Term sheet
To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011,
product supplement no. 4-I dated November 14, 2011 and
underlying supplement no. 1-I dated November 14, 2011
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Term sheet to
Product Supplement no. 4-I
Registration Statement No. 333-177923
Dated January 31, 2012; Rule 433
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Structured
Investments
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$
Buffered Return Enhanced Notes Linked to the Russell 2000® Index due August 30, 2013
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The notes are designed for investors who seek a return of 2 times the appreciation of the Russell 2000® Index, up to a maximum return that will not be less than 19.00% or greater than 23.00% at maturity. Investors should be willing to forgo interest and dividend payments and, if the Ending Index Level is less than the Initial Index Level by more than 10%, be willing to lose up to 90% of their principal. Any payment on the notes is subject to the credit risk of JPMorgan Chase & Co.
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Senior unsecured obligations of JPMorgan Chase & Co. maturing August 30, 2013*
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Minimum denominations of $1,000 and integral multiples thereof
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The notes are expected to price on or about February 24, 2012 and are expected to settle on or about February 29, 2012.
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Index:
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The Russell 2000® Index (“RTY”) (the “Index”)
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Upside Leverage Factor:
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2
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Payment at Maturity:
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If the Ending Index Level is greater than the Initial Index Level, at maturity you will receive a cash payment that provides you with a return per $1,000 principal amount note equal to the Index Return multiplied by 2, subject to the Maximum Return. Accordingly, if the Ending Index Level is greater than the Initial Index Level, 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 × 2)], subject to the Maximum Return
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If the Ending Index Level is equal to or less than the Initial Index Level by up to 10%, you will receive the principal amount of your notes at maturity.
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If the Ending Index Level is less than the Initial Index Level by more than 10%, you will lose 1% of the principal amount of your notes for every 1% that the Ending Index Level is less than the Initial Index Level by more than 10%, 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 + 10%)]
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If the Ending Index Level is less than the Initial Index Level by more than 10%, you could lose up to $900 per $1,000 principal amount note.
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Maximum Return:
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Between 19.00% and 23.00%. For example, assuming the Maximum Return is 19.00%, if the Index Return is equal to or greater than 9.50%, you will receive the Maximum Return of 19.00%, which entitles you to a maximum payment at maturity of $1,190 per $1,000 principal amount note that you hold. The actual Maximum Return will be determined on the pricing date and will not be less than 19.00% or greater than 23.00%. Accordingly, the actual maximum payment at maturity per $1,000 principal amount note will not be less than $1,190 or greater than $1,230.
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Buffer Amount:
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10%
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Index Return:
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Ending Index Level – Initial Index Level
Initial Index Level
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Initial Index Level:
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The Index closing level on the pricing date
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Ending Index Level:
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The Index closing level on the Observation Date
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Observation Date†:
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August 27, 2013
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Maturity Date†:
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August 30, 2013
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CUSIP:
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48125VLR9
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*
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Subject to postponement in the event of a market disruption event and as described under “Description of Notes — Payment at Maturity” and “Description of Notes —Postponement of a Determination Date—A. Notes Linked to a Single Component” in the accompanying product supplement no. 4-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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Total
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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.
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(2)
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If the notes priced today and assuming a Maximum Return of 19.00%, J.P. Morgan Securities LLC, which we refer to as JPMS, acting as agent for JPMorgan Chase & Co., would receive a commission of approximately $27.90 per $1,000 principal amount note and may use a portion of that commission to allow selling concessions to other affiliated or unaffiliated dealers of approximately $2.50 per $1,000 principal amount note. The other dealers may forgo, in their sole discretion, some or all of their selling concessions. This commission includes the projected profits that our affiliates expect to realize, some of which may be allowed to other unaffiliated dealers, for assuming risks inherent in hedging our obligations under the notes. The actual commission received by JPMS may be more or less than $27.90 and will depend on market conditions on the pricing date. In no event will the commission received by JPMS, which includes concessions and other amounts that may be allowed to other dealers, exceed $40.00 per $1,000 principal amount note. See “Plan of Distribution (Conflicts of Interest)” beginning on page PS-77 of the accompanying product supplement no. 4-I.
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Product supplement no. 4-I dated November 14, 2011:
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Underlying supplement no. 1-I dated November 14, 2011:
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Prospectus supplement dated November 14, 2011:
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Prospectus dated November 14, 2011:
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CAPPED APPRECIATION POTENTIAL — The notes provide the opportunity to enhance equity returns by multiplying a positive Index Return by 2, up to the Maximum Return. The actual Maximum Return will be set on the pricing date and will not be less than 19.00% or greater than 23.00%. Accordingly, the actual maximum payment at maturity will not be less than $1,190 or greater than $1,230 per $1,000 principal amount note. Because the notes are our senior unsecured obligations, payment of any amount at maturity is subject to our ability to pay our obligations as they become due.
