Term sheet |
Term Sheet |
Structured |
$ 8.00% per annum Auto Callable Yield Notes due April 19, 2012 Linked to the Lesser Performing of the S&P 500® Index and the SPDR® S&P® Metals & Mining ETF |
General
Key Terms
Underlyings: |
The S&P 500® Index (the Index) and the SPDR® S&P® Metals & Mining ETF (the Fund) (each an Underlying, and collectively, the Underlyings). For additional information about the SPDR® Metals & Mining ETF, see Appendix A to this term sheet. |
Interest Rate: |
8.00% per annum over the term of the notes, paid monthly and calculated on a 30/360 basis |
Automatic Call: |
If on any Call Date, the closing level or closing price, as applicable, of each Underlying is greater than the applicable Starting Underlying Level, the notes will be automatically called. |
Payment if Called: |
If the notes are automatically called, on the applicable Call Settlement Date, for each $1,000 principal amount note, you will receive $1,000 plus any accrued and unpaid interest to but excluding the applicable Call Settlement Date. |
Protection Amount: |
With respect to each Underlying, an amount that represents 28.00% of the Starting Underlying Level of such Underlying (in the case of the Fund, subject to adjustments) |
Pricing Date: |
On or about April 14, 2011 |
Settlement Date: |
On or about April 19, 2011 |
Observation Date: |
April 16, 2012 |
Maturity Date*: |
April 19, 2012 |
CUSIP: |
48125XMR4 |
Monitoring Period: |
The period from and excluding the Pricing Date to and including the Observation Date |
Interest Payment Dates: |
Interest on the notes will be payable monthly in arrears on the 19th calendar day of each month, up to and including the final monthly interest payment, which will be payable on the Maturity Date or the relevant Call Settlement Date, as applicable, (each such day, an Interest Payment Date), commencing May 19, 2011. See Selected Purchase Considerations Monthly Interest Payments in this term sheet for more information. |
Payment at Maturity: |
If the notes are not automatically called, the payment at maturity, in excess of any accrued and unpaid interest, will be based on whether a Trigger Event has occurred and the performance of the Lesser Performing Underlying. If the notes are not automatically called, for each $1,000 principal amount note, you will receive $1,000 plus any accrued and unpaid interest at maturity, unless: |
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If the notes are not automatically called and the conditions described in (a) and (b) are satisfied, at maturity you will lose 1% of the principal amount of your notes for every 1% that the Ending Underlying Level of the Lesser Performing Underlying is less than the Starting Underlying Level of such Underlying. Under these circumstances, your payment at maturity per $1,000 principal amount note, in addition to any accrued and unpaid interest, will be calculated as follows: | |
$1,000 + ($1,000 x Lesser Performing Underlying Return) | |
You will lose some or all of your principal at maturity if the notes are not automatically called and the conditions described in (a) and (b) are both satisfied. | |
Trigger Event: |
A Trigger Event occurs if, on any day during the Monitoring Period, the closing level, or closing price, as applicable, of any Underlying is less than the Starting Underlying Level of such Underlying by more than the applicable Protection Amount. |
Underlying Return: |
With respect to each Underlying, the Underlying Return is calculated as follows: |
Ending Underlying Level Starting
Underlying Level Starting Underlying Level |
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Call Dates*: |
July 14, 2011 (first Call Date), October 14, 2011 (second Call Date), January 13, 2012 (third Call Date) and April 16, 2012 (final Call Date, which is also the Observation Date) |
Call Settlement Dates*: |
July 19, 2011 (first Call Settlement Date), October 19, 2011 (second Call Settlement Date), January 19, 2012 (third Call Settlement Date) and April 19, 2012 (final Call Settlement Date, which is also the Maturity Date), each of which is the third business day after the applicable Call Date specified above, provided that the final Call Settlement Date is the Maturity Date. |
Other Key Terms: |
See Additional Key Terms on the next page. |
* |
Subject to postponement as described under Description of Notes Payment at Maturity and Description of Notes Postponement of a Determination Date Notes with a maturity of not more than one year in the accompanying product supplement no. 192-A-III and Supplemental Terms of Notes in this term sheet. |
Investing in the Auto Callable Yield Notes involves a number of risks. See Risk Factors beginning on page PS-9 of the accompanying product supplement no. 192-A-III and Selected Risk Considerations beginning on page TS-3 of this term sheet.
Neither the SEC 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) |
Fees and Commissions (2) |
Proceeds to Us |
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Per note |
$ |
$ |
$ |
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Total |
$ |
$ |
$ |
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(1) |
The price to the public includes the estimated cost of hedging our obligations under the notes through one or more of our affiliates. |
(2) |
If the notes priced today, J.P. Morgan Securities LLC, which we refer to as JPMS, acting as agent for JPMorgan Chase & Co., would receive a commission of approximately $32.50 per $1,000 principal amount note and would use a portion of that commission to allow selling concessions to other affiliated or unaffiliated dealers of approximately $22.50 per $1,000 principal amount note. This commission includes the projected profits that our affiliates expect to realize, some of which may be allowed to other unaffiliated dealers, for assuming risks inherent in hedging our obligations under the notes. The actual commission received by JPMS may be more or less than $32.50 and will depend on market conditions on the Pricing Date. In no event will the commission received by JPMS, which includes concessions and other amounts that may be allowed to other dealers, exceed $40.00 per $1,000 principal amount note. See Plan of Distribution (Conflicts of Interest) beginning on page PS-95 of the accompanying product supplement no. 192-A-III. |
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.
