Term sheet
To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011,
product supplement no. 30-I dated September 5, 2012 and
underlying supplement no. 20-I dated November 29, 2013
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Term Sheet to
Product Supplement No. 30-I
Registration Statement No. 333-177923
Dated August 28, 2014; Rule 433
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Structured
Investments
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$
Return Notes Linked to the J.P. Morgan Strategic Volatility Index due December 31, 2015
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The notes are designed for investors who seek exposure to the J.P. Morgan Strategic Volatility Index. Investors should be willing to forgo interest payments and, if, between the Inception Date and the relevant Valuation Date, the level of the Index (which reflects the deductions described below) decreases or, in the case of an early repurchase, does not increase sufficiently to offset the 0.50% Repurchase Fee, be willing to lose some or all of their principal. Any payment on the notes is subject to the credit risk of JPMorgan Chase & Co.
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The level of the Index incorporates the daily deduction of (a) an adjustment factor of 0.75% per annum (the “index fee”) and (b) a “daily rebalancing adjustment amount” that is determined by applying a rebalancing adjustment factor of between 0.20% and 0.50% per day (depending on the level of the VIX Index) to both (1) the aggregate notional amount of each of the VIX futures contracts hypothetically traded that day and (2) the amount of the change, if any, in the level of the exposure to the synthetic short position. Unlike the index fee, the rebalancing adjustment factor is not a per annum fee. The level of the Index and the value of the notes will be adversely affected, perhaps significantly, if the performance of the synthetic long position and the contingent synthetic short position in the relevant VIX futures contracts, determined based on the official settlement prices of the relevant VIX futures contracts, is not sufficient to offset the daily deduction of the index fee and the daily rebalancing adjustment amount. See “Selected Risk Considerations — The Daily Rebalancing Adjustment Amount Is Likely to Have a Substantial Adverse Effect on the Level of the Index Over Time” below.
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The daily rebalancing adjustment amount is intended to approximate the “slippage costs” that would be experienced by a professional investor seeking to replicate the hypothetical portfolio contemplated by the Index at prices that approximate the official settlement prices (which are not generally tradable) of the relevant VIX futures contracts. Slippage costs are costs that arise from deviations between the actual official settlement price of a VIX futures contract and the prices at which a hypothetical investor would expect to be able to execute trades in the market when seeking to match the expected official settlement price of a VIX futures contract.
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Unsecured and unsubordinated obligations of JPMorgan Chase & Co. maturing December 31, 2015†
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The notes will be sold in minimum denominations of $1,000 and integral multiples thereof.
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You may request that we repurchase your notes on a daily basis in a minimum denomination equal to the Principal Amount, subject to our acceptance of your request and your compliance with the procedural requirements described below. While we intend to accept all requests for early repurchase of notes, we are not obligated to accept any repurchase request. We are not committed to purchasing any note at a particular time or price. Notwithstanding anything to the contrary in the accompanying product supplement no. 30-I, the final possible Valuation Date for purposes of note repurchases will be the Valuation Date immediately preceding the first Ending Averaging Date.
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The terms of the notes as set forth in “Key Terms” below and “Additional Key Terms” on page TS-1 of this term sheet, to the extent they differ from or conflict with those set forth in the accompanying product supplement no. 30-I, supersede the terms set forth in product supplement no. 30-I. In particular, notwithstanding anything to the contrary in the accompanying product supplement no. 30-I, the Index Return as of the Final Valuation Date will equal the return of the Index from the Initial Index Level to the Ending Index Level, which will reflect the arithmetic average of the Index closing levels on each of the Ending Averaging Dates. See “Supplemental Terms of the Notes” on page TS-2 of this term sheet for additional information.
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Index:
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The J.P. Morgan Strategic Volatility Index (the “Index”) (Bloomberg ticker: JPUSSTVL). For more information about the Index, please see “The J.P. Morgan Strategic Volatility Index” in this term sheet.
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Principal Amount:
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$1,000
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Inception Date:
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On or about September 25, 2014
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Original Issue Date (Settlement Date):
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On or about September 30, 2014
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Valuation Date(s)†:
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Each business day from and including the Inception Date to and including the Final Valuation Date
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Ending Averaging Dates†:
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December 21, 2015, December 22, 2015, December 23, 2015, December 24, 2015 and December 28, 2015 (the “Final Valuation Date”)
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Maturity Date†:
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December 31, 2015
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CUSIP
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48127DYR3
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Additional Key Terms:
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See “Additional Key Terms” on page TS-1 of this term sheet
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†
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Subject to postponement in the event of certain market disruption events and as described under “Description of Notes — Postponement of a Determination Date” and “Description of Notes — Payment at Maturity” in the accompanying product supplement no. 30-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. If the notes priced today, the selling commissions would be approximately $2.50 per $1,000 principal amount note and in no event will these selling commissions exceed $6.50 per $1,000 principal amount note. JPMS will also receive the aggregate profits generated from the deduction of the index fee of 0.75% per annum to cover ongoing payments related to the distribution of the notes and as a structuring fee for developing the notes. See “Selected Purchase Considerations — Return Linked to the J.P. Morgan Strategic Volatility Index” in this term sheet and “Plan of Distribution (Conflicts of Interest)” beginning on page PS-29 of the accompanying product supplement no. 30-I.
