Term sheet
To prospectus dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 206-A-I dated March 4, 2011
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Term Sheet to
Product Supplement No. 206-A-I
Registration Statement No. 333-155535
Dated July 11, 2011; Rule
433 |
Structured
Investments
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$
Quarterly Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess
Return
due July 26, 2012 |
General
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The notes are designed for investors who seek early exit
prior to maturity at a premium if, on any one of the four Review Dates, the
S&P GSCI Brent Crude Oil Index Excess Return is at or above the Call Level
applicable to that Review Date. If the notes are not automatically called, investors
will lose at least 10% of their principal if the Ending Index Level is less than
the Strike Value by more than 10%. Investors in the notes should be willing to
accept this risk of loss, and be willing to forgo interest payments, in
exchange for the opportunity to receive a premium payment if the notes are
called. Any payment on the notes is subject to the credit risk of JPMorgan
Chase & Co.
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The notes are linked to the S&P GSCI Brent Crude Oil
Index Excess Return, a sub-index of the S&P GSCI that references the
front-month Brent crude oil futures contract traded on ICE Futures Europe and
does not reference the spot price of Brent crude oil. See Selected Purchase
Considerations Return Linked to the S&P GSCI Brent Crude Oil Index
Excess Return and Selected Risk Considerations The Notes Do Not Offer Direct
Exposure to Commodity Spot Prices in this term sheet for more information.
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The first Review Date, and therefore the earliest date on
which a call may be initiated, is October 17, 2011.
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The notes are not futures contracts and are not regulated
under the Commodity Exchange Act of 1936, as amended (the Commodity Exchange
Act).
The notes are offered pursuant to an exemption from regulation under the
Commodity Exchange Act that is available to securities that have one or more
payments indexed to the value, level or rate of one or more commodities, which
is set out in section 2(f) of that statute. Accordingly, you are not afforded
any protection provided by the Commodity Exchange Act or any regulation
promulgated by the Commodity Futures Trading Commission.
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Senior unsecured obligations of JPMorgan Chase & Co.
maturing July 26, 2012
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Minimum denominations of $20,000 and integral multiples of
$1,000 in excess thereof
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The notes are expected to price on or about July 15, 2011
and are expected to settle on or about July 20, 2011.
Key Terms
Index:
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The
S&P GSCI Brent Crude Oil Index Excess Return (the Index). The value
of the S&P GSCI Brent Crude Oil Index Excess Return is published each
trading day under the Bloomberg ticker symbol SPGCBRP. For more
information on the Index, please see Selected Purchase Considerations
Return Linked to the S&P GSCI Brent Crude Oil Index Excess Return in
this term sheet.
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Automatic Call:
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If the Index
Closing Level on any Review Date is greater than or equal to the Call Level,
the notes will be automatically called for a cash payment per note that will
vary depending on the applicable Review Date and call premium.
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Call Level:
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95% of
the Strike Value, for each Review Date.
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Payment if Called:
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For every $1,000
principal amount note, you will receive one payment of $1,000 plus the
call premium amount calculated as follows:
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- at
least 3.50%* × $1,000 if called on the first Review Date
- at
least 7.00%* × $1,000 if called on the second Review Date
- at
least 10.50%* × $1,000 if called on the third Review Date
- at
least 14.00%* × $1,000 if called on the final Review Date
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* The actual call
premiums applicable to the first, second, third and final Review Dates will
be determined on the pricing date but will not be less than 3.50%, 7.00%, 10.50%
and 14.00%, respectively.
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Payment at
Maturity:
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If the notes are
not automatically called and the Ending Index Level is less than the Strike Value
by up to 10%, you will receive the principal amount of your notes at
maturity.
If the notes are
not automatically called and the Ending Index Level is less than the Strike Value
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 Strike Value, and your
payment at maturity per $1,000 principal amount note will be calculated as
follows:
$1,000 + ($1,000 × Index Return)
If the notes are
not automatically called, you will lose at least 10% of your investment at
maturity if the Ending Index Level is less than the Strike Level by more than
10%.
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Contingent Buffer
Amount:
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10%
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Index Return:
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Ending
Index Level Strike Value
Strike Value
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Strike Value:
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An Index level to
be
determined on the pricing date in the sole discretion of the calculation
agent.
The Strike Value may or may not be the regular
official weekday closing level of the Index on the pricing date. Although the calculation agent will make all
determinations and will take all actions in relation to the establishment of
the Strike Value in good faith, it should be noted that such discretion could
have an impact (positive or negative) on the value of your notes. The
calculation agent is under no obligation to consider your interests as a
holder of the notes in taking any actions, including the determination of the
Strike Value, that might affect the value of your notes.
