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May 2015
Preliminary Terms No. 387
Registration Statement No. 333-199966
Dated May 27, 2015 Filed pursuant
to Rule 433 |
STRUCTURED INVESTMENTS
Opportunities in Commodities
PLUS Based on the Value of the S&P GSCITM Excess Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
The PLUS offered are unsecured and unsubordinated obligations of JPMorgan Chase & Co., will pay no interest, do not guarantee any return of your principal
at maturity and have the terms described in the accompanying product supplement no. 2a-I, underlying supplement no. 1a-I, the prospectus supplement and the prospectus, as supplemented or modified by this document. At maturity, if the underlying
index has appreciated in value, investors will receive the stated principal amount of their investment plus leveraged upside performance of the underlying index, subject to a maximum payment at maturity. However, if the underlying index has declined
in value, at maturity investors will lose 1% for every 1% decline. The PLUS are for investors who seek a commodity-based return and who are willing to risk their principal and forgo current income and upside above the maximum payment at maturity in
exchange for the leverage feature that applies to a limited range of positive performance of the underlying index. At maturity, an investor will receive an amount in cash that may be greater than, equal to, or less than the stated principal amount
based upon the closing level of the underlying index on the valuation date. All payments on the PLUS are subject to the credit risk of JPMorgan Chase & Co. The investor may lose some or all of the stated principal amount of the PLUS.
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SUMMARY
TERMS |
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Issuer: |
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JPMorgan Chase & Co. |
Underlying index: |
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S&P GSCITM Excess Return |
Aggregate principal amount: |
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$ |
Payment at maturity: |
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If the final index value is greater than the initial index value, for each $1,000 stated principal amount PLUS, |
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$1,000 + leveraged upside payment In no event will the payment at maturity exceed the maximum payment at maturity.
If the final index value is less than or equal to the initial index value, for each $1,000 stated principal amount PLUS,
$1,000 × index performance factor
This amount will be less than or equal to the stated principal amount of $1,000 per PLUS. |
Leveraged upside payment: |
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$1,000 × leverage factor × index percent increase |
Index percent increase: |
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(final index value initial index value) / initial index value |
Initial index value: |
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The closing level of the underlying index on the pricing date |
Final index value: |
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The closing level of the underlying index on the valuation date |
Leverage factor: |
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150% |
Index performance factor: |
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final index value / initial index value |
Maximum payment at maturity: |
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At least $1,146.50 (at least 114.65% of the stated principal amount) per PLUS. The actual maximum payment at maturity will be provided in the pricing supplement and will
not be less than $1,146.50 per PLUS. |
Stated principal amount: |
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$1,000 per PLUS |
Issue price: |
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$1,000 per PLUS (see Commissions and issue price below) |
Pricing date: |
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May , 2015 (expected to price on or about May 29, 2015) |
Original issue date (settlement date): |
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June , 2015 (3 business days after the pricing date) |
Valuation date: |
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June 29, 2016, subject to postponement in the event of certain market disruption events and as described under General Terms of Notes Postponement of a Determination Date
Notes Linked to a Single Underlying Notes Linked to a Single Index in the accompanying product supplement no. 2a-I |
Maturity date: |
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July 5, 2016, subject to postponement in the event of certain market disruption events and as described under General Terms of Notes Notes Linked to a Single
Underlying Notes Linked to a Single Index 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
Acceleration of the Notes in the accompanying product supplement no. 2a-I and in Risk Factors We May Accelerate Your Notes If a Commodity Hedging Disruption Event Occurs in the accompanying product supplement no.
2a-I |
CUSIP / ISIN: |
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48125USW3 / US48125USW35 |
Listing: |
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The PLUS will not be listed on any securities exchange. |
Agent: |
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J.P. Morgan Securities LLC (JPMS) |
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Commissions and issue price: |
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Price to public(1) |
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Fees and commissions |
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Proceeds to issuer |
Per PLUS |
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$1,000.00 |
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$17.502) |
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$977.50 |
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$5.00(3) |
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Total |
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$ |
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$ |
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$ |
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(1) |
See Additional Information about the PLUS Supplemental use of proceeds and hedging in this document for information about the components of the price to
public of the PLUS. |
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(2) |
JPMS, acting as agent for JPMorgan Chase & Co., will pay all of the selling commissions it receives from us to Morgan Stanley Smith Barney LLC (Morgan Stanley
Wealth Management). In no event will these selling commissions exceed $17.50 per $1,000 stated principal amount PLUS. See Plan of Distribution (Conflicts of Interest) beginning on page PS-79 of the accompanying product supplement
no. 2a-I. |
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(3) |
Reflects a structuring fee payable to Morgan Stanley Wealth Management by the agent or its affiliates of $5.00 for each $1,000 stated principal amount PLUS
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If the PLUS priced today and assuming a maximum payment at maturity equal to the minimum listed above, the estimated value of the
PLUS as determined by JPMS would be approximately $971.40 per $1,000 stated principal amount PLUS. JPMSs estimated value of the PLUS on the pricing date will be provided by JPMS in the pricing supplement and will not be less than $950.00 per
$1,000 stated principal amount PLUS. See Additional Information about the PLUS JPMSs estimated value of the PLUS in this document for additional information.