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Product supplement no. 30-I dated September 5, 2012:
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Underlying supplement no. 20-I dated November 29, 2013:
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Prospectus supplement dated November 14, 2011:
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Prospectus dated November 14, 2011:
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Payment at Maturity:
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For each $1,000 principal amount note, unless earlier repurchased, you will receive at maturity a cash payment equal to:
$1,000 × (1 + Index Return)
where the Index Return is determined as of the Final Valuation Date. The Index Return as of the Final Valuation Date is the return of the Index from the Initial Index Level to the Ending Index Level, which reflects the arithmetic average of the Index closing levels on each of the Ending Averaging Dates.
The return on your initial investment at maturity will reflect the deduction of the index fee and the daily rebalancing adjustment amount from the level of the Index. Because the Index closing level reflects the daily deduction of the index fee and the daily rebalancing adjustment amount, the level of the Index will decrease if the performance of the synthetic positions in VIX futures contracts included in the Index, based on their official settlement prices, is not sufficient to offset the deduction of the index fee and the daily rebalancing adjustment amount. You will lose some or all of your principal amount at maturity if the level of the Index decreases between the Inception Date and the Final Valuation Date.
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Index Return:
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On the Final Valuation Date, the Index Return is equal to:
(Ending Index Level – Initial Index Level)
Initial Index Level
On any other Valuation Date, the Index Return is equal to:
(Index closing level on that Valuation Date – Initial Index Level)
Initial Index Level
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JPMorgan Structured Investments —
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Return Notes Linked to the J.P. Morgan Strategic Volatility Index
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TS - 1
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Initial Index Level:
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The Index closing level on the Inception Date
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Ending Index Level:
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The arithmetic average of the Index closing levels on each of the Ending Averaging Dates
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Payment upon Early Repurchase:
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Subject to our acceptance of your request and your compliance with the procedures described under “Description of Notes — Early Repurchase at the Option of the Holders” and the potential postponements and adjustments as described under “Description of Notes — Postponement of a Determination Date” in the accompanying product supplement no. 30-I, you may request that we repurchase your notes on any Repurchase Date during the term of the notes.
While we intend to accept all requests for early repurchase of notes, notwithstanding anything to the contrary in the accompanying product supplement no. 30-I, we are not obligated to accept any repurchase request. We are not committed to purchasing any note at a particular time or price. See “Selected Risk Considerations — Lack of Liquidity” in this term sheet for more information.
Upon early repurchase, you will receive for each $1,000 principal amount note a cash payment on the relevant Repurchase Date calculated as follows:
$1,000 × (1 + Index Return) – Repurchase Fee Amount
where the Index Return is determined as of the Valuation Date corresponding to that Repurchase Date. The Index Return for purposes of determining the payment upon early repurchase is the return of the Index from the Initial Index Level to the Index closing level on a single Valuation Date (i.e., the Valuation Date corresponding to the applicable Repurchase Date).
If the amount calculated above is less than zero, the payment upon early repurchase will be $0.
The return on your initial investment upon early repurchase will reflect the deduction of the index fee and the daily rebalancing adjustment amount from the level of the Index and the deduction of the Repurchase Fee Amount. Because the Index closing level reflects the daily deduction of the index fee and the daily rebalancing adjustment amount, the level of the Index will decrease if the performance of the synthetic positions in VIX futures contracts included in the Index, based on their official settlement prices, is not sufficient to offset the deduction of the index fee and the daily rebalancing adjustment amount. You will lose some or all of your principal amount upon early repurchase if, between the Inception Date and the relevant Valuation Date, the level of the Index decreases or does not increase sufficiently to offset the Repurchase Fee Amount.
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Early Repurchase Mechanics:
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In order to request that we repurchase your notes on any Repurchase Date, you must deliver a Repurchase Notice to us via email at dln_repurchase@jpmchase.com by no later than 4:00 p.m., New York City time, on the business day prior to the relevant Valuation Date and follow the procedures described under “Description of Notes — Early Repurchase at the Option of the Holders” in the accompanying product supplement no. 30-I. Notwithstanding anything to the contrary in the accompanying product supplement no. 30-I, the final possible Valuation Date for purposes of note repurchases will be the Valuation Date immediately preceding the first Ending Averaging Date. If you fail to comply with these procedures or if we fail to accept your request for repurchase, your notice will be deemed ineffective. Our acceptance of your request for repurchase will be evidenced by our or our affiliate’s acknowledgement of receipt of the Repurchase Notice on the same business day referred to in “Description of Notes — Early Repurchase at the Option of the Holders — Repurchase Requirements” in the accompanying product supplement no. 30-I.