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Ending Index Level:
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The Index Closing
Level on the final Review Date
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Review Dates:
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October 17,
2011 (first Review Date), January 17, 2012 (second Review Date), April 17, 2012
(third Review Date) and July 23, 2012 (final Review Date)
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Call Settlement
Date:
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The
third business day after the applicable Review Date, except that if the notes
are called on the final Review Date, the Call Settlement Date will be the
maturity date
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Maturity Date:
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July 26,
2012
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CUSIP:
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48125XWQ5
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Subject to
postponement in the event of a market disruption event and as described under
Description of Notes Payment at Maturity and Description of Notes Postponement
of a Determination Date C. Notes linked to a single Index in the accompanying
product supplement no. 206-A-I or early acceleration in the event of a commodity
hedging disruption event as described under General Terms of Notes Consequences
of a Commodity Hedging Disruption Event C. Early Acceleration of Payment on
the Notes in the accompanying product supplement no. 206-A-I and in Selected
Risk Considerations We May Accelerate Your Notes If a Commodity Hedging
Disruption Event Occurs in this term sheet.
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Investing
in the Quarterly Review Notes involves a number of risks. See Risk Factors
beginning on page PS-16 of the accompanying product supplement no. 206-A-I and
Selected Risk Considerations beginning on page TS-4 of this term sheet.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of the notes or passed upon the accuracy or the
adequacy of this term sheet or the accompanying prospectus supplement and
prospectus. Any representation to the contrary is a criminal offense.
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Price
to Public (1)
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Fees
and Commissions (2)
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Proceeds
to Us
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Per note
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$
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$
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$
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Total
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$
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$
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$
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(1)
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The price to the public includes the estimated cost of hedging our
obligations under the notes through one or more of our affiliates, which
includes our affiliates expected cost of providing such hedge as well as the
profit our affiliates expect to realize in consideration for assuming the risks
inherent in providing such hedge. For additional related information, please
see Use of Proceeds beginning on page PS-40 of the accompanying product
supplement no. 206-A-I.
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(2) |
Please see
Supplemental Plan of Distribution on the last page of this term sheet for
information about fees and commissions. |
The
notes are not bank deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency, nor are they
obligations of, or guaranteed by, a bank.
July 11,
2011
Additional
Terms Specific to the Notes
JPMorgan
Chase & Co. has filed a registration statement (including a prospectus)
with the Securities and Exchange Commission, or SEC, for the offering to which
this term sheet relates. Before you invest, you should read the prospectus in
that registration statement and the other documents relating to this offering
that JPMorgan Chase & Co. has filed with the SEC for more complete
information about JPMorgan Chase & Co. and this offering. You may get
these documents without cost by visiting EDGAR on the SEC website at
www.sec.gov. Alternatively, JPMorgan Chase & Co., any agent or any dealer participating
in this offering will arrange to send you the prospectus, the prospectus
supplement, product supplement no. 206-A-I and this term sheet if you so
request by calling toll-free 866-535-9248.
You may revoke your
offer to purchase the notes at any time prior to the time at which we accept
such offer by notifying the applicable agent. We reserve the right to change
the terms of, or reject any offer to purchase, the notes prior to their
issuance. In the event of any changes to the terms of the notes, we will
notify you and you will be asked to accept such changes in connection with your
purchase. You may also choose to reject such changes in which case we may
reject your offer to purchase.
You should read this
term sheet together with the prospectus dated November 21, 2008, as
supplemented by the prospectus supplement dated November 21, 2008 relating to
our Series E medium-term notes of which these notes are a part, and the more
detailed information contained in product supplement no. 206-A-I dated March 4,
2011. This term sheet, together with the documents listed below, contains
the terms of the notes and supersedes all other prior or contemporaneous oral
statements as well as any other written materials including preliminary or
indicative pricing terms, correspondence, trade ideas, structures for
implementation, sample structures, fact sheets, brochures or other educational
materials of ours. You should carefully consider, among other things, the
matters set forth in Risk Factors in the accompanying product supplement no. 206-A-I,
as the notes involve risks not associated with conventional debt securities.
We urge you to consult your investment, legal, tax, accounting and other
advisers before you invest in the notes.
You may access these
documents on the SEC website at www.sec.gov as
follows (or if such address has changed, by reviewing our filings for the
relevant date on the SEC website):
Our Central Index
Key, or CIK, on the SEC website is 19617. As used in this term sheet, the
Company, we, us and our refer to JPMorgan Chase & Co.
Supplemental Terms of
the Notes
For purposes of the notes
offered by this term sheet:
(1) the Review Dates are
subject to postponement as described under Description of Notes Postponement
of a Determination Date C. Notes linked to a single Index in the
accompanying product supplement no. 206-A-I; and
(2) the consequences of a
commodity hedging disruption event are described under General Terms of Notes
Consequences of a Commodity Hedging Disruption Event C. Early Acceleration of
Payment on the Notes.
