Term sheet
To prospectus dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 206-A-I dated March 4, 2011
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Term Sheet to
Product Supplement No. 206-A-I
Registration Statement No.
333-155535
Dated September
12, 2011; Rule 433
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Structured
Investments
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$
Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess Return
due March 15, 2012 |
General
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The notes are designed for investors who
seek a fixed return that will not be less than 6.60%* if, on any business day
from and including December 15, 2011 to and including March 12, 2012 (i.e., any Review Date), the S&P GSCI
Brent Crude Oil Index Excess Return is at or above the Call Level. If the
notes are not automatically called, investors should be willing to lose some or
all of their principal if the Ending Index Level is less than the Strike Value
by more than 20%. Investors in the notes should be willing to accept this risk
of loss and be willing to forgo interest payments, in exchange for the
opportunity to receive a premium payment if the notes are automatically called.
Any payment on the notes is subject to the
credit risk of JPMorgan Chase & Co.
-
The notes are linked to the S&P
GSCI Brent Crude Oil Index Excess Return, a sub-index of the S&P GSCI
that generally references the front-month Brent crude oil futures contract
traded on ICE Futures Europe and does not reference the spot price of Brent crude
oil. See Selected Purchase Considerations Return Linked to the S&P
GSCI Brent Crude Oil Index Excess Return and Selected Risk Considerations The
Notes Do Not Offer Direct Exposure to Commodity Spot Prices in this term sheet
for more information.
-
The first Review Date, and therefore
the earliest date on which a call may be initiated, is December 15, 2011.
-
The notes are not
futures contracts and are not regulated under the Commodity Exchange Act of
1936, as amended (the Commodity Exchange Act). The notes are offered pursuant to an
exemption from regulation under the Commodity Exchange Act that is available to
securities that have one or more payments indexed to the value, level or rate
of one or more commodities, which is set out in section 2(f) of that statute. Accordingly,
you are not afforded any protection provided by the Commodity Exchange Act or
any regulation promulgated by the Commodity Futures Trading Commission.
-
Senior unsecured obligations of
JPMorgan Chase & Co. maturing March 15, 2012
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Minimum denominations of $20,000 and
integral multiples of $1,000 in excess thereof
-
The notes are expected to price on or
about September 16, 2011 and are expected to settle on or about September 21,
2011.
Key Terms
Index:
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The S&P GSCI Brent Crude Oil Index Excess Return (the
Index). The value of the S&P GSCI Brent Crude Oil Index Excess Return
is published each trading day under the Bloomberg ticker symbol SPGCBRP.
For more information on the Index, please see Selected Purchase
Considerations Return Linked to the S&P GSCI Brent Crude Oil Index
Excess Return in this term sheet.
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Automatic
Call:
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If
the Index Closing Level on any Review Date is greater than or equal to the
Call Level, the notes will be automatically called for a cash payment per
note as described below.
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Call
Level:
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100% of the Strike Value for each Review Date
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Payment
if Called:
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If the notes are automatically called on any Review Date,
for every $1,000 principal amount note, you will receive one payment of
$1,000 plus a call premium amount that will not be less than 6.60%* × $1,000
and that will be payable on the applicable Call Settlement Date.
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*The
actual call premium used to calculate the call price applicable to a Review
Date will be determined on the pricing date and will not be less than 6.60%. |
Payment
at Maturity:
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If the
notes are not automatically called and the Ending Index Level is less than
the Strike Value by up to 20%, you will receive the principal amount of your
notes at maturity.
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If the
notes are not automatically called and the Ending Index Level is less than
the Strike Value by more than 20%, you will lose 1% of the principal amount
of your notes for every 1% that the Ending Index Level is less than the Strike Value, 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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If the notes are not automatically called, you will lose at
least 20% of your investment at maturity if the Ending Index Level is less
than the Strike Level by more than 20% and could lose up to your entire
investment at maturity. |
Knock-Out
Buffer Percentage:
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20%
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Index
Return:
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Ending
Index Level Strike Value
Strike
Value
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Strike Value:
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An
Index level to be determined on the pricing date in the sole discretion of
the calculation agent. The Strike Value may or may not be the regular official weekday closing
level of the Index on the pricing date. Although the calculation agent will make all
determinations and will take all actions in relation to the establishment of
the Strike Value in good faith, it should be noted that such discretion could
have an impact (positive or negative) on the value of your notes. The
calculation agent is under no obligation to consider your interests as a
holder of the notes in taking any actions, including the determination of the
Strike Value, that might affect the value of your notes.
