Term sheet
To prospectus dated November 7, 2014,
prospectus supplement dated November 7, 2014,
product supplement no. 4a-I dated November 7, 2014 and
underlying supplement no. 1a-I dated November 7, 2014
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Term sheet to
Product Supplement No. 4a-I
Registration Statement No. 333-199966
Dated January 28, 2015; Rule 433
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Structured Investments
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$
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF due August 23, 2018
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General
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·
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The notes are designed for investors who seek a return of 1.15 times the appreciation of the SPDR® S&P® Oil & Gas Exploration & Production ETF, up to a maximum return of between 95.00% and 115.00% at maturity. Investors should be willing to forgo interest and dividend payments and, if the Final Share Price is less than the Initial Share Price by more than 35%, be willing to lose some or all of their principal amount at maturity.
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The notes are unsecured and unsubordinated obligations of JPMorgan Chase & Co. Any payment on the notes is subject to the credit risk of JPMorgan Chase & Co.
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Minimum denominations of $10,000 and integral multiples of $1,000 in excess thereof
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Key Terms
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Fund:
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The SPDR® S&P® Oil & Gas Exploration & Production ETF (Bloomberg ticker: XOP)
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Upside Leverage Factor:
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1.15
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Payment at Maturity:
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If the Final Share Price is greater than the Initial Share Price, at maturity you will receive a cash payment that provides you with a return per $1,000 principal amount note equal to the Fund Return multiplied by the Upside Leverage Factor, subject to the Maximum Return. Accordingly, if the Final Share Price is greater than the Initial Share Price, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Fund Return × Upside Leverage Factor), subject to the Maximum Return
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If the Final Share Price is equal to or less than the Initial Share Price by up to the Contingent Buffer Amount, you will receive the principal amount of your notes at maturity.
If the Final Share Price is less than the Initial Share Price by more than the Contingent Buffer Amount, you will lose 1% of the principal amount of your notes for every 1% that the Final Share Price is less than the Initial Share Price, and your payment at maturity per $1,000 principal amount note will be calculated as follows:
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$1,000 + ($1,000 × Fund Return)
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If the Final Share Price is less than the Initial Share Price by more than the Contingent Buffer Amount of 35%, you will lose more than 35% of your principal amount at maturity and could lose up to the entire principal amount of your notes at maturity.
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Maximum Return:
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Between 95.00% and 115.00%. For example, assuming the Maximum Return is 95.00%, if the Fund Return is equal to or greater than 82.60870%, you will receive the Maximum Return of 95.00%, which entitles you to a maximum payment at maturity of $1,950.00 per $1,000 principal amount note that you hold. The actual Maximum Return will be provided in the pricing supplement and will not be less than 95.00% or greater than 115.00%. Assuming a Maximum Return of 95.00%, the maximum payment at maturity per $1,000 principal amount note will be $1,950.00.
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Contingent Buffer Amount:
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35.00%
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Fund Return:
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(Final Share Price – Initial Share Price)
Initial Share Price
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Initial Share Price:
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The closing price of one share of the Fund on the Pricing Date
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Final Share Price:
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The closing price of one share of the Fund on the Observation Date
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Share Adjustment Factor:
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The Share Adjustment Factor is referenced in determining the closing price of one share of the Fund, and is set initially at 1.0 on the Pricing Date. The Share Adjustment Factor is subject to adjustment upon the occurrence of certain events affecting the Fund. See “The Underlyings — Funds — Anti-Dilution Adjustments” in the accompanying product supplement no. 4a-I for further information about these adjustments.
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Pricing Date:
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On or about February 20, 2015
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Original Issue Date
(Settlement Date):
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On or about February 27, 2015
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Observation Date*:
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August 20, 2018
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Maturity Date*:
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August 23, 2018
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CUSIP:
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48127D7M4
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*
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Subject to postponement in the event of certain market disruption events and as described under “General Terms of Notes —Postponement of a Determination Date — Notes Linked to a Single Underlying — Notes Linked to a Single Underlying (Other Than a Commodity Index)” and “General Terms of Notes — Postponement of a Payment Date” in the accompanying product supplement no. 4a-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 $23.50 per $1,0000 principal amount note and in no event will these selling commissions exceed $28.50 per $1,000 principal amount note. See “Plan of Distribution (Conflicts of Interest)” beginning on page PS-87 of the accompanying product supplement no. 4a-I.
