Term Sheet
To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011 and
product supplement no. 20-I dated January 5, 2012
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Term Sheet to
Product Supplement No. 20-I
Registration Statement No. 333-177923
Dated April 15, 2013; Rule 433
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Structured
Investments
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$
Auto Callable Contingent Interest Notes Linked to the Class A Common Stock of Lennar Corporation due May 7, 2014
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General
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The notes are designed for investors who seek a Contingent Interest Payment with respect to each Review Date for which the closing price of one share of the Reference Stock is greater than or equal to 75% of the Initial Stock Price, which we refer to as the Interest Barrier. In addition, if the closing price of one share of the Reference Stock on any Review Date (other than the final Review Date) is greater than or equal to the Initial Stock Price, the notes will be automatically called. Investors in the notes should be willing to accept the risk of losing some or all of their principal and the risk that no Contingent Interest Payment may be made with respect to some or all Review Dates.
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Investors should be willing to forgo fixed interest and dividend payments, in exchange for the opportunity to receive a Contingent Interest Payment with respect to each Review Date for which the closing price of one share of the Reference Stock is greater than or equal to the Interest Barrier. Any payment on the notes is subject to the credit risk of JPMorgan Chase & Co.
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The first Review Date, and therefore the earliest date on which an automatic call may be initiated, is August 1, 2013.
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Unsecured and unsubordinated obligations of JPMorgan Chase & Co. maturing May 7, 2014†
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Minimum denominations of $10,000 and integral multiples of $1,000 in excess thereof
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The notes are expected to price on or about April 19, 2013 and are expected to settle on or about April 24, 2013.
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Reference Stock:
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The Class A common stock, par value $0.10 per share, of Lennar Corporation (New York Stock Exchange symbol “LEN”). We refer to Lennar Corporation as “Lennar.”
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Contingent Interest Payments:
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If the notes have not been previously called and the closing price of one share of the Reference Stock on any Review Date is greater than or equal to the Interest Barrier, you will receive on the applicable Interest Payment Date for each $1,000 principal amount note a Contingent Interest Payment equal to $35.125 (equivalent to an interest rate of 14.05% per annum, payable at a rate of 3.5125% per quarter).
If the closing price of one share of the Reference Stock on any Review Date is less than the Interest Barrier, no Contingent Interest Payment will be made with respect to that Review Date.
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Interest Barrier / Trigger Level:
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75% of the Initial Stock Price (subject to adjustments)
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Interest Rate:
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14.05% per annum, payable at a rate of 3.5125% per quarter, if applicable
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Automatic Call:
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If the closing price of one share of the Reference Stock on any Review Date (other than the final Review Date) is greater than or equal to the Initial Stock Price, the notes will be automatically called for a cash payment, for each $1,000 principal amount note, equal to (a) $1,000 plus (b) the Contingent Interest Payment applicable to that Review Date, payable on the applicable Call Settlement Date.
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Payment at Maturity:
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If the notes have not been previously called and the Final Stock Price is greater than or equal to the Trigger Level, you will receive a cash payment at maturity, for each $1,000 principal amount note, equal to (a) $1,000 plus (b) the Contingent Interest Payment applicable to the final Review Date.
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If the notes have not been previously called and the Final Stock Price is less than the Trigger Level, at maturity you will lose 1% of the principal amount of your notes for every 1% that the Final Stock Price is less than the Initial Stock 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 × Stock Return)
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If the notes have not been automatically called and the Final Stock Price is less than the Trigger Level, you will lose more than 25% of your initial investment and may lose all of your initial investment at maturity.
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Stock Return:
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Final Stock Price – Initial Stock Price
Initial Stock Price
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Initial Stock Price:
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The closing price of one share of the Reference Stock on the pricing date, divided by the Stock Adjustment Factor
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Final Stock Price:
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The closing price of one share of the Reference Stock on the final Review Date
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Stock Adjustment Factor:
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Set initially at 1.0 on the pricing date and subject to adjustment upon the occurrence of certain corporate events affecting the Reference Stock. See “General Terms of Notes — Additional Reference Stock Provisions — Anti-Dilution Adjustments” in the accompanying product supplement no. 20-I for further information.