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LIMITED PROTECTION AGAINST LOSS — We will pay you your principal back at maturity if the Ending Index Level is not less than the Initial Index Level by more than 10%. If the Ending Index Level is less than the Initial Index Level by more than 10%, for every 1% that the Ending Index Level is less than the Initial Index Level by more than 10%, you will lose an amount equal to 1% of the principal amount of your notes.
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RETURN LINKED TO THE RUSSELL 2000® INDEX — The return on the notes is linked to the Russell 2000® Index. The Russell 2000® Index consists of the middle 2,000 companies included in the Russell 3000ETM Index and, as a result of the index calculation methodology, consists of the smallest 2,000 companies included in the Russell 3000® Index. The Russell 2000® Index is designed to track the performance of the small capitalization segment of the U.S. equity market. See “Equity Index Descriptions —The Russell Indices” in the accompanying underlying supplement no. 1-I.
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JPMorgan Structured Investments —
Buffered Return Enhanced Notes Linked to the Russell 2000® Index
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TS-1
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CAPITAL GAINS TAX TREATMENT — You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4-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. Assuming this treatment is respected, the gain or loss on your notes should be treated as long-term capital gain or loss if you hold your notes for more than a year, whether or not you are an initial purchaser of notes at the issue price. However, the Internal Revenue Service (the “IRS”) or a court may not respect this 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, such as 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; the degree, if any, to which income (including any mandated accruals) realized by Non-U.S. Holders should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the notes, possibly with retroactive effect. 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.
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal. The return on the notes at maturity is linked to the performance of the Index and will depend on whether, and the extent to which, the Index Return is positive or negative. Your investment will be exposed to loss if the Ending Index Level is less than the Initial Index Level by more than 10%. For every 1% that the Ending Index Level is less than the Initial Index Level by more than 10%, you will lose an amount equal to 1% of the principal amount of your notes. Accordingly, you could lose up to 90% of your initial investment at maturity.
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YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM RETURN — If the Ending Index Level is greater than the Initial Index Level, for each $1,000 principal amount note, you will receive at maturity $1,000 plus an additional return that will not exceed a predetermined percentage of the principal amount, regardless of the appreciation in the Index, which may be significant. We refer to this predetermined percentage as the Maximum Return, which will be set on the pricing date and will not be less than 19.00% or greater than 23.00%.
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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 at maturity, 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 affect adversely 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 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 these 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.
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AN INVESTMENT IN THE NOTES IS SUBJECT TO RISKS ASSOCIATED WITH SMALL CAPITALIZATION STOCKS — The stocks that constitute the Russell 2000® Index are issued by companies with relatively small market capitalization. The stock prices of smaller companies may be more volatile than stock prices of large capitalization companies. Small capitalization companies may be less able to withstand adverse economic, market, trade and competitive conditions relative to larger companies. Small capitalization companies are less likely to pay dividends on their stocks, and the presence of a dividend payment could be a factor that limits downward stock price pressure under adverse market conditions.
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JPMorgan Structured Investments —
Buffered Return Enhanced Notes Linked to the Russell 2000® Index
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TS-2
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CERTAIN BUILT-IN COSTS ARE LIKELY TO AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR TO MATURITY — While the payment at maturity, 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 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.
The notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your notes to maturity.
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NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive interest payments, and you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities composing the Index would have.
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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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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:
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JPMorgan Structured Investments —
Buffered Return Enhanced Notes Linked to the Russell 2000® Index
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TS-3
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Ending Index Level
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Index Return
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Total Return on Notes
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Payment at Maturity
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1440.00
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80.00%
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19.00%
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$1,190
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1320.00
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65.00%
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19.00%
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$1,190
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1200.00
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50.00%
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19.00%
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$1,190
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1120.00
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40.00%
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19.00%
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$1,190
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1040.00
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30.00%
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19.00%
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$1,190
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960.00
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20.00%
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19.00%
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$1,190
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920.00
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15.00%
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19.00%
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$1,190
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880.00
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10.00%
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19.00%
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$1,190
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876.00
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9.50%
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19.00%
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$1,190
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840.00
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5.00%
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10.00%
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$1,100
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808.00
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1.00%
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2.00%
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$1,020
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800.00
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0.00%
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0.00%
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$1,000
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760.00
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-5.00%
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0.00%
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$1,000
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720.00
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-10.00%
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0.00%
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$1,000
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680.00
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-15.00%
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-5.00%
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$950
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560.00
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-30.00%
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-20.00%
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$800
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480.00
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-40.00%
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-30.00%
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$700
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400.00
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-50.00%
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-40.00%
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$600
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320.00
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-60.00%
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-50.00%
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$500
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240.00
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-70.00%
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-60.00%
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$400
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160.00
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-80.00%
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-70.00%
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$300
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80.00
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-90.00%
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-80.00%
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$200
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0
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-100.00%
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-90.00%
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$100
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JPMorgan Structured Investments —
Buffered Return Enhanced Notes Linked to the Russell 2000® Index
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TS-4
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JPMorgan Structured Investments —
Buffered Return Enhanced Notes Linked to the Russell 2000® Index
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TS-5
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