Term sheet
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Term sheet to
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To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011,
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Product Supplement No. 4-l
Registration Statement No. 333-177923
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product supplement no. 4-I dated November 14, 2011 and
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Dated September 9, 2014; Rule 433
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Structured Investments
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$
Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index due September 30, 2015
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The notes are designed for investors who seek unleveraged exposure to the appreciation of the EURO STOXX® Banks Index up to a maximum return that will not be less than 25.25% at maturity. Investors should be willing to forgo interest and dividend payments and, if the Ending Index Level is less than the Initial Index Level by more than 15%, be willing to lose all of their principal amount 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 September 30, 2015*
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Minimum denominations of $10,000 and integral multiples of $1,000 in excess thereof
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The notes are expected to price on or about September 12, 2014 and are expected to settle on or about September 17, 2014.
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Index:
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The EURO STOXX® Banks Index (Bloomberg ticker: SX7E) (the “Index”)
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Payment at Maturity:
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If the Ending Index Level is greater than the Initial Index Level, at maturity you will receive a cash payment that provides you with a return per $1,000 principal amount note equal to the Index Return, subject to the Maximum Return. Accordingly, if the Ending Index Level is greater than the Initial Index Level, your payment at maturity per $1,000 principal amount note will be calculated as follows:
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$1,000 +($1,000 x Index Return), subject to the Maximum Return
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If the Ending Index Level is equal to or less than the Initial Index Level by up to 15%, you will receive the principal amount of your notes at maturity.
If the Ending Index Level is less than the Initial Index Level by more than 15%, 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 by more than 15%, and your payment at maturity per $1,000 principal amount note will be calculated as follows:
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$1,000 + [$1,000 x (Index Return)]
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If the Ending Index Level is less than the Initial Index Level by more than 15%, you will lose more than 15% of your principal amount and may lose all of your principal amount at maturity.
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Maximum Return:
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At least 25.25%. For example, assuming the Maximum Return is 25.25%, if the Index Return is equal to or greater than 25.25%, you will receive the Maximum Return of 25.25%, which entitles you to a maximum payment at maturity of $1,252.50 per $1,000 principal amount note that you hold. The actual Maximum Return will be provided in the pricing supplement and will not be less than 25.25%. Accordingly, the actual maximum payment at maturity per $1,000 principal amount note will not be less than $1,252.50.
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Buffer Amount:
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15%
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Index Return:
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(Ending Index Level – Initial Index Level)
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Initial Index Level
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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 arithmetic average of the closing levels of the Index on each of the five Ending Averaging Dates
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Ending Averaging Dates†:
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September 21, 2015, September 22, 2015, September 23, 2015, September 24, 2015 and September 25, 2015 (the “Final Ending Averaging Date”)
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Original Issue Date
(Settlement Date):
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On or about September 17, 2014
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Observation Date*:
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September 25, 2015
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Maturity Date*:
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September 30, 2015
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CUSIP:
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48127DZW1
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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 — Payment at Maturity” and “Description of Notes — Postponement of a Determination Date — A. Notes Linked to a Single Component” 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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$
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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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J.P. Morgan Securities LLC, which we refer to as JPMS, acting as agent for JPMorgan Chase & Co., will pay all of the selling commissions it receives from us to other affiliated or unaffiliated dealers. In no event will these selling commissions exceed $10.00 per $1,000 principal amount note. 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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Prospectus supplement dated November 14, 2011:
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Prospectus dated November 14, 2011:
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CAPPED APPRECIATION POTENTIAL — The notes provide the opportunity to earn an unleveraged return equal to a positive Index Return, up to the Maximum Return. The actual Maximum Return will be provided in the pricing supplement and will not be less than 25.25%. Accordingly, the actual maximum payment at maturity will not be less than $1,252.50 per $1,000 principal amount note. 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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LIMITED PROTECTION AGAINST LOSS — We will pay you your principal back at maturity if the Ending Index Level is not less than the Initial Index Level by more than 15%. If the Ending Index Level is less than the Initial Index Level by more than 15%, for every 1% that the Ending Index Level is less than the Initial Index Level by more than 15%, you will lose an amount equal to 1% of the principal amount of your notes. Accordingly, you could lose your entire principal amount at maturity.
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RETURN LINKED TO THE EURO STOXX® BANKS INDEX — The EURO STOXX® Banks Index is a free float market capitalization index which currently includes 29 stocks of bank market sector leaders mainly from the 12 largest Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. For additional information about the Index, see the information set forth in Appendix A to this term sheet.
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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.
