Term sheet
To prospectus dated November 7, 2014,
prospectus supplement dated November 7, 2014 and
product supplement no. 4a-I dated November 7, 2014
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Term Sheet to
Product Supplement No. 4a-I
Registration Statement No. 333-199966
Dated March 23, 2015; Rule 433
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Structured Investments
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$
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400 due July 7, 2016
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General
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·
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The notes are designed for investors who seek a return of either 2 or 3 times the appreciation of the closing level of the Index, up to the applicable Maximum Return on the notes, depending on whether the closing level of the Index has declined by 5% or more from the Initial Index Level during the approximately three-month Monitoring Period (i.e., a Knock-in Event has occurred):
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o
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if the Ending Index Level is greater than the Initial Index Level, and a Knock-In Event has not occurred, the Upside Leverage Factor will be 2 and the Maximum Return will be 15.40%; and
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o
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if the Ending Index Level is greater than the Initial Index Level, and a Knock-In Event has occurred, the Upside Leverage Factor will be 3 and the Maximum Return will be 23.10%.
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Investors will be fully exposed to any decline in the level of the Index over the term of the notes. Investors should be willing to forgo interest and dividend payments and, if the Ending Index Level is less than the Initial Index Level, be willing to lose some or all of their principal amount.
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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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Index:
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The JPX-Nikkei Index 400 (Bloomberg Ticker: JPNK400). For additional information about the Index, see the information set forth in Appendix A to this term sheet.
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Upside Leverage Factor:
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The upside leverage factor will equal:
· if a Knock-In Event has not occurred, 2; or
· if a Knock-In Event has occurred, 3.
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Payment at Maturity:
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If the Ending Index Level is greater than the Initial Index Level, at maturity you will receive a cash payment that provides you with a return per $1,000 principal amount note equal to the Index Return multiplied by the applicable Upside Leverage Factor, subject to the applicable Maximum Return. Accordingly, under these circumstances, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Index Return × Upside Leverage Factor), subject to the applicable Maximum Return
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If the Ending Index Level is equal to the Initial Index Level, you will receive the principal amount of your notes at maturity.
Your investment will be fully exposed to any decline in the level of the Index. You will not benefit from the occurrence of a Knock-In Event unless the Ending Index Level is greater than the Initial Index Level. If the Ending Index Level is less than the Initial Index Level, you will lose 1% of the principal amount of your notes for every 1% that the Ending Index Level is less than the Initial Index Level, and your payment at maturity per $1,000 principal amount note will be calculated as follows:
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$1,000 + ($1,000 × Index Return)
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You will lose some or all of your principal amount at maturity if the Ending Index Level is less than the Initial Index Level.
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Maximum Return
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The Maximum Return will equal:
· if a Knock-In Event has not occurred, 15.40%. For example, if the Index Return is equal to or greater than 7.70% and a Knock-In Event has not occurred, you will receive the Maximum Return of 15.40%, which entitles you to a maximum payment at maturity of $1,154.00 per $1,000 principal amount note; or
· if a Knock-In Event has occurred, 23.10%. For example, if the Index Return is equal to or greater than 7.70% and a Knock-In Event has occurred, you will receive the Maximum Return of 23.10%, which entitles you to a maximum payment at maturity of $1,231.00 per $1,000 principal amount note.
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Knock-In Event:
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A Knock-In Event occurs if the closing level of the Index is equal to or less than 95% of the Initial Index Level on any day during the Monitoring Period.