April 6, 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. 192-A-III 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. 192-A-III dated March 10, 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. 192-A-III, 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):
Product supplement no. 192-A-III dated March 10, 2011:
http://www.sec.gov/Archives/edgar/data/19617/000089109211001693/e42021_424b2.pdf
Prospectus supplement dated November 21, 2008:
http://www.sec.gov/Archives/edgar/data/19617/000089109208005661/e33600_424b2.pdf
Prospectus dated November 21, 2008:
http://www.sec.gov/Archives/edgar/data/19617/000089109208005658/e33655_424b2.pdf
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
Starting Underlying Level: |
With respect to the Index, the closing level of the Index on the Pricing Date (the Initial Index Level). With respect to the Fund, the closing price of the Fund on the Pricing Date divided by the Share Adjustment Factor for the Fund (the Initial Share Price). We refer to each of the Initial Index Level for the Index and the Initial Share Price for the Fund as a Starting Underlying Level. |
Ending Underlying Level**: |
With respect to the Index, the closing level of the Index on the Observation Date (the Ending Index Level). With respect to the Fund, the closing price of one share of the Fund on the Observation Date (the Final Share Price). We refer to each of the Ending Index Level for the Index and the Final Share Price for the Fund as an Ending Underlying Level. |
Share Adjustment Factor: |
With respect to the Fund, 1.0 on the Pricing Date and subject to adjustment under certain circumstances. See Description of Notes Payment at Maturity and General Terms of Notes Anti-Dilution Adjustments in the accompanying product supplement no. 192-A-III for further information about these adjustments. |
Lesser Performing Underlying: |
The Underlying with the Lesser Performing Underlying Return |
Lesser Performing Underlying Return: |
The lower of the Underlying Return of the S&P 500® Index and the Underlying Return of the SPDR® S&P® Metals & Mining ETF |
** |
Subject to adjustment in the event of a market disruption event or non-trading day as described under Description of Notes Postponement of a Determination Date Notes with a maturity of not more than one year in the accompanying product supplement no. 192-A-III. |
Supplemental Terms of the Notes
For purposes of the notes offered by this term sheet:
(a) the information set forth under Description of Notes Payment upon Optional Call in the accompanying product supplement no. 192-A-III is deemed to be deleted, and the notes will be automatically called as described under Key Terms Automatic Call on the front cover of this term sheet. If the notes are automatically called on any Call Date (other than the Observation Date), we will redeem each note and deliver the applicable cash payment described above on the third business day after the Call Date, subject to postponement as described below. If the notes are called on a Call Date that is the Observation Date, we will redeem each note and deliver the applicable cash payment described above on the maturity date, subject to postponement as described under Description of Notes Payment at Maturity in the accompanying product supplement no. 192-A-III. If the Call Date is not the Observation Date and the Call Settlement Date as determined above is not a business day, the Call Settlement Date will be the immediately succeeding business day, but no additional interest will accrue as a result of the delayed payment;
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JPMorgan
Structured Investments |
TS-1 |
(b) all references in the accompanying product supplement no. 192-A-III to Callable Yield Notes will be deemed to refer to Auto Callable Yield Notes and all references to Optional Call Dates will be deemed refer to Call Settlement Dates;
(c) all references in Certain U.S. Federal Income Tax Consequences in the accompanying product supplement no. 192-A-III to an Optional Call will be deemed to refer to an Automatic Call; and
(d) the Call Dates are Determination Dates as described in the accompanying product supplement no. 192-A-III and are subject to postponement as described under Description of Notes Postponement of a Determination Date in the accompanying product supplement no. 192-A-III.
Selected Purchase Considerations
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JPMorgan
Structured Investments |
TS-2 |
comparable maturities on the Pricing Date. Assuming this characterization is respected, amounts treated as interest on the Deposit will be taxed as ordinary income, while the Put Premium will not be taken into account prior to sale or settlement, including a settlement following an Automatic Call. However, there are other reasonable treatments that the Internal Revenue Service (the IRS) or a court may adopt, 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. While it is not clear whether the notes would be viewed as similar to the typical prepaid forward contract described in the notice, it is possible that 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. The notice focuses on a number of issues, the most relevant of which for holders of the notes are the character of income or loss (including whether the Put Premium might be currently included as ordinary income) and the degree, if any, to which income realized by Non-U.S. Holders should be subject to withholding tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding all aspects of 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. Purchasers who are not initial purchasers of notes at the issue price should also consult their tax advisers with respect to the tax consequences of an investment in the notes, including possible alternative characterizations, as well as the allocation of the purchase price of the notes between the Deposit and the Put Option.
Selected Risk Considerations
An investment in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in either or both of the Underlyings or any of the equity securities included in or held by the Underlyings. These risks are explained in more detail in the Risk Factors section of the accompanying product supplement no. 192-A-III dated March 10, 2011.