Based on current market conditions, in the opinion of our special tax counsel it is reasonable to treat the notes as “open transactions” that are not debt instruments for U.S. federal income tax purposes. Assuming this treatment is respected, the gain or loss on your notes should be treated as long-term capital gain or loss if you hold your notes for more than a year, whether or not you are an initial purchaser of notes at the issue price. However, the Internal Revenue Service (the “IRS”) or a court may not respect this treatment, in which case the timing and character of any income or loss on the notes could be materially and adversely affected. In addition, in 2007 Treasury and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require investors in these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; the relevance of factors such as the nature of the underlying property to which the
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JPMorgan Structured Investments -
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TS - 1
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Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index
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instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose a notional interest charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the notes, possibly with retroactive effect. You should consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the notes, including possible alternative treatments and the issues presented by this notice.
Notwithstanding the discussion under “Material U.S. Federal Income Tax Consequences — Tax Consequences to Non-U.S. Holders — Recent Legislation” in the accompanying product supplement, withholding under legislation commonly referred to as “FATCA” may apply to amounts treated as interest paid with respect to the notes, if they are recharacterized as debt instruments. You should consult your tax adviser regarding the potential application of FATCA to the notes.
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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, and the extent to which, the Index Return is positive or negative. Your investment will be exposed to loss if the Ending Index Level is less than the Initial Index Level by more than 15%. For every 1% that the Ending Index Level is less than the Initial Index Level by more than 15%, you will lose an amount equal to 1% of the principal amount of your notes. Accordingly, you could lose your entire principal amount at maturity.
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YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM RETURN — If the Ending Index Level is greater than the Initial Index Level, for each $1,000 principal amount note, you will receive at maturity $1,000 plus an additional return that will not exceed a predetermined percentage of the principal amount, regardless of the appreciation in the Index, which may be significant. We refer to this predetermined percentage as the Maximum Return, which will be provided in the pricing supplement and will not be less than 25.25%.
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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 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. In addition, we are currently one of the companies that make up the Index. We will not have any obligation to consider your interests as a holder of the notes in taking any corporate action that might affect the value of the Index and the notes.
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THE AVERAGING CONVENTION USED TO CALCULATE THE ENDING INDEX LEVEL COULD LIMIT RETURNS — Your investment in the notes may not perform as well as an investment in an instrument that measures the point-to-point performance of the Index from the pricing date to the Final Ending Averaging Date. Your ability to participate in the appreciation of the Index may be limited by the 5-day end-of-term averaging used to calculate the Ending Index Level, especially if there is a significant increase in the closing level of the Index on the Final Ending Averaging Date. Accordingly, you may not receive the benefit of the full appreciation of the Index between the pricing date and the Final Ending Averaging Date.
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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 selling, structuring and hedging the notes are included in the original issue price of the notes. These costs include the selling commissions, 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 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
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JPMorgan Structured Investments -
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TS - 2
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Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index
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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 (a) exclude selling commissions and (b) 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.
The notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your notes to maturity. See “-— Lack of Liquidity” below.
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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 the selling commissions, 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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the dividend rates on the equity securities underlying the Index;
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interest and yield rates in the market generally;
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the exchange rate and the volatility of the exchange rate between the U.S. dollar and the European Union euro; and
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a variety of other economic, financial, political, regulatory and judicial events.
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JPMorgan Structured Investments -
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TS - 3
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Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index
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adjusted for exchange rate fluctuations between the U.S. dollar and the European Union euro, although any currency fluctuations could affect the performance of the Index. Therefore, if the European Union euro appreciates or depreciates relative to the U.S. dollar over the term of the notes, you will not receive any additional payment or incur any reduction in your payment at maturity.
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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 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 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, JPMS's estimated value will be provided in the pricing supplement and may be as low as the minimum value for JPMS's estimated value set forth on the cover of this term sheet. In addition, the Maximum Return will be provided in the pricing supplement and may be equal to the low end of the range for the Maximum Return set forth on the cover of this term sheet. Accordingly, you should consider your potential investment in the notes based on the minimum value for JPMS's estimated value and the low end of the range for the Maximum Return.