Investing in the PLUS involves a number of risks. See Risk Factors beginning on page PS-8 of the accompanying product supplement no. 2a-I, Risk Factors beginning on page US-2 of the
accompanying underlying supplement no. 1a-I and Risk Factors beginning on page 5 of this document.
Neither the Securities and Exchange
Commission (the SEC) nor any state securities commission has approved or disapproved of the PLUS or passed upon the accuracy or the adequacy of this document or the accompanying product supplement, underlying supplement, prospectus
supplement and prospectus. Any representation to the contrary is a criminal offense.
The PLUS are not bank deposits, are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency and are not obligations of, or guaranteed by, a bank.
You should
read this document together with the related product supplement no. 2a-I, underlying supplement no. 1a-I, prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see Additional Information
about the PLUS at the end of this document.
Product supplement no. 2a-I dated November
7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008404/e61363_424b2.pdf
Underlying supplement no. 1a-I dated November
7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008410/e61337_424b2.pdf
Prospectus supplement and prospectus, each dated November
7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008397/e61348_424b2.pdf
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Investment Summary
Performance Leveraged Upside Securities
Principal at Risk Securities
The PLUS Based on the Value of the S&P GSCITM Excess Return due July 5, 2016 (the PLUS) can be used:
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As an alternative to direct exposure to the underlying index that enhances returns for a certain range of positive performance of the underlying index.
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To potentially achieve similar levels of upside exposure to the underlying index as a direct investment, subject to the maximum payment at maturity, while using
fewer dollars by taking advantage of the leverage factor. |
The PLUS are exposed on a 1:1 basis to the negative performance of the
underlying index.
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Maturity: |
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Approximately 13 months |
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Leverage factor: |
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150% |
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Maximum payment at maturity: |
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At least $1,146.50 (at least 114.65% of the stated principal amount) per PLUS (to be provided in the pricing supplement) |
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Minimum payment at maturity: |
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None. Investors may lose their entire initial investment in the PLUS. |
Supplemental Terms of the PLUS
For purposes of the accompanying product supplement, the underlying index is an Index.
For purposes of
the PLUS offered by this document, the consequences of a commodity hedging disruption event are described under General Terms of Notes Consequences of a Commodity Hedging Disruption Event Acceleration of the Notes in the
accompanying product supplement.
The PLUS are not commodity futures contracts or swaps and are not regulated under the Commodity Exchange Act of
1936, as amended (the Commodity Exchange Act). The PLUS are offered pursuant to an exemption from regulation under the Commodity Exchange Act, commonly known as the hybrid instrument exemption, that is available to PLUS that have one
or more payments indexed to the value, level or rate of one or more commodities, as 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.
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Key Investment Rationale
PLUS offer leveraged exposure to an underlying asset, which may be equities, commodities and/or currencies, without any protection against negative performance of the asset. If the asset has decreased in value,
investors are fully exposed to the negative performance of the asset. At maturity, if the asset has appreciated, investors will receive the stated principal amount of their investment plus leveraged upside performance of the underlying asset,
subject to the maximum payment at maturity. At maturity, if the asset has depreciated, the investor will lose 1% for every 1% decline. Investors may lose some or all of the stated principal amount of the PLUS.
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Leveraged Performance |
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The PLUS offer investors an
opportunity to capture enhanced returns for a certain range of positive performance relative to a direct investment in the underlying index. |
Upside Scenario |
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The underlying index increases in value and, at maturity, the PLUS pay the
stated principal amount of $1,000 plus a return equal to 150% of the index percent increase, subject to the maximum payment at maturity of at least $1,146.50 (at least 114.65% of the stated principal amount) per PLUS. The actual maximum payment at
maturity will be provided in the pricing supplement. |
Par Scenario |
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The final index value is equal to the initial index value and, at
maturity, the PLUS pay the stated principal amount of $1,000 per PLUS. |
Downside Scenario |
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The underlying index declines in value and, at maturity, the PLUS pay an
amount that is less than the stated principal amount by an amount that is proportionate to the percentage decline of the final index value from the initial index value. (Example: if the underlying index decreases in value by 20%, the PLUS will pay
an amount that is less than the stated principal amount by 20%, or $800 per PLUS.) |
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
How the PLUS Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity on the PLUS based
on the following terms:
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Stated principal amount: |
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$1,000 per PLUS |
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Hypothetical leverage factor: |
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150% |
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Maximum payment at maturity: |
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$1,146.50 (114.65% of the stated principal amount) per PLUS (which represents the lowest hypothetical maximum payment at maturity)* |
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The actual maximum payment at maturity will be provided in the pricing supplement and will not be less than $1,146.50 per PLUS. |
How it works
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Upside Scenario. Under the hypothetical terms of the PLUS, if the final index value
is greater than the initial index value, for each $1,000 principal amount PLUS investors will receive the $1,000 stated principal amount plus a return equal to 150% of the appreciation of the underlying index over the term of
the PLUS, subject to the maximum payment at maturity. Under the hypothetical terms of the PLUS, an investor will realize the hypothetical maximum payment at maturity at a final index value of approximately 109.767% of the initial index value.