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Review Dates†:
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August 1, 2013 (first Review Date), October 31, 2013 (second Review Date), January 30, 2014 (third Review Date) and May 2, 2014 (final Review Date)
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Interest Payment Dates†:
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With respect to each Review Date other than the final Review Date, the third business day after the related Review Date. The Contingent Interest Payment, if any, with respect to the final Review Date will be made on the maturity date.
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Call Settlement Date†:
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If the notes are automatically called on any Review Date, the first Interest Payment Date immediately following that Review Date
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Maturity Date†:
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May 7, 2014
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CUSIP:
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48126DY52
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†
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Subject to postponement in the event of certain market disruption events and as described under “Description of Notes — Postponement of a Review Date — Notes Linked to a Single Component” and “Description of Notes — Postponement of a Payment Date” in the accompanying product supplement no. 20-I
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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 and Hedging” beginning on page PS-40 of the accompanying product supplement no. 20-I.
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(2)
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Please see “Supplemental Plan of Distribution” in this term sheet for information about fees and commissions.
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Product supplement no. 20-I dated January 5, 2012:
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Prospectus supplement dated November 14, 2011:
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Prospectus dated November 14, 2011:
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JPMorgan Structured Investments —
Auto Callable Contingent Interest Notes Linked to the Class A Common Stock of Lennar Corporation
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TS-1
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Review Dates Prior to the Final Review Date
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Final Review Date
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Closing Price
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Reference Stock Appreciation / Depreciation
at Review Date
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Payment on Interest Payment Date or Call Settlement Date (1)(2)
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Stock Return
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Payment at Maturity (2)
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$72.000
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80.00%
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$1,035.125
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80.00%
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$1,035.125
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$68.000
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70.00%
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$1,035.125
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70.00%
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$1,035.125
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$64.000
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60.00%
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$1,035.125
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60.00%
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$1,035.125
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$60.000
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50.00%
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$1,035.125
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50.00%
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$1,035.125
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$56.000
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40.00%
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$1,035.125
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40.00%
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$1,035.125
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$52.000
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30.00%
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$1,035.125
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30.00%
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$1,035.125
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$50.000
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25.00%
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$1,035.125
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25.00%
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$1,035.125
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$48.000
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20.00%
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$1,035.125
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20.00%
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$1,035.125
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$46.000
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15.00%
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$1,035.125
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15.00%
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$1,035.125
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$44.000
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10.00%
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$1,035.125
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10.00%
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$1,035.125
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$42.000
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5.00%
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$1,035.125
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5.00%
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$1,035.125
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$40.000
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0.00%
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$1,035.125
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0.00%
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$1,035.125
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$38.000
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-5.00%
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$35.125
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-5.00%
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$1,035.125
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$36.000
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-10.00%
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$35.125
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-10.00%
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$1,035.125
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$34.000
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-15.00%
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$35.125
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-15.00%
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$1,035.125
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$32.000
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-20.00%
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$35.125
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-20.00%
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$1,035.125
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$30.000
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-25.00%
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$35.125
