Term Sheet
To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011,
product supplement no. 38-I dated January 31, 2014 and
underlying supplement no. 1-I dated November 14, 2011
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Term Sheet to
Product Supplement No. 38-I
Registration Statement No. 333-177923
Dated September 29, 2014; Rule 433
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Structured Investments
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$
Capped Dual Directional Knock-Out Buffered Equity Notes Linked to the Lesser Performing of the S&P 500® Index and the Russell 2000® Index due April 6, 2017
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The notes are designed for investors who seek a capped, unleveraged return equal to any appreciation (with a Maximum Upside Return of at least 20.00%), or a capped, unleveraged return equal to the absolute value of any depreciation (up to the Knock-Out Buffer Amount of 35.00%), of the lesser performing of the S&P 500® Index and the Russell 2000® Index at maturity, and who anticipate that the Ending Index Level of each of the Indices will not be less than the Initial Index Level by more than the Knock-Out Buffer Amount.
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Investors should be willing to forgo interest and dividend payments, and, if the Ending Index Level of either Index is less than the Initial Index Level by more than the Knock-Out Buffer Amount, be willing to lose some or all of their principal at maturity. Any payment on the notes is subject to the credit risk of JPMorgan Chase & Co.
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Unsecured and unsubordinated obligations of JPMorgan Chase & Co. maturing April 6, 2017†
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The payment at maturity is not linked to a basket composed of the Indices. The payment at maturity is linked to the performance of each of the Indices individually, as described below.
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Minimum denominations of $1,000 and integral multiples thereof
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The notes are expected to price on or about October 1, 2014 and are expected to settle on or about October 6, 2014.
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Indices:
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The S&P 500® Index (Bloomberg ticker: SPX) and the Russell 2000® Index (Bloomberg ticker symbol “RTY”) (each, an “Index” and collectively, the “Indices”)
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Knock-Out Event:
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A Knock-Out Event occurs if the Ending Index Level of either Index is less than its Initial Index Level by more than the Knock-Out Buffer Amount.
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Knock-Out Buffer Amount:
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35.00%
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Payment at Maturity:
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If the Ending Index Level of each Index is greater than or equal to its Initial Index Level, you will receive at maturity a cash payment that provides you with a return per $1,000 principal amount note equal to the Lesser Performing Index Return, subject to the Maximum Upside Return. Accordingly, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Lesser Performing Index Return), subject to the Maximum Upside Return
If the Ending Index Level of either Index is less than its Initial Index Level but a Knock-Out Event has not occurred, you will receive at maturity a cash payment that provides you with a return per $1,000 principal amount note equal to the Absolute Index Return of the Lesser Performing Index, and your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Absolute Index Return of the Lesser Performing Index)
Because a Knock-Out Event will occur if the Ending Index Level of either Index is less than its Initial Index Level by more than the Knock-Out Buffer Amount of 35.00%, the Knock-Out Buffer Amount is effectively a cap on your return at maturity if the Lesser Performing Index Return is negative, and your maximum payment at maturity under these circumstances, which we refer to as the maximum downside payment, is $1,350.00 per $1,000 principal amount note.
If a Knock-Out Event has occurred, you will lose 1% of the principal amount of your notes for every 1% that the Ending Index Level of the Lesser Performing Index is less than its Initial Index Level. Under these circumstances, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Lesser Performing Index Return)
If the Ending Index Level of either Index is less than the Initial Index Level and a Knock-Out Event has occurred, you will lose more than 35% of your principal amount and could lose up to the entire principal amount of your notes at maturity.
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Maximum Upside Return:
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At least 20.00%. For example, assuming the Maximum Upside Return is 20.00%, if the Lesser Performing Underlying Return is equal to or greater than 20.00%, you will receive the Maximum Upside Return of 20.00%, which entitles you to a maximum upside payment at maturity of $1,200.00 per $1,000 principal amount note. The actual Maximum Upside Return and the actual maximum upside payment at maturity will be provided in the pricing supplement and will not be less than 20.00% and $1,200.00, respectively. Accordingly, the actual maximum upside payment at maturity per $1,000 principal amount note will not be less than $1,200.00.
