Term Sheet |
Term
sheet to Product Supplement No. 197-A-I Registration Statement No. 333-155535 Dated January 14, 2011; Rule 433 |
Structured |
$ 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 25, 2013 |
General
Key Terms
Basket: |
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 |
Starting
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Reuters Page |
Reference
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South Korean won (KRW) |
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KFTC18 |
25% |
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Indonesian rupiah (IDR) |
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ABSIRFIX01 |
25% |
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Indian rupee (INR) |
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RBIB |
25% |
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Singapore dollar (SGD) |
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ABSIRFIX01 |
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: |
At least 3.10 (to be determined on the pricing date) |
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Payment at Maturity: |
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. | |||
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: |
10% |
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Downside Leverage Factor |
1.1111 |
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Basket Return: |
Ending Basket Level
Starting Basket Level |
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Starting Basket Level: |
Set equal to 100 on the pricing date |
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Ending Basket Level: |
The Basket Closing Level on the Observation Date |
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Basket Closing Level: | The Basket Closing Level on the Observation Date will be calculated as follows: | |||
100
x [1 + (KRW Return *
25% )
+ (IDR Return *
25% )
+ (INR Return *
25% )
+ (SGD Return *
25% )]
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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: |
January 22, 2013* |
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Maturity Date: |
January 25, 2013* |
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CUSIP: |
48125XBH8 |
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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
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) |
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, 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. The estimated cost of hedging includes the projected profits, which in no event will exceed $15.00 per $1,000 principal amount note, that our affiliates expect to realize in consideration for assuming the risk inherent in hedging our obligations under the notes. Because hedging our obligations entails risk and may be influenced by market forces beyond our control, the actual cost of such hedging may result in a profit that is more or less than expected, or could result in a loss. For additional related information, please see Use of Proceeds beginning on page PS-15 of the accompanying product supplement no. 197-A-I. |
(2) |
Please see Supplemental Plan of Distribution (Conflicts of Interest) on the last page of this term sheet for information about fees and commissions. |
The notes are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
January 14, 2011
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):
Product
supplement no. 197-A-I dated August 25, 2010:
http://www.sec.gov/Archives/edgar/data/19617/000089109210003589/e39856_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
Ending Spot Rate Starting Spot Rate
Ending Spot
Rate
Selected Purchase Considerations
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JPMorgan
Structured Investments |
TS-1 |
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 paragraph, when read in combination with the section entitled Certain U.S. Federal Income Tax Consequences in the accompanying product supplement, constitutes the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal income tax consequences of owning and disposing of notes.
Selected Risk Considerations
An investment in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in the 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.
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JPMorgan
Structured Investments |
TS-2 |
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JPMorgan
Structured Investments |
TS-3 |
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JPMorgan
Structured Investments |
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.
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Ending |
Basket |
Total Return |
Payment at |
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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 |
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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
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JPMorgan
Structured Investments |
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 7, 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 13, 2011 were 1112.15, 9064, 45.11 and 1.2855 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.
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JPMorgan
Structured Investments |
TS-6 |
The final graph below shows the weekly performance of the Basket from January 6, 2006 through January 7, 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 13, 2011 were 0.00089912, 0.00011062, 0.022158 and 0.77622, 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.
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JPMorgan
Structured Investments |
TS-7 |