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Structured Investments |
TS-3 |
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JPMorgan
Structured Investments |
TS-4 |
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JPMorgan
Structured Investments |
TS-5 |
Historical Information
The following graphs show the historical weekly performance of the S&P 500® Index from January 6, 2006 through April 1, 2011 and the SPDR® S&P® Metals & Mining ETF from June 23, 2006 through April 1, 2011. The closing level of the S&P 500® Index on April 5, 2011 was 1332.63. The closing price of the SPDR® S&P® Metals & Mining ETF on April 5, 2011 was $76.48.
We obtained the various closing levels and prices of the Underlyings below from Bloomberg Financial Markets. We make no representation or warranty as to the accuracy or completeness of information obtained from Bloomberg Financial Markets. The historical levels and prices of each Underlying should not be taken as an indication of future performance, and no assurance can be given as to the closing level or closing price, as applicable, of any Underlying on any day during the Monitoring Period or the Observation Date. We cannot give you assurance that the performance of the Underlyings will result in the return of any of your initial investment.
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JPMorgan
Structured Investments |
TS-6 |
What Is the Total Return on the Notes at Maturity or Upon Automatic Call, Assuming a Range of Performances for the Lesser Performing Underlying?
The following table and examples illustrate the hypothetical total return on the notes at maturity or upon automatic call. The note total return as used in this term sheet is the number, expressed as a percentage, that results from comparing the payment at maturity or upon automatic call plus the interest payments received to and including the maturity date or the relevant Call Settlement Date, as applicable, per $1,000 principal amount note to $1,000. The table and examples below assume that the Lesser Performing Underlying is the S&P 500® Index and that the closing price of the SPDR® S&P® Metals & Mining ETF on each Call Date is greater than its Starting Underlying Level. We make no representation or warranty as to which of the Underlyings will be the Lesser Performing Underlying for purposes of calculating your actual payment at maturity, if applicable, or as to what the level or price, as applicable, of either Underlying will be on any Call Date. In addition, the following table and examples assume a Starting Underlying Level for the Lesser Performing Underlying of 1300 and reflect the Interest Rate of 8.00% per annum over the term of the notes and the Protection Amount of 28.00%. The hypothetical total returns and total payments set forth below are for illustrative purposes only and may not be the actual total returns or total payments applicable to a purchaser of the notes. The numbers appearing in the following table and examples have been rounded for ease of analysis.
Closing Level |
Lesser Performing |
Note Total |
Note Total Return |
Note Total |
Note Total Return at |
Note Total Return at |
2,340.00 |
80.00% |
2.00% |
4.00% |
6.00% |
8.00% |
8.00% |
2,145.00 |
65.00% |
2.00% |
4.00% |
6.00% |
8.00% |
8.00% |
1,950.00 |
50.00% |
2.00% |
4.00% |
6.00% |
8.00% |
8.00% |
1,820.00 |
40.00% |
2.00% |
4.00% |
6.00% |
8.00% |
8.00% |
1,690.00 |
30.00% |
2.00% |
4.00% |
6.00% |
8.00% |
8.00% |
1,560.00 |
20.00% |
2.00% |
4.00% |
6.00% |
8.00% |
8.00% |
1,430.00 |
10.00% |
2.00% |
4.00% |
6.00% |
8.00% |
8.00% |
1,365.00 |
5.00% |
2.00% |
4.00% |
6.00% |
8.00% |
8.00% |
1,313.00 |
1.00% |
2.00% |
4.00% |
6.00% |
8.00% |
8.00% |
1,300.00 |
0.00% |
N/A |
N/A |
N/A |
8.00% |
8.00% |
1,235.00 |
-5.00% |
N/A |
N/A |
N/A |
8.00% |
3.00% |
1,170.00 |
-10.00% |
N/A |
N/A |
N/A |
8.00% |
-2.00% |
1,040.00 |
-20.00% |
N/A |
N/A |
N/A |
8.00% |
-12.00% |
975.00 |
-28.00% |
N/A |
N/A |
N/A |
8.00% |
-20.00% |
936.00 |
-29.00% |
N/A |
N/A |
N/A |
N/A |
-21.00% |
910.00 |
-30.00% |
N/A |
N/A |
N/A |
N/A |
-22.00% |
780.00 |
-40.00% |
N/A |
N/A |
N/A |
N/A |
-32.00% |
650.00 |
-50.00% |
N/A |
N/A |
N/A |
N/A |
-42.00% |
520.00 |
-60.00% |
N/A |
N/A |
N/A |
N/A |
-52.00% |
390.00 |
-70.00% |
N/A |
N/A |
N/A |
N/A |
-62.00% |
260.00 |
-80.00% |
N/A |
N/A |
N/A |
N/A |
-72.00% |
130.00 |
-90.00% |
N/A |
N/A |
N/A |
N/A |
-82.00% |
0.00 |
-100.00% |
N/A |
N/A |
N/A |
N/A |
-92.00% |
(1) A Trigger Event occurs if the closing level or closing price, as applicable, of either Underlying is less than the Starting Underlying Level of such Underlying by more than 28.00% on any day during the Monitoring Period.
The following examples illustrate how the note total returns and total payments set forth in the table above are calculated.
Example 1: The level of the Lesser Performing Underlying increases from the Starting Underlying Level of 1300 to a closing level of 1313 on the first Call Date. Because the closing level of each Underlying on the first Call Date is greater than the applicable Starting Underlying Level, the notes are automatically called, and the investor receives total payments of $1,020 per $1,000 principal amount note, consisting of interest payments of $20 per $1,000 principal amount note and a payment upon automatic call of $1,000 per $1,000 principal amount note.