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Monitoring Period:
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The period from but excluding the Pricing Date to and including June 29, 2015
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Pricing Date:
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On or about March 27, 2015
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Original Issue Date (Settlement Date):
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On or about April 1, 2015
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Ending Averaging Dates†:
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June 27, 2016, June 28, 2016, June 29, 2016, June 30, 2016 and July 1, 2016
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Maturity Date†:
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July 7, 2016
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CUSIP:
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48125UKX9
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Other Key Terms:
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See “Additional Key Terms” in 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 “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. In no event will these selling commissions exceed $11.60 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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Additional Terms Specific to the Notes
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Product supplement no. 4a-I dated November 7, 2014:
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Prospectus supplement and prospectus, each dated November 7, 2014:
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Additional Key Terms
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Index Return:
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(Ending Index Level – Initial Index Level)
Initial Index Level
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Initial Index Level:
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The closing level of the Index on the Pricing Date
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Ending Index Level:
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The arithmetic average of the closing levels of the Index on the Ending Averaging Dates
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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TS-1
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Ending Index Level
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Index Return
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Total Return
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Knock-In Event Has Not Occurred (1)
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Knock-In Event Has Occurred (1)
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||
25,740.00
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80.00%
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15.40%
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23.10%
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23,595.00
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65.00%
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15.40%
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23.10%
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21,450.00
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50.00%
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15.40%
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23.10%
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20,020.00
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40.00%
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15.40%
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23.10%
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18,590.00
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30.00%
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15.40%
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23.10%
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17,160.00
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20.00%
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15.40%
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23.10%
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15,730.00
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10.00%
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15.40%
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23.10%
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15,401.10
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7.70%
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15.40%
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23.10%
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15,015.00
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5.00%
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10.00%
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15.00%
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14,657.50
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2.50%
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5.00%
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7.50%
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14,443.00
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1.00%
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2.00%
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3.00%
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14,300.00
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0.00%
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0.00%
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0.00%
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13,585.00
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-5.00%
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-5.00%
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-5.00%
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12,870.00
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-10.00%
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-10.00%
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-10.00%
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11,440.00
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-20.00%
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-20.00%
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-20.00%
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10,010.00
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-30.00%
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-30.00%
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-30.00%
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8,580.00
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-40.00%
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-40.00%
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-40.00%
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7,150.00
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-50.00%
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-50.00%
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-50.00%
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5,720.00
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-60.00%
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-60.00%
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-60.00%
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4,290.00
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-70.00%
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-70.00%
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-70.00%
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2,860.00
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-80.00%
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-80.00%
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-80.00%
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1,430.00
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-90.00%
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-90.00%
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-90.00%
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0.00
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-100.00%
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-100.00%
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-100.00%
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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TS-2
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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TS-3
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Selected Purchase Considerations
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CAPPED APPRECIATION POTENTIAL BASED ON WHETHER A KNOCK-IN EVENT HAS OCCURRED — The notes provide the opportunity to enhance equity returns by multiplying a positive Index Return by either 2 or 3, up to the applicable Maximum Return. If the Ending Index Level is greater than the Initial Index Level and a Knock-In Event has not occurred, the Upside Leverage Factor will be 2 and the Maximum Return will be 15.40%. Accordingly, under these circumstances, the maximum payment at maturity will be $1,154.00 per $1,000 principal amount note. If the Ending Index Level is greater than the Initial Index Level and a Knock-In Event has occurred, the Upside Leverage Factor will be 3 and the Maximum Return will be 23.10%. Accordingly, under these circumstances, the maximum payment at maturity will be $1,231.00 per $1,000 principal amount note. Because the notes are our unsecured and unsubordinated obligations, payment of any amount on the notes is subject to our ability to pay our obligations as they become due.
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RETURN LINKED TO THE JPX-NIKKEI INDEX 400 — The return on the notes is linked to the performance of the JPX-Nikkei Index 400. The JPX-Nikkei Index 400 is an index composed of 400 Japanese common stocks listed on the Tokyo Stock Exchange’s First Section, Second Section, Mothers (Market Of The High-growth and EmeRging Stocks) or JASDAQ market. Constituents are selected based on market capitalization, trading value, return on equity and other factors. For additional information about the Index, see the information set forth in Appendix A of this term sheet.
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CAPITAL GAINS TAX TREATMENT — You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 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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Based on current market conditions, in the opinion of our special tax counsel it is reasonable to treat the notes as “open transactions” that are not debt instruments for U.S. federal income tax purposes, as more fully described in “Material U.S. Federal Income Tax Consequences — Tax Consequences to U.S. Holders — Notes Treated as Open Transactions That Are Not Debt Instruments” in the accompanying product supplement no. 4a-I. Assuming this treatment is respected, the gain or loss on your notes should be treated as long-term capital gain or loss if you hold your notes for more than a year, whether or not you are an initial purchaser of notes at the issue price. However, the IRS or a court may not respect this treatment, in which case the timing and character of any income or loss on the notes could be materially and adversely affected. In addition, in 2007 Treasury and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require investors in these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; the relevance of factors such as the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose a notional interest charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the notes, possibly with retroactive effect. You should consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the notes, including possible alternative treatments and the issues presented by this notice.
Withholding under legislation commonly referred to as “FATCA” may apply to amounts treated as interest paid with respect to the notes, if they are recharacterized as debt instruments. You should consult your tax adviser regarding the potential application of FATCA to the notes.