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JPMorgan
Structured Investments |
TS-1 |
Quarterly Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess
Return |
Hypothetical
Examples of Amounts Payable upon Automatic Call or at Maturity
The following table illustrates the hypothetical
simple total return (i.e., not compounded) on the notes that could be
realized on the applicable Review Date for a range of movements in the Index
Closing Level as shown under the column Index Closing Level Appreciation/Depreciation
at Review Date. The following
table assumes a hypothetical Strike Value of 800 and a hypothetical Call Level
of 760 (equal to 95% of the hypothetical Strike Value) and reflects the
Contingent Buffer Amount of 10%. The table assumes that the call premiums used
to calculate the call price applicable to the first, second, third and final
Review Dates are 3.50%, 7.00%, 10.50% and 14.00%, respectively, regardless of
the appreciation of the Index Closing Level, which may be significant; the
actual call premiums will be determined on the pricing date. There will be
only one payment on the notes whether called or at maturity. An entry of N/A
indicates that the notes would not be called on the applicable Review Date and
no payment would be made for such date. The hypothetical returns set forth
below are for illustrative purposes only and may not be the actual total return
applicable to a purchaser of the notes.
Index Closing
Level at
Review Date
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Index Closing Level
Appreciation /
Depreciation at
Review Date
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Total Return at
First
Call Settlement
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Total Return at
Second
Call Settlement
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Total Return at
Third
Call Settlement
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Total Return at
Maturity
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1440.00
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80.00%
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3.50%
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7.00%
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10.50%
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14.00%
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1360.00
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70.00%
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3.50%
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7.00%
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10.50%
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14.00%
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1280.00
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60.00%
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3.50%
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7.00%
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10.50%
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14.00%
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1200.00
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50.00%
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3.50%
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7.00%
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10.50%
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14.00%
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1120.00
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40.00%
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3.50%
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7.00%
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10.50%
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14.00%
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1040.00
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30.00%
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3.50%
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7.00%
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10.50%
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14.00%
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960.00
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20.00%
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3.50%
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7.00%
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10.50%
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14.00%
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880.00
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10.00%
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3.50%
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7.00%
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10.50%
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14.00%
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800.00
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0.00%
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3.50%
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7.00%
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10.50%
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14.00%
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780.00
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-2.50%
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3.50%
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7.00%
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10.50%
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14.00%
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760.00
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-5.00%
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3.50%
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7.00%
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10.50%
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14.00%
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740.00
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-7.50%
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N/A
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N/A
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N/A
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0.00%
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720.00
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-10.00%
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N/A
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N/A
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N/A
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0.00%
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719.92
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-10.01%
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N/A
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N/A
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N/A
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-10.01%
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680.00
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-15.00%
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N/A
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N/A
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N/A
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-15.00%
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640.00
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-20.00%
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N/A
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N/A
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N/A
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-20.00%
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600.00
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-25.00%
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N/A
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N/A
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N/A
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-25.00%
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560.00
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-30.00%
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N/A
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N/A
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N/A
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-30.00%
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480.00
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-40.00%
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N/A
|
N/A
|
N/A
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-40.00%
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400.00
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-50.00%
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N/A
|
N/A
|
N/A
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-50.00%
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320.00
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-60.00%
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N/A
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N/A
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N/A
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-60.00%
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240.00
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-70.00%
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N/A
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N/A
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N/A
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-70.00%
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160.00
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-80.00%
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N/A
|
N/A
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N/A
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-80.00%
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80.00
|
-90.00%
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N/A
|
N/A
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N/A
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-90.00%
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0.00
|
-100.00%
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N/A
|
N/A
|
N/A
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-100.00%
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The following examples illustrate how the total
returns set forth in the table above are calculated.
Example 1: The Index Closing Level increases from the
Strike Value of 800 to an Index Closing Level of 880 on the first Review Date. Because the Index Closing Level on the first Review
Date of 880 is greater than or equal to the corresponding Call Level of 760,
the notes are automatically called, and the investor receives a single payment on
the first Call Settlement Date of $1,035 per $1,000 principal amount note.
Example 2: The Index Closing Level decreases from the
Strike Value of 800 to an Index Closing Level of 760 on the first Review Date. Because the Index Closing Level on the first Review
Date of 760 is equal to the corresponding Call Level, the notes are
automatically called, and the investor receives a single payment on the first
Call Settlement Date of $1,035 per $1,000 principal amount note.
Example 3: The Index Closing Level decreases from the
Strike Value of 800 to an Index Closing Level of 720 on the first Review Date,
640 on the second Review Date and 560 on the third Review Date and increases
from the Strike Value of 800 to an Index Closing Level of 880 on the final
Review Date. Although the Index
Closing Level on each of the first three Review Dates (720, 640 and 560) is
less than the corresponding Call Level of 760, because the Index Closing Level
on the final Review Date (880) is greater than the corresponding Call Level of 760,
the notes are automatically called, and the investor receives a single payment at
maturity of $1,140 per $1,000 principal amount note.