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JPMorgan Structured Investments -
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TS - 4
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Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index
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Ending Index Level
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Index Return
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Total Return
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Payment at Maturity
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270.000
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80.00%
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25.25%
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$1,252.50
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247.500
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65.00%
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25.25%
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$1,252.50
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225.000
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50.00%
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25.25%
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$1,252.50
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210.000
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40.00%
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25.25%
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$1,252.50
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195.000
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30.00%
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25.25%
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$1,252.50
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187.875
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25.25%
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25.25%
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$1,252.50
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180.000
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20.00%
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20.00%
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$1,200.00
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172.500
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15.00%
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15.00%
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$1,150.00
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165.000
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10.00%
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10.00%
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$1,100.00
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157.500
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5.00%
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5.00%
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$1,050.00
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151.500
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1.00%
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1.00%
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$1,010.00
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150.000
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0.00%
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0.00%
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$1,000.00
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142.500
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-5.00%
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0.00%
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$1,000.00
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135.000
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-10.00%
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0.00%
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$1,000.00
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127.500
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-15.00%
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0.00%
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$1,000.00
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127.485
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-15.01%
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-15.01%
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$849.90
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120.000
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-20.00%
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-20.00%
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$800.00
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105.000
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-30.00%
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-30.00%
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$700.00
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90.000
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-40.00%
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-40.00%
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$600.00
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75.000
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-50.00%
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-50.00%
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$500.00
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60.000
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-60.00%
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-60.00%
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$400.00
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45.000
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-70.00%
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-70.00%
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$300.00
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30.000
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-80.00%
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-80.00%
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$200.00
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15.000
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-90.00%
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-90.00%
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$100.00
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0.000
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-100.00%
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-100.00%
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$0.00
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JPMorgan Structured Investments -
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TS - 5
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Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index
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JPMorgan Structured Investments -
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TS - 6
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Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index
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JPMorgan Structured Investments -
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TS - 7
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Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index
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Index =
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free float market capitalization of the relevant EURO STOXX® Supersector index
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Divisor
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JPMorgan Structured Investments -
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TS - 8
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Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index
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(1) Split and reverse split:
Adjusted price = closing price × A / B
New number of shares = old number of shares × B / A
Divisor: no change
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(2) Rights offering:
If the subscription price is not available or if the subscription price is equal to or greater
than the closing price on the day before the effective date, then no adjustment is made
Adjusted price = (closing price × A + subscription price × B) / (A + B)
New number of shares = old number of shares *(A + B)/ A
Divisor: increases
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(3) Stock dividend:
Adjusted price = closing price × A / (A + B)
New number of shares = old number of shares × (A + B) / A
Divisor: decreases
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(4) Stock dividend of another company:
Adjusted price = (closing price × A – price of other company × B) / A
Divisor: decreases
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(5) Return of capital and share consideration:
Adjusted price = (closing price – capital return announced by company × (1- withholding tax)) × A / B
New number of shares = old number of shares × B / A
Divisor: decreases
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(6) Repurchase of shares / self tender:
Adjusted price = ((price before tender × old number of shares) – (tender price × number of tendered shares)) / (old number of shares – number of tendered shares)
New number of shares = old number of shares – number of tendered shares
Divisor: decreases
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(7) Spin-off:
Adjusted price = (closing price × A – price of spun-off shares × B) / A
Divisor: decreases
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(8) Combination stock distribution (dividend or split) and rights offering:
For this corporate action, the following additional assumptions apply:
Shareholders receive B new shares from the distribution and C new shares from the rights offering for every A share held.
If A is not equal to one share, all the following “new number of shares” formulae need to be divided by A:
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- If rights are applicable after stock distribution (one action applicable to other):
Adjusted price = (closing price × A + subscription price × C × (1 + B / A)) / ((A + B) × ( 1 + C / A))
New number of shares = old number of shares × ((A + B) × (1 + C / A)) / A
Divisor: increases
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- If stock distribution is applicable after rights (one action applicable to other):
Adjusted price = (closing price × A + subscription price × C) /((A + C) × (1 + B / A))
New number of shares = old number of shares × ((A + C) × (1 + B / A))
Divisor: increases
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- Stock distribution and rights (neither action is applicable to the other):
Adjusted price = (closing price × A + subscription price × C) / (A + B + C)
New number of shares = old number of shares × (A + B + C) / A
Divisor: increases
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JPMorgan Structured Investments -
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TS - 9
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Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index
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·
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sponsor, endorse, sell or promote the notes;
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recommend that any person invest in the notes or any other securities;
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have any responsibility or liability for or make any decisions about the timing, amount or pricing of the notes;
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have any responsibility or liability for the administration, management or marketing of the notes; or
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consider the needs of the notes or the holders of the notes in determining, composing or calculating the EURO STOXX® Banks Index or have any obligation to do so.
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STOXX and its Licensors do not make any warranty, express or implied and disclaim any and all warranty about:
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The results to be obtained by the notes, the holders of the notes or any other person in connection with the use of the EURO STOXX® Banks Index and the data included in the EURO STOXX® Banks Index;
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The accuracy or completeness of the EURO STOXX® Banks Index and its data; or
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The merchantability and the fitness for a particular purpose or use of the EURO STOXX® Banks Index and its data;
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STOXX and its Licensors will have no liability for any errors, omissions or interruptions in the EURO STOXX® Banks Index or its data; and
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Under no circumstances will STOXX or its Licensors be liable for any lost profits or indirect, punitive, special or consequential damages or losses, even if STOXX or its Licensors knows that they might occur.
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JPMorgan Structured Investments -
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TS - 10
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Capped Buffered Equity Notes Linked to the EURO STOXX® Banks Index
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