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Ending
Index Level:
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The Index
Closing Level on the Final Review Date
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Review
Dates:
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Each business
day from and including December 15, 2011 to and including March 12, 2012 (the
Final Review Date)
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Call
Settlement Date:
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The third business day after the applicable Review Date,
except that if the notes are called on the Final Review Date, the Call
Settlement Date will be the maturity date.
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Maturity
Date:
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March 15, 2012
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CUSIP:
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48125XX68
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Subject to postponement in the event of a market disruption event
and as described under Description of Notes Payment at Maturity and Description of Notes Postponement
of a Determination Date C. Notes linked to a single Index in the accompanying product supplement no. 206-A-I or early
acceleration in the event of a commodity hedging disruption event as described under General Terms of Notes Consequences
of a Commodity Hedging Disruption Event C. Early Acceleration of Payment on the Notes in the accompanying product
supplement no. 206-A-I and in Selected Risk Considerations We May Accelerate Your Notes If a Commodity Hedging Disruption
Event Occurs in this term sheet.
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Investing in the Review Notes involves a number of risks. See
Risk Factors beginning on page PS-16 of the accompanying product supplement
no. 206-A-I and Selected Risk Considerations beginning on page TS-4 of this
term sheet.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the notes or passed upon
the accuracy or the adequacy of this term sheet or the accompanying product
supplement prospectus supplement and prospectus. Any representation to the
contrary is a criminal offense.
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Price to Public (1)
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Fees and Commissions (2)
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Proceeds to Us
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Per note
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$
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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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The price to the public includes the estimated cost of
hedging our obligations under the notes through one or more of our
affiliates, which includes our affiliates expected cost of providing such
hedge as well as the profit our affiliates expect to realize in consideration
for assuming the risks inherent in providing such hedge. For additional
related information, please see Use of Proceeds beginning on page PS-40 of
the accompanying product supplement no. 206-A-I.
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(2)
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Please see Supplemental Plan of
Distribution on the last page of this term sheet for information about fees
and commissions.
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The notes are not bank deposits and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency, nor are they obligations of, or guaranteed by, a bank.
September 12, 2011
Additional Terms Specific to the Notes
JPMorgan Chase
& Co. has filed a registration statement (including a prospectus) with the
Securities and Exchange Commission, or SEC, for the offering to which this term
sheet relates. Before you invest, you should read the prospectus in that
registration statement and the other documents relating to this offering that
JPMorgan Chase & Co. has filed with the SEC for more complete information
about JPMorgan Chase & Co. and this offering. You may get these documents
without cost by visiting EDGAR on the SEC website at www.sec.gov.
Alternatively, JPMorgan Chase & Co., any agent or any dealer participating
in this offering will arrange to send you the prospectus, the prospectus
supplement, product supplement no. 206-A-I and this term sheet if you so
request by calling toll-free 866-535-9248.
You may revoke your offer to purchase the notes at any time prior to the
time at which we accept such offer by notifying the applicable agent. We
reserve the right to change the terms of, or reject any offer to purchase, the
notes prior to their issuance. In the event of any changes to the terms of the
notes, we will notify you and you will be asked to accept such changes in
connection with your purchase. You may also choose to reject such changes in
which case we may reject your offer to purchase.
You should
read this term sheet together with the prospectus dated November 21, 2008, as
supplemented by the prospectus supplement dated November 21, 2008 relating to
our Series E medium-term notes of which these notes are a part, and the more
detailed information contained in product supplement no. 206-A-I dated March 4,
2011. This term sheet, together with the
documents listed below, contains the terms of the notes and supersedes all
other prior or contemporaneous oral statements as well as any other written
materials including preliminary or indicative pricing terms, correspondence,
trade ideas, structures for implementation, sample structures, fact sheets,
brochures or other educational materials of ours. You should
carefully consider, among other things, the matters set forth in Risk Factors
in the accompanying product supplement no. 206-A-I, as the notes involve risks
not associated with conventional debt securities. We urge you to consult your
investment, legal, tax, accounting and other advisers before you invest in the
notes.