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Index Return
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With respect to each Index:
(Ending Index Level – Initial Index Level)
Initial Index Level
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Initial Index Level:
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With respect to each Index, the Index closing level of that Index on the pricing date
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Ending Index Level:
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With respect to each Index, the Index closing level of that Index on the Observation Date
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Original Issue Date (Settlement Date):
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On or about October 6, 2014
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Observation Date† :
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April 3, 2017
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Maturity Date†:
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April 6, 2017
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CUSIP:
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48127DG93
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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 a market disruption event 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. 38-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 $2.50 per $1,000 principal amount note. See “Plan of Distribution (Conflicts of Interest)” beginning on page PS-65 of the accompanying product supplement no. 38-I.
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Product supplement no. 38-I dated January 31, 2014:
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Underlying supplement no. 1-I dated November 14, 2011:
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Prospectus supplement dated November 14, 2011:
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Prospectus dated November 14, 2011:
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Absolute Index Return:
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With respect to each Index, the absolute value of its Index Return. For example, if the Index Return of an Index is -5%, its Absolute Index Return will equal 5%.
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Lesser Performing Index:
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The Index with the Lesser Performing Index Return
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Lesser Performing Index Return:
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The lower of the Index Returns of the Indices
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JPMorgan Structured Investments —
Capped Dual Directional Knock-Out Buffered Equity Notes Linked to the Lesser Performing of the S&P 500® Index and the Russell 2000® Index
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TS-1
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CAPPED, UNLEVERAGED APPRECIATION POTENTIAL IF THE LESSER PERFORMING INDEX RETURN IS POSITIVE — The notes provide the opportunity to earn an unleveraged return equal to any appreciation in the Lesser Performing Index, up to the Maximum Upside Return of at least 20.00%††, and accordingly, the maximum payment at maturity if the Lesser Performing Index Return is positive is $1,200.00 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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POTENTIAL FOR A RETURN OF UP TO 35.00% ON THE NOTES EVEN IF THE LESSER PERFORMING INDEX RETURN IS NEGATIVE — If the Ending Index Level of either Index is less than its Initial Index Level but a Knock-Out Event has not occurred, you will earn a positive, unleveraged return on the notes equal to the Absolute Index Return of the Lesser Performing Index. Because the Absolute Index Return of the Lesser Performing Index is based on the absolute value of the change from its Initial Index Level to its Ending Index Level, under these circumstances, you will earn a positive return on the notes even if the Ending Index Level of the Lesser Performing Index is less than its Initial Index Level. For example, if the Lesser Performing Index Return is -5%, the Absolute Index Return of the Lesser Performing Index will equal 5%. Because a Knock-Out Event will occur if the Ending Index Level of either Index is less than its Initial Index Level by more than the Knock-Out Buffer Amount of 35.00%, your maximum downside payment is $1,350.00 per $1,000 principal amount note.
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EXPOSURE TO EACH OF THE INDICES — The return on the notes is linked to the Lesser Performing Index, which will be either the S&P 500® Index or the Russell 2000® Index.
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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. 38-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 Dual Directional Knock-Out Buffered Equity Notes Linked to the Lesser Performing of the S&P 500® Index and the Russell 2000® Index
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TS-2
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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 Lesser Performing Index and will depend on whether a Knock-Out Event has occurred and whether, and the extent to which, the Lesser Performing Index Return is positive or negative. If the Ending Index Level of either Index is less than its Initial Index Level by more than the Knock-Out Buffer Amount, a Knock-Out Event will occur, and the benefit provided by the Knock-Out Buffer Amount will terminate. Under these circumstances, you will lose 1% of the principal amount of your notes for every 1% that the Ending Index Level of the Lesser Performing Index is less than its Initial Index Level. Accordingly, 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 BY THE MAXIMUM UPSIDE RETURN AND THE KNOCK-OUT BUFFER AMOUNT — If the Ending Index Level of each Index is greater than its Initial Index Level, for each $1,000 principal amount note, you will receive at maturity $1,000 plus an additional return equal to the Lesser Performing Index Return, up to the Maximum Upside Return of at least 20.00%††, regardless of the appreciation of that Index, which may be significant.
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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 the Notes Generally” in the accompanying product supplement no. 38-I for additional information about these risks.
