maximum payment at maturity if the Index Return is negative, which we refer to as the maximum downside payment, will not be less than $1,193.50** per $1,000 principal amount note.
**The actual maximum downside payment will depend on the Knock-Out Buffer Amount provided in the pricing supplement, and will not be less than $1,193.50 per $1,000 principal amount note.
If the Ending Index Level is less than the Initial Index Level and a Knock-Out Event has occurred, you will lose 1% of the principal amount of your notes for every 1% that the Ending Index Level is less than the Initial Index Level. Under these circumstances, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Index Return)
If a Knock-Out Event has occurred and the Ending Index Level is less than the Initial Index Level, you will lose some or all of your principal amount at maturity.
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Monitoring Period:
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The period from but excluding the pricing date to and including the Observation Date
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Index Return:
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(Ending Index Level – Initial Index Level)
Initial Index Level
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Absolute Index Return:
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The absolute value of the Index Return. For example, if the Index Return is -5%, the Absolute Index Return will equal 5%.
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Initial Index Level:
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The Index closing level on the pricing date
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Ending Index Level:
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The Index closing level on the Observation Date
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Original Issue Date
(Settlement Date):
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On or about August 29, 2014
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Observation Date† :
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August 26, 2016
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Maturity Date†:
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August 31, 2016
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CUSIP:
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48127DXG8
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†
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Subject to postponement in the event of a market disruption event and as described under “Description of Notes — Postponement of a Determination Date — A. Notes Linked to a Single Component” and “Description of Notes — Payment at Maturity” in the accompanying product supplement no. 4-I
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Price to Public (1)
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Fees and Commissions (2)
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Proceeds to Issuer
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Per note
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$1,000
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$—
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$1,000
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Total
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$
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$—
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$
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(1)
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See “Supplemental Use of Proceeds” in this term sheet for information about the components of the price to public of the notes.
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(2)
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All sales of the notes will be made to certain fee-based advisory accounts for which an affiliated or unaffiliated broker-dealer is an investment adviser. These broker-dealers will forgo any commissions related to these sales. See “Plan of Distribution (Conflicts of Interest)” beginning on page PS-77 of the accompanying product supplement no. 4-I.
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Product supplement no. 4-I dated November 14, 2011:
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Underlying supplement no. 1-I dated November 14, 2011:
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Prospectus supplement dated November 14, 2011:
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Prospectus dated November 14, 2011:
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JPMorgan Structured Investments —
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TS-1
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Dual Directional Knock-Out Buffered Equity Notes Linked to the S&P 500® Index
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UNCAPPED, UNLEVERAGED APPRECIATION POTENTIAL IF THE INDEX RETURN IS POSITIVE — The notes provide the opportunity to earn an unleveraged return equal to any appreciation in the Index and are not subject to a predetermined maximum gain if the Index Return is positive. Because the notes are our unsecured and unsubordinated obligations, payment of any amount on the notes is subject to our ability to pay our obligations as they become due.
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POTENTIAL FOR A RETURN OF UP TO AT LEAST 19.35%†† ON THE NOTES EVEN IF THE INDEX RETURN IS NEGATIVE — If the Ending Index Level is less than the Initial Index Level and a Knock-Out Event has not occurred, you will earn a positive, unleveraged return on the notes equal to the Absolute Index Return. Because the Absolute Index Return is based on the absolute value of the change from the Initial Index Level to the Ending Index Level, under these circumstances, you will earn a positive return on the notes even if the Ending Index Level is less than the Initial Index Level. For example, if the Index Return is -5%, the Absolute Index Return will equal 5%. Because a Knock-Out Event will occur if the Index closing level is less than the Initial Index Level by more than the Knock-Out Buffer Amount of at least 19.35%†† on any day during the Monitoring Period, your maximum downside payment will be not less than $1,193.50†† per $1,000 principal amount note.
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RETURN LINKED TO THE S&P 500® INDEX — The return on the notes is linked to the S&P 500® Index. The S&P 500® Index consists of 500 component stocks selected to provide a performance benchmark for the U.S. equity markets. For additional information about the S&P 500® Index, see the information set forth under “Equity Index Descriptions — The S&P 500® Index” in the accompanying underlying supplement no. 1-I.