You may
access these documents on the SEC website at www.sec.gov as follows (or if such address
has changed, by reviewing our filings for the relevant date on the SEC
website):
Our Central
Index Key, or CIK, on the SEC website is 19617. As used in this term sheet,
the Company, we, us and our refer to JPMorgan Chase & Co.
Supplemental Terms of
the Notes
For purposes of the notes offered by this term sheet:
(1) the Review Dates are subject to postponement as described
under Description of Notes Postponement of a Determination Date C. Notes Linked
to a single Index in the accompanying product supplement no. 206-A-I; and
(2) the consequences of a commodity hedging disruption event
are described under General Terms of Notes Consequences of a Commodity
Hedging Disruption Event C. Early Acceleration of Payment on the Notes.
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JPMorgan
Structured Investments |
TS-1 |
Review Notes Linked to the S&P GSCI Brent Crude Oil Index
Excess Return |
Hypothetical Examples of Amounts Payable upon Automatic Call or at
Maturity
The
following table illustrates the hypothetical simple total return (i.e., not compounded) on the notes that
could be realized on the applicable Review Date for a range of movements in the
Index Closing Level as shown under the column Index Closing Level Appreciation
/ Depreciation at Review Date. The
following table assumes a hypothetical Strike Value of 800 and a call premium
used to calculate the call price applicable to any Review Date of 6.60%,
regardless of the appreciation of the Index Closing Level, which may be
significant. The actual call premium will be
determined on the pricing date and will not be less than 6.60%.
There will be only one payment on the notes whether called or at maturity. An
entry of N/A indicates that the notes would not be called on the applicable
Review Date and no payment would be made for such date. The hypothetical
returns set forth below are for illustrative purposes only and may not be the
actual total returns applicable to a purchaser of the notes.
Index
Closing
Level at Review
Date
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Index
Closing Level
Appreciation /
Depreciation at
Review Date
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Total
Return at
any Call
Settlement Date
Prior to the
Maturity Date
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Total Return
at Maturity
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1440.00
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80.00%
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6.60%
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6.60%
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1360.00
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70.00%
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6.60%
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6.60%
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1280.00
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60.00%
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6.60%
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6.60%
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1200.00
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50.00%
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6.60%
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6.60%
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1120.00
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40.00%
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6.60%
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6.60%
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1040.00
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30.00%
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6.60%
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6.60%
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960.00
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20.00%
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6.60%
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6.60%
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880.00
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10.00%
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6.60%
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6.60%
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840.00
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5.00%
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6.60%
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6.60%
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808.00
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1.00%
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6.60%
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6.60%
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800.00
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0.00%
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6.60%
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6.60%
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792.00
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-1.00%
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N/A
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0.00%
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760.00
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-5.00%
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N/A
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0.00%
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720.00
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-10.00%
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N/A
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0.00%
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680.00
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-15.00%
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N/A
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0.00%
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640.00
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-20.00%
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N/A
|
0.00%
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639.92
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-20.01%
|
N/A
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-20.01%
|
560.00
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-30.00%
|
N/A
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-30.00%
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480.00
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-40.00%
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N/A
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-40.00%
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400.00
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-50.00%
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N/A
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-50.00%
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320.00
|
-60.00%
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N/A
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-60.00%
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240.00
|
-70.00%
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N/A
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-70.00%
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160.00
|
-80.00%
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N/A
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-80.00%
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80.00
|
-90.00%
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N/A
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-90.00%
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0.00
|
-100.00%
|
N/A
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-100.00%
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The
following examples illustrate how the total returns set forth in the table above
are calculated.
Example 1: The level of the Index increases from the Strike Value of 800 to an Index Closing Level of 880 on any Review Date. Because the Index
Closing Level on the applicable Review Date (880) is greater than the Strike
Value of 800, the notes are automatically called, and the investor receives a
single payment of $1,066 per $1,000 principal amount note on the applicable
Call Settlement Date.
Example 2: The Index Closing Level is less than the Strike Value on every Review Date,
and the level of the Index decreases from the Strike Value of 800 to an Index Closing Level of 640 on the Final Review Date. Because
(a) the Index Closing Level is less than the Strike Value on every Review Date,
(b) the Index Closing Level on the Final Review Date (640) is less than the Strike
Value of 800 and (c) the Ending Index Level is not less than the Strike Value
by more than 20%, the notes are not called and the payment at maturity is the
principal amount of $1,000 per $1,000 principal amount note.