Example 4: The Index Closing Level decreases from the
Strike Value of 800 to an Index Closing Level of 720 on the first Review Date,
640 on the second Review Date and 560 on the third Review Date and 720 on the
final Review Date. Because (a) the Index
Closing Level on each of the Review Dates (720, 640, 560 and 720) is less than
the corresponding Call Level of 760, and (b) the Ending Index Level of 720 is
not less than the Strike Value by more than 10%, the notes are not automatically
called, and the investor receives a single payment at maturity equal to the
principal amount of $1,000 per $1,000 principal amount note.
Example 5: The Index Closing Level decreases from the
Strike Value of 800 to an Index Closing Level of 720 on the first Review Date,
680 on the second Review Date, 640 on the third Review Date and 600 on the
final Review Date. Because (a) the Index
Closing Level on each of the Review Dates (720, 680, 640 and 600) is less than
the corresponding Call Level of 760, and (b) the Ending Index Level of 600 is
less than the Strike Value by more than 10%, the notes are not automatically called
and the investor receives a payment at maturity that is less than the principal
amount for each $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × -25%) = $750
These returns and the payouts on the notes shown above
do not reflect fees or expenses that would be associated with any sale in the
secondary market. If these fees and expenses were included, the hypothetical
total returns and payouts shown above would likely be lower.
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JPMorgan
Structured Investments |
TS-2 |
Quarterly Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess
Return |
Selected Purchase Considerations
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CAPPED APPRECIATION POTENTIAL If the Index Closing Level is
greater than or equal to the Call Level on a Review Date, your investment will
yield a payment per $1,000 principal amount note of $1,000 plus: (i) at least 3.50%*
× $1,000 if called on the first Review Date; (ii) at least 7.00%* × $1,000 if
called on the second Review Date; (iii) at least 10.50%* × $1,000 if called on
the third Review Date; or (iv) at least 14.00%* × $1,000 if called on the final
Review Date. Because the notes are our senior unsecured obligations, payment of
any amount if called or at maturity is subject to our ability to pay our
obligations as they become due.* The actual call premiums applicable
to the first, second, third and final Review Dates will be determined on the
pricing date but will not be less than 3.50%, 7.00%, 10.50% and 14.00%,
respectively.
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POTENTIAL EARLY EXIT WITH
APPRECIATION AS A RESULT OF AUTOMATIC CALL FEATURE While the original term of the
notes is just over one year, the notes will be called before maturity if the
Index Closing Level is at or above the relevant Call Level on the applicable
Review Date and you will be entitled to the applicable payment corresponding to
such Review Date set forth on the cover of this term sheet.
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CONTINGENT PROTECTION AGAINST LOSS If the notes are not automatically
called and the Ending Index level is less than the Initial Index Level by no
more than 10%, you will be entitled to receive the full principal amount of
your notes at maturity. If the notes are not automatically called and the
Ending Index Level is less than the Strike Value 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 Strike Value. Under these circumstances, you will
lose at least 10% of your investment at maturity and may lose up to your entire
investment at maturity.
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POTENTIAL FOR EARLY EXIT AND CAPPED
POSITIVE RETURN, EVEN IF THE INDEX CLOSING LEVEL ON A REVIEW DATE IS LESS THAN
THE STRIKE VALUE BY UP 5% The Call Level for each of the Review Dates is set at 95% of the Strike
Value. Accordingly, your notes will be automatically called and you will
receive the applicable call premium amount, even if the Index closing level on a
Review Date is less than the Strike Value Level by up to 5%.
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RETURN LINKED TO THE S&P GSCI BRENT CRUDE OIL INDEX EXCESS RETURN The return on the notes is linked solely to the S&P
GSCI Brent Crude Oil Index Excess Return, a sub-index of the S&P GSCI, a
composite index of commodity sector returns, calculated, maintained and
published daily by Standard & Poors, a division of the McGraw-Hill
Companies. The S&P GSCI is a world production-weighted index that is
designed to reflect the relative significance of principal non-financial
commodities (i.e., physical commodities) in the world economy. The
S&P GSCI represents the return of a portfolio of the futures contracts for
the underlying commodities. The S&P GSCI Brent Crude Oil Index Excess
Return references the front-month Brent crude oil futures contract (i.e.,
the Brent crude futures contract generally closest to expiration) traded on ICE
Futures Europe. The S&P GSCI Brent Crude Oil Index Excess Return provides
investors with a publicly available benchmark for investment performance in the
Brent crude oil commodity markets. The S&P GSCI Brent Crude Oil Index
Excess Return is an excess return index and not a total return index. An excess
return index reflects the returns that are potentially available through an unleveraged
investment in the contracts composing the index (which, in the case of the
Index, are the designated crude oil futures contracts). By contrast, a total
return index, in addition to reflecting those returns, also reflects interest
that could be earned on funds committed to the trading of the underlying
futures contracts. See The S&P GSCI Indices in the accompanying product
supplement no. 206-A-I.