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal. The return on the notes at maturity is linked to the performance of the Index and will depend on whether, and the extent to which, the Index Return is positive or negative. Your investment will be exposed to a loss if the Ending Index Level is less than the Initial Index Level. For every 1% that the Ending Index Level is less than the Initial Index Level, you will lose an amount equal to 1% of the principal amount of your notes. Accordingly, you may lose some or all of your principal amount at maturity.
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YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE APPLICABLE MAXIMUM RETURN — If the Ending Index Level is greater than the Initial Index Level, for each $1,000 principal amount note, you will receive at maturity $1,000 plus an additional return that will not exceed the Maximum Return, which will be 15.40% (if a Knock-In Event has not occurred and therefore the Upside Leverage Factor is 2) or
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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TS-4
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23.10% (if a Knock-In Event has occurred and therefore the Upside Leverage Factor is 3), regardless of the appreciation in the level of the Index, which may be significant. Therefore, any increase in the Ending Index Level over the Initial Index Level by more than 7.70% will not increase the return on the notes, regardless of whether a Knock-In Event has occurred. We cannot predict whether a Knock-In Event will occur and therefore whether the higher Upside Leverage Factor and the higher Maximum Return will apply at maturity.
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THE UPSIDE LEVERAGE FACTOR AND THE MAXIMUM RETURN WILL NOT BE DETERMINED UNTIL THE END OF THE APPROXIMATELY THREE-MONTH MONITORING PERIOD — Because the Upside Leverage Factor and the Maximum Return will be determined based on whether the closing level of the Index has declined by 5% or more from the Initial Index Level during the Monitoring Period, the Upside Leverage Factor and the Maximum Return will not be determined until the end of the Monitoring Period. Accordingly, you will not know the Upside Leverage Factor and the Maximum Return for a significant period of time after the Pricing Date.
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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 WILL NOT BENEFIT FROM THE OCCURRENCE OF A KNOCK-IN EVENT UNLESS THE ENDING INDEX LEVEL IS GREATER THAN THE INITIAL INDEX LEVEL — A Knock-In Event occurs, and the higher Upside Leverage Factor and Maximum Return are activated, only if the closing level of the Index is equal to or less than 95% of the Initial Index Level on any day during the Monitoring Period. However, the higher Upside Leverage Factor and Maximum Return will increase your payment at maturity only if the Ending Index Level is greater than the Initial Index Level. Accordingly, you will benefit from a Knock-In Event only if the closing level of the Index falls from the Initial Index Level by 5% or more during the Monitoring Period and then the closing level increases sufficiently for the Ending Index Level (which is the arithmetic average of the closing levels of the Index on the Ending Averaging Dates) to be greater than the Initial Index Level. Even if a Knock-In Event has occurred, if the closing level of the Index fails to recover sufficiently to lift the Ending Index Level above the Initial Index Level, you will lose some or all of your principal amount at maturity.
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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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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
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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TS-5
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issuance, operational and ongoing liability management costs of the notes in comparison to those costs for our conventional fixed-rate debt. If JPMS were to use the interest rate implied by our conventional fixed-rate credit spreads, we would expect the economic terms of the notes to be more favorable to you. Consequently, our use of an internal funding rate would have an adverse effect on the terms of the notes and any secondary market prices of the notes. See “JPMS’s Estimated Value of the Notes” in this term sheet.
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THE VALUE OF THE NOTES AS PUBLISHED BY JPMS (AND WHICH MAY BE REFLECTED ON CUSTOMER ACCOUNT STATEMENTS) MAY BE HIGHER THAN JPMS’S THEN-CURRENT ESTIMATED VALUE OF THE NOTES FOR A LIMITED TIME PERIOD — We generally expect that some of the costs included in the original issue price of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined period. These costs can include projected hedging profits, if any, and, in some circumstances, estimated hedging costs and our secondary market credit spreads for structured debt issuances. See “Secondary Market Prices of the Notes” in this term sheet for additional information relating to this initial period. Accordingly, the estimated value of your notes during this initial period may be lower than the value of the notes as published by JPMS (and which may be shown on your customer account statements).
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SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE ORIGINAL ISSUE PRICE OF THE NOTES — Any secondary market prices of the notes will likely be lower than the original issue price of the notes because, among other things, secondary market prices take into account our secondary market credit spreads for structured debt issuances and, also, because secondary market prices (a) exclude selling commissions and (b) may exclude projected hedging profits, if any, and estimated hedging costs that are included in the original issue price of the notes. As a result, the price, if any, at which JPMS will be willing to buy notes from you in secondary market transactions, if at all, is likely to be lower than the original issue price. Any sale by you prior to the Maturity Date could result in a substantial loss to you. See the immediately following risk consideration for information about additional factors that will impact any secondary market prices of the notes.