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Par Scenario. If the final index value is equal to the initial index value,
investors will receive the stated principal amount of $1,000 per PLUS. |
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Downside Scenario. If the final index value is less than the initial index value,
investors will receive an amount that is less than the stated principal amount by an amount proportionate to the percentage decrease of the final index value from the initial index value. |
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For example, if the underlying index depreciates 50%, investors will lose 50% of their principal and receive only $500 per PLUS at maturity, or 50% of the stated
principal amount. |
The hypothetical returns and hypothetical payments on the PLUS shown above apply only if you hold the PLUS
for their entire term. These hypotheticals 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 payments shown above
would likely be lower.
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk factors for investors in the PLUS. For further discussion of these and other risks, you should read the sections entitled Risk Factors
beginning on page PS-8 of the accompanying product supplement no. 2a-I and Risk Factors beginning on page US-2 of the accompanying underlying supplement no. 1a-I. We also urge you to consult your investment, legal, tax, accounting and
other advisers in connection with your investment in the PLUS.
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PLUS do not pay interest or guarantee the return of any principal and your investment in the PLUS may result in a loss. The terms of the PLUS differ from
those of ordinary debt securities in that the PLUS do not pay interest or guarantee the payment of any principal amount at maturity. If the final index value is less than the initial index value, the payment at maturity will be an amount in cash
that is less than the stated principal amount of each PLUS by an amount proportionate to the decrease in the value of the underlying index and may be zero. |
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The appreciation potential of the PLUS is limited by the maximum payment at maturity. The appreciation potential of the PLUS is limited by the maximum
payment at maturity of at least $1,146.50 (at least 114.65% of the stated principal amount) per PLUS. The actual maximum payment at maturity will be provided in the pricing supplement. Because the maximum payment at maturity will be limited to at
least 114.65% of the stated principal amount for the PLUS, any increase in the final index value by more than approximately 9.767% (if the maximum payment at maturity is set at 114.65% of the stated principal amount) will not further increase the
return on the PLUS. |
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The PLUS are subject to the credit risk of JPMorgan Chase & Co., and any actual or anticipated changes to our credit ratings or credit spreads may
adversely affect the market value of the PLUS. Investors are dependent on JPMorgan Chase & Co.s ability to pay all amounts due on the PLUS. Any actual or anticipated decline in our credit ratings or increase in the credit spreads
determined by the market for taking our credit risk is likely to adversely affect the market value of the PLUS. If we were to default on our payment obligations, you may not receive any amounts owed to you under the PLUS and you could lose your
entire investment. |
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Economic interests of the issuer, the calculation agent, the agent of the offering of the PLUS and other affiliates of the issuer may be different from those
of investors. We and our affiliates play a variety of roles in connection with the issuance of the PLUS, including acting as calculation agent and as an agent of the offering of the PLUS, hedging our obligations under the PLUS and making the
assumptions used to determine the pricing of the PLUS and the estimated value of the PLUS, which we refer to as JPMSs estimated value. In performing these duties, our economic interests and the economic interests of the calculation agent and
other affiliates of ours are potentially adverse to your interests as an investor in the PLUS. The calculation agent will determine the initial index value and the final index value and will calculate the amount of payment you will receive at
maturity, if any. Determinations made by the calculation agent, including with respect to the occurrence or non-occurrence of market disruption events or commodity hedging disruption events, or selection of a successor to the underlying index, in
the event of a discontinuation or material change in the method of calculation of the underlying index, may affect the payment to you at maturity. |
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 PLUS and the value of the
PLUS. It is possible that hedging or trading activities of ours or our affiliates in connection with the PLUS could result in substantial returns for us or our affiliates while the value of the PLUS declines. Please refer to Risk Factors
Risks Relating to Conflicts of Interest in the accompanying product supplement no. 2a-I for additional information about these risks.