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-25.00%
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$1,035.125
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$29.996
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-25.01%
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$0.00
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-25.01%
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$1,035.125
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$28.000
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-30.00%
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$0.00
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-30.00%
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$776.240
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$24.000
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-40.00%
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$0.00
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-40.00%
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$724.588
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$20.000
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-50.00%
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$0.00
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-50.00%
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$621.075
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$16.000
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-60.00%
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$0.00
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-60.00%
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$517.563
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$12.000
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-70.00%
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$0.00
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-70.00%
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$414.050
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$8.000
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-80.00%
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$0.00
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-80.00%
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$310.538
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$4.000
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-90.00%
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$0.00
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-90.00%
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$207.025
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$0.000
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-100.00%
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$0.00
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-100.00%
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$0.00
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JPMorgan Structured Investments —
Auto Callable Contingent Interest Notes Linked to the Class A Common Stock of Lennar Corporation
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TS-2
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JPMorgan Structured Investments —
Auto Callable Contingent Interest Notes Linked to the Class A Common Stock of Lennar Corporation
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TS-3
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QUARTERLY CONTINGENT INTEREST PAYMENTS — The notes offer the potential to earn a Contingent Interest Payment in connection with each quarterly Review Date of $35.125 per $1,000 principal amount note (equivalent to an interest rate of 14.05% per annum, payable at a rate of 3.5125% per quarter). If the notes have not been previously called and the closing price of one share of the Reference Stock on any Review Date is greater than or equal to the Interest Barrier, you will receive a Contingent Interest Payment on the applicable Interest Payment Date. If the closing price of one share of the Reference Stock on any Review Date is less than the Interest Barrier, no Contingent Interest Payment will be made with respect to that Review Date. If payable, a Contingent Interest Payment will be made to the holders of record at the close of business on the business day immediately preceding the applicable Interest Payment Date. 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 AS A RESULT OF THE AUTOMATIC CALL FEATURE — If the closing price of one share of the Reference Stock on any Review Date (other than the final Review Date) is greater than or equal to the Initial Stock Price, your notes will be automatically called prior to the maturity date. Under these circumstances, on the applicable Call Settlement Date, for each $1,000 principal amount note, you will receive (a) $1,000 plus (b) the Contingent Interest Payment applicable to that Review Date, payable on the applicable Call Settlement Date.
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THE NOTES DO NOT GUARANTEE THE RETURN OF YOUR PRINCIPAL IF THE NOTES ARE NOT AUTOMATICALLY CALLED — If the notes are not automatically called, we will pay you your principal back at maturity so long as the Final Stock Price is greater than or equal to the Trigger Level. However, if the notes are not automatically called and the Final Stock Price is less than the Trigger Level, you will lose more than 25% of your principal amount and could lose up to the entire principal amount of your notes.
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RETURN LINKED TO A SINGLE REFERENCE STOCK — The return on the notes is linked to the performance of a single Reference Stock, which is the Class A common stock of Lennar. For additional information see “The Reference Stock” in this term sheet.
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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. 20-I. In determining our reporting responsibilities we intend to treat (i) the notes for U.S. federal income tax purposes as prepaid forward contracts with associated contingent coupons and (ii) any Contingent Interest Payments as ordinary income, as described in the section entitled “Material U.S. Federal Income Tax Consequences — Tax Consequences to U.S. Holders — Tax Treatment as Prepaid Forward Contracts with Associated Contingent Coupons” in the accompanying product supplement no. 20-I. Based on the advice of Davis Polk & Wardwell LLP, our special tax counsel, we believe that this is a reasonable treatment, but that there are other reasonable treatments that the Internal Revenue Service (the “IRS”) or a court may adopt, in which case the timing and character of any income or loss on the notes could be materially affected. In addition, in 2007 Treasury and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require investors in these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments and the relevance of factors such as the nature of the underlying property to which the instruments are linked. 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 affect the tax consequences of an investment in the notes, possibly with retroactive effect. You should consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the notes, including possible alternative treatments and the issues presented by this notice.
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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, we will pay you your principal back at maturity only if the Final Stock Price is greater than or equal to the Trigger Level. If the notes are not automatically called and the Final Stock Price is less than the Trigger Level, you will lose 1% of your principal amount at maturity for every 1% that the Final Stock Price is less than the Initial Stock Price. Accordingly,
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JPMorgan Structured Investments —
Auto Callable Contingent Interest Notes Linked to the Class A Common Stock of Lennar Corporation
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TS-4
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under these circumstances, you will lose more than 25% of your principal amount and could lose up to the entire principal amount of your notes.