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Repurchase Fee Amount:
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$5.00 per $1,000 principal amount note, which is equal to $1,000 × the Repurchase Fee
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Repurchase Fee:
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0.50%
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Repurchase Date:
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The third business day following each Valuation Date
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Repurchase Notice:
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The form of Repurchase Notice attached hereto as Annex A
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Note Calculation Agent:
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J.P. Morgan Securities LLC (“JPMS”), an affiliate of ours
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Index Calculation Agent:
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J.P. Morgan Securities plc (“JPMS plc”), an affiliate of ours
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notwithstanding anything to the contrary in the accompanying product supplement no. 30-I, the Index Return as of the Final Valuation Date will equal the return of the Index from the Initial Index Level to the Ending Index Level, which will reflect the arithmetic average of the Index closing levels on each of the Ending Averaging Dates. Accordingly, the description of the payment at maturity and the definition of “Index Return” set forth in the accompanying product supplement no. 30-I are superseded by the description of the payment at maturity and the definition of “Index Return” set forth in this term sheet. See “Additional Key Terms — Payment at Maturity” and “Additional Key Terms — Index Return” set forth below;
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notwithstanding anything to the contrary in the accompanying product supplement no. 30-I, the final possible Valuation Date for purposes of note repurchases will be the Valuation Date immediately preceding the first Ending Averaging Date;
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the Ending Averaging Dates are Determination Dates as described in the accompanying product supplement no. 30-I and are subject to postponement as described under “Description of Notes — Postponement of a Determination Date” in the accompanying product supplement no. 30-I;
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all calculations with respect to the Ending Index Level will be rounded to the nearest one-hundred-thousandth, with five one-millionths rounded upward (e.g., 0.876545 would be rounded to 0.87655); and
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JPMorgan Structured Investments —
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Return Notes Linked to the J.P. Morgan Strategic Volatility Index
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TS - 2
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in case an event of default with respect to the notes shall have occurred and be continuing, the amount declared due and payable per $1,000 principal amount note upon any acceleration of the notes will be determined by the note calculation agent as described under “General Terms of Notes — Payment upon an Event of Default” in the accompanying product supplement no. 30-I except that, for each Ending Averaging Date scheduled to occur after the date of acceleration, the trading days immediately preceding the date of acceleration (in such number equal to the number of the Ending Averaging Dates in excess of one) will be the corresponding Ending Averaging Dates.
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JPMorgan Structured Investments —
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Return Notes Linked to the J.P. Morgan Strategic Volatility Index
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TS - 3
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UNCAPPED APPRECIATION POTENTIAL — The notes provide the opportunity to obtain an uncapped return at maturity or upon early repurchase linked to the Index (which will reflect the daily deduction of the index fee and the daily rebalancing adjustment amount) subject to, in the case of an early repurchase, the deduction of the Repurchase Fee Amount. The notes are not subject to a predetermined maximum return and, accordingly, any return will be based on the performance of the Index (which will reflect the daily deduction of the index fee and the daily rebalancing adjustment amount) and, if applicable, the Repurchase Fee Amount. 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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RETURN LINKED TO THE J.P. MORGAN STRATEGIC VOLATILITY INDEX — The return on the notes is linked to the J.P. Morgan Strategic Volatility Index, which seeks to replicate the returns from combining a long position and a contingent short position in futures contracts on the VIX Index. The level of the Index incorporates the daily deduction of (a) an adjustment factor of 0.75% per annum (the “index fee”) and (b) a “daily rebalancing adjustment amount” that is determined by applying a rebalancing adjustment factor of between 0.20% and 0.50% per day (depending on the level of the VIX Index) to both (1) the aggregate notional amount of each of the VIX futures contracts hypothetically traded that day and (2) the amount of the change, if any, in the level of the exposure to the synthetic short position. Unlike the adjustment factor, the rebalancing adjustment factor is not a per annum fee. See “The J.P. Morgan Strategic Volatility Index” above and in the accompanying underlying supplement no. 20-I.
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DAILY REPURCHASES IN MINIMUM DENOMINATIONS EQUAL TO THE PRINCIPAL AMOUNT, SUBJECT TO REPURCHASE FEE — Subject to our acceptance of your request and your compliance with the procedures and the potential postponements as described in the accompanying product supplement no. 30-I, you may submit daily a request to have us repurchase your notes on any Repurchase Date during the term of the notes. If you request that we repurchase your notes, subject to our acceptance, the notification requirements and the other terms and conditions set forth in the accompanying product supplement no. 30-I and this term sheet, for each note you will receive a cash payment on the relevant Repurchase Date calculated as described under “Additional Key Terms — Payment upon Early Repurchase” above. You will be charged a Repurchase Fee Amount of $5.00 for each $1,000
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JPMorgan Structured Investments —
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Return Notes Linked to the J.P. Morgan Strategic Volatility Index
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TS - 4
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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. 30-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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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes may not return any of your initial investment. The return on your initial investment will reflect the daily deduction of the index fee and the daily rebalancing adjustment amount from the level of the Index and, in the case of an early repurchase, the deduction of the Repurchase Fee Amount. Please see “—You May Receive Less Than Your Initial Investment Due to the Index Fee and the Daily Rebalancing Adjustment Amount and, in the Case of Early Repurchase, the Repurchase Fee Amount” below for more information. You will lose some or all of your principal amount at maturity if the level of the Index decreases from the Initial Index Level to the Ending Index Level. In the case of an early repurchase, you will lose some or all of your initial investment if, between the Inception Date and the relevant Valuation Date, the level of the Index decreases or does not increase sufficiently to offset the Repurchase Fee Amount.