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JPMSs estimated value of the PLUS will be lower than the original issue price (price to public) of the PLUS. JPMSs estimated value is only an
estimate using several factors. The original issue price of the PLUS will exceed JPMSs estimated value because costs associated with selling, structuring and hedging the PLUS are included in the original issue price of the PLUS. These costs
include the selling commissions, the structuring fee, the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the PLUS and the estimated cost of hedging our obligations under
the PLUS. See Additional Information about the PLUS JPMSs estimated value of the PLUS in this document. |
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JPMSs estimated value does not represent future values of the PLUS and may differ from others estimates. JPMSs estimated value of the
PLUS is determined by reference to JPMSs internal pricing models. This estimated value is based on market conditions and other relevant factors existing at the time |
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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of pricing and JPMSs assumptions about market parameters, which can include volatility, interest rates and other factors. Different pricing models and assumptions could provide valuations
for PLUS that are greater than or less than JPMSs estimated value. In addition, market conditions and other relevant factors in the future may change, and any assumptions may prove to be incorrect. On future dates, the value of the PLUS could
change significantly based on, among other things, changes in market conditions, our creditworthiness, interest rate movements and other relevant factors, which may impact the price, if any, at which JPMS would be willing to buy PLUS from you in
secondary market transactions. See Additional Information about the PLUS JPMSs estimated value of the PLUS in this document. |
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JPMSs estimated value is not determined by reference to credit spreads for our conventional fixed-rate debt. The internal funding rate used
in the determination of JPMSs estimated value generally represents a discount from the credit spreads for our conventional fixed-rate debt. The discount is based on, among other things, our view of the funding value of the PLUS as well as the
higher issuance, operational and ongoing liability management costs of the PLUS in comparison to those costs for our conventional fixed-rate debt. If JPMS were to use the interest rate implied by our conventional fixed-rate credit spreads, we would
expect the economic terms of the PLUS to be more favorable to you. In addition, JPMSs estimated value might be lower if it were based on the interest rate implied by our conventional fixed-rate credit spreads. Consequently, our use of an
internal funding rate would have an adverse effect on the terms of the PLUS and any secondary market prices of the PLUS. See Additional Information about the PLUS JPMSs estimated value of the PLUS in this document.
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The value of the PLUS as published by JPMS (and which may be reflected on customer account statements) may be higher than JPMSs then-current
estimated value of the PLUS for a limited time period. We generally expect that some of the costs included in the original issue price of the PLUS will be partially paid back to you in connection with any repurchases of your PLUS by JPMS in an
amount that will decline to zero over an initial predetermined period. These costs can include selling commissions, the structuring fee, projected hedging profits, if any, and, in some circumstances, estimated hedging costs and our secondary market
credit spreads for structured debt issuances. See Additional Information about the PLUS Secondary market prices of the PLUS in this document for additional information relating to this initial period. Accordingly, the estimated
value of your PLUS during this initial period may be lower than the value of the PLUS as published by JPMS (and which may be shown on your customer account statements). |
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Secondary market prices of the PLUS will likely be lower than the original issue price of the PLUS. Any secondary market prices of the PLUS will
likely be lower than the original issue price of the PLUS because, among other things, secondary market prices take into account our secondary market credit spreads for structured debt issuances and, also, because secondary market prices
(a) exclude selling commissions and the structuring fee and (b) may exclude projected hedging profits, if any, and estimated hedging costs that are included in the original issue price of the PLUS. As a result, the price, if any, at which
JPMS will be willing to buy PLUS from you in secondary market transactions, if at all, is likely to be lower than the original issue price. Any sale by you prior to the maturity date could result in a substantial loss to you. See the immediately
following risk factor for information about additional factors that will impact any secondary market prices of the PLUS. |
The PLUS are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your PLUS to maturity. See Secondary trading may be limited below.
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Secondary market prices of the PLUS will be impacted by many economic and market factors. The secondary market price of the PLUS during their
term will be impacted by a number of economic and market factors, which may either offset or magnify each other, aside from the selling commissions, structuring fee, projected hedging profits, if any, estimated hedging costs and the closing level of
the underlying index, including: |
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any actual or potential change in our creditworthiness or credit spreads; |
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customary bid-ask spreads for similarly sized trades; |
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secondary market credit spreads for structured debt issuances; |
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the actual and expected volatility of the underlying index; |
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the time to maturity of the PLUS; |
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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supply and demand trends for the commodity upon which the futures contracts that compose the underlying index are based or the exchange-traded futures contracts on that
commodity; |
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the market price of the commodity upon which the futures contracts that compose the underlying index are based or the exchange-traded futures contracts on that commodity;
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interest and yield rates in the market generally; and |
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a variety of other economic, financial, political, regulatory, geographical, meteorological and judicial events. |
Additionally, independent pricing vendors and/or third party broker-dealers may publish a price for the PLUS, which may also be reflected on
customer account statements. This price may be different (higher or lower) than the price of the PLUS, if any, at which JPMS may be willing to purchase your PLUS in the secondary market.
