Term sheet
To prospectus
dated November
21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 197-A-I dated August 25, 2010
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Term Sheet to
Product Supplement No. 197-A-I
Registration Statement No. 333-155535
Dated January 26, 2011; Rule 433
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Structured
Investments
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$
Buffered Return Enhanced Notes Linked
to the Performance of an Equally Weighted Basket of Four Asian Currencies
Relative to the U.S. Dollar due January 31, 2013
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General
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The notes are designed for investors
who seek a return of at least 3.10 times the appreciation of an equally weighted
basket of four Asian currencies relative to the U.S. dollar up to a maximum
total return on the notes of at least 31.00%* at maturity. Investors should be
willing to forgo interest payments, and, if the Ending Basket Level is less
than the Starting Basket Level by more than 10%, be willing to lose some or all
of their principal. Any payment on the notes is subject to the credit risk
of JPMorgan Chase & Co.
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Senior unsecured
obligations of JPMorgan Chase & Co. maturing January 31, 2013*
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Minimum
denominations of $1,000 and integral multiples thereof
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The notes are
expected to price on or about January 28, 2011 and
are expected to settle on or about February 2, 2011.
Key Terms
Basket:
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An equally weighted basket (the Basket) of four Asian
currencies (each a Reference Currency, and together, the Reference
Currencies) that measures the performance of the Reference Currencies relative
to the U.S. dollar (the Base Currency)
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The following table sets forth the Reference Currencies, the
Starting Spot Rate, the applicable Reuters Page and the
weighting of each Reference Currency:
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Reference
Currency
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Starting
Spot Rate
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Reuters
Page
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Reference
Currency Weight
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South
Korean won (KRW)
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KFTC18
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25%
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Indonesian
rupiah (IDR)
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ABSIRFIX01
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25%
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Indian rupee (INR)
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RBIB
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25%
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Singapore dollar
(SGD)
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ABSIRFIX01
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25%
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The
Starting Spot Rate of each Reference Currency relative to the U.S. dollar is
expressed in terms of a number of U.S. dollars per one unit of such Reference
Currency as determined by the calculation agent in good faith and in a
commercially reasonable manner on the pricing date, taking into account
either the rates displayed on the applicable Reuters page(s) at the same
approximate time that the Spot Rate for such Reference Currency on any date
is to be determined as specified under Additional Key Terms Spot Rate in
this term sheet or such exchange rates determined by reference to certain
intra-day trades. Although the calculation agent will make all
determinations and will take all actions in relation to establishing the
Starting Spot Rates 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
Starting Spot Rates that might affect the value of your notes. For
information about the risks related to this discretion, see Selected Risk
Considerations Potential Conflicts on page TS-2 of this term sheet.
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Upside Leverage Factor:
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At least 3.10 (to be determined on the pricing date)
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Payment at Maturity:
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If the Ending Basket Level is greater than the Starting
Basket Level, at maturity you will receive a cash payment that provides you
with a return per $1,000 principal amount note equal to the Basket Return
multiplied by the Upside Leverage Factor, subject to a Maximum Total Return
on the notes of at least 31.00%*. For example, assuming the Upside Leverage
factor is 3.10 and the Maximum Total Return is 31.00%*, if the Basket Return
is equal to or greater than 10.00%, you will receive the Maximum Total Return
on the notes of 31.00%*, which entitles you to a maximum payment at maturity
of $1,310.00* for every $1,000 principal amount note that you hold.
Accordingly, if the Basket Return is positive, your payment at maturity per
$1,000 principal amount note will be calculated as follows, subject to the
Maximum Total Return:
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$1,000 + ($1,000 × Basket Return × Upside
Leverage Factor)
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*The actual Maximum Total Return will be set on the pricing
date and will not be less than 31.00%. Accordingly, the actual maximum
payment at maturity per $1,000 principal amount note will not be less than $1,310.00. |
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If the Ending Basket Level is equal to the Starting Basket
Level or less than the Starting Basket Level by up to 10%, you will receive
the principal amount of your notes at maturity.
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If the Ending Basket Level is less than the Starting Basket
Level by more than 10%, you will lose 1.1111% of the principal amount of your
notes for every 1% that the Ending Basket Level is less than the Starting
Basket Level by more than 10%, and your payment at maturity per $1,000
principal amount note will be calculated as follows: |
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$1,000 + [$1,000 × (Basket Return + 10%)
× 1.1111]
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In no event, however, will the payment at maturity per
$1,000 principal amount note be less than $0. |
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You will lose some or all of your investment at maturity if the
Ending Basket Level is less than the Starting Basket Level by more than 10%.