Example 2: The level of the Lesser Performing Underlying decreases from the Starting Underlying Level of 1300 to a closing level of 1235 on the first Call Date and 1170 on the second Review Date and increases from the Starting Underlying Level of 1300 to a closing level of 1365 on the third Review Date. Although the level of the Lesser Performing Underlying on each of the first two Review Dates (1235 and 1170) is less than the Starting Underlying Level of 1300, because the closing level or closing price, as applicable, of each Underlying on the third Review Date is greater than the applicable Starting Underlying Level, the notes are automatically called, and the investor receives total payments of $1,060 per $1,000 principal amount note, consisting of interest payments of $60 per $1,000 principal amount note and a payment upon automatic call of $1,000 per $1,000 principal amount note.
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JPMorgan
Structured Investments |
TS-7 |
Example 3: The notes are not automatically called prior to the final Call Date and the level of the Lesser Performing Underlying increases from the Starting Underlying Level of 1300 to an Ending Underlying Level of 1365. Because the notes are not automatically called prior the final Call Date and the Ending Underlying Level of the Lesser Performing Underlying of 1365 is greater than its Starting Underlying Level of 1300, regardless of whether a Trigger Event has occurred, the notes are automatically called and the investor receives total payments of $1,080 per $1,000 principal amount note over the term of the notes, consisting of interest payments of $80 per $1,000 principal amount note over the term of the notes and a payment at maturity of $1,000 per $1,000 principal amount note. This represents the maximum total payment an investor may receive over the term of the notes.
Example 4: The notes are not automatically called prior to maturity, a Trigger Event has not occurred and the level of the Lesser Performing Underlying decreases from the Starting Underlying Level of 1300 to an Ending Underlying Level of 1040. Because the notes are not automatically called prior to maturity and a Trigger Event has not occurred, even though the Ending Underlying Level of the Lesser Performing Underlying of 1040 is less than its Starting Underlying Level of 1300, the investor receives total payments of $1,080 per $1,000 principal amount note over the term of the notes, consisting of interest payments of $80 per $1,000 principal amount note over the term of the notes and a payment at maturity of $1,000 per $1,000 principal amount note. This represents the maximum total payment an investor may receive over the term of the notes.
Example 5: The notes are not automatically called prior to maturity, a Trigger Event has occurred and the level of the Lesser Performing Underlying decreases from the Starting Underlying Level of 1300 to an Ending Underlying Level of 1040. Because the notes are not automatically called prior to maturity, a Trigger Event has occurred and the Ending Underlying Level of the Lesser Performing Underlying of 1040 is less than its Starting Underlying Level of 1300, the investor receives total payments of $880 per $1,000 principal amount note over the term of the notes, consisting of interest payments of $80 per $1,000 principal amount note over the term of the notes and a payment at maturity of $800 per $1,000 principal amount note, calculated as follows:
[$1,000 + ($1,000 × -20%)] + $80 = $880
Example 6: The notes are not automatically called prior to maturity, a Trigger Event has occurred and the level of the Lesser Performing Underlying decreases from the Starting Underlying Level of 1300 to an Ending Underlying Level of 780. Because the notes are not automatically called prior to maturity, a Trigger Event has occurred and the Ending Underlying Level of the Lesser Performing Underlying of 780 is less than its Starting Underlying Level of 1300, the investor receives total payments of $680 per $1,000 principal amount note over the term of the notes, consisting of interest payments of $80 per $1,000 principal amount note over the term of the notes and a payment at maturity of $600 per $1,000 principal amount note, calculated as follows:
[$1,000 + ($1,000 × -40%)] + $80 = $680
Example 7: The notes are not automatically called prior to maturity, a Trigger Event has occurred and the level of the Lesser Performing Underlying decreases from the Starting Underlying Level of 1300 to an Ending Underlying Level of 0. Because the notes are not automatically called prior to maturity, a Trigger Event has occurred and the Ending Underlying Level of the Lesser Performing Underlying of 0 is less than its Starting Underlying Level of 1300, the investor receives total payments of $80 per $1,000 principal amount note over the term of the notes, consisting solely of interest payments of $80 per $1,000 principal amount note over the term of the notes, calculated as follows:
[$1,000 + ($1,000 × -100%)] + $80 = $80
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JPMorgan
Structured Investments |
TS-8 |
Appendix A
SPDR® S&P® Metals & Mining ETF
We have derived all information contained in this term sheet regarding the SPDR® S&P® Metals & Mining ETF (the Fund), including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information. Such information reflects the policies of, and is subject to change by SPDR® Series Trust and SSgA Funds Management, Inc. (SSFM). We make no representation or warranty as to the accuracy or completeness of such information. The Fund is an investment portfolio maintained and managed by SSFM. SSFM is the investment adviser to the Fund. The Fund is an exchange-traded fund (ETF) that trades on the NYSE Arca under the ticker symbol XME. The inception date of the Fund is June 19, 2006. Prior to January 8, 2007 the Fund was known as the SPDR® Metals and Mining ETF.