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We may accelerate your PLUS if a commodity hedging disruption event occurs. If we or our affiliates are unable to effect transactions necessary to hedge
our obligations under the PLUS due to a commodity hedging disruption event, we may, in our sole and absolute discretion, accelerate the payment on your PLUS and pay you an amount determined in good faith and in a commercially reasonable manner by
the calculation agent. If the payment on your PLUS 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 Acceleration of the Notes in the accompanying product supplement no. 2a-I for more information. |
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Commodity futures contracts are subject to uncertain legal and regulatory regimes. The commodity futures contracts that underlie the underlying index are
subject to legal and regulatory regimes that may change in ways that could adversely affect our ability to hedge our obligations under the PLUS and affect the closing level of the underlying 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), may have a substantial adverse effect on the value of your PLUS. Additionally, under authority provided by the
Dodd-Frank Act, the U.S. Commodity Futures Trading Commission on November 5, 2013 proposed rules to establish position limits that will apply to 28 agricultural, metals and energy futures contracts and futures, options and swaps that are
economically equivalent to those futures contracts. The limits will apply to a persons combined position in futures, options and swaps on the same underlying commodity. The rules also would set new aggregation standards for purposes of
these position limits and would specify the requirements for designated contract markets and swap execution facilitates to impose position limits on contracts traded on those markets. The rules, if enacted in their proposed form, may reduce
liquidity in the exchange-traded market for those commodity-based futures contracts, which may, in turn, have an adverse effect on any payments on the PLUS. Furthermore, we or our affiliates may be unable as a result of those restrictions to
effect transactions necessary to hedge our obligations under the PLUS resulting in a commodity hedging disruption event, in which case we may, in our sole and absolute discretion, accelerate the payment on your PLUS. See We May
Accelerate Your PLUS If a Commodity Hedging Disruption Event Occurs above. |
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Prices of commodity futures contracts are characterized by high and unpredictable volatility, which could lead to high and unpredictable volatility in
the underlying index. Market prices of the commodity futures contracts included in the underlying index tend to be highly volatile and may fluctuate rapidly based on numerous factors, including the factors that affect the price of the commodity
underlying the commodity futures contracts included in the underlying. See The Market Prices of the Commodities Underlying the Futures Contracts Included in the Underlying lndex Will Affect the Value of the PLUS 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 PLUS 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. |
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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The market prices of the commodities underlying the futures contracts included in the underlying index will affect the value of the PLUS. The
prices of the commodities upon which the futures contracts that compose the underlying index are based are affected by numerous factors, including: changes in supply and demand relationships, governmental programs and policies, national and
international monetary, trade, political and economic events, wars and acts of terror, changes in interest and exchange rates, speculation and trading activities in commodities and related contracts, general weather conditions, and agricultural,
trade, fiscal and exchange control policies. Many commodities are also highly cyclical. These factors, some of which are specific to the market for each such commodity, may cause the value of the different commodities upon which the futures
contracts that compose the underlying index are based, as well as the futures contracts themselves, to move in inconsistent directions at inconsistent rates. This, in turn, will affect the value of the PLUS. It is not possible to predict the
aggregate effect of all or any combination of these factors. |
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A decision by an exchange on which the futures contracts included in the underlying index are traded to increase margin requirements may affect the level of
the underlying index. If an exchange on which the futures contracts included in the underlying index are traded increases the amount of collateral required to be posted to hold positions in the 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 underlying index to decline significantly. |
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The PLUS do not offer direct exposure to commodity spot prices. The PLUS are linked to the underlying 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 PLUS may underperform a similar investment that is linked to commodity spot prices.
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Owning the PLUS is not the same as owning any commodities or commodity futures contracts. The return on your PLUS will not reflect the return you
would realize if you actually purchased the futures contracts that compose the underlying index, the commodities upon which the futures contracts that compose the underlying index are based, or other exchange-traded or over-the-counter instruments
based on the underlying index. You will not have any rights that holders of those assets or instruments have. |
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Higher futures prices of the commodity futures contracts underlying the underlying index relative to the current prices of those contracts may affect the
level of the underlying index and the value of the PLUS. The underlying 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 underlying 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 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 level of the underlying index and thus the value of PLUS linked to the underlying index.
The futures contracts underlying the underlying index have historically been in contango. |
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Suspension or disruptions of market trading in the commodity markets and related futures markets may adversely affect the closing level of the
underlying index, and therefore the value of the PLUS. The commodity markets are subject to temporary distortions or other disruptions due to various factors, |
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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 underlying index and, therefore, the value of your PLUS.