Example 3: The Index Closing Level is less than the Strike Value on every Review Date,
and the level of the Index decreases from the Strike Value of 800 to an Index Closing Level of 400 on the Final Review Date. Because
(a) the Index Closing Level is less than the Strike Value on every Review Date,
(b) the Index Closing Level on the Final Review Date (400) is less than the Strike
Value of 800 and (c) the Index Closing Level is less than the Strike Value by more
than 20%, the notes are not called and the investor receives a payment at
maturity that is less than the principal amount for each $1,000 principal
amount note, calculated as follows:
$1,000
+ ($1,000 x -50%) = $500
The hypothetical
returns and hypothetical payouts on the notes shown above do not reflect fees
or expenses that would be associated with any sale in the secondary market. If
these fees and expenses were included, the hypothetical returns and hypothetical
payouts shown above would likely be lower.
|
JPMorgan
Structured Investments |
TS-2 |
Review Notes Linked to the S&P GSCI Brent Crude Oil Index
Excess Return |
Selected Purchase Considerations
- CAPPED
APPRECIATION POTENTIAL If the Index Closing Level is greater than or equal to the Call Level
on any Review Date, your investment will yield a payment per $1,000 principal
amount note of $1,000 plus a call premium amount that will not be
less than 6.60%* x $1,000 . Because
the notes are our senior unsecured obligations, payment of any amount if called
or at maturity is subject to our ability to pay our obligations as they become
due.
*The
actual call premium will be determined on the pricing date and will not be less
than 6.60%.
- POTENTIAL
EARLY EXIT WITH APPRECIATION AS A RESULT OF AUTOMATIC CALL FEATURE While the original term of the notes is
just over six months, the notes will be called before maturity if the Index Closing
Level is at or above the Call Level on any Review Date and you will be entitled
to the call price as set forth on the cover of this term sheet.
- CONTINGENT
PROTECTION AGAINST LOSS If the notes are not automatically called and the
Ending Index level is less than the Strike Value by no more than 20%, you will
be entitled to receive the full principal amount of your notes at maturity,
subject to the credit risk of JPMorgan Chase & Co. If the notes are not
automatically called and the Ending Index Level is less than the Strike Value
by more than 20%, you will lose 1% of the principal amount of your notes for
every 1% that the Ending Index Level is less than the Strike Value. Under
these circumstances, you will lose at least 20% of your investment at maturity
and could lose up to your entire investment at maturity.
- RETURN
LINKED TO THE S&P GSCI BRENT CRUDE OIL INDEX EXCESS RETURN The return on the notes is linked
solely to the S&P GSCI Brent Crude Oil Index Excess Return, a sub-index of
the S&P GSCI, a composite index of commodity sector returns, calculated,
maintained and published daily by Standard & Poors Financial Services LLC.
The S&P GSCI is a world production-weighted index that is designed to
reflect the relative significance of principal non-financial commodities (i.e., physical commodities) in the world
economy. The S&P GSCI represents the return of a portfolio of the futures
contracts for the underlying commodities. The S&P GSCI Brent Crude Oil
Index Excess Return generally references the front-month Brent crude oil
futures contract (i.e., the Brent
crude futures contract generally closest to expiration) traded on ICE Futures
Europe. The S&P GSCI Brent Crude Oil Index Excess Return provides
investors with a publicly available benchmark for investment performance in the
Brent crude oil commodity markets. The S&P GSCI Brent Crude Oil Index
Excess Return is an excess return index and not a total return index. An excess
return index reflects the returns that are potentially available through an
unleveraged investment in the contracts composing the index (which, in the case
of the Index, are the designated crude oil futures contracts). By contrast, a
total return index, in addition to reflecting those returns, also reflects
interest that could be earned on funds committed to the trading of the
underlying futures contracts. See The S&P GSCI Indices in the
accompanying product supplement no. 206-A-I.