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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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YOU MAY RECEIVE LESS THAN YOUR INITIAL INVESTMENT DUE TO THE INDEX FEE AND THE DAILY REBALANCING ADJUSTMENT AMOUNT AND, IN THE CASE OF EARLY REPURCHASE, THE REPURCHASE FEE AMOUNT — Because the Index closing level reflects the daily deduction of the index fee and the daily rebalancing adjustment amount, the level of the Index will decrease if the performance of the synthetic positions in VIX futures contracts included in the Index, based on their official settlement prices, is not sufficient to offset the deduction of the index fee and the daily
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JPMorgan Structured Investments —
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Return Notes Linked to the J.P. Morgan Strategic Volatility Index
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TS - 5
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THE DAILY REBALANCING ADJUSTMENT AMOUNT IS LIKELY TO HAVE A SUBSTANTIAL ADVERSE EFFECT ON THE LEVEL OF THE INDEX OVER TIME — Unlike the index fee, the rebalancing adjustment factor, which is used to calculate the daily rebalancing adjustment amount, is not a per annum fee. The daily rebalancing adjustment amount is determined by applying a rebalancing adjustment factor of between 0.20% and 0.50% per day (depending on the level of the VIX Index) to both (1) the aggregate notional amount of each of the VIX futures contracts hypothetically traded that day and (2) the amount of the change, if any, in the level of the exposure to the synthetic short position.
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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 the Note Calculation Agent, the Index Calculation Agent and the sponsor of the Index, and as agent of the offering of the notes, hedging our obligations under the notes and making the assumptions used to
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JPMorgan Structured Investments —
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Return Notes Linked to the J.P. Morgan Strategic Volatility Index
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TS - 6
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OUR AFFILIATE, J.P. MORGAN SECURITIES PLC, OR JPMS PLC, IS THE INDEX CALCULATION AGENT AND THE INDEX SPONSOR AND MAY ADJUST THE INDEX IN A WAY THAT AFFECTS ITS LEVEL — JPMS plc, one of our affiliates, acts as the Index Calculation Agent and is responsible for calculating the Index, and also acts as the sponsor of the Index and is responsible for maintaining the Index and developing the guidelines and policies governing their composition and calculation. The rules governing the Index may be amended at any time by JPMS plc, in its sole discretion, and the rules also permit the use of discretion by JPMS plc in specific instances, such as the right to substitute or exclude a futures contract included in the Index due to a change in law or otherwise and to calculate substitute closing levels of the Index. Unlike other indices, the maintenance of the Index is not governed by an independent committee. Although judgments, policies and determinations concerning the Index are made by JPMS plc, JPMorgan Chase & Co., as the parent company of JPMS plc, ultimately controls JPMS plc.
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JPMS AND ITS AFFILIATES MAY HAVE PUBLISHED RESEARCH, EXPRESSED OPINIONS OR PROVIDED RECOMMENDATIONS THAT ARE INCONSISTENT WITH INVESTING IN OR HOLDING THE NOTES. ANY SUCH RESEARCH, OPINIONS OR RECOMMENDATIONS COULD AFFECT THE MARKET VALUE OF THE NOTES — JPMS and its affiliates publish research from time to time on equity markets and other matters that may influence the value of the notes, or express opinions or provide recommendations that are inconsistent with purchasing or holding the notes. JPMS and its affiliates may have published research or other opinions that call into question the investment view implicit in an investment in the notes. Any research, opinions or recommendations expressed by JPMS or its affiliates may not be consistent with each other and may be modified from time to time without notice. Investors should make their own independent investigation of the merits of investing in the notes, the Index and the VIX futures contracts underlying the Index.
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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 and the index fee that will accrue on a daily basis over the term of 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, interest rates, the index fee 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
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JPMorgan Structured Investments —
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Return Notes Linked to the J.P. Morgan Strategic Volatility Index
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TS - 7
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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 — We generally expect that the portion of the index fee that has not yet accrued will be paid back to you in connection with any repurchases of your notes by JPMS over the term of the notes. See “Secondary Market Prices of the Notes” in this term sheet for additional information. 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 exclude selling commissions. 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 the selling commissions, the portion of the index fee that has not yet accrued 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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prevailing market prices and forward volatility levels of the U.S. stock markets and the equity securities included in the S&P 500® Index;
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prevailing market prices, volatility and liquidity of any option or futures contracts relating to the Index, the VIX Index, the S&P 500® Index, the equity securities included in the S&P 500® Index or VIX futures contracts;
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the volatility, frequency and magnitude of changes in the levels of the Index and in the prices of VIX futures contracts;
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the liquidity of VIX futures contracts;
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the time to maturity of the notes;
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interest and yield rates in the market generally;
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supply and demand in the listed and over-the-counter equity derivative markets; and
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a variety of other economic, financial, political, regulatory and judicial events.
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THE AVERAGING CONVENTION USED TO CALCULATE THE ENDING INDEX LEVEL COULD LIMIT RETURNS — If you hold your notes to maturity, 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 Inception Date to the Final Valuation Date. Your ability to participate in the appreciation of the Index may be limited by the five-day, end-of-term averaging used to calculate the Ending Index Level, especially if there is a significant increase in the Index closing level on or shortly before the Final Valuation Date. Accordingly, you may not receive the benefit of the full appreciation of the Index between the Inception Date and the Final Valuation Date.