-
CAPITAL GAINS TAX TREATMENT You should
review carefully the section entitled Certain U.S. Federal Income Tax
Consequences in the accompanying product supplement no. 206-A-I. Subject to
the limitations described therein, and based on certain factual representations
received from us, in the opinion of our special tax counsel, Davis Polk &
Wardwell LLP, it is reasonable to treat the notes as open transactions for
U.S. federal income tax purposes, as described in the section entitled Certain
U.S. Federal Income Tax ConsequencesTax Consequences to U.S. HoldersNotes
Treated as Open Transactions in the accompanying product supplement. Assuming
this characterization is respected, the gain or loss on your notes should be
treated as short-term capital gain or loss unless you hold your notes for more
than a year, in which case the gain or loss should be long-term capital gain or
loss, whether or not you are an initial purchaser of notes at the issue price.
However, the Internal Revenue Service (the IRS) or a court may not respect
this characterization or treatment of the notes, in which case the timing and
character of any income or loss on the notes could be significantly and
adversely affected. In addition, in 2007 Treasury and the IRS released a
notice requesting comments on the U.S. federal income tax treatment of prepaid
forward contracts and similar instruments, which might include the notes. The
notice focuses in particular on whether to require holders of these instruments
to accrue income over the term of their investment. It also asks for comments
on a number of related topics, including the character of income or loss with
respect to these instruments; the relevance of factors such as the nature of
the underlying property to which the instruments are linked; 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. Non-U.S. Holders should also note
that they may be withheld upon at a rate of up to 30% unless they have
submitted a properly completed IRS Form W-8BEN or otherwise satisfied the
applicable documentation requirements.
|
JPMorgan
Structured Investments |
TS-3 |
Quarterly Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess
Return |
The discussion in the preceding paragraph, when read
in combination with the section entitled Certain U.S. Federal Income Tax
Consequences in the accompanying product supplement, constitutes the full opinion
of Davis Polk & Wardwell LLP regarding the material U.S. federal income tax consequences of owning and disposing of notes.
Selected
Risk Considerations
An investment in the notes involves
significant risks. Investing in the notes is not equivalent to investing
directly in the Index or in any futures contracts or exchange-traded or
over-the-counter instruments based on, or other instruments linked to the
Index. These risks are explained in more detail in the Risk Factors section
of the accompanying product supplement no. 206-A-I dated March 4, 2011.
-
YOUR INVESTMENT IN THE NOTES MAY
RESULT IN A LOSS If
the notes are not automatically called and the Ending Index Level is less than
the Strike Value by more than 10%, you will lose 1% of your principal amount at
maturity for every 1% that the Ending Index Level is less than the Strike Value.
Under these circumstances, you will lose at least 10% of your investment at
maturity and may lose up to your entire investment at maturity.
-
CREDIT RISK OF JPMORGAN CHASE &
CO. The notes are
subject to the credit risk of JPMorgan Chase & Co. and our credit ratings
and credit spreads may adversely affect the market value of the notes.
Investors are dependent on JPMorgan Chase & Co.s ability to pay all
amounts due on the notes at maturity or upon an automatic call, and therefore
investors are subject to our credit risk and to changes in the markets view of
our creditworthiness. Any decline in our credit ratings or increase in the
credit spreads charged by the market for taking our credit risk is likely to
affect adversely the value of the notes.
-
POTENTIAL CONFLICTS We and our affiliates play a
variety of roles in connection with the issuance of the notes, including acting
as calculation agent and hedging our obligations under the notes. In performing
these duties, the economic interests of the calculation agent and other
affiliates of ours are potentially adverse to your interests as an investor in
the notes. It is
possible that such hedging or trading activities could result in substantial
returns for us or our affiliates while the value of the notes declines. Although the calculation
agent will make all determinations and will take all actions in relation to the
establishment of the Strike Value in good faith, it should be noted that such
discretion could have an impact (positive or negative) on the value of your
notes. The calculation agent is under no obligation to consider your
interests as a holder of the notes in taking any actions, including the
determination of the Strike Value, that might affect the value of your notes.
-
LIMITED RETURN ON THE NOTES Your potential gain on the notes
will be limited to the call premium applicable for a Review Date, as set forth
on the cover of this term sheet, regardless of the appreciation in the Index,
which may be significant. Because the Index Closing Level at various times
during the term of the notes could be higher than on the Review Dates and at
maturity, you may receive a lower payment if called or at maturity, as the case
may be, than you would have if you had invested directly in the Index.
