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 December 18, 2014; Rule 433
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Structured
Investments
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$
Autocallable Contingent Buffered Return Enhanced Notes Linked to the Energy Select Sector SPDR® Fund due December 21, 2017
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The notes are designed for investors who seek early exit prior to maturity at a premium if, on the Review Date, the Energy Select Sector SPDR® Fund is at or above the Call Level.
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If the notes have not been automatically called, investors may receive an uncapped return of 1.55 times the appreciation of the Fund, or may lose some or all of their principal at maturity.
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Investors in the notes should be willing to accept this risk of loss and be willing to forgo interest and dividend payments, in exchange for the opportunity to receive a premium payment if the notes are automatically called or the uncapped leveraged return if the notes have not been automatically called.
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The date on which an automatic call may be initiated is December 28, 2015.
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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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Fund:
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The Energy Select Sector SPDR® Fund (Bloomberg symbol: XLE)
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Automatic Call:
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If the closing price of one share of the Fund on the Review Date is greater than or equal to the Call Level, the notes will be automatically called for a cash payment per $1,000 principal amount note based on the call premium.
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Call Level:
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100% of the Initial Share Price
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Payment if Called:
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For every $1,000 principal amount note, you will receive one payment of $1,000 plus a call premium amount of $151.50 (equal to the call premium of 15.15% × $1,000) if automatically called on the Review Date.
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Upside Leverage Factor:
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1.55
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Payment at Maturity:
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If the notes have not been automatically called and the Final Share Price is greater than the Initial Share Price, you will receive at maturity 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. Accordingly, if the Fund Return is positive, 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 × Upside Leverage Factor)
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If the notes have not been automatically called and the Final Share Price is equal to or less than the Initial Share Price by up to 25%, you will receive at maturity a cash payment of $1,000 per $1,000 principal amount note.
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If the notes have not been automatically called and the Final Share Price is less than the Initial Share Price by more than 25%, 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. Under these circumstances, 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 notes have not been automatically called and the Final Share Price is less than the Initial Share Price by more than 25%, you will lose more than 25% of your principal amount and may lose all of your principal amount at maturity.
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Contingent Buffer Amount:
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25%
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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, which was $78.56
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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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December 18, 2014
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Original Issue Date (Settlement Date):
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On or about December 23, 2014
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Review Date†:
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December 28, 2015
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Call Settlement Date†:
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December 31, 2015
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Observation Date†:
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December 18, 2017
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Maturity Date†:
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December 21, 2017
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CUSIP:
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48127D4E5
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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 $12.00 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 Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-1
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Closing Price of One Share of the Fund
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Automatic Call
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No Automatic Call
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Fund Appreciation/ Depreciation at Review Date
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Total Return at Call Settlement Date
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Fund Return
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Total Return at Maturity
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$144.000
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80.00%
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15.15%
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80.00%
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124.000%
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$136.000
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70.00%
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15.15%
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70.00%
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108.500%
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$128.000
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60.00%
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15.15%
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60.00%
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93.000%
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$120.000
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50.00%
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15.15%
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50.00%
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77.500%
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$112.000
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40.00%
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15.15%
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40.00%
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62.000%
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$104.000
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30.00%
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15.15%
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30.00%
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46.500%
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$96.000
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20.00%
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15.15%
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20.00%
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31.000%
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$88.000
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10.00%
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15.15%
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10.00%
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15.500%
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$84.000
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5.00%
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15.15%
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5.00%
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7.750%
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$82.000
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2.50%
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15.15%
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2.50%
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3.875%
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$80.000
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0.00%
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15.15%
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0.00%
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0.00%
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$76.000
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-5.00%
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N/A
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-5.00%
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0.00%
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$72.000
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-10.00%
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N/A
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-10.00%
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0.00%
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$64.000
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-20.00%
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N/A
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-20.00%
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0.00%
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$60.000
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-25.00%
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N/A
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-25.00%
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0.00%
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$59.992
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-25.01%
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N/A
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-25.01%
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-25.01%
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$56.000
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-30.00%
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N/A
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-30.00%
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-30.00%
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$48.000
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-40.00%
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N/A
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-40.00%
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-40.00%
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$40.000
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-50.00%
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N/A
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-50.00%
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-50.00%
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$32.000
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-60.00%
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N/A
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-60.00%
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-60.00%
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$24.000
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-70.00%
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N/A
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-70.00%
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-70.00%
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$16.000
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-80.00%
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N/A
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-80.00%
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-80.00%
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$8.000
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-90.00%
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N/A
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-90.00%
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-90.00%
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$0.000
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-100.00%
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N/A
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-100.00%
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-100.00%
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JPMorgan Structured Investments —
Capped Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-2
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JPMorgan Structured Investments —
Capped Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-3
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UNCAPPED APPRECIATION POTENTIAL IF THE NOTES HAVE NOT BEEN AUTOMATICALLY CALLED — If the notes have not been automatically called, the notes provide the opportunity to enhance equity returns by multiplying a positive Fund Return by 1.55. The notes are not subject to a predetermined maximum gain at maturity and, accordingly, any return at maturity will be determined based on the movement of the Fund. 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 EARLY EXIT WITH CAPPED APPRECIATION AS A RESULT OF AUTOMATIC CALL FEATURE — While the original term of the notes is three years, the notes will be called before maturity if the closing price of one share of the Fund is at or above the Call Level on the Review Date. If the closing price of one share of the Fund is greater than or equal to the Call Level on the Review Date, your investment will yield a payment per $1,000 principal amount note of $1,000 plus a call premium amount of $151.50 (equal to a call premium of 15.15% × $1,000).