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Buffer Amount:
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10%
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Downside Leverage Factor
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1.1111
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Basket Return:
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Ending Basket Level Starting Basket
Level
Starting Basket Level
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Starting Basket Level:
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Set equal to 100 on the pricing date
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Ending Basket Level:
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The Basket Closing Level on the Observation Date
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Basket Closing Level:
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The Basket Closing
Level on the Observation Date will be calculated as follows:
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100
x [1 + (KRW Return * 25%) + (IDR Return * 25%)
+ (INR Return * 25%) + (SGD Return * 25%)] |
The KRW Return, IDR Return, INR Return and SGD Return are the Reference Currency Returns of
the South Korean won, the Indonesian rupiah, the Indian rupee and the Singapore dollar, respectively. See
Additional Key Terms for more information. The Reference
Currency Return formula includes an embedded maximum return for each
Reference Currency, an embedded variable downside leverage and an embedded
variable negative upside leverage. The embedded variable upside negative
leverage decreases as a Reference Currency Return increases, and the embedded
variable downside leverage increases as a Reference Currency Return decreases.
Please see Selected Risk Considerations The Method of Calculating the
Reference Currency Returns Will Diminish Any Reference Currency Appreciation
and Magnify Any Reference Currency Depreciation Relative to the U.S. Dollar
in this term sheet for more information. |
Observation Date:
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January 28, 2013*
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Maturity Date:
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January 31, 2013*
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CUSIP:
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48125XCJ3
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*
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Subject to postponement in the event
of a market disruption event as described under Description of Notes Payment
at Maturity and Description of Notes Postponement of a Calculation Date in
the accompanying product supplement no. 197-A-I
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Investing in the Buffered Return
Enhanced Notes involves a number of risks. See Risk Factors beginning on
page PS-7 of the accompanying product supplement no. 197-A-I and Selected Risk
Considerations beginning on page TS-2 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-15 of the accompanying product supplement no.
197-A-I.
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(2)
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Please see Supplemental
Plan of Distribution in this term sheet for information about fees and
commissions.
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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.
January 25, 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. 197-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. 197-A-I dated August 25, 2010. 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. 197-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.
Additional Key Terms
- CURRENCY BUSINESS DAY A
currency business day, with respect to each Reference Currency, means a day
on which (a) dealings in foreign currency in accordance with the practice of
the foreign exchange market occur in The City of New York and the principal
financial center for the applicable Reference Currency (Seoul, South Korea,
with respect to the South Korean won, Jakarta, Indonesia, with respect to the
Indonesian rupiah, Mumbai, India, with respect to the Indian rupee and
Singapore, with respect to the Singapore dollar) and (b) banking institutions
in The City of New York and such principal financial center for such Reference
Currency are not otherwise authorized or required by law, regulation or
executive order to close.
- SPOT RATE The Spot Rate of each Reference
Currency relative to the U.S. dollar on a given date is expressed as a number
of U.S. dollars per one unit of the applicable Reference Currency and is equal
to one divided by the applicable rate reported by Reuters Group PLC (Reuters) on such date of determination on (a) for the
South Korean won, Reuters page KFTC18 at approximately 4:00 p.m., Greenwich
Mean Time, (b) for the Indonesian rupiah, Reuters page ABSIRFIX01 at
approximately 4:00 p.m., Greenwich Mean Time, (c) for the Indian rupee, Reuters
page RBIB at approximately 4:00 p.m., Greenwich Mean Time and (d) for the
Singapore dollar, Reuters page ABSIRFIX01 at approximately 4:00 p.m., Greenwich
Mean Time.
- REFERENCE CURRENCY RETURN The Reference Currency Return with respect to a Reference
Currency reflects the performance of the applicable Reference Currency relative
to the U.S. dollar, calculated as follows:
Ending Spot Rate Starting Spot Rate
Ending Spot Rate
The Reference Currency Return formula
includes an embedded maximum return for each Reference Currency, an embedded
variable downside leverage and an embedded variable negative upside leverage.
The embedded variable upside negative leverage decreases as a Reference
Currency Return increases, and the embedded variable downside leverage
increases as a Reference Currency Return decreases. Please see Selected Risk
Considerations The Method of Calculating the Reference Currency Returns Will
Diminish Any Reference Currency Appreciation and Magnify Any Reference Currency
Depreciation Relative to the U.S. Dollar in this term sheet for more
information.