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NOTES THAT PROVIDE EXPOSURE TO EQUITY VOLATILITY, WHICH ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, ARE NOT SUITABLE FOR ALL INVESTORS. YOU SHOULD ACTIVELY MANAGE YOUR INVESTMENT IN THE NOTES — Notes that provide exposure to equity volatility are not suitable for all investors. The notes reflect the performance of the Index, which is dependent on the price of the VIX futures contracts included in the Index. VIX futures contracts allow investors the ability to invest in forward equity volatility based on their view of the future direction of movement of the VIX Index, which is a benchmark index designed to measure the market price of volatility in large cap U.S. stocks, and is calculated based on the prices of certain put and call options on the S&P 500® Index.
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JPMorgan Structured Investments —
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Return Notes Linked to the J.P. Morgan Strategic Volatility Index
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TS - 8
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WHEN THE SYNTHETIC SHORT POSITION IS ACTIVATED, YOUR RETURN ON THE NOTES IS DEPENDENT ON THE NET PERFORMANCE, NOT THE ABSOLUTE PERFORMANCE, OF THE SYNTHETIC POSITIONS — When the synthetic short position is activated, your return on the notes is dependent on the net performance of the synthetic long position minus the synthetic short position (taking into account the exposure to the synthetic short position), not on the absolute performance of the synthetic long position and the synthetic short position. The level of the Index and the value of the notes may decline, perhaps significantly, even if the synthetic long position generates a positive return.
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THERE IS UNLIMITED LOSS EXPOSURE TO THE SYNTHETIC SHORT POSITION, WHEN ACTIVATED, AND SUCH EXPOSURE MAY RESULT IN A SIGNIFICANT DROP IN THE LEVEL OF THE INDEX — The Index employs a technique generally known as a “long-short” strategy when the synthetic short position is activated. This means the Index reflects the net return of a synthetic long position and a synthetic short position and will suffer losses when the value of the VIX futures contracts underlying the synthetic short position increases. In a long-short strategy, the maximum increase in the value of the synthetic long position is unlimited, while the maximum decrease in the value of the synthetic long position is limited to a loss of the entire value of the VIX futures contracts underlying the synthetic long position. On the other hand, the maximum increase of the value of the synthetic short position is limited to a loss of the entire value of VIX futures contracts underlying the synthetic short position, while the maximum decrease in value of the synthetic short position is unlimited. Because there is no limit to possible increases in the value of the VIX futures contracts underlying the synthetic short position, the potential losses as a result of short exposure are unlimited; however, in no event will you lose more than your entire investment in the notes.
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THE INDEX MAY NOT BE SUCCESSFUL AND MAY NOT OUTPERFORM ANY ALTERNATIVE STRATEGY THAT MIGHT BE EMPLOYED WITH RESPECT TO THE VIX FUTURES CONTRACTS UNDERLYING THE INDEX — The Index follows a proprietary strategy that operates on the basis on pre-determined rules. No assurance can be given that the investment strategy on which the Index is based will be successful or that the Index will outperform any alternative strategy that might be employed with respect to the VIX futures contracts underlying the Index.
|
·
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CHANGING PRICES OF THE VIX FUTURES CONTRACTS INCLUDED IN THE INDEX MAY HAVE AN ADVERSE EFFECT ON THE LEVEL OF THE INDEX — The Index is a rolling index, which rolls throughout each month. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, futures contracts normally specify a certain date for the delivery of the underlying asset or financial instrument or, in the case of futures contracts relating to indices such as the VIX Index, a certain date for payment in cash of an amount determined by the level of the relevant index. As the VIX futures contracts included in the Index approach expiration, they are replaced by similar contracts that have a later expiration. Thus, for example, a VIX futures contract purchased and held in August may specify an October expiration. As time passes, the contract expiring in October may be gradually replaced by a contract for delivery in November, through incremental synthetic sales of a portion of the position in the October contract, accompanied by incremental synthetic purchases of the November contract. This process is referred to as “rolling.”
|
JPMorgan Structured Investments —
|
|
Return Notes Linked to the J.P. Morgan Strategic Volatility Index
|
TS - 9
|
·
|
THE LEVEL OF THE INDEX, AND THEREFORE THE VALUE OF THE NOTES, MAY NOT INCREASE EVEN WHEN THE SYNTHETIC LONG POSITION OR THE SYNTHETIC SHORT POSITION, WHEN ACTIVATED, GENERATES A POSITIVE RETURN — The performance of a rolling excess return index, like the Index, is affected by the price return of the futures contracts underlying the Index and the roll return from rolling such futures contracts over time. See “— The Index is an excess return index, and not a total return index.” In addition, the performance of a long-short index, such as the Index when the contingent synthetic short position is activated, is affected by the relative performance of the synthetic long position and the synthetic short position, and not by the absolute performance of either synthetic position. See “— When the Synthetic Short Position Is Activated, Your Return on the Notes Is Dependent on the Net Performance, not the Absolute Performance, of the Synthetic Positions.” Furthermore, the Index rolls its futures contracts throughout each monthly rebalancing period in order to keep the weighted average maturity of the relevant futures contracts underlying the synthetic positions to a specified level (approximately two months for the synthetic long position and approximately one month for the synthetic short position). Finally, when activating the synthetic short position, the Index does so progressively in 20% increments on each rebalancing day (so long as the conditions for activating the synthetic short position continue to hold true on such day) until it is fully activated; however, the synthetic short position may not be fully activated, may remain partially activated for a sustained period of time or may not be activated at all.