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LIMITED PROTECTION AGAINST LOSS — We will pay you at least your principal back at maturity if the notes have not been automatically called and the Final Share Price is equal to or less than the Initial Share Price by up to the Contingent Buffer Amount. If the notes have not been automatically called and 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 25% of your principal amount and may lose all of your principal amount at maturity.
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RETURNS LINKED TO THE ENERGY SELECT SECTOR SPDR® FUND — The return on the notes is linked to the Energy Select Sector SPDR® Fund. The Energy Select Sector SPDR® Fund is an exchange-traded fund of the Select Sector SPDR® Trust, a registered investment company that consists of several separate investment portfolios, and is managed by SSgA Funds Management, Inc., the investment adviser to the Energy Select Sector SPDR® Fund. The Energy Select Sector SPDR® Fund trades on NYSE Arca, Inc., which we refer to as NYSE Arca, under the ticker symbol “XLE.”
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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. 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, subject to the possible application of the “constructive ownership” rules, 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. The notes could be treated as “constructive ownership transactions” within the meaning of Section 1260 of the Internal Revenue Code of 1986, as amended, in which case any gain recognized in respect of the notes that would otherwise be long-term capital gain and that was in excess of the “net underlying long-term capital gain” (as defined in Section 1260) would be treated as ordinary income, and a notional interest charge would apply as if that income had accrued for tax purposes at a constant yield over the notes’ term. Our special tax counsel has not expressed an opinion with respect to whether or under what circumstances the constructive ownership rules apply to the notes. Accordingly, U.S. Holders should consult their tax advisers regarding the potential application of the constructive ownership rules.
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JPMorgan Structured Investments —
Capped Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-4
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal at maturity. 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 notes have not been automatically called and 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 25% of your principal amount and may lose all of your principal amount at maturity.
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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 your 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 Fund.
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LIMITED RETURN ON THE NOTES IF THE NOTES ARE AUTOMATICALLY CALLED — If the notes are automatically called, your potential gain on the notes will be limited to the call premium, as set forth on the cover of this term sheet, regardless of the appreciation in the Fund, which may be significant. Because the closing price of one share of the Fund at various times during the term of the notes could be higher than on the Review Date, you may receive a lower return from an investment in the notes than you would have if you had invested directly in the Fund or any of the equity securities included in the Fund.
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REINVESTMENT RISK — If your notes are automatically called early, the term of the notes may be reduced to as short as approximately one year. There is no guarantee that you would be able to reinvest the proceeds from an investment in the notes at a comparable return for a similar level of risk in the event the notes are automatically called prior to the maturity date.
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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.
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JPMorgan Structured Investments —
Capped Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-5
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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 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 closing 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 likelihood of an automatic call being triggered;
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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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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
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JPMorgan Structured Investments —
Capped Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-6
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THE FUND IS LINKED TO THE PERFORMANCE OF THE ENERGY SECTOR — All or substantially all of the equity securities held by the Fund are issued by companies whose primary line of business is directly associated with the energy sector, including the following industries: oil, gas and consumable fuels; and energy equipment and services. Market or economic factors impacting energy companies and companies that rely heavily on energy advances could have a major effect on the value of the Fund. Weak demand for energy companies’ products or services or for energy products and services in general, as well as negative developments in these other areas, including natural disasters or terrorist attacks, would adversely impact the Fund’s performance. As a result, the value of the securities may be subject to greater volatility and be more adversely affected by a single economic, political or regulatory occurrence affecting this sector than a different investment linked to securities of a more broadly diversified group of issuers.