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Product supplement no. 4a-I dated November 7, 2014:
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Underlying supplement no. 1a-I dated November 7, 2014:
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Prospectus supplement and prospectus, each dated November 7, 2014:
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JPMorgan Structured Investments —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
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TS-1
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·
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CAPPED APPRECIATION POTENTIAL — The notes provide the opportunity to enhance equity returns by multiplying a positive Fund Return by the Upside Leverage Factor, up to the Maximum Return. The Maximum Return will be provided in the pricing supplement and will not be less than 95.00% or greater than 115.00%. Assuming a Maximum Return of 95.00%, the maximum payment at maturity per $1,000 principal amount note will be $1,950.00. 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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·
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LIMITED PROTECTION AGAINST LOSS — We will pay you your principal back at maturity if the Final Share Price is not less than the Initial Share Price by more than the Contingent Buffer Amount of 35%. If the Final Share Price is less than the Initial Share Price by more than the Contingent Buffer Amount, for every 1% that the Final Share Price is less than the Initial Share Price, you will lose an amount equal to 1% of the principal amount of your notes. Under these circumstances, you will lose more than 35% of your principal amount at maturity and could lose up to the entire principal amount of your notes at maturity.
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·
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RETURN LINKED TO THE SPDR® S&P® OIL & GAS EXPLORATION & PRODUCTION ETF — The return on the notes is linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF. The SPDR® S&P® Oil & Gas Exploration & Production ETF is an exchange-traded fund of the SPDR® Series Trust, a registered investment company that consists of numerous separate investment portfolios, and is managed by SSgA Funds Management, Inc., the investment adviser to the SPDR® S&P® Oil & Gas Exploration & Production ETF. The SPDR® S&P® Oil & Gas Exploration & Production ETF trades on NYSE Arca, Inc., which we refer to as NYSE Arca, under the ticker symbol “XOP.”
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TAX TREATMENT — You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4a-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 —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
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TS-2
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·
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal. The return on the notes at maturity is linked to the performance of the Fund and will depend on whether, and the extent to which, the Fund Return is positive or negative. If the Final Share Price is less than the Initial Share Price by more than the Contingent Buffer Amount of 35%, the benefit provided by the Contingent Buffer Amount will terminate and you will be exposed to a loss. In this case, for every 1% that the Final Share Price is less than the Initial Share Price, you will lose an amount equal to 1% of the principal amount of your notes. Under these circumstances, you will lose more than 35% of your principal amount at maturity and could lose up to the entire principal amount of your notes at maturity.
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YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM RETURN — If the Final Share Price is greater than the Initial Share Price, for each $1,000 principal amount note, you will receive at maturity $1,000 plus an additional amount that will not exceed a predetermined percentage of the principal amount, regardless of the appreciation in the Fund, which may be significant. We refer to this predetermined percentage as the Maximum Return, which will be provided in the pricing supplement and will not be less than 95.00% or greater than 115.00%.
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CREDIT RISK OF JPMORGAN CHASE & CO. — The notes are subject to the credit risk of JPMorgan Chase & Co., and our credit ratings and credit spreads may adversely affect the market value of the notes. Investors are dependent on JPMorgan Chase & Co.’s ability to pay all amounts due on the notes. Any actual or potential change in our creditworthiness or credit spreads, as determined by the market for taking our credit risk, is likely to adversely affect the value of the notes. If we were to default on our payment obligations, you may not receive any amounts owed to you under the notes and you could lose your entire investment.