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The notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your notes to maturity. See “— Lack of Liquidity” below.
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SECONDARY MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS — The secondary market price of the notes during their term will be impacted by a number of economic and market factors, which may either offset or magnify each other, aside from the selling commissions, projected hedging profits, if any, estimated hedging costs and the level of the Index, including:
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any actual or potential change in our creditworthiness or credit spreads;
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customary bid-ask spreads for similarly sized trades;
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secondary market credit spreads for structured debt issuances;
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the actual and expected volatility of the Index;
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the time to maturity of the notes;
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whether a Knock-In Event has occurred or is expected to occur;
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the dividend rates on the equity securities included in the Index;
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interest and yield rates in the market generally;
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the exchange rates and the volatility of the exchange rates between the U.S. dollar and each of the currencies in which the equity securities included in the Index trade and the correlation among those rates and the levels of the Index; and
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a variety of other economic, financial, political, regulatory and judicial events.
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Additionally, independent pricing vendors and/or third party broker-dealers may publish a price for the notes, which may also be reflected on customer account statements. This price may be different (higher or lower) than the price of the notes, if any, at which JPMS may be willing to purchase your notes in the secondary market.
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NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive interest payments, and you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities composing the Index would have.
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THE INDEX HAS A LIMITED OPERATING HISTORY — The Index was created on January 6, 2014 and therefore has limited historical performance. Past performance should not be considered indicative of future performance. Because the Index’s past historical performance is limited, your investment in the notes may involve a greater risk than investing in securities linked to one or more indices with an established record of performance. A longer history of actual performance may be helpful in providing more reliable information on which to assess the validity of the methodology that the Index uses to select its components, as described in Appendix A.
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NON-U.S. SECURITIES RISK — The equity securities included in the Index have been issued by non-U.S. companies. Investments in securities linked to the value of such non-U.S. equity securities involve risks associated with the securities markets in the home countries of the issuers of these non-U.S. equity securities, including risks of volatility in those markets, governmental intervention in those markets and cross shareholdings in companies in certain countries. Also, there is generally less publicly available information about companies in some of these jurisdictions than there is about U.S. companies that are subject to the reporting requirements of the SEC.
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NO DIRECT EXPOSURE TO FLUCTUATIONS IN FOREIGN EXCHANGE RATES — The value of your notes will not be adjusted for exchange rate fluctuations between the U.S. dollar and the currencies upon which the equity securities included in the Index are based, although any currency fluctuations could affect the performance of the Index. Therefore, if the applicable currencies
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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TS-6
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appreciate or depreciate relative to the U.S. dollar over the term of the notes, you will not receive any additional payment or incur any reduction in any payment on the notes.
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LACK OF LIQUIDITY — The notes will not be listed on any securities exchange. JPMS intends to offer to purchase the notes in the secondary market but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Because other dealers are not likely to make a secondary market for the notes, the price at which you may be able to trade your notes is likely to depend on the price, if any, at which JPMS is willing to buy the notes.
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THE FINAL TERMS AND VALUATION OF THE NOTES WILL BE PROVIDED IN THE PRICING SUPPLEMENT — The final terms of the notes will be based on relevant market conditions when the terms of the notes are set and will be provided in the pricing supplement. In particular, 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.
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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TS-7
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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TS-8
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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TS-9
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listed for less than three years;
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the company’s liabilities are in excess of its assets during any of the past three fiscal years;
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the company has an operating loss in each of the past three fiscal years;
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the company has a net loss in each of the past three fiscal years;
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the company’s financials have disclosed doubt regarding its ability to continue as a going concern;
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disclosure of insufficient financials controls;
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the stock has been designated as a security to be delisted or security on alert; or
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certain listing violations have occurred over the past year.
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Index
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=
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Current Market Value
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x
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Base Point
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Base Market Value
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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A-1
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New Base Market Value
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=
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Old Base Market Value ×
(Previous Business Day Market Value ± Adjustment Amount)
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Previous Business Day Market Value
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
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A-2
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JPMorgan Structured Investments —
Capped Knock-In Return Enhanced Notes Linked to the JPX-Nikkei Index 400
|
A-3
|