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The PLUS are linked to an excess return index and not a total return index. The PLUS are linked to an excess return index and not a total return
index. An excess return index, such as the underlying index, reflects the returns that are potentially available through an unleveraged investment in the contracts composing that 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. |
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Hedging and trading activities by the issuer and its affiliates could potentially affect the value of the PLUS. The hedging or trading activities of the
issuers affiliates and of any other hedging counterparty with respect to the PLUS on or prior to the pricing date and prior to maturity could adversely affect the value of the underlying index and, as a result, could decrease the amount an
investor may receive on the PLUS at maturity, if any. Any of these hedging or trading activities on or prior to the pricing date could potentially affect the initial index value and, therefore, could potentially increase the level that the final
index value must reach before you receive a payment at maturity that exceeds the issue price of the PLUS or so that you do not suffer a loss on your initial investment in the PLUS. Additionally, these hedging or trading activities during the term of
the PLUS, including on the valuation date, could adversely affect the final index value and, accordingly, the amount of cash an investor will receive 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 PLUS declines. |
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Secondary trading may be limited. The PLUS will not be listed on a securities exchange. There may be little or no secondary market for the PLUS. Even if
there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the PLUS easily. JPMS may act as a market maker for the PLUS, but is not required to do so. Because we do not expect that other market makers will
participate significantly in the secondary market for the PLUS, the price at which you may be able to trade your PLUS is likely to depend on the price, if any, at which JPMS is willing to buy the PLUS. If at any time JPMS or another agent does not
act as a market maker, it is likely that there would be little or no secondary market for the PLUS. |
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The final terms and valuation of the PLUS will be provided in the pricing supplement. The final terms of the PLUS will be provided in the pricing
supplement. In particular, each of JPMSs estimated value and the maximum payment at maturity will be provided in the pricing supplement and each may be as low as the applicable minimum set forth on the cover of this
document. Accordingly, you should consider your potential investment in the PLUS based on the minimums for JPMSs estimated value and the maximum payment at maturity. |
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The tax consequences of an investment in the PLUS are uncertain. There is no direct legal authority as to the proper U.S. federal income tax
characterization of the PLUS, and we do not intend to request a ruling from the IRS. The IRS might not accept, and a court might not uphold, the treatment of the PLUS described in Additional Information about the PLUS Additional
Provisions Tax considerations in this document and in Material U.S. Federal Income Tax Consequences in the accompanying product supplement no. 2a-I. If the IRS were successful in asserting an alternative treatment for the
PLUS, the timing and character of any income or loss on the PLUS could differ materially and adversely from our description herein. 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; 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. investors should be subject to withholding tax; and whether these instruments are or should be subject to the constructive ownership regime, which very generally can
|
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
operate to recharacterize certain long-term capital gain as ordinary income and impose a notional 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 PLUS, possibly with retroactive effect. You should review carefully
the section entitled Material U.S. Federal Income Tax Consequences in the accompanying product supplement no. 2a-I and consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the PLUS, including
possible alternative treatments and the issues presented by this notice. |
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
S&P GSCITM Excess Return Overview
The return on the PLUS is linked to the S&P GSCITM Excess Return, the excess return version of the S&P GSCI, a composite index of commodity sector returns, calculated, maintained and published daily by S&P Dow Jones Indices 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 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. 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 Commodity Index Descriptions The S&P GSCI Indices in the accompanying underlying supplement no. 1a-I.
Information as of market close on May 26, 2015:
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Bloomberg Ticker Symbol: |
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SPGCCIP |
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Current Closing Level: |
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308.2445 |
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|
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52 Weeks Ago (on 5/27/2014): |
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488.7863 |
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52 Week High (on 6/20/2014): |
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502.4259 |
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52 Week Low (on 1/29/2015): |
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278.8597 |
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The following table sets forth the published high and low closing levels, as well as end-of-quarter closing
levels, of the underlying index for each quarter in the period from January 1, 2010 through May 26, 2015. The graph following the table sets forth the daily closing levels of the underlying index during the same period. The closing level
of the underlying index on May 26, 2015 was 308.2445. We obtained the closing level information above and the information in the table and graph below from the Bloomberg Professional® service (Bloomberg), without independent verification. The historical closing levels of the underlying index should not be taken as an indication of
future performance, and no assurance can be given as to the closing levels of the underlying index on the valuation date.