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YOU ARE EXPOSED TO THE RISK OF DECLINE IN THE VALUE OF EACH INDEX — Your return on the notes and your payment at maturity, if any, is not linked to a basket consisting of the Indices. Your payment at maturity is contingent upon the performance of each individual Index such that you will be equally exposed to the risks related to either of the Indices. The performance of the Indices may not be correlated. Poor performance by either of the Indices over the term of the notes may negatively affect your payment at maturity and will not be offset or mitigated by positive performance by the other Index. Accordingly, your investment is subject to the risk of decline in the value of each Index.
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THE BENEFIT PROVIDED BY THE KNOCK-OUT BUFFER AMOUNT MAY TERMINATE ON THE OBSERVATION DATE — If the Ending Index Level of either Index is less than its Initial Index Level by
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JPMorgan Structured Investments —
Capped Dual Directional Knock-Out Buffered Equity Notes Linked to the Lesser Performing of the S&P 500® Index and the Russell 2000® Index
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TS-3
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YOUR PAYMENT AT MATURITY MAY BE DETERMINED BY THE LESSER PERFORMING INDEX — Because the payment at maturity will be determined based on the performance of the Lesser Performing Index, you will not benefit from the performance of the other Index. Accordingly, if a Knock-Out Event has occurred, you will lose some or all of your principal amount at maturity, even if the Ending Index Level of the other Index is greater than or equal to its Initial Index Level or below its Initial Index Level by less than the Knock-Out Buffer Amount.
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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 selling commissions, the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under the notes. See “JPMS’s Estimated Value of the Notes” in this term sheet.
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JPMS’S ESTIMATED VALUE DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES — JPMS’s estimated value of the notes is determined by reference to JPMS’s internal pricing models when the terms of the notes are set. This estimated value is based on market conditions and other relevant factors existing at that time and JPMS’s assumptions about market parameters, which can include volatility, dividend rates, interest rates and other factors. Different pricing models and assumptions could provide valuations for notes that are greater than or less than JPMS’s estimated value. In addition, market conditions and other relevant factors in the future may change, and any assumptions may prove to be incorrect. On future dates, the value of the notes could change significantly based on, among other things, changes in market conditions, our creditworthiness, interest rate movements and other relevant factors, which may impact the price, if any, at which JPMS would be willing to buy notes from you in secondary market transactions. See “JPMS’s Estimated Value of the Notes” in this term sheet.
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JPMS’S ESTIMATED VALUE IS NOT DETERMINED BY REFERENCE TO CREDIT SPREADS FOR OUR CONVENTIONAL FIXED-RATE DEBT — The internal funding rate used in the determination of JPMS’s estimated value generally represents a discount from the credit spreads for our conventional fixed-rate debt. The discount is based on, among other things, our view of the funding value of the notes as well as the higher issuance, operational and ongoing liability management costs of the notes in comparison to those costs for our conventional fixed-rate debt. If JPMS were to use the interest rate implied by our conventional fixed-rate credit spreads, we would expect the economic terms of the notes to be more favorable to you. Consequently, our use of an internal funding rate would have an adverse effect on the terms of the notes and any secondary market prices of the notes. See “JPMS’s 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
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JPMorgan Structured Investments —
Capped Dual Directional Knock-Out Buffered Equity Notes Linked to the Lesser Performing of the S&P 500® Index and the Russell 2000® Index
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TS-4
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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 levels of the Indices, 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 in the levels of the Indices;
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the time to maturity of the notes;
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whether a Knock-Out Event has occurred or is expected to occur;
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the dividend rates on the equity securities included in the Indices;
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the actual and expected positive or negative correlation between the Indices, or the actual or expected absence of any such correlation;
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interest and yield rates in the market generally; 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 the securities included in the Indices would have.
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VOLATILITY RISK — Greater expected volatility with respect to an Index indicates a greater likelihood as of the pricing date that a Knock-Out Event could occur. An Index’s volatility, however, can change significantly over the term of the notes. The Index closing level of an Index could fall sharply on the Observation Date, which could result in a significant loss of principal.