- CAPITAL
GAINS TAX TREATMENT
You should review
carefully the section entitled Certain U.S. Federal Income Tax Consequences
in the accompanying product supplement no. 206-A-I. Subject to the limitations
described therein, and based on certain factual representations received from
us, in the opinion of our special tax counsel, Davis Polk & Wardwell LLP,
it is reasonable to treat the notes as open transactions for U.S. federal
income tax purposes, as described in the section entitled Certain U.S. Federal
Income Tax ConsequencesTax Consequences to U.S. HoldersNotes Treated as Open
Transactions in the accompanying product supplement. Assuming this
characterization is respected, the gain or loss on your notes should be treated
as short-term capital gain or loss, whether or not you are an initial purchaser
of notes at the issue price. However, the Internal Revenue Service (the IRS)
or a court may not respect this characterization or treatment of the notes, in
which case the timing and character of any income or loss on the notes could be
significantly 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, which might
include the notes. The notice focuses in particular on whether to require
holders of 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; and the degree, if any, to which income (including any
mandated accruals) realized by Non-U.S. Holders should be subject to
withholding tax. 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. Both U.S. and Non-U.S. Holders should consult their tax
advisers 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. Non-U.S. Holders should also note that they may be withheld
upon at a rate of up to 30% unless they have submitted a properly completed IRS
Form W-8BEN or otherwise satisfied the applicable documentation requirements.
The discussion in the
preceding paragraph, when read in combination with the section entitled
Certain U.S. Federal Income Tax Consequences in the accompanying product
supplement, constitutes the full opinion of Davis Polk & Wardwell LLP
regarding the material U.S. federal income tax consequences of owning and
disposing of notes.
Selected
Risk Considerations
An investment in the notes
involves significant risks. Investing in the notes is not equivalent to
investing directly in the Index or in any futures contracts or exchange-traded
or over-the-counter instruments based on, or other instruments linked to the
Index. These risks are explained in more detail in the Risk Factors section
of the accompanying product supplement no. 206-A-I dated March 4, 2011.
|
JPMorgan
Structured Investments |
TS-3 |
Review Notes Linked to the S&P GSCI Brent Crude Oil Index
Excess Return |
- YOUR
INVESTMENT IN THE NOTES MAY RESULT IN A LOSS The notes do not guarantee any return of principal.
If the notes are not automatically called and the Ending Index Level is less
than the Strike Value by more than 20%, you will lose 1% of your principal
amount at maturity for every 1% that the Ending Index Level is less than the Strike
Value. Under these circumstances, you will lose at least 20% of your
investment at maturity and could lose up to your entire investment at maturity.
- 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 at maturity or upon an automatic call, and therefore
investors are subject to our credit risk and to changes in the markets view of
our creditworthiness. Any decline in our credit ratings or increase in the
credit spreads charged by the market for taking our credit risk is likely to
affect adversely the value of the notes.
- 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 hedging our obligations under
the notes. In performing these duties, the economic interests of the
calculation agent and other affiliates of ours are potentially adverse to your
interests as an investor in the notes. It is possible that such hedging
activities or other trading activities of ours or our affiliates could result
in substantial returns for us or our affiliates while the value of the notes
declines. Although
the calculation agent will make all determinations and will take all actions in
relation to establishing of the Strike Value in good faith, it should be noted
that such discretion could have an impact (positive or negative) on the value
of your notes. The calculation agent is under no obligation to consider
your interests as a holder of the notes in taking any actions, including the
determination of the Strike Value, that might affect the value of your notes.
- LIMITED
RETURN ON THE NOTES
Your potential gain on the notes will be limited to the call premium of not
less than 6.60%*, regardless of the appreciation in the Index, which may be
significant. Because the Index Closing Level at various times during the term
of the notes could be higher than on the Review Dates and at maturity, you may
receive a lower payment if called or at maturity, as the case may be, than you
would have if you had invested directly in the Index.
*The actual call
premium will be determined on the pricing date and will not be less than 6.60%.
- REINVESTMENT
RISK If your
notes are automatically called, the term of the notes may be as short as approximately
three months. 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.
- CERTAIN
BUILT-IN COSTS ARE LIKELY TO AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR TO
MATURITY While
the payment at maturity or upon an automatic call described in this term sheet
is based on the full principal amount of your notes, the original issue price
of the notes includes the agents commission and the estimated cost of hedging
our obligations under the notes. As a result, the price, if any, at which J.P.
Morgan Securities LLC, which we refer to as JPMS, will be willing to purchase
notes from you in secondary market transactions, if at all, will likely be lower
than the original issue price, and any sale prior to the maturity date could
result in a substantial loss to you. The notes are not designed to be
short-term trading instruments. Accordingly, you should be able and willing to
hold the notes to maturity.