- ENDING SPOT RATE
The Ending Spot Rate with respect to a Reference Currency is the Spot
Rate of such Reference Currency relative to the U.S. dollar on the Observation
Date.
Selected Purchase Considerations
- CAPPED APPRECIATION POTENTIAL The notes provide the opportunity to enhance
currency returns by multiplying a positive Basket Return by the Upside Leverage
Factor, up to the Maximum Total Return on the notes. The actual Upside
Leverage Factor will be determined on the pricing date and will not be less
than 3.10. The actual Maximum Total Return will be determined on the pricing
date and will not be less than 31.00%, and accordingly, the actual maximum
payment at maturity will not be less than $1,310 per $1,000 principal amount
note. The notes may be
appropriate for investors anticipating moderate appreciation in the Reference
Currencies relative to the U.S. dollar during the term of the notes and those
seeking to enhance returns through leverage within the specified range of
performance in exchange for a Maximum Total Return. Because the notes are our
senior unsecured obligations, payment of any amount at maturity is subject to
our ability to pay our obligations as they become due.
- LIMITED PROTECTION AGAINST LOSS We will pay you your principal back at maturity if the Ending Basket
Level is not less than the Starting Basket Level by more than 10%. If the
Ending Basket Level is less than the Starting Basket Level by more than 10%,
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JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the Performance of an Equally Weighted Basket of Four Asian Currencies Relative to the U.S. Dollar
|
TS-1 |
for
every 1% that the Ending Basket Level is less than the Starting Basket Level by
more than 10%, you will lose an amount equal to 1.1111% of the principal amount
of your notes.
- EXPOSURE TO THE REFERENCE CURRENCIES
VERSUS THE U.S. DOLLAR
The return on the notes is linked to the performance of a basket of four
Asian currencies, which we refer to as the Reference Currencies, relative to
the U.S. dollar, and will enable you to participate in potential increases in
the value of the Reference Currencies, relative to the U.S. dollar, during the
term of the notes. The
Basket derives its value from an equally weighted group of currencies
consisting of the South Korean won, the Indonesian rupiah, Indian rupee and Singapore dollar.
- POTENTIAL ACCELERATED LOSS IF ANY
REFERENCE CURRENCY DEPRECIATES RELATIVE TO THE BASE CURRENCY The Reference Currency Return formula includes an
embedded maximum return for each Reference Currency, an embedded variable
downside leverage and an embedded variable negative upside leverage. The
embedded variable upside negative leverage decreases as a Reference Currency
Return increases, and the embedded variable downside leverage increases as a
Reference Currency Return decreases. Please see Selected Risk Considerations The Method of
Calculating the Reference Currency Returns Will Diminish Any Reference Currency
Appreciation and Magnify Any Reference Currency Depreciation Relative to the
U.S. Dollar in this term sheet for more information.
- TAX TREATMENT You should review carefully the
section entitled Certain U.S. Federal Income Tax Consequences in the
accompanying product supplement no. 197-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 will generally be
ordinary foreign currency income or loss under Section 988 of the Internal
Revenue Code of 1986, as amended (the Code). However, under that Section,
holders of certain forward contracts, futures contracts or option contracts
generally are entitled to make an election to treat foreign currency gain or
loss as capital gain or loss (a Section 988 Election). Although the matter
is uncertain, it is reasonable to treat the Section 988 Election as available.
Assuming the Section 988 Election is available, if you make this election
before the close of the day on which you acquire a note, all gain or loss you
recognize on a sale or exchange of that note should be treated as long-term
capital gain or loss, assuming that you have held the note for more than one
year. A Section 988 Election with respect to a note is made by (a) clearly
identifying the transaction on your books and records, on the date the
transaction is entered into, as being subject to this election and either (b)
filing the relevant statement verifying this election with your U.S. federal
income tax return or (c) otherwise obtaining independent verification as set
forth in the Treasury Regulations under Section 988. You should consult your
tax adviser regarding the advisability, availability, mechanics and
consequences of a Section 988 Election.