|
JPMorgan Structured Investments —
|
|
Return Notes Linked to the J.P. Morgan Strategic Volatility Index
|
TS - 10
|
|
•
|
the synthetic long position generates a negative return, but the synthetic short position generates a positive return that is greater than the negative return generated by the synthetic long position; or
|
|
•
|
the synthetic long position generates a positive return and the synthetic short position is not activated.
|
|
•
|
the return from the synthetic long position (if the synthetic short position is not activated) or the net return of the synthetic positions (when the synthetic short position is activated) is not sufficient to offset the negative effect of the index fee and the daily rebalancing adjustment amount;
|
|
•
|
the synthetic long position generates a negative return and the synthetic short position is not activated;
|
|
•
|
both synthetic positions generate negative returns; or
|
|
•
|
the negative return generated by one synthetic position is greater than the positive return generated by the other synthetic position.
|
·
|
BECAUSE EXPOSURE TO THE SYNTHETIC SHORT POSITION IS ADJUSTED ONLY IF THE APPLICABLE CONDITIONS ARE SATISFIED FOR THREE CONSECUTIVE INDEX BUSINESS DAYS, THE EXPOSURE TO THE SYNTHETIC SHORT POSITION MAY NOT BE ADJUSTED DURING NON-TRENDING MARKET CONDITIONS — Because exposure to the synthetic short position is adjusted only if the applicable conditions are satisfied for three consecutive Index Business Days, the exposure to the synthetic short position may not be adjusted when the market for VIX futures contracts fluctuates from contango to backwardation rapidly. For example, the exposure to the synthetic short position will not be adjusted if the level of the VIX Index is greater than or equal to the rolling, weighted average price of the first-month and second-month VIX futures contracts included in the synthetic short position for one or two Index Business Days, after which the level of the VIX Index is less than the rolling, weighted average price of the first-month and second-month VIX futures contracts included in the synthetic short position for one or two Index Business Days. As a result, the synthetic short position may not be activated or deactivated or may be activated or deactivated over a long period when the market for VIX futures fluctuates from contango to backwardation rapidly. Under these conditions, the Index may incur negative roll yields for an activated (or partially activated) synthetic short position or may fail to capture positive roll yields from a deactivated (or partially deactivated) synthetic short position. See the immediately following risk factor for additional information.
|
·
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DUE TO THE TIME LAG INHERENT IN THE INDEX, THE EXPOSURE TO THE SYNTHETIC SHORT POSITION MAY NOT BE ADJUSTED QUICKLY ENOUGH IN RESPONSE TO A CHANGE IN MARKET CONDITIONS FOR THE INVESTMENT STRATEGY ON WHICH THE INDEX IS BASED TO BE SUCCESSFUL — Because large price movements in VIX futures contracts can occur suddenly and over a short period of time, the VIX futures contracts may rapidly move from backwardation to contango or from contango to backwardation; however, the exposure to the synthetic short position will remain unchanged until the applicable conditions described in the immediately preceding risk factor have been satisfied for three consecutive Index Business Days, after which the exposure to the synthetic short position will change in increments of 20% per Index Business Day. Accordingly, at a minimum, eight Index Business Days will pass following the change in the futures market before the synthetic short position can be fully activated or deactivated, by which time market conditions may have changed. Due to this time lag, the exposure to the synthetic short position may not be adjusted quickly enough for the investment strategy on which the Index is based to be successful.
|
JPMorgan Structured Investments —
|
|
Return Notes Linked to the J.P. Morgan Strategic Volatility Index
|
TS - 11
|
·
|
THE NOTES ARE LINKED TO AN EXCESS RETURN INDEX AND NOT A TOTAL RETURN INDEX — The notes are linked to an excess return index and not a total return index. An excess return index, such as the Index, reflects the changes in the price of the relevant futures contracts (which is known as the “price return”) and any profit or loss realized when rolling the relevant futures contracts (which is known as the “roll return”) available through an unleveraged investment in the futures contracts composing such index. By contrast, a “total return” index, in addition to reflecting those returns, also reflects interest that could be earned on funds committed to the trading of the underlying futures contracts.
|
·
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CONCENTRATION RISKS ASSOCIATED WITH THE INDEX MAY ADVERSELY AFFECT THE VALUE OF YOUR NOTES — The Index includes VIX futures contracts with a maturity of three months or less and thus is less diversified than other funds, investment portfolios or indices investing in or tracking a broader range of products and, therefore, could experience greater volatility. You should be aware that other indices may be more diversified than the Index in terms of both the number and variety of VIX futures contracts. You will not benefit, with respect to the notes, from any of the advantages of a diversified investment and will bear the risks of a highly concentrated investment.
|
·
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DAILY REBALANCING OF THE INDEX MAY AFFECT TRADING IN THE RELEVANT VIX FUTURES CONTRACTS — The daily rebalancing of the VIX futures contracts underlying the Index may cause us, our affiliates or third parties with whom we transact to adjust our or their hedges accordingly. The trading activity associated with these hedging transactions will contribute to the trading volume of the VIX futures contracts included in the Index and may affect the market price of these VIX futures contracts and, in turn, adversely affect the level of the Index.