- THE
BENEFIT PROVIDED BY THE KNOCK-OUT BUFFER PERCENTAGE MAY TERMINATE ON THE FINAL
REVIEW DATE If the
notes have not been automatically called previously and the Index Closing Level
on the Final Review Date (i.e.,
the Ending Index Level) is less than the Strike Value by more than the 20% Knock-Out
Buffer Percentage, the benefit provided by the Knock-Out Buffer Percentage will
terminate and you will be fully exposed to any depreciation in the Index.
- PRICES OF
COMMODITY FUTURES CONTRACTS ARE CHARACTERIZED BY HIGH AND UNPREDICTABLE
VOLATILITY, WHICH COULD LEAD TO HIGH AND UNPREDICTABLE VOLATILITY IN THE INDEX Market prices of the commodity futures
contracts included in the Index tend to be highly volatile and may fluctuate
rapidly based on numerous factors, including the factors that affect the price
of the commodities underlying the commodity futures contracts included in the
Index. See There Are Risks Associated With an Investment Linked Indirectly to
Crude Oil below. The prices of commodities and commodity futures contracts
are subject to variables that may be less significant to the values of
traditional securities, such as stocks and bonds. These variables may create
additional investment risks that cause the value of the notes to be more volatile
than the values of traditional securities. As a general matter, the risk of
low liquidity or volatile pricing around the maturity date of a commodity
futures contract is greater than in the case of other futures contracts because
(among other factors) a number of market participants take physical delivery of
the underlying commodities. Many commodities are also highly cyclical. The
high volatility and cyclical nature of commodity markets may render such an
investment inappropriate as the focus of an investment portfolio.
- WE MAY
ACCELERATE YOUR NOTES IF A COMMODITY HEDGING DISRUPTION EVENT OCCURS If we or our affiliates are unable to
effect transactions necessary to hedge our obligations under the notes due to a
commodity hedging disruption event, we may, in our sole and absolute
discretion, accelerate the payment on your notes and pay you an amount
determined in good faith and in a commercially reasonable manner by the
calculation agent. If the payment on your notes is accelerated, your investment
may result in a loss and you may not be able to reinvest your money in a
comparable investment. Please see General Terms of Notes Consequences of a
Commodity Hedging Disruption Event C. Early Acceleration of Payment on the
Notes in the accompanying product supplement no. 206-A-I for more information.
- COMMODITY
FUTURES CONTRACTS ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES The commodity futures contracts that
underlie the Index are subject to legal and regulatory regimes in the United
States and, in some cases, in other countries that may change in ways that
could adversely affect our ability to hedge our obligations under the notes and
affect the value of the Index. Any future regulatory changes, including but
not limited to changes resulting from the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the Dodd-Frank Act), which was enacted on July 21,
2010, may have a substantial adverse effect on the value of your notes.
Additionally, in accordance with the Dodd-Frank Act, the U.S. Commodity Futures
Trading
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Commission is drafting
regulations that will affect market participants position limits in certain
commodity-based futures contracts, such as futures contracts on certain energy,
agricultural and metals based commodities. These proposed regulations, when
final and implemented, may reduce liquidity in the exchange-traded market for
such commodity-based futures contracts. Furthermore, we or our affiliates may
be unable as a result of such restrictions to effect transactions necessary to
hedge our obligations under the notes, in which case we may, in our sole and
absolute discretion, accelerate the payment on your notes. See We May
Accelerate Your Notes If a Commodity Hedging Disruption Event Occurs above.
- THERE ARE
RISKS ASSOCIATED WITH AN INVESTMENT LINKED INDIRECTLY TO CRUDE OIL Global prices of energy commodities,
including crude oil, are primarily affected by the global demand for and supply
of these commodities, but are also significantly influenced by speculative actions
and by currency exchange rates. In addition, prices for energy commodities are
affected by governmental programs and policies, national and international
political and economic events, changes in interest and exchange rates, trading
activities in commodities and related contracts, trade, fiscal, monetary and
exchange control policies and with respect to oil, drought, floods, weather,
government intervention, environmental policies, embargoes and tariffs. Demand
for refined petroleum products by consumers, as well as the agricultural,
manufacturing and transportation industries, affects the price of energy
commodities. Sudden disruptions in the supplies of energy commodities, such as
those caused by war, natural events, accidents or acts of terrorism, may cause
prices of energy commodities futures contracts to become extremely volatile and
unpredictable. Also, sudden and dramatic changes in the futures market may
occur, for example, upon a cessation of hostilities that may exist in countries
producing energy commodities, the introduction of new or previously withheld
supplies into the market or the introduction of substitute products or
commodities. In particular, supplies of crude oil may increase or decrease
depending on, among other factors, production decisions by the Organization of
the Oil and Petroleum Exporting Countries (OPEC) and other crude oil
producers. Crude oil prices are determined with significant influence by OPEC,
which has the capacity to influence oil prices worldwide because its members
possess a significant portion of the worlds oil supply. Crude oil prices are
generally more volatile and subject to dislocation than prices of other
commodities. Demand for energy commodities such as oil and gasoline is
generally linked to economic activity, and will tend to reflect general
economic conditions.