SPDR® Series Trust is a registered investment company that consists of numerous separate investment portfolios, including the Fund. Information provided to or filed with the SEC by SPDR® Series Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to SEC file numbers 333-57793 and 811-08839, respectively, through the SECs website at http://www.sec.gov. For additional information regarding SPDR® Series Trust, SSFM or the Fund, please see the SPDR® Series Trusts Prospectus, dated October 31, 2010 (as supplemented on December 17, 2010 and January 26, 2011). In addition, information about SPDR® Series Trust, SSFM and the Fund may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents and the SPDR® Series Trust website at https://www.spdrs.com. We make no representation or warranty as to the accuracy or completeness of such information. Information contained in the SPDR® Series Trust website is not incorporated by reference in, and should not be considered a part of, this term sheet.
This term sheet relates only to the notes offered hereby and does not relate to the Fund. We have derived all disclosures contained in this term sheet regarding the SPDR® Series Trust or the Fund from the publicly available documents described in the preceding paragraph. In connection with the offering of the notes, neither we nor any agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the SPDR® Series Trust or the Fund. Neither we nor any agent makes any representation that such publicly available documents or any other publicly available information regarding the SPDR® Series Trust or the Fund is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described in the preceding paragraph) that would affect the trading price of shares of the Fund (and therefore the price of shares of the Fund on the pricing date) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning the SPDR® Series Trust or the Fund could affect the value received at maturity with respect to the notes and therefore the trading prices of the notes.
The SPDR® Series Trust consists of separate investment portfolios (each, a SPDR® Series Fund). Each SPDR® Series Fund is an index fund that invests in a particular industry or group of industries represented by one of the S&P Select Industry Indices (the Select Industry Indices and each, a Select Industry Index). The companies included in each Select Industry Index are selected on the basis of Global Industry Classification Standards (GICS) from a universe of companies defined by the S&P® Total Market Index (the S&P TM Index), a U.S. total market composite index. The investment objective of each Select Industry SPDR® Fund is to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in a particular industry or group of industries, as represented by the relevant Select Industry Index.
Investment Objective and Strategy
The Fund seeks to replicate as closely as possible, before fees and expenses, the total return of the S&P Metals & Mining Select Industry Index (the Underlying Index). The Underlying Index represents the metals and mining sub-industry portion of the U.S. equity market. The Underlying Index includes companies in the following sub-industries: coal and consumable fuels, aluminum, diversified metals and mining, gold, precious metals and minerals and steel.
Replication
In seeking to track the performance of the Underlying Index, the Fund employs a replication strategy, which means that the Fund typically invests in substantially all of the securities represented in the Underlying Index in approximately the same proportions as the Underlying Index. Under normal market conditions, the Fund generally invests substantially all, but at least 80%, of its total assets in the securities included in the Underlying Index. In addition, the Fund may invest in equity securities that are not included in the Underlying Index, futures, options, swap contracts and other derivatives, cash and cash equivalents or money market instruments, such as repurchase agreements and money market funds (including money market funds advised by SSFM).
Correlation
The Underlying Index is a theoretical financial calculation, while the Fund is an actual investment portfolio. The performance of the Fund and the Underlying Index will vary somewhat due to operating expenses, transaction costs, cash flows, regulatory requirements and operational inefficiencies. The Fund seeks to track the performance of the Underlying Index as closely as possible (i.e., achieve a high degree of correlation with the Underlying Index). A figure of 1.00 would indicate perfect correlation. Any correlation of less than 1.00 is called a tracking error. The Fund, using a replication strategy, can be expected to have a lesser tracking error than a fund using a representative sampling strategy. Representative sampling is a strategy in which a fund invests in a representative sample of securities in an underlying index.
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JPMorgan
Structured Investments |
TS-9 |
Holdings Information
As of April 4, 2011, the Fund included 43 companies, and the Funds three largest holdings were Molycorp, Inc. Allied Nevada Gold Corp. and James River Coal Company. The following table summarizes the Funds holdings in individual companies as of such date.