|
·
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AN INCREASE IN THE MARGIN REQUIREMENTS FOR VIX FUTURES CONTRACTS INCLUDED IN THE INDEX MAY ADVERSELY AFFECT THE VALUE OF THE NOTES — Futures exchanges require market participants to post collateral in order to open and to keep open positions in futures contracts. If an exchange increases the amount of collateral required to be posted to hold positions in VIX futures contracts underlying the Index, market participants who are unwilling or unable to post additional collateral may liquidate their positions, which may cause the price of the relevant VIX futures contracts to decline significantly. As a result, the level of the Index and the value of the notes may be adversely affected.
|
·
|
VIX FUTURES CONTRACTS HAVE LIMITED HISTORICAL INFORMATION — VIX futures contracts have traded freely only since March 26, 2004, and not all futures contracts of all relevant maturities have traded at all times since that date. Because the VIX futures contracts that underlie the Index are of recent origin and limited historical performance data exists with respect to them, your investment in the notes may involve a greater risk than investing in alternate securities linked to one or more financial measures with an established record of performance. The liquidity of trading in VIX futures contracts could decline in the future, which could affect adversely the value of the notes.
|
·
|
THE NOTES ARE NOT LINKED TO THE VIX INDEX AND THE VALUE OF THE NOTES MAY BE LESS THAN IT WOULD HAVE BEEN HAD THE NOTES BEEN LINKED TO THE VIX INDEX — The value of the notes will be linked to the value of the Index, and your ability to benefit from any rise or fall in the level of the VIX Index is limited. The Index is based upon holding a rolling synthetic long position and a contingent rolling synthetic short position in VIX futures contracts. The VIX futures contracts will not necessarily track the performance of the VIX Index or a long-short position in the VIX Index. The notes may not benefit from increases or decreases in the level of the VIX Index because such increases or decreases will not necessarily cause the price of the relevant VIX futures contracts to rise or fall. Accordingly, a hypothetical investment that was linked directly to the performance of the VIX Index (long or short) could generate a higher return than the notes.
|
·
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THE NOTES ARE NOT LINKED TO THE OPTIONS USED TO CALCULATE THE VIX INDEX, TO THE ACTUAL VOLATILITY OF THE S&P 500® INDEX OR TO THE EQUITY SECURITIES INCLUDED IN THE S&P 500® INDEX — The VIX Index measures the 30-day forward volatility of the S&P 500® Index as calculated based on the prices of certain put and call options on the S&P 500® Index. The actual volatility of the S&P 500® Index may differ, perhaps significantly, from the level predicted by the VIX Index or from the prices of the put and call options included in the calculation of the VIX Index. The value of the notes is based on the value of the relevant VIX futures contracts included in the Index. The notes are not linked to the realized or implied volatility over a specific period of time and will not reflect the return you would realize if you owned, or held a short position in, the equity securities underlying the S&P 500® Index or traded put and call options used to calculate the level of the VIX Index or other instruments intended to provide a return equal to that of the VIX Index.
|
·
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THE INDEX CLOSING LEVEL ON THE RELEVANT VALUATION DATE MAY BE LESS THAN THE INDEX CLOSING LEVEL ON THE MATURITY DATE, A REPURCHASE DATE OR AT OTHER TIMES DURING THE TERM OF THE NOTES — The Index closing level on the Maturity Date, a Repurchase Date or at other times during
|
JPMorgan Structured Investments —
|
|
Return Notes Linked to the J.P. Morgan Strategic Volatility Index
|
TS - 12
|
·
|
THE INDEX HAS A LIMITED OPERATING HISTORY — The Index was created on July 30, 2010, and therefore has limited historical performance. Past performance should not be considered indicative of future performance.
|
·
|
HYPOTHETICAL BACK-TESTED DATA RELATING TO THE INDEX DO NOT REPRESENT ACTUAL HISTORICAL DATA AND ARE SUBJECT TO INHERENT LIMITATIONS — The hypothetical back-tested performance of the Index set forth under “Hypothetical Back-tested Data and Historical Information” in this term sheet was calculated on materially the same basis as the performance of the Index is now calculated, but does not represent the actual historical performance of the Index and has not been verified by an independent third party. Alternative modeling techniques or assumptions may produce different hypothetical historical information that might prove to be more appropriate and that might differ significantly from the hypothetical historical information set forth under “Hypothetical Back-tested Data and Historical Information” in this term sheet. In addition, back-tested, hypothetical historical results have inherent limitations. These back-tested results are achieved by means of a retroactive application of a back-tested model designed with the benefit of hindsight. As with actual historical data, hypothetical back-tested data should not be taken as an indication of future performance.
|
·
|
NO INTEREST PAYMENTS — As a holder of the notes, you will not receive any interest payments.
|
·
|
THERE ARE RESTRICTIONS ON YOUR ABILITY TO REQUEST THAT WE REPURCHASE YOUR NOTES — If you elect to request that we repurchase your notes, your request is only valid if we receive your Repurchase Notice by no later than 4:00 p.m., New York City time, on the business day prior to the relevant Valuation Date and we (or our affiliates) acknowledge receipt of the Repurchase Notice that same day (which will evidence our acceptance of your repurchase request). If we do not receive such notice or we (or our affiliates) do not acknowledge receipt of such notice (which means we have declined to accept your repurchase request), your repurchase request will not be effective and we will not repurchase your notes on the corresponding Repurchase Date.