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REINVESTMENT RISK If your notes are automatically
called, the term of the notes may be as short as three months. There is no
guarantee that you would be able to reinvest the proceeds from an investment in
the notes at a comparable return for a similar level of risk in the event the
notes are automatically called prior to the maturity date.
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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 or
upon an automatic call described in this term sheet is based on the full
principal amount of your notes, the original issue price of the notes includes
the agents commission and the estimated cost of hedging our obligations under
the notes. As a result, the price, if any, at which J.P. Morgan Securities
LLC, which we refer to as JPMS, will be willing to purchase notes from you in
secondary market transactions, if at all, will likely be lower than the
original issue price, and any sale prior to the maturity date could result in a
substantial loss to you. The notes are not designed to be short-term trading
instruments. Accordingly, you should be able and willing to hold the notes to
maturity.
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THE BENEFIT PROVIDED BY THE
CONTINGENT BUFFER AMOUNT MAY TERMINATE ON THE FINAL REVIEW DATE If the notes have not been
automatically called previously and the Index Closing Level on the Final Review
Date (i.e., the Ending Index Level) is less than the Strike Value by
more than the 10% Contingent Buffer Amount, the benefit provided by the 10%
Contingent Buffer Amount will terminate and you will be fully exposed to any
depreciation in the Index.
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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 INDEX Market prices of the commodity futures contracts included
in the Index tend to be highly volatile and may fluctuate rapidly based on
numerous factors, including the factors that affect the price of the commodities
underlying the commodity futures contracts included in the Index. See There
Are Risks Associated With an Investment Linked to Crude Oil below. The prices
of commodities and commodity futures contracts are subject to variables that
may be less significant to the values of traditional securities, such as stocks
and bonds. These variables may create additional investment risks that cause
the value of the notes to be more volatile than the values of traditional
securities. As a general matter, the risk of low liquidity or volatile pricing
around the maturity date of a commodity futures contract is greater than in the
case of other futures contracts because (among other factors) a number of
market participants take physical delivery of the underlying commodities. Many
commodities are also highly cyclical. The high volatility and cyclical nature
of commodity markets may render such an investment inappropriate as the focus
of an investment portfolio.
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WE MAY ACCELERATE YOUR NOTES IF A COMMODITY HEDGING
DISRUPTION EVENT OCCURS If we or our affiliates are unable to effect transactions necessary
to hedge our obligations under the notes due to a commodity hedging disruption
event, we may, in our sole and absolute discretion, accelerate the payment on
your notes and pay you an amount determined in good faith and in a commercially
reasonable manner by the calculation agent. If the payment on your notes is
accelerated, your investment may result in a loss and you may not be able to
reinvest your money in a comparable investment. Please see General Terms of
Notes
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JPMorgan
Structured Investments |
TS-4 |
Quarterly Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess
Return |
Consequences of a Commodity Hedging Disruption Event C. Early
Acceleration of Payment on the Notes in the accompanying product supplement
no. 206-A-I for more information.
-
COMMODITY FUTURES CONTRACTS ARE SUBJECT TO UNCERTAIN
LEGAL AND REGULATORY REGIMES The commodity futures contracts that underlie the Index are subject
to legal and regulatory regimes in the United States and, in some cases, in
other countries that may change in ways that could adversely affect our ability
to hedge our obligations under the notes and affect the value of the Index.
Any future regulatory changes, including but not limited to changes resulting
from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank
Act), which was enacted on July 21, 2010, may have a substantial adverse
effect on the value of your notes. Additionally, in accordance with the
Dodd-Frank Act, the U.S. Commodity Futures Trading Commission is drafting
regulations that will affect market participants position limits in certain
commodity-based futures contracts, such as futures contracts on certain
agricultural commodities, energy commodities and metals. These proposed
regulations, when final and implemented, may reduce liquidity in the
exchange-traded market for such commodity-based futures contracts.
Furthermore, we or our affiliates may be unable as a result of such
restrictions to effect transactions necessary to hedge our obligations under
the notes, in which case we may, in our sole and absolute discretion,
accelerate the payment on your notes. See We May Accelerate Your Notes If a
Commodity Hedging Disruption Event Occurs above.
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THERE ARE RISKS ASSOCIATED WITH AN INVESTMENT LINKED
INDIRECTLY TO CRUDE OIL Global prices of energy commodities, including crude oil, are
primarily affected by the global demand for and supply of these commodities,
but are also significantly influenced by speculative actions and by currency
exchange rates. In addition, prices for energy commodities are affected by
governmental programs and policies, national and international political and
economic events, changes in interest and exchange rates, trading activities in
commodities and related contracts, trade, fiscal, monetary and exchange control
policies and with respect to oil, drought, floods, weather, government
intervention, environmental policies, embargoes and tariffs. Demand for refined
petroleum products by consumers, as well as the agricultural, manufacturing and
transportation industries, affects the price of energy commodities. Sudden
disruptions in the supplies of energy commodities, such as those caused by war,
natural events, accidents or acts of terrorism, may cause prices of energy
commodities futures contracts to become extremely volatile and unpredictable.