All Holdings in Individual Securities as of April 4, 2011
Ticker |
Name |
Sector |
Weight |
MCP |
Molycorp, Inc. |
Materials |
3.33 |
ANV |
Allied Nevada Gold Corp. |
Materials |
2.87 |
JRCC |
James River Coal Company |
Energy |
2.84 |
UXG |
U.S. Gold Corporation |
Materials |
2.80 |
PCX |
Patriot Coal Corporation |
Energy |
2.79 |
ANR |
Alpha Natural Resources, Inc. |
Energy |
2.78 |
MEE |
Massey Energy Company |
Energy |
2.75 |
WLT |
Walter Energy, Inc. |
Materials |
2.75 |
ICO |
International Coal Group, Inc. |
Energy |
2.69 |
BTU |
Peabody Energy Corporation |
Energy |
2.69 |
CLF |
Cliffs Natural Resources Inc |
Materials |
2.68 |
FCX |
Freeport-McMoRan Copper & Gold Inc. |
Materials |
2.64 |
RS |
Reliance Steel & Aluminum |
Materials |
2.63 |
CENX |
Century Aluminum Company |
Materials |
2.63 |
CMC |
Commercial Metals Company |
Materials |
2.59 |
AA |
Alcoa Inc. |
Materials |
2.57 |
RTI |
RTI International Metals, Inc. |
Materials |
2.57 |
CMP |
Compass Minerals International, Inc. |
Materials |
2.56 |
CNX |
CONSOL Energy Inc. |
Energy |
2.55 |
ACI |
Arch Coal, Inc. |
Energy |
2.55 |
CLD |
Cloud Peak Energy Inc |
Energy |
2.54 |
CRS |
Carpenter Technology Corporation |
Materials |
2.51 |
RGLD |
Royal Gold, Inc. |
Materials |
2.50 |
SCHN |
Schnitzer Steel Industries, Inc. |
Materials |
2.48 |
SWC |
Stillwater Mining Company |
Materials |
2.47 |
CDE |
Coeur d'Alene Mines Corporation |
Materials |
2.47 |
ATI |
Allegheny Technologies Incorporated |
Materials |
2.47 |
NEM |
Newmont Mining Corporation |
Materials |
2.46 |
TIE |
Titanium Metals Corporation |
Materials |
2.45 |
STLD |
Steel Dynamics, Inc. |
Materials |
2.43 |
AKS |
AK Steel Holding Corporation |
Materials |
2.42 |
HL |
Hecla Mining Company |
Materials |
2.38 |
GSM |
Globe Specialty Metals, Inc. |
Materials |
2.37 |
NUE |
Nucor Corporation |
Materials |
2.34 |
X |
United States Steel Corporation |
Materials |
2.30 |
WOR |
Worthington Industries, Inc. |
Materials |
2.01 |
USU |
USEC Inc. |
Energy |
1.57 |
GMO |
General Moly, Inc. |
Materials |
1.45 |
KALU |
Kaiser Aluminum Corp. |
Materials |
1.04 |
MTRN |
Materion Corp |
Materials |
0.84 |
ZINC |
Horsehead Holding Corp. |
Materials |
0.76 |
HAYN |
Haynes International, Inc. |
Materials |
0.74 |
ACO |
AMCOL International Corporation |
Materials |
0.63 |
85749P9A |
State Street Institutional Liquid Reserves |
Unassigned |
0.12 |
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JPMorgan
Structured Investments |
TS-10 |
As of April 4, 2011, the Funds three largest sub-industries were Steel, Coal & Consumable Fuels and Diversified Metals & Mining. The following table summarizes the Funds sub-industries as of such date.
Industry Breakdown of the Fund as of April 4, 2011*
Industry |
Net Assets |
Steel |
27.63% |
Coal & Consumable Fuels |
25.79% |
Diversified Metals & Mining |
22.38% |
Gold |
10.64% |
Precious Metals & Minerals |
7.33% |
Aluminum |
6.24% |
* The Funds industry breakdown is expressed as a percentage of net assets and may change over time.
The information above was compiled from the SPDR® Series Trust website. We make no representation or warranty as to the accuracy of the information above. Information contained in the SPDR® Series Trust website is not incorporated by reference in, and should not be considered a part of, this term sheet.
Disclaimer
The notes are not sponsored, endorsed, sold or promoted by State Street Global Markets, LLC (SSGM). SSGM makes no representations or warranties to the owners of the notes or any member of the public regarding the advisability of investing in the notes. SSGM has no obligation or liability in connection with the operation, marketing, trading or sale of the notes.
S&P Metals & Mining Select Industry Index
We have derived all information contained in this term sheet regarding the Underlying Index, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information. Such information reflects the policies of, and is subject to change by, Standard & Poors Financial Services LLC (S&P). We have not independently verified such information. We make no representation or warranty as to the accuracy or completeness of such information. S&P has no obligation to continue to calculate and publish, and may discontinue calculation and publication of the Underlying Index.
The Underlying Index is reported by Bloomberg L.P. under the ticker symbol SPSIMM.
The Underlying Index is an equal-weighted index that is designed to measure the performance of the metals and mining sub-industry portion of the S&P TM Index, a benchmark that measures the performance of the U.S. equity market. The S&P TM Index includes all U.S. common equities listed on the NYSE (including NYSE Arca), the NYSE Amex, the NASDAQ Global Select Market, the NASDAQ Select Market and the NASDAQ Capital Market. Each of the component stocks in the Underlying Index is a constituent company within the metals and mining sub-industry portion of the S&P TM Index.
Additional information concerning the Underlying Index may be obtained at the S&P website (www.indices.standardandpoors.com). Information contained in the S&P website is not incorporated by reference in, and should not be considered part of, this term sheet.
Index Eligibility
For purposes of membership in the Underlying Index, S&P applies the inclusion and exclusion criteria separately. Membership is based on a companys GISC classification, as well as liquidity and market cap requirements.
Index Inclusion Criteria
To be eligible for inclusion in the Underlying Index, companies must be in the S&P TM Index, must be included in the relevant GICS sub-industry and must satisfy one of the two following combined size and liquidity criteria:
1. |
float-adjusted market capitalization above US$500 million and float-adjusted liquidity ratio (FALR) above 90%; or |
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2. |
float-adjusted market capitalization above US$400 million and float-adjusted liquidity ratio above 150%. |
All companies satisfying the above requirements are included in the Underlying Index. The total number of companies in the Underlying Index should be at least 35. If there are fewer than 35 stocks in the Underlying Index, stocks from a supplementary list of highly correlated sub-industries, that meet the market capitalization and liquidity thresholds above, are included in order of their float-adjusted market capitalization to reach 35 constituents. Minimum market capitalization requirements may be relaxed to ensure there are at least 22 companies in the Underlying Index as of each rebalancing effective date.