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, such as the notes. The notice focuses in
particular on whether to require holders of these instruments to accrue income
over the term of their investment. It also asks for comments on a number of
related topics, including the character of income or loss with respect to these
instruments; the relevance of factors such as the nature of the underlying property
to which the instruments are linked; the degree, if any, to which income
(including any mandated accruals) realized by Non-U.S. Holders should be
subject to withholding tax; and whether these instruments are or should be
subject to the constructive ownership regime, which very generally can
operate to recharacterize certain long-term capital gain as ordinary income and
impose an interest charge. While the notice requests comments on appropriate
transition rules and effective dates, any Treasury regulations or other
guidance promulgated after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the notes, possibly
with retroactive effect. In 2007 the IRS also
issued a revenue ruling holding that a financial instrument with some arguable
similarity to the notes is properly treated as a debt instrument denominated in
a foreign currency. The notes are distinguishable in meaningful respects from
the instrument described in the revenue ruling. If, however, the reach of the
revenue ruling were to be extended, it could materially and adversely affect
the tax consequences of an investment in the notes for U.S. Holders, 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
the notice and revenue ruling described above. Non-U.S. Holders should also
note that they may be withheld upon unless they have submitted a properly
completed IRS Form W-8BEN or otherwise satisfied the applicable documentation requirements.
The discussion in the
preceding paragraphs, 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 Reference Currencies, the U.S. dollar or the respective
exchange rates between the Reference Currencies and the U.S. dollar or any contracts
related to the Reference Currencies, the U.S. dollar or the respective exchange
rates between the Reference Currencies and the U.S. dollar. These risks are
explained in more detail in the Risk Factors section of the accompanying product
supplement no. 197-A-I dated August 25, 2010.
- YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS The return on the notes at maturity
is linked to the performance of the Basket and will depend on whether, and the
extent to which, the Basket Return is positive or negative. Any positive
Basket Return will depend on the aggregate performance of the Reference
Currencies relative to the U.S. dollar. Your investment will be exposed to
loss on a leveraged basis if the Ending Basket Level is less than the Starting
Basket Level by more than 10%. For every 1% that the Ending Basket Level is
less than the Starting Basket Level by more than 10%, you will lose an amount
equal to 1.1111% of the principal amount of your notes. Accordingly, you could
lose some or all of your initial investment at maturity.
- YOUR MAXIMUM GAIN ON THE NOTES IS
LIMITED TO THE MAXIMUM TOTAL RETURN If the Ending Basket Level is greater than the Starting Basket
Level, for each $1,000 principal amount note, you will receive at maturity
$1,000 plus an additional return that will not exceed a predetermined
percentage of the principal amount, regardless of the appreciation in the Basket,
which
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JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the Performance of an Equally Weighted Basket of Four Asian Currencies Relative to the U.S. Dollar
|
TS-2 |
may be significant. We refer to this predetermined percentage as the
Maximum Total Return, which will be set on the pricing date and will not be
less than 31.00%.
- CREDIT RISK OF JPMORGAN CHASE & CO.
The notes are
subject to the credit risk of JPMorgan Chase & Co. and our credit ratings
and credit spreads may adversely affect the market value of the notes. Investors
are dependent on JPMorgan Chase & Co.s ability to pay all amounts due on
the notes at maturity, and therefore investors are subject to our credit risk
and to changes in the 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. For example, one of the duties of JPMS as calculation agent
involves determining the Starting Spot Rates in the manner set forth on the
cover page of this term sheet. Although the calculation agent will make all
determinations and will take all actions in relation to the establishment of
the Starting Spot Rates 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 Starting
Spot Rates, that might affect the value of your notes. The Starting Spot Rates
may vary, and may vary significantly, from the rates displayed in publicly
available sources at any time on the pricing date. If the calculation agent
determines that the Starting Spot Rate for each of the Reference Currencies
exceeds that reflected in the publicly available information, such Reference
Currencies must achieve a higher level for you to receive more than the
principal amount of your notes at maturity. JPMS will not have any obligation
to consider your interests as a holder of the notes in making this
determination.
- CERTAIN BUILT-IN COSTS ARE LIKELY TO AFFECT ADVERSELY THE VALUE
OF THE NOTES PRIOR TO MATURITY While the payment at maturity, if any, 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, and as
a general matter, the price, if any, at which JPMS will be willing to purchase
notes from you in secondary market transactions, if at all, will likely be
lower than the original issue price, and any sale prior to the maturity date
could result in a substantial loss to you. This secondary market price will
also be affected by a number of factors aside from the agents 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.