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THE NOTES DO NOT GUARANTEE THE PAYMENT OF INTEREST AND MAY NOT PAY ANY INTEREST AT ALL — The terms of the notes differ from those of conventional debt securities in that, among other things, whether we pay interest is linked to the performance of the Reference Stock. We will make a Contingent Interest Payment with respect to a Review Date only if the closing price of one share of the Reference Stock on that Review Date is greater than or equal to the Interest Barrier. If the closing price of one share of the Reference Stock on that Review Date is less than the Interest Barrier, no Contingent Interest Payment will be made with respect to that Review Date, and the Contingent Interest Payment that would otherwise have been payable with respect to that Review Date will not be accrued and subsequently paid. Accordingly, if the closing price of one share of the Reference Stock on each Review Date is less than the Interest Barrier, you will not receive any interest payments over the term of the notes.
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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, and therefore investors are subject to our credit risk and to changes in the market’s 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 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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THE APPRECIATION POTENTIAL OF THE NOTES IS LIMITED, AND YOU WILL NOT PARTICIPATE IN ANY APPRECIATION IN THE PRICE OF THE REFERENCE STOCK — The appreciation potential of the notes is limited to the sum of any Contingent Interest Payments that may be paid over the term of the notes, regardless of any appreciation in the price of the Reference Stock, which may be significant. You will not participate in any appreciation in the price of the Reference Stock. Accordingly, the return on the notes may be significantly less than the return on a direct investment in the Reference Stock during the term of the notes.
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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 hedging our obligations under the notes. 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 could result in substantial returns for us or our affiliates while the value of the notes declines. Please refer to “Risk Factors — Risks Relating to the Notes Generally” in the accompanying product supplement no. 20-I for additional information about these risks.
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THE BENEFIT PROVIDED BY THE TRIGGER LEVEL MAY TERMINATE ON THE FINAL REVIEW DATE— If the Final Stock Price is less than the Trigger Level, the benefit provided by the Trigger Level will terminate and you will be fully exposed to any depreciation in the closing price of one share of the Reference Stock. Because the Final Stock Price will be determined based on the closing price on a single day near the end of the term of the notes, the price of the Reference Stock at the maturity date or at other times during the term of the notes could be greater than or equal to the Trigger Level. This difference could be particularly large if there is a significant decrease in the price of the Reference Stock during the later portion of the term of the notes or if there is significant volatility in the price of the Reference Stock during the term of the notes, especially on dates near the final Review Date.
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THE AUTOMATIC CALL FEATURE MAY FORCE A POTENTIAL EARLY EXIT — If the notes are automatically called, the amount of Contingent Interest Payments made on the notes may be less than the amount of Contingent Interest Payments that would have been payable if the notes were held to maturity, and, for each $1,000 principal amount note, you will receive $1,000 plus the Contingent Interest Payment applicable to the relevant Review Date.
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REINVESTMENT RISK — If your notes are automatically called, the term of the notes may be reduced to as short as approximately three months and you will not receive any Contingent Interest Payments after the applicable Call Settlement Date. There is no guarantee that you would be able to reinvest the proceeds from an investment in the notes at a comparable return and/or with a comparable interest rate for a similar level of risk in the event the notes are automatically called prior to the maturity date.
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CERTAIN BUILT-IN COSTS ARE LIKELY TO AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR TO MATURITY — While any payment on the notes described in this term sheet is based on the full principal amount of your notes, the original issue price of the notes includes the agent’s commission and the estimated cost of hedging our obligations under the notes. As a result, and as a general matter, 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. This secondary market price will also be affected by a number of factors aside from the agent’s commission and hedging costs, including those set forth under “Many Economic and Market Factors Will Impact the Value of the Notes” below.