Also, sudden and dramatic changes in the futures market may occur, for example,
upon a cessation of hostilities that may exist in countries producing energy
commodities, the introduction of new or previously withheld supplies into the
market or the introduction of substitute products or commodities. In
particular, supplies of crude oil may increase or decrease depending on, among
other factors, production decisions by the Organization of the Oil and
Petroleum Exporting Countries (OPEC) and other crude oil producers. Crude oil
prices are determined with significant influence by OPEC, which has the
capacity to influence oil prices worldwide because its members possess a
significant portion of the worlds oil supply. Crude oil prices are generally
more volatile and subject to dislocation than prices of other commodities.
Demand for energy commodities such as oil and gasoline is generally linked to
economic activity, and will tend to reflect general economic conditions.
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FUTURES CONTRACTS ON BRENT CRUDE OIL
ARE THE BENCHMARK CRUDE OIL CONTRACTS IN EUROPEAN AND ASIAN MARKETS Because futures contracts on Brent
crude oil are the benchmark crude oil contracts in European and Asian markets,
the Brent crude oil futures contracts included in the Index will be affected by
economic conditions in Europe and Asia. A decline in economic activity in
Europe or Asia could result in decreased demand for crude oil and for futures
contracts on crude oil, which could adversely affect the value of the Brent
crude oil futures contracts included in the Index and, therefore, the Index and
the notes.
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A DECISION BY AN EXCHANGE ON WHICH
THE FUTURES CONTRACTS UNDERLYING THE INDEX ARE TRADED TO INCREASE MARGIN
REQUIREMENTS MAY AFFECT THE LEVEL OF THE INDEX If an exchange on which the
futures contract underlying the Index are traded increases the amount of
collateral required to be posted to hold positions in such futures contracts (i.e.,
the margin requirements), market participants who are unwilling or unable to
post additional collateral may liquidate their positions, which may cause the
level of the Index to decline significantly.
-
THE INDEX MAY BE MORE VOLATILE AND
SUSCEPTIBLE TO PRICE FLUCTUATIONS OF COMMODITY FUTURES CONTRACTS THAN A BROADER
COMMODITIES INDEX
The Index may be more volatile and susceptible to price fluctuations than a
broader commodities index, such as the S&P GSCI. In contrast to the
S&P GSCI, which includes contracts on crude oil and non-crude oil
commodities, the Index comprises contracts on only crude oil. As a result,
price volatility in the contracts included in the Index will likely have a
greater impact on the Index than it would on the broader S&P GSCI. In
addition, because the Index omits principal market sectors composing the
S&P GSCI, it will be less representative of the economy and commodity
markets as a whole and will therefore not serve as a reliable benchmark for
commodity market performance generally.
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THE NOTES DO NOT OFFER DIRECT
EXPOSURE TO COMMODITY SPOT PRICES The notes are linked to the Index, which tracks commodity
futures contracts, not physical commodities (or their spot prices). The price
of a futures contract reflects the expected value of the commodity upon
delivery in the future, whereas the spot price of a commodity reflects the
immediate delivery value of the commodity. A variety of factors can lead to a
disparity between the expected future price of a commodity and the spot price
at a given point in time, such as the cost of storing the commodity for the
term of the futures contract, interest charges incurred to finance the purchase
of the commodity and expectations concerning supply and demand for the
commodity. The price movements of a futures contract are typically correlated
with the movements of the spot price of the referenced commodity, but the
correlation is generally imperfect and price movements in the spot market may
not be reflected in the futures market (and vice versa). Accordingly, the
notes may underperform a similar investment that is linked to commodity spot
prices.
- OWNING THE NOTES IS NOT THE SAME AS
OWNING ANY COMMODITIES OR COMMODITY FUTURES CONTRACTS The return on your notes will not
reflect the return you would realize if you actually purchased the futures
contracts composing the Index, the commodities upon which the futures contracts
that compose the Index are based, or other exchange-traded or over-the-counter
instruments based on the Index. You will not have any rights that holders of
such assets or instruments have.