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POTENTIAL CONFLICTS — We and our affiliates play a variety of roles in connection with the issuance of the notes, including acting as calculation agent and as an agent of the offering of the notes, hedging our obligations under the notes and making the assumptions used to determine the pricing of the notes and the estimated value of the notes when the terms of the notes are set, which we refer to as JPMS’s estimated value. In performing these duties, our economic interests and the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the notes. In addition, our business activities, including hedging and trading activities, could cause our economic interests to be adverse to yours and could adversely affect any payment on the notes and the value of the notes. It is possible that hedging or trading activities of ours or our affiliates in connection with the notes could result in substantial returns for us or our affiliates while the value of the notes declines. Please refer to “Risk Factors — Risks Relating to Conflicts of Interest” in the accompanying product supplement no. 4a-I for additional information about these risks.
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THE BENEFIT PROVIDED BY THE CONTINGENT BUFFER AMOUNT MAY TERMINATE ON THE OBSERVATION DATE— If the Final Share Price is less than the Initial Share Price by more than the Contingent Buffer Amount, the benefit provided by the Contingent Buffer Amount will terminate and you will be fully exposed to any depreciation of 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, 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
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JPMorgan Structured Investments —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
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TS-3
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·
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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.
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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 price of one share of the Fund, 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 Fund;
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the time to maturity of the notes;
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the dividend rates on the Fund and the equity securities held by the Fund;
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interest and yield rates in the market generally;
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the occurrence of certain events to the Fund that may or may not require an adjustment to the Share Adjustment Factor; and
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a variety of other economic, financial, political, regulatory and judicial events.
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NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive interest payments, and you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of shares of the Fund or securities held by the Fund or included in the Underlying Index would have.
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VOLATILITY RISK — Greater expected volatility with respect to the Fund indicates a greater likelihood as of the Pricing Date that the Final Share Price could be less than the Initial Share Price by more than the Contingent Buffer Amount. The Fund’s volatility, however, can change significantly over the term of the notes. The closing price of one share of the Fund could fall sharply on the Observation Date, which could result in a significant loss of principal.
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THERE ARE RISKS ASSOCIATED WITH THE FUND — Although the shares of the Fund are listed for trading on NYSE Arca and a number of similar products have been traded on NYSE Arca and other securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for the shares of the Fund or that there will be liquidity in the trading market. The Fund is subject to management risk, which is the risk that the investment strategies of the Fund’s investment adviser, the implementation of which is subject to a number of constraints, may not produce the intended results. These constraints could adversely affect the market price of the shares of the Fund and, consequently, the value of the notes.
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DIFFERENCES BETWEEN THE FUND AND THE UNDERLYING INDEX — The Fund does not fully replicate the Underlying Index and may hold securities not included in the Underlying Index. In addition, the performance of the Fund will reflect additional transaction costs and fees that are not included in the calculation of the Underlying Index. All of these factors may lead to a lack of correlation between the Fund and the Underlying Index. In addition, corporate actions with respect to the equity securities held by the Fund (such as mergers and spin-offs) may impact the variance between the Fund and the Underlying Index. Finally, because the shares of the Fund are traded on NYSE Arca and are subject to market supply and investor demand, the market value of one share of the Fund may differ from the net asset value per share of the Fund. For all of the foregoing reasons, the performance of the Fund may not correlate with the performance of the Underlying Index.
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JPMorgan Structured Investments —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
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TS-4
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RISKS ASSOCIATED WITH THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY — The stocks included in the Underlying Index and that are generally tracked by the Fund are stocks of companies whose primary business is associated with the exploration and production of oil and gas. As a result, the value of the securities may be subject to greater volatility and may be more adversely affected by a single economic, political or regulatory occurrence affecting this industry than a different investment linked to securities of a more broadly diversified group of issuers or issuers in a less volatile industry. The oil and gas industry is significantly affected by a number of factors that influence worldwide economic conditions and oil and gas prices, such as natural disasters, supply disruptions, geopolitical events and other factors that may offset or magnify each other, including:
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worldwide and domestic supplies of, and demand for, crude oil and natural gas;
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the cost of exploring for, developing, producing, refining and marketing crude oil and natural gas;
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consumer confidence;
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changes in weather patterns and climatic changes;
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the ability of the members of Organization of Petroleum Exporting Countries (OPEC) and other producing nations to agree to and maintain production levels;
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the worldwide military and political environment, uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or further acts of terrorism in the United States, or elsewhere;
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the price and availability of alternative and competing fuels;
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domestic and foreign governmental regulations and taxes;
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employment levels and job growth; and
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general economic conditions worldwide.