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AN INVESTMENT IN THE NOTES IS SUBJECT TO RISKS ASSOCIATED WITH SMALL CAPITALIZATION STOCKS WITH RESPECT TO THE RUSSELL 2000® INDEX — The stocks that constitute the Russell 2000® Index are issued by companies with relatively small market capitalization. The stock prices of smaller companies may be more volatile than stock prices of large capitalization companies. Small capitalization companies may be less able to withstand adverse economic, market, trade and competitive conditions relative to larger companies. Small capitalization companies are less likely to pay dividends on their stocks, and the presence of a dividend payment could be a factor that limits downward stock price pressure under adverse market conditions.
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LACK OF LIQUIDITY — The notes will not be listed on any securities exchange. JPMS intends to offer to purchase the notes in the secondary market but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Because other dealers are not likely to make a secondary market for the notes, the price at which you may be able to trade your notes is likely to depend on the price, if any, at which JPMS is willing to buy the notes.
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THE FINAL TERMS AND VALUATION OF THE NOTES WILL BE PROVIDED IN THE PRICING SUPPLEMENT — The final terms of the notes will be based on relevant market conditions when the terms of the notes are set and will be provided in the pricing supplement. In particular, each of JPMS’s estimated value and the Maximum Upside 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 Upside Return.
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JPMorgan Structured Investments —
Capped Dual Directional Knock-Out Buffered Equity Notes Linked to the Lesser Performing of the S&P 500® Index and the Russell 2000® Index
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TS-5
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Total Return
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Ending Index Level of the Lesser Performing Index
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Lesser Performing Index Return
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Absolute
Index Return of the Lesser Performing Index
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Knock-Out Event Has Not Occurred(1)
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Knock-Out Event Has Occurred(2)
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2,016.000
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80.00%
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N/A
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20.00%
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N/A
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1,848.000
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65.00%
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N/A
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20.00%
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N/A
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1,680.000
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50.00%
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N/A
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20.00%
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N/A
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1,568.000
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40.00%
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N/A
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20.00%
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N/A
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1,456.000
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30.00%
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N/A
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20.00%
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N/A
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1,344.000
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20.00%
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N/A
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20.00%
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N/A
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1,232.000
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10.00%
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N/A
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10.00%
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N/A
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1,176.000
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5.00%
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N/A
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5.00%
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N/A
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1,148.000
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2.50%
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N/A
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2.50%
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N/A
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1,131.200
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1.00%
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N/A
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1.00%
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N/A
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1,120.000
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0.00%
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0.00%
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0.00%
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N/A
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1,108.800
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-1.00%
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1.00%
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1.00%
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N/A
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1,064.000
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-5.00%
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5.00%
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5.00%
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N/A
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1,008.000
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-10.00%
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10.00%
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10.00%
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N/A
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896.000
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-20.00%
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20.00%
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20.00%
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N/A
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784.000
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-30.00%
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30.00%
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30.00%
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N/A
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728.000
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-35.00%
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35.00%
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35.00%
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N/A
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727.888
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-35.01%
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N/A
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N/A
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-35.01%
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672.000
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-40.00%
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N/A
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N/A
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-40.00%
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560.000
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-50.00%
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N/A
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N/A
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-50.00%
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448.000
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-60.00%
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N/A
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N/A
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-60.00%
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336.000
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-70.00%
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N/A
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N/A
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-70.00%
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224.000
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-80.00%
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N/A
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N/A
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-80.00%
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112.000
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-90.00%
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N/A
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N/A
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-90.00%
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0.000
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-100.00%
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N/A
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N/A
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-100.00%
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JPMorgan Structured Investments —
Capped Dual Directional Knock-Out Buffered Equity Notes Linked to the Lesser Performing of the S&P 500® Index and the Russell 2000® Index
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TS-6
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JPMorgan Structured Investments —
Capped Dual Directional Knock-Out Buffered Equity Notes Linked to the Lesser Performing of the S&P 500® Index and the Russell 2000® Index
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TS-7
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JPMorgan Structured Investments —
Capped Dual Directional Knock-Out Buffered Equity Notes Linked to the Lesser Performing of the S&P 500® Index and the Russell 2000® Index
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TS-8
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JPMorgan Structured Investments —
Capped Dual Directional Knock-Out Buffered Equity Notes Linked to the Lesser Performing of the S&P 500® Index and the Russell 2000® Index
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TS-9
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