Term sheet
To prospectus dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 215-A-I dated October 4, 2011
|
|
Term
Sheet to
Product Supplement 215-A-I
Registration Statement No. 333-155535
Dated October 4, 2011; Rule 433 |
Structured
Investments
|
|
$
Annual Income Notes Contingent on the Performance of the JPMorgan ETF Efficiente
5 Index due October 31, 2016 |
General
- Senior unsecured obligations of JPMorgan
Chase & Co. maturing October 31, 2016*
- Cash payment at maturity of principal
plus the final Interest Payment, if any, as described below
- The notes are designed for investors
who seek variable annual Interest Payments that depend on the annualized performance
of the JPMorgan ETF Efficiente 5 Index over the term of the notes, subject
to a Minimum Interest Rate that will be determined on the pricing date and
will not be less than 1.00% per annum. The notes may be appropriate for investors
requiring asset and investment strategy diversification. Investors should
be willing to forgo dividend payments and any return on this investment beyond
the Interest Payments, while seeking payment of your principal in full at
maturity. Any payment on the notes is subject to the credit risk of JPMorgan
Chase & Co.
- Investing in the notes is not equivalent
to investing in the JPMorgan ETF Efficiente 5 Index, any of the Basket Constituents
or any of the assets underlying the Basket Constituents.
- Minimum denominations of $1,000 and integral
multiples thereof
- The notes are expected to price on or about
October 26, 2011 and are expected to settle on or about October 31, 2011.
Key Terms
Index: |
JPMorgan ETF Efficiente 5 Index (the Index) |
Interest Payment: |
The Interest Payment per $1,000 principal
amount note payable on each annual Interest Payment Date will equal $1,000
× Interest Rate. |
Interest Rate: |
The Interest Rate for each annual Interest
Payment Date will be a percentage equal to (a) the Cumulative Index Return
on the applicable Interest Determination Date multiplied by (b) the Index
Factor for such Interest Determination Date, provided that the
Interest Rate will not be less than the Minimum Interest Rate. |
Minimum Interest Rate: |
The Minimum Interest Rate will be determined
on the pricing date and will not be less than 1.00% per annum |
Index Factor: |
The Index Factor for each Interest Determination
Date will be a fraction equal to 1/n, where n is equal to the number
of Interest Determination Dates that have occurred to date, including
the Interest Determination Date in question.
Please see Selected Risk Considerations
Because the Index Factor for Each Interest Determination Date Negatively
Affects the Interest Rate Over Time, Earlier Increases in the Index Will
Result in Higher Interest Payments Than Later Increases in the Index
for additional information. |
Interest Determination Dates*: |
October 26, 2012, October 28, 2013, October
28, 2014, October 27, 2015, and October 26, 2016 |
Interest Payment Dates*: |
October 31, 2012, October 31, 2013, October
31, 2014, October 30, 2015, and October 31, 2016 |
Payment at Maturity: |
At maturity, you will receive a cash payment
for each $1,000 principal amount note of $1,000 (plus the final Interest
Payment). |
Cumulative Index Return: |
Ending
Index Level Initial Index Level
Initial
Index Level |
Initial Index Level: |
The Index closing level on the pricing date |
Ending Index Level: |
For each Interest Determination Date, the
Index closing level on such Interest Determination Date |
Observation Date: |
October 26, 2016* |
Maturity Date: |
October
31, 2016* |
CUSIP: |
48125X4T0 |
* |
Subject to postponement in the event of a
market disruption event and as described under Description of Notes
Potential Interest Payments and Description of Notes Postponement
of an Interest determination Date in the accompanying product supplement
no. 215-A-I |
|
Subject to the impact of a commodity hedging
disruption event as described under General Terms of Notes Consequences
of a Commodity Hedging Disruption Event in the accompanying product supplement
no. 215-A-I. In the event of a commodity hedging disruption event, we
have the right, but not the obligation, to cause the note calculation
agent to adjust the Interest Payments payable on each Interest Payment
Date that follows the occurrence of that commodity hedging disruption
event. Please see Selected Risk Considerations We May Adjust Further
Interest Payments If a Commodity Hedging Disruption Event Occurs for
additional information. |
Investing in the notes
involves a number of risks. See Risk Factors beginning on page PS-6 of the
accompanying product supplement no. 215-A-I and Selected Risk Considerations
beginning on page TS-3 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 product supplement, 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. |
(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 $2.50 per $1,000 principal amount note. The concessions
of approximately $2.50 per $1,000 principal amount note include concessions
to be allowed to selling dealers and concessions to be allowed to any
arranging dealer. 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. In no event will the commission received by JPMS, which
includes concessions and other amounts that may be allowed to other dealers,
exceed $50.00 per $1,000 principal amount note. See Plan of Distribution
(Conflicts of Interest) beginning on page PS-132 of the accompanying
product supplement no. 215-A-I. |
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.