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S&P
GSCITM Excess Return |
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High |
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Low |
|
Period End |
2010 |
|
|
|
|
|
|
First Quarter |
|
460.4874 |
|
396.6954 |
|
436.8897 |
Second Quarter |
|
451.7025 |
|
371.5438 |
|
391.2750 |
Third Quarter |
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428.4620 |
|
379.5302 |
|
423.4489 |
Fourth Quarter |
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480.0808 |
|
424.8357 |
|
480.0808 |
2011 |
|
|
|
|
|
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First Quarter |
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535.4182 |
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468.7079 |
|
535.4182 |
Second Quarter |
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560.6729 |
|
473.6758 |
|
492.8529 |
Third Quarter |
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516.2448 |
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435.2024 |
|
435.2024 |
Fourth Quarter |
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495.3141 |
|
424.1639 |
|
474.1571 |
2012 |
|
|
|
|
|
|
First Quarter |
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522.8780 |
|
478.0243 |
|
501.9681 |
Second Quarter |
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510.4873 |
|
410.0407 |
|
439.7064 |
Third Quarter |
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511.2780 |
|
438.2042 |
|
490.3018 |
Fourth Quarter |
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495.4815 |
|
461.7205 |
|
474.1047 |
2013 |
|
|
|
|
|
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First Quarter |
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497.4328 |
|
467.3154 |
|
476.6079 |
Second Quarter |
|
475.1892 |
|
436.9761 |
|
448.2894 |
Third Quarter |
|
494.7013 |
|
451.7477 |
|
469.6578 |
Fourth Quarter |
|
477.3095 |
|
449.4461 |
|
468.0505 |
2014 |
|
|
|
|
|
|
First Quarter |
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488.9347 |
|
448.2835 |
|
481.7561 |
Second Quarter |
|
502.4259 |
|
472.9807 |
|
494.6962 |
Third Quarter |
|
494.0296 |
|
433.0228 |
|
433.0228 |
Fourth Quarter |
|
432.1060 |
|
313.2028 |
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313.2028 |
2015 |
|
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PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
|
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|
|
|
S&P
GSCITM Excess Return |
|
High |
|
Low |
|
Period End |
First Quarter |
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312.1119 |
|
278.8597 |
|
287.4469 |
Second Quarter (through May 26, 2015) |
|
323.0860 |
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290.5764 |
|
308.2445 |
License Agreement between S&P Dow Jones Indices LLC and JPMorgan Chase & Co.
Standard & Poors, S&P and S&P GSCI are trademarks of Standard & Poors Financial
Services LLC and have been licensed for use by J.P. Morgan Securities LLC and sublicensed for use by JPMorgan Chase & Co. and its affiliates.
Additional Information about the PLUS
Please read this information in conjunction with the summary
terms on the front cover of this document.
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Additional Provisions: |
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Postponement of maturity date: |
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If the scheduled maturity date is not a business day, then the maturity date will be the following business day. If the
scheduled valuation date is not a trading day or if a market disruption event occurs on that day so that the valuation date is postponed and falls less than three business days prior to the scheduled maturity date, the maturity date of the PLUS will
be postponed to the third business day following the valuation date as postponed. |
Minimum ticketing size: |
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$1,000 / 1 PLUS |
Trustee: |
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Deutsche Bank Trust Company Americas (formerly Bankers Trust Company)
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JPMSs estimated value of the PLUS: |
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JPMSs estimated value of the PLUS set forth on the cover of this document is equal to the sum of the values of the following hypothetical components: (1) a fixed-income debt
component with the same maturity as the PLUS, valued using our internal funding rate for structured debt described below, and (2) the derivative or derivatives underlying the economic terms of the PLUS. JPMSs estimated value does not represent
a minimum price at which JPMS would be willing to buy your PLUS in any secondary market (if any exists) at any time. The internal funding rate used in the determination of JPMSs estimated value generally represents a discount from the credit
spreads for our conventional fixed-rate debt. For additional information, see Risk Factors JPMSs estimated value is not determined by reference to credit spreads for our conventional fixed-rate debt. The value of the
derivative or derivatives underlying the economic terms of the PLUS is derived from JPMSs internal pricing models. These models are dependent on inputs such as the traded market prices of comparable derivative instruments and on various other
inputs, some of which are |
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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market-observable, and which can include volatility, interest rates and other factors, as well as assumptions about future market events and/or
environments. Accordingly, JPMSs estimated value of the PLUS on the pricing date is based on market conditions and other relevant factors and assumptions existing at that time. See Risk Factors JPMSs estimated value does not
represent future values of the PLUS and may differ from others estimates.
JPMSs estimated value of the PLUS will be lower than the original issue price of the PLUS because costs associated with selling, structuring and hedging the
PLUS are included in the original issue price of the PLUS. These costs include the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, the structuring fee, the projected profits, if any, that our affiliates expect to
realize for assuming risks inherent in hedging our obligations under the PLUS and the estimated cost of hedging our obligations under the PLUS. Because hedging our obligations entails risk and may be influenced by market forces beyond our control,
this hedging may result in a profit that is more or less than expected, or it may result in a loss. We or one or more of our affiliates will retain any profits realized in hedging our obligations under the PLUS. See Risk Factors
JPMSs estimated value of the PLUS will be lower than the original issue price (price to public) of the PLUS in this document. |
Calculation agent: |
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JPMS |
Secondary market prices of the PLUS: |
|
For information about factors that will impact any secondary market prices of the PLUS, see Risk Factors Secondary market prices
of the PLUS will be impacted by many economic and market factors in this document. In addition, we generally expect that some of the costs included in the original issue price of the PLUS will be partially paid back to you in connection with
any repurchases of your PLUS by JPMS in an amount that will decline to zero over an initial predetermined period that is intended to be the shorter of six months and one-half of the stated term of the PLUS. The length of any such initial period
reflects the structure of the PLUS, whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated costs of hedging the PLUS and when these costs are incurred, as determined by JPMS. See Risk Factors
The value of the PLUS as published by JPMS (and which may be reflected on customer account statements) may be higher than JPMSs then-current estimated value of the PLUS for a limited time period.