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CAPITAL GAINS TAX TREATMENT — You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4-I. The following discussion, when read in combination with that section, constitutes the full opinion of our special tax counsel, Davis Polk & Wardwell LLP, regarding the material U.S. federal income tax consequences of owning and disposing of notes.
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JPMorgan Structured Investments —
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TS-2
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Dual Directional Knock-Out Buffered Equity Notes Linked to the S&P 500® Index
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal. The return on the notes at maturity is linked to the performance of the Index and will depend on whether a Knock-Out Event has occurred and whether, and the extent to which, the Index Return is positive or negative. If the Index closing level is less than the Initial Index Level by more than the Knock-Out Buffer Amount on any day during the Monitoring Period, a Knock-Out Event will have occurred, and the benefit provided by the Knock-Out Buffer Amount will terminate. Under these circumstances, if the Ending Index Level is less than the Initial Index Level, you will lose 1% of the principal amount of your notes for every 1% that the Ending Index Level is less that the Initial Index Level. Accordingly, you could lose some or all of your principal amount at maturity.
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YOUR MAXIMUM DOWNSIDE GAIN ON THE NOTES IS LIMITED BY THE KNOCK-OUT BUFFER AMOUNT — If the Ending Index Level is less than the Initial Index Level, and a Knock-Out Event has not occurred, you will receive at maturity $1,000 plus a return equal to the Absolute Index Return, up to the Knock-Out Buffer Amount of at least 19.35%††. Because a Knock-Out Event will occur if the Index closing level is less than the Initial Index Level by more than the Knock-Out Buffer Amount on any day during the Monitoring Period, your maximum downside payment will not be less than $1,193.50†† per $1,000 principal amount note.
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CREDIT RISK OF JPMORGAN CHASE & CO. — The notes are subject to the credit risk of JPMorgan Chase & Co., and our credit ratings and credit spreads may adversely affect the market value of the notes. Investors are dependent on JPMorgan Chase & Co.’s ability to pay all amounts due on the notes. Any actual or potential change in our creditworthiness or credit spreads, as determined by the market for taking our credit risk, is likely to adversely affect the value of the notes. If we were to default on our payment obligations, you may not receive any amounts owed to you under the notes and you could lose your entire investment.
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POTENTIAL CONFLICTS — We and our affiliates play a variety of roles in connection with the issuance of the notes, including acting as calculation agent and as an agent of the offering of the notes, hedging our obligations under the notes and making the assumptions used to determine the pricing of the notes and the estimated value of the notes when the terms of the notes are set, which we refer to as JPMS’s estimated value. In performing these duties, our economic interests and the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the notes. In addition, our business activities, including hedging and trading activities, could cause our economic interests to be adverse to yours and could adversely affect any payment on the notes and the value of the notes. It is possible that hedging or trading activities of ours or our affiliates in connection with the notes could result in substantial returns for us or our affiliates while the value of the notes declines. Please refer to “Risk Factors — Risks Relating to the Notes Generally” in the accompanying product supplement no. 4-I for additional information about these risks.
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THE BENEFIT PROVIDED BY THE KNOCK-OUT BUFFER AMOUNT MAY TERMINATE ON ANY DAY DURING THE MONITORING PERIOD — If the Index closing level on any day during the Monitoring Period is less than the Initial Index Level by more than the Knock-Out Buffer Amount, you will at maturity be fully exposed to any depreciation in the Index. We refer to this feature as a contingent buffer. Under these circumstances, if the Ending Index Level is less than the Initial Index Level, you will lose 1% of the principal amount of your notes for every 1% that the Ending Index Level is less than the Initial Index Level. You will be subject to this potential loss of principal even if the Index subsequently increases such that the Index closing level is less than the Initial Index Level by not more than the Knock-Out Buffer Amount, or is equal to or greater than the Initial Index Level. If these notes had a non-contingent buffer feature, under the same scenario, you would have received the full principal amount of your notes plus a return equal to the Index Return if the Ending Index Level is less than the Initial Index Level by up to the Knock-Out Buffer Amount or a return equal to the Index Return (which will be negative) plus the Knock-Out Buffer Amount at maturity. As a result, your investment in the notes may not perform as well as an investment in a security with a return that includes a non-contingent buffer.