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NO OWNERSHIP OR DIVIDEND RIGHTS IN THE REFERENCE STOCK — As a holder of the notes, you will not have any ownership interest or rights in the Reference Stock, such as voting rights or dividend payments. In addition, the issuer of the Reference
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JPMorgan Structured Investments —
Auto Callable Contingent Interest Notes Linked to the Class A Common Stock of Lennar Corporation
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TS-5
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Stock will not have any obligation to consider your interests as a holder of the notes in taking any corporate action that might affect the value of the Reference Stock and the notes.
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NO AFFILIATION WITH THE REFERENCE STOCK ISSUER — We are not affiliated with the issuer of the Reference Stock. We have not independently verified any of the information about the Reference Stock issuer contained in this term sheet. You should undertake your own investigation into the Reference Stock and its issuer. We are not responsible for the Reference Stock issuer’s public disclosure of information, whether contained in SEC filings or otherwise.
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SINGLE STOCK RISK — The price of the Reference Stock can fall sharply due to factors specific to the Reference Stock and its issuer, such as stock price volatility, earnings, financial conditions, corporate, industry and regulatory developments, management changes and decisions and other events, as well as general market factors, such as general stock market volatility and levels, interest rates and economic and political conditions.
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RISK OF THE CLOSING PRICE OF THE REFERENCE STOCK FALLING BELOW THE INTEREST BARRIER OR THE TRIGGER LEVEL IS GREATER IF THE PRICE OF THE REFERENCE STOCK IS VOLATILE — The likelihood of the closing price of one share of the Reference Stock falling below the Interest Barrier or the Trigger Level will depend in large part on the volatility of the price of the Reference Stock — the frequency and magnitude of changes in the price of the Reference Stock.
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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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HEDGING AND TRADING IN THE REFERENCE STOCK — While the notes are outstanding, we or any of our affiliates may carry out hedging activities related to the notes, including in the Reference Stock or instruments related to the Reference Stock. We or our affiliates may also trade in the Reference Stock or instruments related to the Reference Stock from time to time. Any of these hedging or trading activities as of the pricing date and during the term of the notes could adversely affect whether a Contingent Interest Payment will be payable or our payment to you at maturity. It is possible that these hedging or trading activities could result in substantial returns for us or our affiliates while the value of the notes declines.
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THE ANTI-DILUTION PROTECTION FOR THE REFERENCE STOCK IS LIMITED AND MAY BE DISCRETIONARY — The calculation agent will make adjustments to the Stock Adjustment Factor for certain corporate events affecting the Reference Stock. However, the calculation agent will not make an adjustment in response to all events that could affect the Reference Stock. 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. You should also be aware that the calculation agent may make adjustments in response to events that are not described in the accompanying product supplement to account for any diluting or concentrative effect, but the calculation agent is under no obligation to do so or to consider your interests as a holder of the notes in making these determinations.
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MANY ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE NOTES — In addition to the closing price of one share of the Reference Stock on any day, the value of the notes will be impacted by a number of economic and market factors that may either offset or magnify each other, including:
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the actual and expected volatility in the price of the Reference Stock;
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the time to maturity of the notes;
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whether the closing price of one share of the Reference Stock has been, or is expected to be, less than the Interest Barrier on any Review Date and whether the Final Stock Price is expected to be less than the Trigger Level;
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the dividend rate on the Reference Stock;
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the occurrence of certain events affecting the issuer of the Reference Stock that may or may not require an adjustment to the Stock Adjustment Factor, including a merger or acquisition;
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interest and yield rates in the market generally;
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a variety of economic, financial, political, regulatory and judicial events; and
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our creditworthiness, including actual or anticipated downgrades in our credit ratings.
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JPMorgan Structured Investments —
Auto Callable Contingent Interest Notes Linked to the Class A Common Stock of Lennar Corporation
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TS-6
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JPMorgan Structured Investments —
Auto Callable Contingent Interest Notes Linked to the Class A Common Stock of Lennar Corporation
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TS-7
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