|
Tax considerations: |
|
You should review carefully the section entitled Material U.S. Federal Income Tax Consequences in the
accompanying product supplement no. 2a-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 the PLUS. Based on current market
conditions, in the opinion of our special tax counsel, your PLUS should be treated as open transactions that are not debt instruments for U.S. federal income tax purposes, as more fully described in Material U.S. Federal Income Tax
Consequences Tax Consequences to U.S. Holders Notes Treated as Open Transactions That Are Not Debt Instruments in the accompanying product supplement no. 2a-I. Assuming this treatment is respected, the gain or loss on your PLUS
should be treated as long-term capital gain or loss if you hold your PLUS for more than a year, whether or not you are an initial purchaser of PLUS at the issue price. However, the IRS or a court may not respect this treatment of the PLUS, in which
case the timing and character of any income or loss on the PLUS could be materially 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. 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; 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. investors 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 a notional 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 PLUS, possibly with retroactive effect. You should consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the
PLUS, including possible alternative treatments and the issues presented by this notice. Withholding under legislation commonly referred to as FATCA may apply to amounts treated as interest paid with respect to the PLUS, if they are recharacterized as debt instruments. You should consult
your tax adviser regarding the potential application of FATCA to the PLUS. |
Supplemental use of proceeds and hedging: |
|
The net proceeds we receive from the sale of the PLUS will be used for general corporate purposes and, in part, by us or one or more of our
affiliates in connection with hedging our obligations under the PLUS. The PLUS are
offered to meet investor demand for products that reflect the risk-return profile |
PLUS Based
on the Value of the S&P GSCITM Excess
Return due July 5, 2016
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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and market exposure provided by the PLUS. See How the PLUS Work in this document for an illustration of the risk-return profile of
the PLUS and S&P GSCITM Excess Return Overview in this document for a description of the market exposure provided by the PLUS.
The original issue price of the PLUS is equal to JPMSs estimated value of the PLUS plus
the selling commissions paid to JPMS and other affiliated or unaffiliated dealers and the structuring fee, plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming risks inherent in hedging our obligations under
the PLUS, plus the estimated cost of hedging our obligations under the PLUS. |
Benefit plan investor considerations: |
|
See Benefit Plan Investor Considerations in the accompanying product supplement no. 2a-I.
|
Supplemental plan of distribution: |
|
Subject to regulatory constraints, JPMS intends to use its reasonable efforts to offer to purchase the PLUS in the secondary market, but is not
required to do so. JPMS, acting as agent for JPMorgan Chase & Co., will pay all of the selling commissions it receives from us to Morgan Stanley Wealth Management. In addition, Morgan Stanley Wealth Management will receive a structuring fee as
set forth on the cover of this document for each PLUS. We or our affiliate may enter
into swap agreements or related hedge transactions with one of our other affiliates or unaffiliated counterparties in connection with the sale of the PLUS and JPMS and/or an affiliate may earn additional income as a result of payments pursuant to
the swap or related hedge transactions. See Supplemental use of proceeds and hedging above and Use of Proceeds and Hedging on page PS-38 of the accompanying product supplement no. 2a-I.
|
Contact: |
|
Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or Morgan Stanleys
principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (800) 869-3326). |
Where you can find more information: |
|
JPMorgan Chase & Co. has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication
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. 2a-I and this communication if you so request by calling toll-free (800)-869-3326.
You may revoke your offer to purchase the PLUS 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 PLUS prior to their issuance. In the event of any changes to the terms of the PLUS, 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 document together with the prospectus, as supplemented by the prospectus supplement, each dated November 7, 2014, relating to our Series E
medium-term notes of which these PLUS are a part, and the more detailed information contained in product supplement no. 2a-I dated November 7, 2014 and underlying supplement no. 1a-I dated November 7, 2014.
This document, together with the documents listed below, contains the terms of the PLUS 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, stand-alone 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. 2a-I and Risk Factors in the
accompanying underlying supplement no. 1a-I, as the PLUS 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 PLUS.
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): Product supplement no. 2a-I dated November 7, 2014:
http://www.sec.gov/Archives/edgar/data/19617/000089109214008404/e61363_424b2.pdf
Underlying supplement no. 1a-I dated November 7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008410/e61337_424b2.pdf
Prospectus supplement and prospectus, each dated November 7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008397/e61348_424b2.pdf
Our Central Index Key, or CIK, on the SEC website is 19617.
As used in this document, we, us, and our refer to JPMorgan Chase & Co.
Performance Leveraged Upside SecuritiesSM and PLUSSM are service marks of Morgan Stanley. |
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