![](https://cdn.kscope.io/769c9e710d732eefa93b28d09420a07d-jpm_logo.jpg)
October 4, 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. 215-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. 215-A-I dated October 4, 2011. This term sheet, together
with the documents listed below, contains the terms of the notes and supersedes
all other prior or contemporaneous oral statements as well as any other written
materials including preliminary or indicative pricing terms, correspondence,
trade ideas, structures for implementation, sample structures, fact sheets,
brochures or other educational materials of ours. You should carefully
consider, among other things, the matters set forth in Risk Factors in the
accompanying product supplement no. 215-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.govas follows (or if such address has changed, by reviewing
our filings for the relevant date on the SEC website):
You may access additional information regarding
The JPMorgan ETF Efficiente 5 Index in the Strategy Guide at the following URL:
http://www.sec.gov/Archives/edgar/data/19617/000095010311000060/crt-dp20603_fwp.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.
We may create and issue
additional notes with the same terms as these notes, so that any additional
notes will be considered part of the same tranche as these notes.
The JPMorgan
ETF Efficiente 5 Index
The JPMorgan ETF Efficiente 5 Index (the Index)
was developed and is maintained and calculated by J.P. Morgan Securities Ltd.
(JPMSL), one of our affiliates. JPMSL acts as the calculation agent for the
Index (the index calculation agent). The Index is a notional dynamic basket
that tracks the excess return of a portfolio of 12 exchange-traded funds (ETFs)
(each an ETF Constituent, and collectively the ETF Constituents), with dividends
reinvested, and the JPMorgan Cash Index USD 3 Month (the Cash Constituent)
(each a Basket Constituent, and collectively the Basket Constituents) above
the return of the Cash Constituent, less a fee of 0.50% per annum that accrues
daily. The Basket Constituents represent a diverse range of asset classes and
geographic regions.
The Index rebalances monthly a synthetic portfolio
composed of the Basket Constituents. The Index is based on the modern portfolio
theory approach to asset allocation, which suggests how a rational investor
should allocate his capital across the available universe of assets to maximize
return for a given risk appetite. The Index uses the concept of an efficient
frontier to define the asset allocation of the Index. An efficient frontier
for a portfolio of assets defines the optimum return of the portfolio for a
given amount of risk. The Index uses the volatility of returns of hypothetical
portfolios as the measure of risk. This strategy is based on the assumption
that the most efficient allocation of assets is one that maximizes returns per
unit of risk. The index level of the ETF Efficiente Index is determined by
tracking the return of the synthetic portfolio above the return of the Cash
Constituent. The weights assigned to the Basket Constituents within the synthetic
portfolio are rebalanced monthly. The strategy assigns the weights to the Basket
Constituents based upon the returns and volatilities of multiple hypothetical
portfolios comprising the Basket Constituents measured over the previous six
months. The re-weighting methodology seeks to identify the weight for each
Basket Constituent that would have resulted in the hypothetical portfolio with
the highest return over the relevant measurement period, subject to an annualized
volatility over the same period of 5% or less. Thus, the portfolio exhibiting
the highest return with an annualized volatility of 5% or less is then selected,
with the weightings for such portfolio applied to the Basket Constituents. In
the event that none of the portfolios has an annualized volatility equal to
or less than 5%, this volatility threshold is increased by 1% and this analysis
performed again until a portfolio is selected.
