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Risk Considerations
The risk considerations identified below are not exhaustive. Please see the
accompanying term sheet and product supplement for a more detailed discussion
of risks, conflicts of interest and tax consequences associated with an
investment in the notes.
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, under these circumstances, you
will lose more than 20% of your principal amount and could lose up to the
entire principal amount of your notes.
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.
CREDIT RISK OF JPMORGAN CHASE and CO. -- The notes are subject to the credit risk
of JPMorgan Chase and Co., and our credit ratings and credit spreads may
adversely affect the market value of the notes. Investors are dependent on
JPMorgan Chase and 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.
Recent events affecting us have led to heightened regulatory scrutiny, may lead
to additional regulatory or legal proceedings against us and may adversely
affect our credit ratings and credit spreads and, as a result, the market value
of the notes.
See "Executive Overview -- Recent Developments," "Liquidity Risk Management --
Credit Ratings," "Item 4. Controls and Procedures" and "Part II. Other
Information -- Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2012.
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.
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.
We and/or our affiliates may also currently or from time to time engage in
business with the issuer of the Reference Stock including extending loans to,
or making equity investments in, the issuer of the Reference Stock or providing
advisory services to the issuer of the Reference Stock. In addition, one or
more of our affiliates may publish research reports or otherwise express
opinions with respect to the issuer of the Reference Stock, and these reports
may or may not recommend that investors buy or hold the Reference Stock. As a
prospective purchaser of the notes, you should undertake an independent
investigation of the Reference Stock issuer that in your judgment is
appropriate to make an informed decision with respect to an investment in the
notes.
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 latter 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.
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.
REINVESTMENT RISK -- If your notes are automatically called, the term of the
notes may be reduced to as short as 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.
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 the
accompanying 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.
The notes are not designed to be short-term trading instruments. Accordingly,
you should be able and willing to hold your notes to maturity.
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 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.
RISK OF THE CLOSING PRICE OF THE REFERENCE STOCK FALLING BELOW THE INTEREST
BARRIER OR THE TRIGGER LEVEL IS GREATER IF THE CLOSING PRICE OF THE REFERENCE
STOCKS 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 closing price of the Reference
Stock -- the frequency and magnitude of changes in the closing price of the
Reference Stock.
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.
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 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.
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.
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 the actual and
expected volatility in the closing price of the Reference Stock; time to
maturity of the notes; the dividend rate of the Reference Stock; interest and
yield rates in the market generally; a variety of economic, political,
regulatory and judicial events; and the creditworthiness of JPMorgan Chase and
Co.
The notes are not bank deposits and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency, nor are they
obligations of, or guaranteed by, a bank.
Calculations and determinations will be made in the sole discretion of JPMS, as
calculation agent, and may be potentially adverse to your interests as an
investor in the notes.
J.P.MORGAN
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