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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, 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 Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-7
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JPMorgan Structured Investments —
Capped Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-8
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JPMorgan Structured Investments —
Capped Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-9
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JPMorgan Structured Investments —
Capped Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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A-1
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Name
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Weight
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1. Exxon Mobil Corporation
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16.51%
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2. Chevron Corporation
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13.25%
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3. Schlumberger NV
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7.23%
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4. Kinder Morgan Inc. Class P
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4.37%
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5. ConocoPhillips
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3.92%
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6. EOG Resources Inc.
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3.92%
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7. Occidental Petroleum Corporation
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3.41%
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8. Pioneer Natural Resources Company
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3.03%
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9. Anadarko Petroleum Corporation
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2.98%
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10. Williams Companies Inc.
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2.67%
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JPMorgan Structured Investments —
Capped Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-2
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Each of the component stocks in the Select Sector Indices (the “Component Stocks”) is a constituent company of the S&P 500® Index.
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Each stock in the S&P 500® Index is allocated to one and only one of the Select Sector Indices.
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The Index Compilation Agent assigns each constituent stock of the S&P 500® Index to a Select Sector Index. The Index Compilation Agent, after consultation with S&P Dow Jones Indices LLC, assigns a particular company’s stock to a Select Sector Index based on that company’s classification under the Global Industry Classification Standard (GICS).
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The Select Sector Indices are calculated using the same methodology utilized by S&P Dow Jones Indices LLC in calculating the S&P 500® Index. See “Equity Index Descriptions — The S&P 500® Index” in underlying supplement no. 1a-I. The daily calculation of a Select Sector Index is computed by dividing the total market value of the companies in that Select Sector Index by a number called the index divisor.
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The Select Sector Indices are calculated by S&P Dow Jones Indices LLC using a modified “market capitalization” methodology subject to a capping methodology that implements Internal Revenue Code diversification requirements that are applicable to exchange-traded funds. For reweighting purposes, the Select Sector Indices are rebalanced quarterly after the close of business on the second to last calculation day of March, June, September and December using the following procedures:
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1.
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The rebalancing reference date is two business days prior to the last calculation day of March, June, September and December.
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2.
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With prices reflected on the rebalancing reference date, and membership, shares outstanding, and other metrics as of the rebalancing effective date, each company is weighted using the modified market capitalization methodology. Modifications are made as described below.
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3.
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The Select Sector Indices are first evaluated based on their companies’ modified market capitalization weights to ensure none of the Select Sector Indices breach the maximum allowable limits defined in paragraphs 4 and 7 below. If a Select Sector Index breaches any of the allowable limits, the companies are reweighted based on their float-adjusted market capitalization weights calculated using the prices as of the rebalancing reference date, and membership, shares outstanding and other metrics as of the rebalancing effective date.
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4.
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If any company has a weight greater than 24%, that company has its float-adjusted market capitalization weight capped at 23%. The cap is set to 23% to allow for a 2% buffer. This buffer is needed to ensure that no company exceeds 25% as of the quarter end diversification requirement date.
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5.
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All excess weight is equally redistributed to all uncapped companies within the relevant Select Sector Capped Index.
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6.
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After this redistribution, if the float-adjusted market capitalization weight of any other company then breaches 23%, the process is repeated iteratively until no company breaches the 23% weight cap.
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7.
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The sum of the companies with weight greater than 4.8% cannot exceed 50% of the total index weight. These caps are set to allow for a buffer below the 5% limit.
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8.
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If the rule in paragraph 7 is breached, all the companies are ranked in descending order of their float-adjusted market capitalization weights and the first stock that causes the 50% limit to be breached is identified. The weight of this company is, then, reduced to 4.6%.
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9.
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This excess weight is equally redistributed to all companies with weights below 4.6%. This process is repeated iteratively until paragraph 7 is satisfied.
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10.
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Index share amounts are assigned to each constituent to arrive at the weights calculated above. Since index shares are assigned based on prices one business day prior to rebalancing, the actual weight of each constituent at the rebalancing differs somewhat from these weights due to market movements.
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JPMorgan Structured Investments —
Capped Autocallable Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund
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TS-3
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