Term
sheet |
Term
Sheet to Product Supplement No. 197-A-I Registration Statement No. 333-155535 Dated February 2, 2011; Rule 433 |
Structured |
$ Return Enhanced Notes Linked to the Performance of the Singapore Dollar Relative to the U.S. Dollar due February 7, 2013 |
General
Key Terms
Reference Currency: |
Singapore dollar |
Base Currency: |
U.S. dollar |
Upside Leverage Factor |
1.25 |
Payment at Maturity: |
If the Ending Spot Rate is greater than the Starting Spot Rate, you will receive a cash payment that provides you with a return per $1,000 principal amount note equal to the Reference Currency Return multiplied by 1.25, subject to a Maximum Total Return on the notes of 125.00%. The maximum payment will be $2,250 for every $1,000 principal amount note that you hold. Accordingly, if the Index Return is positive, your payment at maturity per $1,000 principal amount note will be calculated as follows, subject to the Maximum Total Return: $1,000 + ($1,000 × Reference Currency Return × Upside Leverage Factor) If the Ending Spot Rate is less than the Starting Spot Rate, you will lose 1% of the principal amount of your notes for every 1% that the Ending Spot Rate is less than the Starting Spot Rate, and your payment at maturity per $1,000 principal amount note will be calculated as follows: $1,000 + ($1,000 × Reference Currency Return) You will lose some or all of your investment at maturity if the Ending Spot Rate is less than the Starting Spot Rate. The formula for the Reference Currency Return is mathematically different from other common return formulae. As set forth below, the formula for the Reference Currency Return is (a) the Ending Spot Rate minus the Starting Spot Rate divided by (b) the Ending Spot Rate. By dividing by the Ending Spot Rate, instead of the Starting Spot Rate, the Reference Currency Return is not linear (e.g., an increase of 10% in the Ending Spot Rate results in a Reference Currency Return of 9.09% and a decrease of 10% in the Ending Spot Rate results in a Reference Currency Return of -11.11%). If the Singapore dollar appreciates relative to the U.S. dollar over the term of the notes, the Reference Currency Return will increase at a ratio that is less than one-to-one (not accounting for the Upside Leverage Factor), and this formula will prevent the Reference Currency Return from reaching or exceeding 100%, regardless of how much the Singapore dollar appreciates. If the Singapore dollar depreciates relative to the U.S. dollar over the term of the notes, the Reference Currency Return will decline at a ratio greater than one-to-one (i.e., there is some embedded downside leverage). You will lose all of your investment at maturity if the Ending Spot Rate is less than the Starting Spot Rate by 50% or more. 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. Please see Selected Risk Considerations Your Notes Are Subject to an Embedded Maximum Payment at Maturity, Selected Risk Considerations Your Investment in the Notes May Result in a Loss on an Accelerated Basis and 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. |
Reference Currency Return: |
Ending
Spot Rate Starting Spot Rate |
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In no event, however, will the Reference Currency Return be less than -100%. |
Starting Spot Rate: |
The Starting Spot Rate is expressed in terms of a number of U.S. dollars per one Singapore dollar, based on (a) one divided by the applicable rate as reported by Reuters Group PLC (Reuters) on page ABSIRFIX01 at approximately 11:00 a.m., Singapore Time, on the pricing date or (b) such exchange rates determined by reference to certain intra-day trades, in each case, as determined by the calculation agent in good faith and a commercially manner. Although the calculation agent will make all determinations and will take all actions in relation to establishing the Starting Spot Rate 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 Rate 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 |
Ending Spot Rate: |
The Spot Rate on the Observation Date |
Spot Rate: |
The Spot Rate on a given date is expressed as a number of U.S. dollars per one Singapore dollar and is equal to one divided by the applicable rate reported by Reuters Group PLC (Reuters) on such date of determination on Reuters page ABSIRFIX01 (or any substitute page) at approximately 11:00 a.m., Singapore Time. |
Currency Business Day: |
A currency business day, with respect to the 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 Reference Currency (which is Singapore) 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. |
Observation Date: |
February 4, 2013* |
Maturity Date: |
February 7, 2013* |
CUSIP: |
48125XDP8 |
* | Subject to postponement in the event of a market disruption event and as described under Description of Notes Payment at Maturity and Description of Notes Postponement of a Calculation Date in the accompanying product supplement no. 197-A-I |
Investing in the 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.
|
Price to Public (1) |
Fees and Commissions (2) |
Proceeds to Us |
Per note |
$ |
$ |
$ |
Total |
$ |
$ |
$ |
(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. 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 in 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.
February 2, 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):
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.
Selected Purchase Considerations
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. 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 and subject to the discussion of Section 1256 below, 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 note on your books and records, on the date you acquire
it, as being subject to this election and (b) filing the relevant statement
verifying this election with your U.S. federal income tax return, or obtaining
independent verification under procedures 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.
Alternatively, you might be required to treat the notes as Section 1256 contracts and mark them to market annually, as if they were sold at their fair market value on the last business day of the taxable year. In that event, unless you have made a valid Section 988 Election, your gain or loss on marking your notes to market would be treated as ordinary in character. If you have made a valid Section 988 Election, your gain or loss would be treated as 40% short-term capital gain or loss and 60% long-term capital gain or loss, without regard to how long you have held the notes. You should consult your tax adviser regarding the possible application of Section 1256.