- FUTURES
CONTRACTS ON BRENT CRUDE OIL ARE THE BENCHMARK CRUDE OIL CONTRACTS IN EUROPEAN
AND ASIAN MARKETS
Because futures contracts on Brent crude oil are the benchmark crude oil
contracts in European and Asian markets, the Brent crude oil futures contracts
included in the Index will be affected by economic conditions in Europe and
Asia. A decline in economic activity in Europe or Asia could result in
decreased demand for crude oil and for futures contracts on crude oil, which
could adversely affect the value of the Brent crude oil futures contracts
included in the Index and, therefore, the Index and the notes.
- A
DECISION BY AN EXCHANGE ON WHICH THE FUTURES CONTRACTS UNDERLYING THE INDEX ARE
TRADED TO INCREASE MARGIN REQUIREMENTS MAY AFFECT THE LEVEL OF THE INDEX If an exchange on which the futures
contract underlying the Index are traded increases the amount of collateral
required to be posted to hold positions in such futures contracts (i.e., the margin requirements), market
participants who are unwilling or unable to post additional collateral may
liquidate their positions, which may cause the level of the Index to decline
significantly.
- THE
INDEX MAY BE MORE VOLATILE AND SUSCEPTIBLE TO PRICE FLUCTUATIONS OF COMMODITY
FUTURES CONTRACTS THAN A BROADER COMMODITIES INDEX The Index may be more volatile and
susceptible to price fluctuations than a broader commodities index, such as the
S&P GSCI. In contrast to the S&P GSCI, which includes contracts on
crude oil and non-crude oil commodities, the Index comprises contracts on only
crude oil. As a result, price volatility in the contracts included in the Index
will likely have a greater impact on the Index than it would on the broader
S&P GSCI. In addition, because the Index omits principal market sectors
composing the S&P GSCI, it will be less representative of the economy and
commodity markets as a whole and will therefore not serve as a reliable
benchmark for commodity market performance generally.
- THE
NOTES DO NOT OFFER DIRECT EXPOSURE TO COMMODITY SPOT PRICES The notes are linked to the Index,
which tracks commodity futures contracts, not physical commodities (or their
spot prices). The price of a futures contract reflects the expected value of
the commodity upon delivery in the future, whereas the spot price of a commodity
reflects the immediate delivery value of the commodity. A variety of factors
can lead to a disparity between the expected future price of a commodity and
the spot price at a given point in time, such as the cost of storing the
commodity for the term of the futures contract, interest charges incurred to
finance the purchase of the commodity and expectations concerning supply and
demand for the commodity. The price movements of a futures contract are
typically correlated with the movements of the spot price of the referenced
commodity, but the correlation is generally imperfect and price movements in
the spot market may not be reflected in the futures market (and vice versa).
Accordingly, the notes may underperform a similar investment that is linked to
commodity spot prices.
- OWNING
THE NOTES IS NOT THE SAME AS OWNING ANY COMMODITIES OR COMMODITY FUTURES
CONTRACTS The
return on your notes will not reflect the return you would realize if you
actually purchased the futures contracts composing the Index, the commodities
upon which the futures contracts that compose the Index are based, or other
exchange-traded or over-the-counter instruments based on the Index. You will
not have any rights that holders of such assets or instruments have.
- HIGHER
FUTURES PRICES OF THE COMMODITY FUTURES CONTRACTS UNDERLYING THE INDEX RELATIVE
TO THE CURRENT PRICES OF SUCH CONTRACTS MAY AFFECT THE VALUE OF THE INDEX AND
THE VALUE OF THE NOTES The Index is composed of futures contracts on physical commodities.