- THE METHOD OF CALCULATING THE REFERENCE
CURRENCY RETURNS WILL DIMINISH ANY REFERENCE CURRENCY APPRECIATION AND MAGNIFY ANY REFERENCE CURRENCY
DEPRECIATION RELATIVE TO THE U.S. DOLLAR The Reference Currency Returns for each Reference Currency
relative to the U.S. dollar, which are used to determine the Basket Return, are
calculated by dividing the difference between the applicable Ending Spot Rate
and the applicable Starting Spot Rate by the applicable Ending Spot Rate,
rather than dividing that difference by the applicable Starting Spot Rate under
the linear method for determining a currency return. Under this
calculation method, the denominator of the fraction will always be smaller if
the applicable Reference Currency depreciates relative to the Base Currency and
greater if the applicable Reference Currency appreciates relative to the Base
Currency, as compared to the denominator that would have been used under the
linear method. As a result, any Reference Currency appreciation relative
to the Base Currency will be diminished, while any Reference Currency
depreciation relative to the Base Currency will be magnified. For
example, assuming the Starting Spot Rate of a Reference Currency relative to
the Base Currency is 1.0, if such Reference Currency appreciates relative to
the Base Currency by 10% such that the Ending Spot Rate is 1.1, the applicable
Reference Currency Return will only be 9.09%; conversely, if such Reference
Currency depreciates relative to the Base Currency by 10% such that the Ending
Spot Rate is 0.9, the applicable Reference Currency Return will be
- -11.11%. The diminishing effect on any Reference Currency appreciation,
which we refer to as an embedded variable negative upside leverage, increases
as the Reference Currency Return increases. The magnifying effect on any
Reference Currency depreciation, which we refer to as an embedded variable
downside leverage, increases as the Reference Currency Return decreases. In
addition, the Reference Currency Return formula includes an embedded maximum
return for each Reference Currency, such that no Reference Currency Return can
equal or exceed 100%. As a result of the embedded maximum return for each
Reference Currency and because of the embedded variable negative upside
leverage and the embedded variable downside leverage, depreciation in one or
more Reference Currencies may not be offset by appreciation in the other
Reference Currencies, even significant appreciation. Accordingly, your payment
at maturity may be less than if you had invested in similar notes that use the
linear method for calculating currency returns.
- CHANGES IN THE VALUES OF THE REFERENCE
CURRENCIES RELATIVE TO THE U.S. DOLLAR MAY OFFSET EACH OTHER Because the performance of the Basket is determined by the
performances of the South Korean won, the Indonesian rupiah, Indian rupee and
Singapore dollar relative to the U.S. dollar, your notes will be exposed to
currency exchange rate risk with respect to South Korea, Indonesia, India and
Singapore, each relative to the United States. Movements in the exchange rates
of the Reference Currencies relative to the U.S. dollar may not correlate with
each other. At a time when the exchange rate of one of the Reference
Currencies relative to the U.S. dollar increases, the exchange rate of another
Reference Currency relative to the U.S. dollar may not increase as much or may
decline. Therefore, in calculating the Ending Basket Level, an increase in the
exchange rate of one Reference Currency relative to the U.S. dollar may be
moderated, or more than offset, by a lesser increase or a decrease in the
exchange rate of another Reference Currency relative to the U.S. dollar. For
example, in calculating the Ending Basket Level, an increase in the Spot Rate
of the South Korean won relative to the U.S. dollar may be moderated, or more
than offset, by lesser increases or declines in the Spot Rate of the Indonesian
rupiah relative to the U.S. dollar. See the immediately preceding risk factor
for more information.
- THE NOTES MIGHT NOT PAY AS MUCH AS AN
INVESTMENT IN THE INDIVIDUAL REFERENCE CURRENCIES You may receive a lower payment at
maturity than you would have received if you had invested in the Reference
Currencies individually, a combination of Reference Currencies or contracts
related to the Reference Currencies for which there is an active secondary
market.
- THE NOTES ARE SUBJECT TO CURRENCY EXCHANGE RISK Foreign currency exchange rates vary
over time, and may vary considerably during the term of the notes. The value
of a Reference Currency or the U.S. dollar is at any moment a result of the
supply and demand for that currency. Changes in foreign currency exchange
rates result over time from the interaction of many factors directly or
indirectly affecting economic and political conditions in South Korea, Indonesia, India, Singapore and the United
States, and economic and
political developments in other relevant countries or regions.
|
JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the Performance of an Equally Weighted Basket of Four Asian Currencies Relative to the U.S. Dollar
|
TS-3 |
Of particular importance to potential
currency exchange risk are:
- existing and expected rates of inflation;
- existing and expected interest rate levels;
- the balance of payments in South Korea, Indonesia, India, Singapore and the United
States, and between each
country and its major trading partners; and
- the extent of governmental surplus or deficit in South Korea, Indonesia, India, Singapore and the United States.