Index Exclusion Criteria
Existing index constituents are removed at the quarterly rebalancing effective date if either their float-adjusted market capitalization falls below $US 300 million or their FALR falls below 50%.
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JPMorgan
Structured Investments |
TS-11 |
Eligibility Factors
Market Capitalization. Float-adjusted market capitalization should be at least US$400 million for inclusion in the Underlying Index. Existing index components must have a float-adjusted market capitalization of US$300 million to remain in the Underlying Index at each rebalancing.
Liquidity. The liquidity measurement used is a liquidity ratio, defined as dollar value traded over the previous 12-months divided by the float-adjusted market capitalization as of the Underlying Index rebalancing reference date.
Stocks having a float-adjusted market capitalization above US$500 million must have a liquidity ratio greater than 90% to be eligible for addition to the Underlying Index. Stocks having a float-adjusted market capitalization between US$400 and US$500 million must have a liquidity ratio greater than 150% to be eligible for addition to the Underlying Index. Existing index constituents must have a liquidity ratio greater than 50% to remain in the Underlying Index at the quarterly rebalancing. The length of time to evaluate liquidity is reduced to the available trading period for IPOs or spin-offs that do not have 12 months of trading history.
Domicile. U.S. companies only.
Takeover Restrictions. At the discretion of S&P, constituents with shareholder ownership restrictions defined in company Bylaws may be deemed ineligible for inclusion in the Underlying Index. Ownership restrictions preventing entities from replicating the index weight of a company may be excluded from the eligible universe or removed from the Underlying Index.
Turnover. S&P believes turnover in index membership should be avoided when possible. At times a company may appear to temporarily violate one or more of the addition criteria. However, the addition criteria are for addition to the Underlying Index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to the Underlying Index will not be deleted unless ongoing conditions warrant a change in the composition of the Underlying Index.
Sector Classification. The Underlying Index includes companies in the following GICS sub-industries: coal and consumable fuels, aluminum, diversified metals and mining, gold, precious metals and minerals and steel.
As of April 5, 2011 the Underlying Index included 43 index components:
Ticker |
|
Companys Name |
|
|
|
AA |
|
Alcoa Inc. |
ACI |
|
Arch Coal, Inc. |
ACO |
|
AMCOL International Corporation |
AKS |
|
AK Steel Holding Corporation |
ANR |
|
Alpha Natural Resources, Inc. |
ANV |
|
Allied Nevada Gold Corp. |
ATI |
|
Allegheny Technologies Incorporated |
BTU |
|
Peabody Energy Corporation |
CDE |
|
Coeur d'Alene Mines Corporation |
CENX |
|
Century Aluminum Company |
CLD |
|
Cloud Peak Energy Inc |
CLF |
|
Cliffs Natural Resources Inc |
CMC |
|
Commercial Metals Company |
CMP |
|
Compass Minerals International, Inc. |
CNX |
|
CONSOL Energy Inc. |
CRS |
|
Carpenter Technology Corporation |
FCX |
|
Freeport-McMoRan Copper & Gold Inc. |
GMO |
|
General Moly, Inc. |
GSM |
|
Globe Specialty Metals, Inc. |
HAYN |
|
Haynes International, Inc. |
HL |
|
Hecla Mining Company |
ICO |
|
International Coal Group, Inc. |
JRCC |
|
James River Coal Company |
KALU |
|
Kaiser Aluminum Corp. |
MCP |
|
Molycorp, Inc. |
MEE |
|
Massey Energy Company |
MTRN |
|
Materion Corp |
NEM |
|
Newmont Mining Corporation |
NUE |
|
Nucor Corporation |
PCX |
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Patriot Coal Corporation |
RGLD |
|
Royal Gold, Inc. |
|
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JPMorgan
Structured Investments |
TS-12 |
Ticker |
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Companys Name |
|
|
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RS |
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Reliance Steel & Aluminum |
RTI |
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RTI International Metals, Inc. |
SCHN |
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Schnitzer Steel Industries, Inc. |
STLD |
|
Steel Dynamics, Inc. |
SWC |
|
Stillwater Mining Company |
TIE |
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Titanium Metals Corporation |
USU |
|
USEC Inc. |
UXG |
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U.S. Gold Corporation |
WLT |
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Walter Energy, Inc. |
WOR |
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Worthington Industries, Inc. |
X |
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United States Steel Corporation |
ZINC |
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Horsehead Holding Corp. |
Index Construction and Calculations
The Underlying Index is equal-weighted, with adjustments to constituent weights to ensure concentration and liquidity requirements, and calculated by the divisor methodology.
The initial divisor is set to have a base index value of 1000 on December 17, 1999. The index value is simply the index market value divided by the index divisor:
Index Value = (Index Market Value) / Divisor
Index Market Value = Pi × Sharesi × IWFi × AWFi
where N is the number of stocks in the index, Pi the price of stock, IWFi is the float factor of stock, and AWFi is the adjustment factor of stock i assigned at each index rebalancing date, t, which makes all index constituents modified market capitalization equal (and, therefore, equal weight), while maintaining the total market value of the overall index. The AWF for each index constituent, i, at rebalancing date, t, is calculated by:
AWFi,t = Z / (N × FloatAdjustedMarketValuei,t)
where Z is an index specific constant set for the purpose of deriving the AWF and, therefore, each stocks share count used in the index calculation (often referred to as modified index shares).