|
·
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YOU WILL NOT KNOW THE AMOUNT YOU WILL RECEIVE UPON EARLY REPURCHASE AT THE TIME YOU ELECT TO REQUEST THAT WE REPURCHASE YOUR NOTES — You will not know the amount you will receive upon early repurchase at the time you elect to request that we repurchase your notes. Your notice to us to repurchase your notes is irrevocable and must be received by us no later than 4:00 p.m., New York City time, on the business day prior to the relevant Valuation Date and we (or our affiliates) must acknowledge receipt of such notice, on the same day. As a result, you will be exposed to market risk in the event the market fluctuates after we accept your request that we repurchase your notes, and prior to the relevant Repurchase Date.
|
·
|
LACK OF LIQUIDITY — The notes will not be listed on any securities exchange. JPMS may act as a market maker for the notes, but is not required to do so. We may suspend or terminate market making at any time, at our own discretion and without notice to holders of the notes. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. You may request that we repurchase your notes on a daily basis in a minimum denomination equal to the Principal Amount, subject to our acceptance of your request and your compliance with the procedural requirements described above. While we intend to accept all requests for early repurchase of notes, we are not obligated to accept any repurchase request. We are not committed to purchasing any note at a particular time or price. 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 be no higher than the payment you could receive upon an early repurchase of your notes by us and could be substantially lower. If we do not accept your request to repurchase your notes, you may be unable to sell your notes prior to maturity. In addition, the number of notes outstanding or held by persons other than our affiliates could be reduced at any time due to early repurchases of the notes. Accordingly, the liquidity of the market for the notes outside of an early repurchase request could vary materially over the term of the notes.
|
·
|
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, JPMS’s estimated value will be provided in the pricing supplement and may be as low as the minimum for JPMS’s estimated value set forth on the cover of this term sheet. Accordingly, you should consider your potential investment in the notes based on the minimum for JPMS’s estimated value.
|
JPMorgan Structured Investments —
|
|
Return Notes Linked to the J.P. Morgan Strategic Volatility Index
|
TS - 13
|
Ending Index
Level or Index
closing level on
the relevant
Valuation Date,
as applicable
|
Index
Return*
|
At Maturity
|
Upon Early Repurchase
|
||
Payment
|
Total
Return
|
Payment
|
Total
Return
|
||
630.000
|
80.00%
|
$1,800.00
|
80.00%
|
$1,795.00
|
79.50%
|
595.000
|
70.00%
|
$1,700.00
|
70.00%
|
$1,695.00
|
69.50%
|
560.000
|
60.00%
|
$1,600.00
|
60.00%
|
$1,595.00
|
59.50%
|
525.000
|
50.00%
|
$1,500.00
|
50.00%
|
$1,495.00
|
49.50%
|
490.000
|
40.00%
|
$1,400.00
|
40.00%
|
$1,395.00
|
39.50%
|
455.000
|
30.00%
|
$1,300.00
|
30.00%
|
$1,295.00
|
29.50%
|
420.000
|
20.00%
|
$1,200.00
|
20.00%
|
$1,195.00
|
19.50%
|
385.000
|
10.00%
|
$1,100.00
|
10.00%
|
$1,095.00
|
9.50%
|
367.500
|
5.00%
|
$1,050.00
|
5.00%
|
$1,045.00
|
4.50%
|
351.750
|
0.50%
|
$1,005.00
|
0.50%
|
$1,000.00
|
0.00%
|
350.875
|
0.25%
|
$1,002.50
|
0.25%
|
$997.50
|
-0.25%
|
350.000
|
0.00%
|
$1,000.00
|
0.00%
|
$995.00
|
-0.50%
|
315.000
|
-10.00%
|
$900.00
|
-10.00%
|
$895.00
|
-10.50%
|
280.000
|
-20.00%
|
$800.00
|
-20.00%
|
$795.00
|
-20.50%
|
245.000
|
-30.00%
|
$700.00
|
-30.00%
|
$695.00
|
-30.50%
|
210.000
|
-40.00%
|
$600.00
|
-40.00%
|
$595.00
|
-40.50%
|
175.000
|
-50.00%
|
$500.00
|
-50.00%
|
$495.00
|
-50.50%
|
140.000
|
-60.00%
|
$400.00
|
-60.00%
|
$395.00
|
-60.50%
|
105.000
|
-70.00%
|
$300.00
|
-70.00%
|
$295.00
|
-70.50%
|
70.000
|
-80.00%
|
$200.00
|
-80.00%
|
$195.00
|
-80.50%
|
35.000
|
-90.00%
|
$100.00
|
-90.00%
|
$95.00
|
-90.50%
|
0.000
|
-100.00%
|
$0.00
|
-100.00%
|
$0.00
|
-100.00%
|
JPMorgan Structured Investments —
|
|
Return Notes Linked to the J.P. Morgan Strategic Volatility Index
|
TS - 14
|
JPMorgan Structured Investments —
|
|
Return Notes Linked to the J.P. Morgan Strategic Volatility Index
|
TS - 15
|
JPMorgan Structured Investments —
|
|
Return Notes Linked to the J.P. Morgan Strategic Volatility Index
|
TS - 16
|
JPMorgan Structured Investments —
|
|
Return Notes Linked to the J.P. Morgan Strategic Volatility Index
|
TS - 17
|
JPMorgan Structured Investments —
|
|
Return Notes Linked to the J.P. Morgan Strategic Volatility Index
|
A - 1
|