Unlike equities, which typically entitle the holder to a continuing stake in a
corporation, commodity futures contracts normally specify a certain date for
delivery of the underlying physical commodity. As the exchange-traded futures
contracts that compose the Index approach expiration, they are replaced by
contracts that have a later expiration. Thus, for example, a contract
purchased and held in August may specify an October expiration. As time
passes, the contract expiring in October is replaced with a contract for delivery
in November. This process is referred to as rolling. If the market for
these contracts is (putting aside other considerations) in contango, where
the prices are higher in the distant delivery months
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than in the nearer
delivery months, the purchase of the November contract would take place at a
price that is higher than the price of the October contract, thereby creating a
negative roll yield. Contango
could adversely affect the value of the Index and thus the value of notes
linked to the Index. The futures contracts underlying the Index have
historically been in contango.
- SUSPENSION
OR DISRUPTIONS OF MARKET TRADING IN THE COMMODITY MARKETS AND RELATED FUTURES
MARKETS MAY ADVERSELY AFFECT THE LEVEL OF THE INDEX, AND THEREFORE THE VALUE OF
THE NOTES The
commodity markets are subject to temporary distortions or other disruptions due
to various factors, including the lack of liquidity in the markets, the
participation of speculators and government regulation and intervention. In
addition, U.S. futures exchanges and some foreign exchanges have regulations
that limit the amount of fluctuation in futures contract prices that may occur
during a single day. These limits are generally referred to as daily price
fluctuation limits and the maximum or minimum price of a contract on any given
day as a result of these limits is referred to as a limit price. Once the
limit price has been reached in a particular contract, no trades may be made at
a different price. Limit prices have the effect of precluding trading in a
particular contract or forcing the liquidation of contracts at disadvantageous
times or prices. These circumstances could adversely affect the level of the
Index and, therefore, the value of your notes.
- THE
NOTES ARE LINKED TO AN EXCESS RETURN INDEX AND NOT A TOTAL RETURN INDEX The notes are linked to an excess
return index and not a total return index. An excess return index, such as the
Index, reflects the returns that are potentially available through an
unleveraged investment in the contracts composing such index. By contrast, a
total return index, in addition to reflecting those returns, also reflects
interest that could be earned on funds committed to the trading of the
underlying futures contracts.
- NO INTEREST PAYMENTS As a holder of the notes, you will not receive
any interest payments.
- 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.
- MANY ECONOMIC AND MARKET FACTORS WILL IMPACT
THE VALUE OF THE NOTES In addition to the
level of the Index on any day, the value of the notes will be affected by a
number of economic and market factors that may either offset or magnify each
other, including:
- the actual and expected
volatility of the Index and the underlying futures contracts;
- the time to maturity
of the notes;
- the market price of
the physical commodities upon which the futures contracts underlying the Index
are based;
- interest and yield
rates in the market generally;
- various economic,
financial, political, regulatory, geographical, agricultural, meteorological
and judicial events; and
- our creditworthiness, including actual or anticipated
downgrades in our credit ratings.
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Historical Information
The
following graph sets forth the historical performance of the Index based on the
weekly historical Index Closing Levels from January 6, 2006 through September 9,
2011. The Index Closing Level on September 9, 2011 was 781.7546. We obtained
the Index Closing Levels below from Bloomberg Financial Markets. We make no
representation or warranty as to the accuracy or completeness of the
information obtained from Bloomberg Financial Markets. The historical levels of
the Index should not be taken as an indication of future performance, and no
assurance can be given as to the Index Closing Level on the pricing date or any
Review Date. We cannot give you assurance that the performance of the Index
will result in the return of any of your initial investment.
Supplemental Plan of Distribution
JPMS,
acting as agent for JPMorgan Chase & Co., will receive a commission that
will depend on market conditions on the pricing date. In no event will that
commission exceed $5.00 per $1,000 principal amount note. See Plan of
Distribution (Conflicts of Interest) beginning on page PS-89 of the
accompanying product supplement no. 206-A-I.
For a
different portion of the notes to be sold in this offering, an affiliated bank
will receive a fee and another affiliate of ours will receive a structuring and
development fee. In no event will the total amount of these fees exceed $5.00
per $1,000 principal amount note.
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