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JPMorgan
Structured Investments |
TS-5 |
Quarterly Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess
Return |
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HIGHER FUTURES PRICES OF THE
COMMODITY FUTURES CONTRACTS UNDERLYING THE INDEX RELATIVE TO THE CURRENT PRICES
OF SUCH CONTRACTS MAY AFFECT THE VALUE OF THE INDEX AND THE VALUE OF THE NOTES The Index is composed of futures
contracts on physical commodities. Unlike equities, which typically entitle
the holder to a continuing stake in a corporation, commodity futures contracts
normally specify a certain date for delivery of the underlying physical
commodity. As the exchange-traded futures contracts that compose the Index
approach expiration, they are replaced by contracts that have a later
expiration. Thus, for example, a contract purchased and held in August may
specify an October expiration. As time passes, the contract expiring in
October is replaced with a contract for delivery in November. This process is
referred to as rolling. If the market for these contracts is (putting aside
other considerations) in contango, where the prices are higher in the distant
delivery months than in the nearer delivery months, the purchase of the
November contract would take place at a price that is higher than the price of
the October contract, thereby creating a negative roll yield.
Contango could adversely affect the value of the Index and thus the value of
notes linked to the Index. The futures contracts underlying the Index have
historically been in contango.
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SUSPENSION OR DISRUPTIONS OF MARKET
TRADING IN THE COMMODITY MARKETS AND RELATED FUTURES MARKETS MAY ADVERSELY
AFFECT THE LEVEL OF THE INDEX, AND THEREFORE THE VALUE OF THE NOTES The commodity markets are subject
to temporary distortions or other disruptions due to various factors, including
the lack of liquidity in the markets, the participation of speculators and
government regulation and intervention. In addition, U.S. futures exchanges and
some foreign exchanges have regulations that limit the amount of fluctuation in
futures contract prices that may occur during a single day. These limits are
generally referred to as daily price fluctuation limits and the maximum or
minimum price of a contract on any given day as a result of these limits is
referred to as a limit price. Once the limit price has been reached in a
particular contract, no trades may be made at a different price. Limit prices
have the effect of precluding trading in a particular contract or forcing the
liquidation of contracts at disadvantageous times or prices. These
circumstances could adversely affect the level of the Index and, therefore, the
value of your notes.
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THE NOTES ARE LINKED TO AN EXCESS
RETURN INDEX AND NOT A TOTAL RETURN INDEX The notes are linked to an excess return index and
not a total return index. An excess return index, such as the Index, reflects
the returns that are potentially available through an unleveraged investment in
the contracts composing such index. By contrast, a total return index, in
addition to reflecting those returns, also reflects interest that could be
earned on funds committed to the trading of the underlying futures contracts.
-
NO INTEREST PAYMENTS As a holder of the notes, you will
not receive any interest payments.
-
LACK OF LIQUIDITY The notes will not be listed on
any securities exchange. JPMS intends to offer to purchase the notes in the
secondary market but is not required to do so. Even if there is a secondary
market, it may not provide enough liquidity to allow you to trade or sell the
notes easily. Because other dealers are not likely to make a secondary market
for the notes, the price at which you may be able to trade your notes is likely
to depend on the price, if any, at which JPMS is willing to buy the notes.
-
MANY ECONOMIC AND MARKET FACTORS WILL
AFFECT THE VALUE OF THE NOTES In addition
to the level of the Index on any day, the value of the notes will be affected
by a number of economic and market factors that may either offset or magnify
each other, including:
-
the expected volatility of the Index
and the underlying futures contracts;
-
the time to maturity of the notes;
-
the market price of the physical
commodities upon which the futures contracts underlying the Index are based;
-
interest and yield rates in the
market generally;
-
economic, financial, political,
regulatory, geographical, agricultural, meteorological and judicial events that
affect the commodities underlying the Index or markets generally and that may
affect the value of the commodity futures contracts, and thus the closing
levels of the Index; and
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our creditworthiness, including
actual or anticipated downgrades in our credit ratings.
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JPMorgan
Structured Investments |
TS-6 |
Quarterly Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess
Return |
Historical Information
The following graph sets
forth the historical performance of the Index based on the weekly historical Index
Closing Levels from January 6, 2006 through July 8, 2011. The Index Closing
Level on July 8, 2011 was 829.8974. We obtained the Index Closing Levels below
from Bloomberg Financial Markets. We make no representation or warranty as to
the accuracy or completeness of the information obtained from Bloomberg
Financial Markets. The historical levels of the Index should not be taken as an
indication of future performance, and no assurance can be given as to the Index
Closing Level on any Review Date. We cannot give you assurance that the
performance of the Index will result in the return of any of your initial
investment.
Supplemental Plan of Distribution
JPMS, acting as agent for
JPMorgan Chase & Co., will receive a commission that will depend on market
conditions on the pricing date. In no event will that commission exceed $10.00
per $1,000 principal amount note. See Plan of Distribution (Conflicts of
Interest) beginning on page PS-89 of the accompanying product supplement no. 206-A-I.
For a different portion
of the notes to be sold in this offering, an affiliated bank will receive a fee
and another affiliate of ours will receive a structuring and development fee.
In no event will the total amount of these fees exceed $10.00 per $1,000
principal amount note.
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JPMorgan
Structured Investments |
TS-7 |
Quarterly Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess
Return |