All of these factors are, in turn,
sensitive to the monetary, fiscal and trade policies pursued by South Korea, Indonesia, India, Singapore and the United
States, and those of
other countries important to international trade and finance.
- GOVERNMENTAL INTERVENTION COULD
MATERIALLY AND ADVERSELY AFFECT THE VALUE OF THE
NOTES Foreign
exchange rates can be fixed by the sovereign government, allowed to float
within a range of exchange rates set by the government or left to float
freely. Governments, including those issuing the Reference Currencies and the U.S.
dollar, use a variety of techniques, such as intervention by their central bank
or imposition of regulatory controls or taxes, to affect the exchange rates of
their respective currencies. They may also issue a new currency to replace an
existing currency, fix the exchange rate or alter the exchange rate or relative
exchange characteristics by devaluation or revaluation of a currency. Thus, a
special risk in purchasing the notes is that their trading value and amount
payable could be affected by the actions of sovereign governments, fluctuations
in response to other market forces and the movement of currencies across
borders.
- BECAUSE THREE OF THE REFERENCE
CURRENCIES ARE EMERGING MARKETS CURRENCIES, THE
BASKET IS SUBJECT TO AN INCREASED RISK OF SIGNIFICANT ADVERSE FLUCTUATIONS The notes are linked to the performance
of an equally weighted Basket of four Asian currencies, three of which are
emerging markets currencies (the South Korean won, the Indonesian rupiah and
Indian rupee). There is an increased risk of significant adverse fluctuations
in the performances of the emerging markets currencies as they are currencies
of less developed and less stable economies without a stabilizing component
that could be provided by one of the major currencies. With respect to any
emerging or developing nation, there is the possibility of nationalization,
expropriation or confiscation, political changes, government regulation and
social instability. Currencies of emerging economies are often subject to more
frequent and larger central bank interventions than the currencies of developed
countries and are also more likely to be affected by drastic changes in
monetary or exchange rate policies of the relevant countries, which may
negatively affect the value of the notes.
- EVEN THOUGH THE REFERENCE CURRENCIES AND U.S. DOLLAR TRADE AROUND-THE-CLOCK,
THE NOTES WILL NOT Because
the inter-bank market in foreign currencies is a global, around-the-clock
market, the hours of trading for the notes, if any, will not conform to the
hours during which the Reference Currencies and U.S. dollar are traded.
Consequently, significant price and rate movements may take place in the
underlying foreign exchange markets that will not be reflected immediately in
the price of the notes. Additionally, there is no systematic reporting of
last-sale information for foreign currencies which, combined with the limited
availability of quotations to individual investors, may make it difficult for many
investors to obtain timely and accurate data regarding the state of the
underlying foreign exchange markets.
- THE RECENT GLOBAL FINANCIAL CRISIS OR
ANY FUTURE FINANCIAL CRISIS CAN BE EXPECTED TO HEIGHTEN CURRENCY EXCHANGE RISKS In periods of financial turmoil,
capital can move quickly out of regions that are perceived to be more
vulnerable to the effects of the crisis than others with sudden and severely
adverse consequences to the currencies of those regions. In addition,
governments around the world, including the United States government and
governments of other major world currencies, have recently made, and may be
expected to continue to make, very significant interventions in their
economies, and sometimes directly in their currencies. Such interventions
affect currency exchange rates globally and, in particular, the value of the
Reference Currencies relative to the U.S. dollar. Further interventions, other
government actions or suspensions of actions, as well as other changes in
government economic policy or other financial or economic events affecting the
currency markets, may cause currency exchange rates to fluctuate sharply in the
future, which could have a material adverse effect on the value of the notes
and your return on your investment in the notes at maturity.
- CURRENCY MARKET DISRUPTIONS MAY ADVERSELY AFFECT YOUR RETURN The calculation agent may, in its
sole discretion, determine that the currency markets have been affected in a
manner that prevents it from properly determining, among other things, the Spot
Rates and the Reference Currency Returns. These events may include disruptions
or suspensions of trading in the currency markets as a whole, and could be a
Convertibility Event, a Deliverability Event, a Liquidity Event, a Taxation Event,
a Discontinuity Event or a Price Source Disruption Event. See General Terms of
Notes Market Disruption Events in the accompanying product supplement no.
197-A-I for further information on what constitutes a market disruption event.