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-1 |
The Index is described as a notional or synthetic
portfolio or basket of assets because there is no actual portfolio of assets
to which any person is entitled or in which any person has any ownership interest.
The Index merely references certain assets, the performance of which will be
used as a reference point for calculating the level of the Index.
The following are the Basket
Constituents composing the Index and the maximum weighting constraints assigned
to the relevant sector and asset type to which each belongs:
|
Sector
Cap |
Basket
Constituent |
Asset
Cap |
1 |
Developed Equities
50% |
SPDR®
S&P 500® ETF Trust |
20% |
2 |
iShares®
Russell 2000 Index Fund |
10% |
3 |
iShares®
MSCI EAFE Index Fund |
20% |
4 |
Bonds
50% |
iShares®
Barclays 20+ Year Treasury Bond Fund |
20% |
5 |
iShares®
iBOXX $ Investment Grade Corporate Bond Fund |
20% |
6 |
iShares®
iBOXX $ High Yield Corporate Bond Fund |
20% |
7 |
Emerging Markets
25% |
iShares®
MSCI Emerging Markets Index Fund |
20% |
8 |
iShares®
Emerging Markets Bond Fund |
20% |
9 |
Alternative
Investments
25% |
iShares®
Dow Jones Real Estate Index Fund |
20% |
10 |
iShares®
S&P GSCI Commodity-Indexed Trust |
10% |
11 |
SPDR®
Gold Trust |
10% |
12 |
Inflation
Protected Bonds
and Cash
50% |
iShares®
Barclays TIPS Bond Fund |
50% |
13 |
JPMorgan
Cash Index USD 3 Month |
50% |
See The JPMorgan ETF
Efficiente 5 Index in the accompanying product supplement no. 215-A-I for
more information on the Index and the Basket Constituents.
The level of the Index is published each trading
day under the Bloomberg ticker symbol EEJPUS5E.
Selected
Purchase Considerations
- POTENTIAL PRESERVATION
OF CAPITAL AT MATURITY Subject to the credit risk of JPMorgan Chase
& Co., the payout formula allows you to receive at least your initial
investment in the notes if you hold the notes to maturity, regardless of the
performance of the Index. Because the notes are our senior unsecured obligations,
payment of any amount at maturity is subject to our ability to pay our obligations
as they become due.
- ANNUAL INTEREST PAYMENTS
AT A RATE NO LESS THAN THE MINIMUM INTEREST RATE OF AT LEAST 1.00% PER ANNUM
The notes offer the potential to earn annual Interest Payments with a variable
Interest Rate that will not be less than the Minimum Interest Rate, which
will not be less than 1.00% per annum. The actual Minimum Interest Rate will
be determined on the pricing date. The Interest Rate for each Interest Payment
Date is equal to the Cumulative Index Return on the applicable Interest Determination
Date, multiplied by the Index Factor for such Interest Determination Date,
provided that the Interest Rate will not be less than the Minimum Interest
Rate. If a commodity hedging disruption event occurs, we may adjust further
Interest Payments. See Selected Risk Considerations We May Adjust Further
Interest Payments If a Commodity Hedging Disruption Event Occurs below.
- RETURN LINKED TO A
NOTIONAL DYNAMIC BASKET THAT TRACKS THE EXCESS RETURN OF A PORTFOLIO OF TWELVE
ETFs AND ONE INDEX, REPRESENTING A DIVERSE RANGE OF ASSETS AND GEOGRAPHIC
REGIONS The return on the notes is linked to the performance of the
JPMorgan ETF Efficiente 5 Index. The Index tracks the excess return of a
portfolio of twelve ETFs and the Cash Constituent using an investment strategy
that is based on the modern portfolio theory of asset allocation, which suggests
how a rational investor should allocate his capital across the available universe
of assets to maximize return for a given risk appetite. The Index uses the
concept of an efficient frontier to define the asset allocation of the Index.