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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 ANTI-DILUTION PROTECTION FOR THE FUND IS LIMITED — The calculation agent will make adjustments to the Share Adjustment Factor for certain events affecting the shares of the Fund. However, the calculation agent will not make an adjustment in response to all events that could affect the shares of the Fund. If an event occurs that does not require the calculation agent to make an adjustment, the value of the notes may be materially and adversely affected.
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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 Maximum Return 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 Maximum Return.
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JPMorgan Structured Investments —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
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TS-5
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Final Share Price
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Fund Return
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Total Return
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Payment at Maturity
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$86.00000
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100.00000%
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95.00%
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$1,950.00
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$83.85000
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95.00000%
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95.00%
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$1,950.00
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$81.70000
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90.00000%
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95.00%
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$1,950.00
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$78.52174
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82.60870%
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95.00%
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$1,950.00
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$77.40000
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80.00000%
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92.00%
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$1,920.00
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$68.80000
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60.00000%
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69.00%
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$1,690.00
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$60.20000
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40.00000%
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46.00%
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$1,460.00
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$51.60000
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20.00000%
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23.00%
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$1,230.00
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$47.30000
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10.00000%
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11.50%
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$1,115.00
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$45.15000
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5.00000%
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5.75%
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$1,057.50
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$43.00000
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0.00000%
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0.00%
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$1,000.00
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$40.85000
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-5.00000%
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0.00%
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$1,000.00
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$38.70000
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-10.00000%
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0.00%
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$1,000.00
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$34.40000
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-20.00000%
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0.00%
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$1,000.00
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$30.10000
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-30.00000%
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0.00%
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$1,000.00
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$27.95000
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-35.00000%
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0.00%
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$1,000.00
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$27.94570
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-35.01000%
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-35.01%
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$649.90
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$25.80000
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-40.00000%
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-40.00%
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$600.00
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$21.50000
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-50.00000%
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-50.00%
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$500.00
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$17.20000
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-60.00000%
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-60.00%
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$400.00
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$12.90000
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-70.00000%
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-70.00%
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$300.00
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$8.60000
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-80.00000%
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-80.00%
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$200.00
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$4.30000
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-90.00000%
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-90.00%
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$100.00
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$0.00000
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-100.00000%
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-100.00%
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$0.00
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JPMorgan Structured Investments —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
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TS-6
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JPMorgan Structured Investments —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
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TS-7
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JPMorgan Structured Investments —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
|
TS-8
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JPMorgan Structured Investments —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
|
TS-9
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JPMorgan Structured Investments —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
|
A-1
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Security
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Percentage of Total Holdings
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Matador Resources Company
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1.55%
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Bonanza Creek Energy Inc.
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1.51%
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Sanchez Energy Corporation
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1.51%
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Penn Virginia Corporation
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1.51%
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Carrizo Oil & Gas Inc.
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1.50%
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Synergy Resources Corporation
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1.48%
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Oasis Petroleum Inc.
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1.47%
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Parsley Energy Inc. Class A
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1.47%
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EP Energy Corp. Class A
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1.45%
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PDC Energy Inc
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1.45%
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Sub-industry
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Percentage of Total Holdings
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Oil and Gas Exploration and Production
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78.37%
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Oil and Gas Refining and Marketing
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16.60%
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Integrated Oil and Gas
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5.01%
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JPMorgan Structured Investments —
Capped Contingent Buffered Return Enhanced Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF
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A-2
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