In order to maintain index series continuity, it is also necessary to adjust the divisor at each rebalancing.
(Index Value) before rebalance = (Index Value) after rebalance
Therefore,
(Divisor) after rebalance = (Index Market Value) after rebalance / (Index Value) before rebalance
Constituent Weightings
At each quarterly rebalancing, stocks are initially equally-weighted using closing prices as of the second Friday of the last month of quarter as the reference price. Adjustments are then made to ensure that there are no stocks whose weight in the Underlying Index is more than can be traded in a single day for a US$ 500 million portfolio.
S&P calculates a maximum basket liquidity weight for each stock in the Underlying Index using the ratio of its three-month average daily value traded to US$ 500 million. Each stocks weight in the Underlying Index is, then, compared to its maximum basket liquidity weight and is set to the lesser of its maximum basket liquidity weight or its initial equal weight. All excess weight is redistributed across the Underlying Index to the uncapped stocks. If necessary, a final adjustment is made to ensure that no stock in the Underlying Index has a weight greater that 4.5%. This step of the iterative weighting process may force the weight of those stocks limited to their maximum basket liquidity weight to exceed that weight. In such cases, S&P will make no further adjustments.
Index Maintenance
The membership to Underlying Index is reviewed quarterly. Rebalancings occur after the closing on the third Friday of the quarter ending month. The reference date for additions and deletions is after the closing of the last trading date of the previous month. Closing prices as of the second Friday of the last month of the quarter are used for setting index weights.
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JPMorgan
Structured Investments |
TS-13 |
Timing of Changes
Additions. Companies are added between rebalancings only if a deletion in the Underlying Index causes the stock count to fall below 22. In those cases, each stock deletion is accompanied with a stock addition. The new company will be added to the Underlying Index at the weight of the deleted constituent. In the case of mergers involving at least one index constituent, the merged company will remain in the Underlying Index if it meets all of the eligibility requirements. The merged company will be added to the Underlying Index at the weight of the pre-merger index constituent. If both companies involved in a merger are index constituents, the merged company will be added at the weight of the company deemed the acquirer in the transaction. In the case of spin-offs, the Underlying Index will follow the S&P TM Indexs treatment of the action. If the S&P TM Index treats the pre- and post-spun company as a deletion/addition action, using the stocks when-issued price, the Underlying Index will treat the spin-off this way as well.
Deletions. A company is deleted from the Underlying Index if the S&P TM Index drops the constituent. If a constituent deletion causes the number of companies in the relevant index to fall below 22, each stock deletion is accompanied with a stock addition. In case of GICS changes, where a company does not belong to a qualifying sub-industry after the classification change, it is removed from the Underlying Index at the next rebalancing.
Adjustments
The table below summarizes the types of index maintenance adjustments and indicates whether or not an index adjustment is required.
S&P TM Index Action |
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Adjustment Made to the Underlying Index |
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Divisor Adjustment? |
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Constituent deletion |
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If the constituent is a member of the Underlying Index, it is dropped. |
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Yes |
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Constituent addition |
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Only in cases where the deletion causes the component count to fall below 22 stocks, then the deletion is accompanied by an addition assuming the weight of the dropped stock. |
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When a stock is removed from the Underlying Index at a price of $0.00, the stock's replacement will be added to the Underlying Index at the weight using the previous day's closing value, or the most immediate prior business day that the deleted stock was not valued at $0.00. | ||||
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Share changes between quarterly share adjustments |
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None. |
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No |
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Quarterly share changes |
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There is no direct adjustment, however, on the same date the Underlying Index rebalancing will take place. |
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Only because of the Underlying Index rebalancing. |
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GICS change |
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None. If, after the GICS change, a company no longer qualifies to belong to the Underlying Index, it is removed at the next rebalancing. |
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No |
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Spin-off treated as a deletion/addition action in the S&P® TMI |
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No weight change. The price is adjusted to when-issued price of the parent company, as announced in the S&P® TMI action. Index shares change so that the companys weight remains the same as its weight before the spin-off. |
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No |
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JPMorgan
Structured Investments |
TS-14 |
Corporate Actions
Corporate Action |
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Adjustment Made to the Underlying Index |
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Divisor Adjustment? |
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Spin-off |
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In general, both the parent company and spin-off companies will remain in the Underlying Index until the next index rebalancing, regardless of whether they conform to the theme of the Underlying Index. When there is no market-determined price available for the spin, the spin is added to the Underlying Index at zero price at the close of the day before the ex-date. |
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No |
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Rights Offering |
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The price is adjusted to the price of the parent company minus (the price of the rights subscription/rights ratio). The index shares change so that the companys weight remains the same as its weight before the spin-off. |
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No |
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Stock Dividend, Stock Split or Reverse Stock Split |
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The index shares are multiplied by and price is divided by the split factor. |
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No |
Share Issuance or Share Repurchase, Equity Offering or Warrant Conversion |
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None. |
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No |
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Special Dividends |
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Price of the stock making the special dividend payment is reduced by the per share special dividend amount after the close of trading on the day before the dividend ex-date. |
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Yes |
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JPMorgan
Structured Investments |
TS-15 |