- NO INTEREST PAYMENTS As a holder of the notes, you will
not receive 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 IMPACT THE VALUE
OF THE NOTES In
addition to the level of the Basket 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 in the
Reference Currencies and the U.S. dollar;
- the time to maturity of the notes;
- interest and yield rates in the market
generally as well as in each of the Reference Currencies countries and the United States;
- the exchange rate and the volatility of
the exchange rates of the U.S. dollar with respect to each of the Reference
Currencies;
- changes in correlation between the
Reference Currency exchange rates;
- suspension or disruption of market
trading in any or all of the Reference Currencies or the U.S. dollar;
- a variety of economic, financial,
political, regulatory and judicial events; and
- our creditworthiness, including actual
or anticipated downgrades in our credit ratings.
|
JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the Performance of an Equally Weighted Basket of Four Asian Currencies Relative to the U.S. Dollar
|
TS-4
|
What Is the Payment at Maturity on the Notes, Assuming a Range of Performances for the Basket?
The table and examples below illustrate
the hypothetical total return at maturity of the notes. The total return as
used in this term sheet is the number, expressed as a percentage, that results
from comparing the payment at maturity per $1,000 principal amount note to
$1,000. The hypothetical
total returns set forth below assume an Upside Leverage Factor of 3.10 and a
Maximum Total Return of 31.00% and reflect the Buffer Amount of 10%. The hypothetical total returns set
forth below are for illustrative purposes only and may not be the actual total
return applicable to a purchaser of the notes. You should consider carefully
whether the notes are suitable to your investment goals. The numbers appearing
in the table and examples below have been rounded for ease of analysis.
|
Ending
Basket
Level
|
Basket
Return
|
Total Return
|
Payment at
Maturity
|
|
200.00
|
100.00%
|
31.00%
|
$1,310.00
|
190.00
|
90.00%
|
31.00%
|
$1,310.00
|
180.00
|
80.00%
|
31.00%
|
$1,310.00
|
170.00
|
70.00%
|
31.00%
|
$1,310.00
|
160.00
|
60.00%
|
31.00%
|
$1,310.00
|
150.00
|
50.00%
|
31.00%
|
$1,310.00
|
140.00
|
40.00%
|
31.00%
|
$1,310.00
|
130.00
|
30.00%
|
31.00%
|
$1,310.00
|
120.00
|
20.00%
|
31.00%
|
$1,310.00
|
110.00
|
10.00%
|
31.00%
|
$1,310.00
|
105.00
|
5.00%
|
15.50%
|
$1,155.00
|
102.50
|
2.50%
|
7.75%
|
$1,077.50
|
100.00
|
0.00%
|
0.00%
|
$1,000.00
|
95.00
|
-5.00%
|
0.00%
|
$1,000.00
|
90.00
|
-10.00%
|
0.00%
|
$1,000.00
|
80.00
|
-20.00%
|
-11.11%
|
$888.89
|
70.00
|
-30.00%
|
-22.22%
|
$777.78
|
60.00
|
-40.00%
|
-33.33%
|
$666.67
|
50.00
|
-50.00%
|
-44.44%
|
$555.56
|
40.00
|
-60.00%
|
-55.56%
|
$444.45
|
30.00
|
-70.00%
|
-66.67%
|
$333.34
|
20.00
|
-80.00%
|
-77.78%
|
$222.23
|
10.00
|
-90.00%
|
-88.89%
|
$111.12
|
0.00
|
-100.00%
|
-100.00%
|
$0.00
|
|
Hypothetical Examples of Amounts Payable at Maturity
The
following examples illustrate how the total returns set forth in the table above
are calculated.
Example 1: The level of the Basket increases from the Starting
Basket Level of 100 to an Ending Basket Level of 102.50.
Because the Ending Basket Level of 102.50 is greater than the Starting
Basket Level of 100, and the Basket Return of 2.5% multiplied by the
hypothetical Upside Leverage Factor of 3.10 does not exceed the hypothetical
Maximum Total Return of 31.00%, you will receive a payment at maturity of $1,077.50,
calculated as follows:
$1,000 + ($1,000 × 2.5% × 3.10) = $1,077.50
Example 2: The level of the Basket decreases from the Starting
Basket Level of 100 to an Ending Basket Level of 90. Although the Basket Return is negative,
because the Ending Basket Level of 90 is less than the Starting Basket Level of
100 by not more than the Buffer Amount of 10%, the investor receives a payment
at maturity of $1,000 per $1,000 principal amount note.
Example 3: The level of the Basket increases from the
Starting Basket Level of 100 to an Ending Basket Level of 120.