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JPMS’S ESTIMATED VALUE OF THE NOTES WILL BE LOWER THAN THE ORIGINAL ISSUE PRICE (PRICE TO PUBLIC) OF THE NOTES — JPMS’s estimated value is only an estimate using several factors. The original issue price of the notes will exceed JPMS’s estimated value because costs associated with structuring and hedging the notes are included in the original issue price of the notes. These costs include the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under the notes. See “JPMS’s Estimated Value of the Notes” in this term sheet.
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JPMS’S ESTIMATED VALUE DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES — JPMS’s estimated value of the notes is determined by reference to
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JPMorgan Structured Investments —
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TS-3
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Dual Directional Knock-Out Buffered Equity Notes Linked to the S&P 500® Index
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JPMS’s internal pricing models when the terms of the notes are set. This estimated value is based on market conditions and other relevant factors existing at that time and JPMS’s assumptions about market parameters, which can include volatility, dividend rates, interest rates and other factors. Different pricing models and assumptions could provide valuations for notes that are greater than or less than JPMS’s estimated value. In addition, market conditions and other relevant factors in the future may change, and any assumptions may prove to be incorrect. On future dates, the value of the notes could change significantly based on, among other things, changes in market conditions, our creditworthiness, interest rate movements and other relevant factors, which may impact the price, if any, at which JPMS would be willing to buy notes from you in secondary market transactions. See “JPMS’s Estimated Value of the Notes” in this term sheet.
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JPMS’S ESTIMATED VALUE IS NOT DETERMINED BY REFERENCE TO CREDIT SPREADS FOR OUR CONVENTIONAL FIXED-RATE DEBT — The internal funding rate used in the determination of JPMS’s estimated value generally represents a discount from the credit spreads for our conventional fixed-rate debt. The discount is based on, among other things, our view of the funding value of the notes as well as the higher issuance, operational and ongoing liability management costs of the notes in comparison to those costs for our conventional fixed-rate debt. If JPMS were to use the interest rate implied by our conventional fixed-rate credit spreads, we would expect the economic terms of the notes to be more favorable to you. Consequently, our use of an internal funding rate would have an adverse effect on the terms of the notes and any secondary market prices of the notes. See “JPMS’s Estimated Value of the Notes” in this term sheet.
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THE VALUE OF THE NOTES AS PUBLISHED BY JPMS (AND WHICH MAY BE REFLECTED ON CUSTOMER ACCOUNT STATEMENTS) MAY BE HIGHER THAN JPMS’S THEN-CURRENT ESTIMATED VALUE OF THE NOTES FOR A LIMITED TIME PERIOD — We generally expect that some of the costs included in the original issue price of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined period. These costs can include projected hedging profits, if any, and, in some circumstances, estimated hedging costs and our secondary market credit spreads for structured debt issuances. See “Secondary Market Prices of the Notes” in this term sheet for additional information relating to this initial period. Accordingly, the estimated value of your notes during this initial period may be lower than the value of the notes as published by JPMS (and which may be shown on your customer account statements).
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SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE ORIGINAL ISSUE PRICE OF THE NOTES — Any secondary market prices of the notes will likely be lower than the original issue price of the notes because, among other things, secondary market prices take into account our secondary market credit spreads for structured debt issuances and, also, because secondary market prices may exclude projected hedging profits, if any, and estimated hedging costs that are included in the original issue price of the notes. As a result, the price, if any, at which JPMS will be willing to buy notes from you in secondary market transactions, if at all, is likely to be lower than the original issue price. Any sale by you prior to the maturity date could result in a substantial loss to you. See the immediately following risk consideration for information about additional factors that will impact any secondary market prices of the notes.
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SECONDARY MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS — The secondary market price of the notes during their term will be impacted by a number of economic and market factors, which may either offset or magnify each other, aside from projected hedging profits, if any, estimated hedging costs and the level of the Index, including:
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any actual or potential change in our creditworthiness or credit spreads;
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customary bid-ask spreads for similarly sized trades;
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secondary market credit spreads for structured debt issuances;
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the actual and expected volatility of the Index;
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the time to maturity of the notes;
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whether a Knock-Out Event has occurred or is expected to occur;
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the dividend rates on the equity securities underlying the Index;
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interest and yield rates in the market generally; and
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a variety of other economic, financial, political, regulatory and judicial events.
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NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive interest payments, and you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities composing the Index would have.
