Term sheet
To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011 and
product supplement no. 4-I dated November 14, 2011
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Term Sheet to
Product Supplement No. 4-I
Registration Statement No. 333-177923
Dated September 9, 2014; Rule 433
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Structured
Investments
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$
Single Review Notes Linked to the EURO STOXX® Banks Index due September 30, 2015
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General
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The notes are designed for investors who seek a fixed return that will not be less than 13.50%* if the Ending Index Level is at or above the Call Level. If the notes are not called and the Ending Index Level is less than the Initial Index Level by more than 15%, investors will lose more than 15% of their investment and may lose all of their principal amount at maturity. Investors in the notes should be willing to accept this risk of loss, and be willing to forgo interest and dividend payments, in exchange for the opportunity to receive a premium payment if the notes are automatically called. 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 (the “Pricing Date”) and are expected to settle on or about September 17, 2014.
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Key Terms
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Index:
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The EURO STOXX® Banks Index (Bloomberg ticker: SX7E) (the “Index”)
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Automatic Call:
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If the Ending Index Level is greater than or equal to the Call Level, the notes will be automatically called on the Final Ending Averaging Date for a cash payment as described below.
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Call Level:
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100% of the Initial Index Level
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Payment if Called:
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If the notes are automatically called on the Final Ending Averaging Date, for every $1,000 principal amount note, you will receive one payment of $1,000 plus a call premium amount that will not be less than 13.50%* × $1,000.
*The actual percentage will be provided in the pricing supplement and will not be less than 13.50%.
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Payment at Maturity:
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If the notes are not automatically called and the Ending Index Level is less than the Initial Index Level by up to 15%, you will be entitled to the full repayment of your principal 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. 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 the notes are not automatically called and 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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Contingent Buffer Amount:
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15%
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Index Return:
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(Ending Index Level – Initial Index Level)
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 Index closing levels on the Ending Averaging Dates
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Original Issue Date
(Settlement Date)
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On or about September 17, 2014
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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 (“Final Ending Averaging Date”)
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Maturity Date*:
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September 30, 2015
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CUSIP:
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48127DZX9
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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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Total
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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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JPMorgan Structured Investments —
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TS- 1
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Ending
Index
Level
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Index Return
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Total Return
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270.000
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80.00%
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13.50%
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247.500
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65.00%
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13.50%
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225.000
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50.00%
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13.50%
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210.000
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40.00%
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13.50%
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195.000
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30.00%
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13.50%
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180.000
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20.00%
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13.50%
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177.000
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18.00%
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13.50%
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172.500
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15.00%
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13.50%
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165.000
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10.00%
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13.50%
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157.500
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5.00%
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13.50%
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153.750
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2.50%
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13.50%
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150.000
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0.00%
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13.50%
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142.500
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-5.00%
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0.00%
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135.000
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-10.00%
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0.00%
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127.500
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-15.00%
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0.00%
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127.485
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-15.01%
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-15.01%
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120.000
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-20.00%
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-20.00%
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105.000
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-30.00%
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-30.00%
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90.000
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-40.00%
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-40.00%
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75.000
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-50.00%
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-50.00%
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60.000
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-60.00%
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-60.00%
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45.000
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-70.00%
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-70.00%
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30.000
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-80.00%
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-80.00%
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15.000
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-90.00%
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-90.00%
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0.000
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-100.00%
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-100.00%
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JPMorgan Structured Investments —
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TS- 2
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FIXED APPRECIATION POTENTIAL — If the Ending Index Level is greater than or equal to the Call Level, your investment will yield a payment per $1,000 principal amount note of $1,000 plus a call premium amount that will not be less than $135.00 (or 13.50%* × $1,000). 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.
*The actual percentage will be provided in the pricing supplement and will not be less than 13.50%.
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CONTINGENT PROTECTION AGAINST LOSS — If the notes are not automatically called and the Ending Index Level is less than the Initial Index Level by up to 15%, you will be entitled to the full repayment of your principal at maturity. 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, 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 banks 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.
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JPMorgan Structured Investments —
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TS- 3
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal. If the notes are not automatically called and 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 at maturity for every 1% that the Ending Index Level is less than the Initial Index Level. Under these circumstances you will lose at least 15% of your principal and you could lose up to the entire principal amount of your notes.
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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 affect adversely 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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LIMITED RETURN ON THE NOTES — Your potential gain on the notes will be limited to the call premium that will not be less than 13.50%*, regardless of the appreciation of the Index, which may be significant. Because the Index closing level at various times during the term of the notes could be higher than on the Ending Averaging Dates, you may receive a lower payment at maturity than you would have if you had invested directly in the Index.
*The actual percentage will be provided in the pricing supplement and will not be less than 13.50%.
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THE BENEFIT PROVIDED BY THE CONTINGENT BUFFER AMOUNT MAY TERMINATE ON THE FINAL ENDING AVERAGING DATE — If the Ending Index Level is less than the Initial Index Level by more than the Contingent Buffer Amount, you will be fully exposed to any depreciation in the Index. Under these circumstances, 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. If these notes had a non-contingent buffer feature, under the same scenario, the amount you would have received at maturity would have been increased by the Contingent Buffer Amount. As a result, your investment in the notes may not perform as well as an investment in a security with a return that incorporates 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 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 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
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JPMorgan Structured Investments —
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TS- 4
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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 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 included in 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 economic, financial, political, regulatory and judicial events.
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Additionally, independent pricing vendors and/or third party broker-dealers may publish a price for the notes, which may also be reflected on customer account statements. This price may be different (higher or lower) than the price of the notes, if any, at which JPMS may be willing to purchase your notes in the secondary market.
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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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THE EQUITY SECURITIES INCLUDED IN THE INDEX ARE CONCENTRATED IN THE BANKING INDUSTRY — Each of the equity securities included in the Index has been issued by a company whose business is associated with the banking industry. Because the value of the notes is determined by the performance of the Index, an investment in these notes will be concentrated in this industry. As a result, the value of the notes may be subject to greater volatility and be more adversely affected by a single positive or negative economic, political or regulatory occurrence affecting this industry than a different investment linked to securities of a more broadly diversified group of issuers.
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NON-U.S. SECURITIES RISK –– The equity securities that compose the Index have been issued by non-U.S. companies. Investments in securities linked to the value of such non-U.S. equity securities involve risks associated with the securities markets in those countries, including risks of volatility in those markets, governmental intervention in those markets and cross shareholdings in companies in certain countries. Also, there is generally less publicly available information about companies in some of these jurisdictions than about U.S. companies that are subject to the reporting requirements of the SEC.
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VOLATILITY RISK — Greater expected volatility with respect to the Index indicates a greater likelihood as of the Pricing Date that the Ending Index Level of the Index could be below its Call Level or below its Initial Index Level by more than the applicable Contingent Buffer Amount. The Index’s volatility, however, can change significantly over the term of the notes. The Index closing level of the Index could fall sharply between the Pricing Date and the Ending Averaging Dates, which could result in a significant loss of principal.
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NO DIRECT EXPOSURE TO FLUCTUATIONS IN FOREIGN EXCHANGE RATES — The value of your notes will not be 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
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JPMorgan Structured Investments —
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TS- 5
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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 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 call premium 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 call premium.
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JPMorgan Structured Investments —
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TS- 6
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JPMorgan Structured Investments —
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TS- 7
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JPMorgan Structured Investments —
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TS- 8
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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- 9
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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- 10
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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- 11
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