Even if the characterization of the notes as open transactions is respected, no assurance can be given that the IRS will accept, or that a court will uphold, the tax treatment of the notes described above, 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
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JPMorgan
Structured Investments |
TS-1 |
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 Currency, the Base Currency or the exchange rate between the Reference Currency and Base Currency or any contracts related to the Reference Currency, the Base Currency or the exchange rate between the Reference Currency and the Base Currency. 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 |
What Is the Payment at Maturity on the Notes, Assuming a Range of Performances for the Reference Currency Relative to the Base Currency?
The table and examples below illustrate the hypothetical total return at maturity of the notes. The note 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 a Starting Spot Rate of 0.75. The hypothetical note returns set forth below are for illustrative purposes only and may not be the actual payment at maturity 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
Spot |
(Ending
Spot Rate |
Reference
|
Total Return |
1.35000 |
80.00% |
44.444% |
55.556% |
1.27500 |
70.00% |
41.176% |
51.471% |
1.20000 |
60.00% |
37.500% |
46.875% |
1.12500 |
50.00% |
33.333% |
41.667% |
1.05000 |
40.00% |
28.571% |
35.714% |
0.97500 |
30.00% |
23.077% |
28.846% |
0.90000 |
20.00% |
16.667% |
20.833% |
0.82500 |
10.00% |
9.091% |
11.364% |
0.78750 |
5.00% |
4.762% |
5.952% |
0.76875 |
2.50% |
2.439% |
3.049% |
0.75000 |
0.00% |
0.000% |
0.000% |
0.73125 |
-2.50% |
-2.564% |
-2.564% |
0.71250 |
-5.00% |
-5.263% |
-5.263% |
0.67500 |
-10.00% |
-11.111% |
-11.111% |
0.63750 |
-15.00% |
-17.647% |
-17.647% |
0.60000 |
-20.00% |
-25.000% |
-25.000% |
0.52500 |
-30.00% |
-42.857% |
-42.857% |
0.45000 |
-40.00% |
-66.667% |
-66.667% |
0.37500 |
-50.00% |
-100.000% |
-100.000% |
0.30000 |
-60.00% |
-100.000%(1) |
-100.000%(1) |
0.22500 |
-70.00% |
-100.000%(1) |
-100.000%(1) |
0.15000 |
-80.00% |
-100.000%(1) |
-100.000%(1) |
0.07500 |
-90.00% |
-100.000%(1) |
-100.000%(1) |
(1) The Reference Currency
Return may not be less than -100%
and the payment at maturity may not be less than $0.
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 Spot Rate increases from the Starting Spot Rate of 0.75 to an Ending Spot Rate of 0.7875.
Because the Ending Spot Rate of 0.7875 is greater than the Starting Spot Rate of 0.75, the Reference Currency Return is positive. Although the value of the Reference Currency relative to the Base Currency increased by 5.00%, the Reference Currency Return is 4.762%, reflecting the embedded variable upside negative leverage. Accordingly, you will receive a payment at maturity of $1,059.52, calculated as follows:
$1,000 + ($1,000 × 4.762% × 1.25) = $1,059.52
Example 2: The Spot Rate decreases from the Starting Spot Rate of 0.75 to an Ending Spot Rate of 0.60.
Because the Ending Spot Rate of 0.60 is less than the Starting Spot Rate of 0.75, the Reference Currency Return is negative. Although the value of the Reference Currency relative to the Base Currency declined by 20%, the Reference Currency Return is -25%, reflecting the embedded variable negative upside leverage. Accordingly, you will receive a payment at maturity of $750 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × -25%) = $750
Example 3: The Spot Rate decreases from the Starting Spot Rate of 0.75 to an Ending Spot Rate of 0.30.
Although the value of the Reference Currency relative to the Base Currency declined by 60%, the Reference Currency Return would have been less than -100% as a result of the embedded variable downside leverage. However, because the Reference Currency Return may not be less than -100%, the investor receives a payment at maturity of $0 per $1,000 principal amount note.
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JPMorgan
Structured Investments |
TS-4 |
Historical Information
The following graph shows the historical weekly performance of the Reference Currency relative to the Base Currency, expressed in terms of the conventional market quotation (the amount of the Singapore dollar 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 28, 2011. The exchange rate of the U.S. dollar relative to the Singapore dollar on February 1, 2011 was 1.2709.
The historical exchange rates in the graph below were determined using the rates reported by Bloomberg Financial Markets and may not be indicative of the Spot Rate that would be derived from the applicable Reuters page.
The exchange rates displayed in the graphs below are for illustrative purposes only and do not form part of the calculation of the Reference Currency Return. The Reference Currency Return increases when the Singapore dollar appreciates in value against the U.S. dollar. Therefore, the Reference Currency Return is calculated using the Spot Rate expressed as the amount of U.S. dollars per one unit of the Singapore dollar, which is the inverse of the conventional market quotation for the Singapore dollar set forth in the graph below.
The Spot Rate on February 1, 2011 was 0.78260, calculated in the manner set forth under Key Terms Spot Rate on the front cover of this term sheet. The exchange rates displayed in the graph above should not be taken as an indication of future performance, and no assurance can be given as to the Spot Rate on the pricing date or the Observation Date. We cannot give you assurance that the performance of the Reference Currency relative to the Base Currency will result in the return of more than the principal amount of your notes.
Supplemental Plan of Distribution
JPMS, acting as agent for JPMorgan Chase & Co., will receive a commission that will depend on market conditions on the pricing date. In no event will that commission exceed $7.50 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 $7.50 per $1,000 principal amount note.
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JPMorgan
Structured Investments |
TS-5 |