Because the Ending Basket Level of 120 is greater than
the Starting Basket Level of 100 and the Basket Return of 20% multiplied by 3.10
exceeds the hypothetical Maximum Total Return of 31.00%, the investor receives
a payment at maturity of $1,310 per $1,000 principal amount note, the maximum
payment on the notes.
Example 4: The level of the Basket decreases from the Starting
Basket Level of 100 to an Ending Basket Level of 60. Because the Basket Return is negative
and the Ending Basket Level of 60 is less than the Starting Basket Level of 100
by more than the Buffer Amount of 10%, the investor receives a payment at
maturity of $666.67 per $1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 × (-40% + 10%) ×1.1111] = $666.67
|
JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the Performance of an Equally Weighted Basket of Four Asian Currencies Relative to the U.S. Dollar
|
TS-5 |
Historical Information
The first four graphs below show the historical weekly performance of each
Reference Currency relative to the U.S. dollar, expressed in terms of the
conventional market quotation (which is the amount of the applicable Reference
Currency that can be exchanged for one U.S. dollar, which we refer to in this
term sheet as the exchange rate) as shown on Bloomberg Financial Markets, from January 6, 2006 through January 21,
2011. The exchange rates of the South Korean won, the Indonesian rupiah, Indian rupee and Singapore dollar, relative to the U.S. dollar on January 25, 2011 were 1118.25, 9039.00, 45.7063 and
1.2795 respectively.
The exchange rates displayed in the graphs below are for illustrative
purposes only and do not form part of the calculation of the Basket Return. The
value of the Basket, and thus the Basket Return, increases when the individual Reference
Currencies appreciate in value against the U.S. dollar. Therefore, the
Basket Return is calculated using Spot Rates for each Reference Currency
relative to the U.S. dollar expressed as the amount of U.S. dollars per one unit
of the applicable Reference Currency, which is the inverse of the conventional
market quotation for each Reference Currency relative to the U.S. dollar set
forth in the applicable graph below.
|
JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the Performance of an Equally Weighted Basket of Four Asian Currencies Relative to the U.S. Dollar
|
TS-6 |
The final graph below shows the weekly performance of the Basket from January 6,
2006 through January 21, 2011, assuming that the Basket Closing Level on
January 6, 2006 was 100, that each Reference Currency had the weighting
specified on the front cover of this term sheet and that the exchange rates of each Reference Currency
relative to the U.S. dollar, as adjusted to be expressed as a number of U.S.
dollars per one unit of the Reference Currency (i.e., the inverse of the
rates set forth above) on the relevant dates were the Spot Rates on such
dates. The exchange rates and the historical weekly Basket performance data in
such graph were determined by using the rates reported by Bloomberg Financial
Markets (as adjusted to reflect a number of U.S. dollars per one unit of the
applicable Reference Currency) and may not be indicative of the Basket
performance using the Spot Rates of the Reference Currencies relative to the
U.S. dollar that would be derived from the applicable Reuters pages.
The
Spot Rates of the South Korean won, the Indonesian rupiah, Indian rupee and
Singapore dollar relative to the U.S. dollar on January 25, 2011 were 0.00089477,
0.00011047, 0.021964 and 0.78125, respectively, calculated in the manner set forth
under Additional Key Terms Spot Rates on page TS-1 of this term sheet. The
Spot Rates set forth in this paragraph are expressed in terms of a number of units
of U.S. dollars per one unit of the applicable Reference Currency.
We obtained the data needed to construct the graph that
displays the weekly performance of the Basket from Bloomberg Financial Markets,
and we obtained the exchange rates and the denominators used to calculate the
Spot Rates from Reuters Group PLC. We make no representation or warranty as to the
accuracy or completeness of the information obtained from Bloomberg Financial
Markets or Reuters Group PLC. The historical performance of each Reference
Currency relative to the U.S. dollar and the historical performance of the Basket
should not be taken as indications of future performance, and no assurance can
be given as to the Spot Rate of any of the Reference Currencies relative to the
U.S. dollar on the pricing date or the Observation Date. We cannot give you
assurance that the performance of the Basket will result in the return of more
than the principal amount of your notes.
Supplemental
Plan of Distribution (Conflicts of
Interest)
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 $15.00 per $1,000
principal amount note. See Plan of Distribution (Conflicts of Interest)
beginning on page PS-29 of the accompanying product supplement no. 197-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 $15.00 per $1,000 principal amount note.
|
JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the Performance of an Equally Weighted Basket of Four Asian Currencies Relative to the U.S. Dollar
|
TS-7 |