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RISK OF A KNOCK-OUT EVENT OCCURRING IS GREATER IF THE INDEX IS VOLATILE — The likelihood of the Index closing level declining from the Initial Index Level by more than the Knock-Out Buffer Amount on any day during the Monitoring Period, thereby triggering a Knock-Out Event, will depend in large part on the volatility of the Index — the frequency and magnitude of changes in the level of the Index.
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LACK OF LIQUIDITY — The notes will not be listed on any securities exchange. JPMS intends to offer to purchase the notes in the secondary market but is not required to do so. Even if there is a secondary market, it may not
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JPMorgan Structured Investments —
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TS-4
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Dual Directional Knock-Out Buffered Equity Notes Linked to the S&P 500® Index
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provide enough liquidity to allow you to trade or sell the notes easily. Because other dealers are not likely to make a secondary market for the notes, the price at which you may be able to trade your notes is likely to depend on the price, if any, at which JPMS is willing to buy the notes.
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THE FINAL TERMS AND VALUATION OF THE NOTES WILL BE PROVIDED IN THE PRICING SUPPLEMENT — The final terms of the notes will be based on relevant market conditions when the terms of the notes are set and will be provided in the pricing supplement. In particular, each of JPMS’s estimated value and the Knock-Out Buffer Amount will be provided in the pricing supplement and each may be as low as the applicable minimum set forth on the cover of this term sheet. Accordingly, you should consider your potential investment in the notes based on the minimums for JPMS’s estimated value and the Knock-Out Buffer Amount.
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JPMorgan Structured Investments —
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TS-5
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Dual Directional Knock-Out Buffered Equity Notes Linked to the S&P 500® Index
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Total Return
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Ending Index Level
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Index Return
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Absolute
Index Return
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Knock-Out Event Has Not Occurred(1)
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Knock-Out Event Has Occurred(2)
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3,510.000
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80.00%
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N/A
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80.00%
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80.00%
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3,217.500
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65.00%
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N/A
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65.00%
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65.00%
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2,925.000
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50.00%
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N/A
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50.00%
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50.00%
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2,730.000
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40.00%
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N/A
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40.00%
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40.00%
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2,535.000
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30.00%
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N/A
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30.00%
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30.00%
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2,340.000
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20.00%
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N/A
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20.00%
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20.00%
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2,145.000
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10.00%
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N/A
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10.00%
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10.00%
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2,047.500
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5.00%
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N/A
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5.00%
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5.00%
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1,998.750
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2.50%
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N/A
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2.50%
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2.50%
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1,969.500
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1.00%
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N/A
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1.00%
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1.00%
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1,950.000
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0.00%
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N/A
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0.00%
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0.00%
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1,930.500
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-1.00%
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1.00%
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1.00%
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-1.00%
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1,852.500
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-5.00%
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5.00%
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5.00%
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-5.00%
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1,755.000
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-10.00%
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10.00%
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10.00%
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-10.00%
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1,572.675
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-19.35%
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19.35%
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19.35%
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-19.35%
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1,572.480
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-19.36%
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N/A
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N/A
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-19.36%
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1,560.000
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-20.00%
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N/A
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N/A
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-20.00%
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1,365.000
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-30.00%
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N/A
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N/A
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-30.00%
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1,170.000
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-40.00%
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N/A
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N/A
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-40.00%
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975.000
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-50.00%
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N/A
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N/A
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-50.00%
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780.000
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-60.00%
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N/A
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N/A
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-60.00%
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585.000
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-70.00%
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N/A
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N/A
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-70.00%
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390.000
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-80.00%
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N/A
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N/A
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-80.00%
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195.000
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-90.00%
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N/A
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N/A
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-90.00%
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0.000
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-100.00%
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N/A
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N/A
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-100.00%
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JPMorgan Structured Investments —
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TS-6
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Dual Directional Knock-Out Buffered Equity Notes Linked to the S&P 500® Index
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JPMorgan Structured Investments —
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TS-7
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Dual Directional Knock-Out Buffered Equity Notes Linked to the S&P 500® Index
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JPMorgan Structured Investments —
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TS-8
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Dual Directional Knock-Out Buffered Equity Notes Linked to the S&P 500® Index
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JPMorgan Structured Investments —
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TS-9
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Dual Directional Knock-Out Buffered Equity Notes Linked to the S&P 500® Index
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