An efficient frontier for a portfolio of assets defines the optimum return
of the portfolio for a given amount of risk. The Index uses the volatility
of returns of hypothetical portfolios as the measure of risk. This strategy
is based on the assumption that the most efficient allocation of assets is
one that maximizes returns per unit of risk. See The JPMorgan ETF Efficiente
5 Index in the accompanying product supplement no. 215-A-I.
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-2 |
- TAX TREATMENT
You should review carefully the section entitled Certain U.S. Federal Income
Tax Consequences in the accompanying product supplement. You and we agree
to treat the notes as variable rate debt instruments for U.S. federal income
tax purposes. Assuming this characterization is respected, interest paid
on the notes will generally be taxable to you as ordinary income at the time
it accrues or is received, in accordance with your method of accounting for
U.S. federal income tax purposes, and gain or loss realized on the sale, exchange
or redemption of the notes generally will be capital gain or loss. However,
due to the absence of authorities that directly address the proper characterization
of the notes, the Internal Revenue Service (the IRS) or a court may not
respect the characterization and tax treatment described above. In particular,
the IRS could seek to treat the notes for U.S. federal income tax purposes
as contingent payment debt instruments. If the IRS were successful in asserting
this treatment, the timing and character of income with respect to the notes
would be significantly affected. Among other things, a U.S. Holder would
be required to accrue interest income in each year, subject to adjustments,
at a rate equal to our comparable yield on the notes, and any gain on the
sale, exchange or redemption of the notes would be treated as additional interest
income. 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. See the section entitled
Certain U.S. Federal Income Tax Consequences in the accompanying product
supplement for more detailed information.
Selected Risk Considerations
An investment in the notes involves
significant risks. Investing in the notes is not equivalent to investing directly
in the Index, any of its Basket Constituents or any of the securities, commodities,
commodity futures contracts or other assets underlying the Basket Constituents.
These risks are explained in more detail in the Risk Factors section of the
accompanying product supplement no. 215-A-I dated October 4, 2011.
- YOU MAY NOT RECEIVE
ANY INTEREST PAYMENTS ON YOUR NOTES IN EXCESS OF THE MINIMUM INTEREST RATE
OF AT LEAST 1.00% PER ANNUM FOR EACH INTEREST PAYMENT DATE Your only
return on the notes will be the annual Interest Payments that will be paid
over the term of the notes. If the Index has declined from the pricing date
to the applicable Interest Determination Date, resulting in a negative Cumulative
Index Return, or if the Cumulative Index Return on the applicable Interest
Determination Date multiplied by the applicable Index Factor is less than
the Minimum Interest Rate, the Interest Rate will be equal to the Minimum
Interest Rate and the minimum Interest Payment of $1,000 × the Minimum Interest
Rate per $1,000 principal amount note will be made on the applicable Interest
Payment Date.
If the Minimum Interest Rate applies for each
of the applicable Interest Payment Dates, assuming a Minimum Interest Rate
of 1.00%, you will receive $50.00 per $1,000 principal amount note in Interest
Payments over the term of the notes. The actual Minimum Interest Rate will
be determined on the pricing date and will not be less than 1.00% per annum.
Therefore, the return on your investment in the notes may be less than the
amount that would be paid on a conventional security having a similar maturity
issued by us or an issuer with a comparable credit rating. The Interest Payments
paid over the term of the notes may not compensate you for any loss in value
due to inflation and other factors relating to the value of money over time.
If a commodity hedging disruption event occurs, we may adjust further Interest
Payments. See We May Adjust Further Interest Payments If a Commodity Hedging
Disruption Event Occurs below.
- THE INDEX FACTOR FOR
EACH INTEREST DETERMINATION DATE MAY LOWER YOUR INTEREST RATE FOR AN INTEREST
PAYMENT DATE, AND YOUR AGGREGATE INTEREST PAYMENTS OVER THE TERM OF THE NOTES
MAY YIELD A RETURN THAT IS LESS THAN THE INDEX PERFORMANCE OVER THE TERM OF
THE NOTES Although the Cumulative Index Return on each Interest Determination
Date measures the performance of the Index from the pricing date to such Interest
Determination Date, the Index Factor for the applicable Interest Determination
Date is applied to the Index Return for such Interest Determination Date to
annualize the Cumulative Index Return. Accordingly, even if the Cumulative
Index Return increases from one Interest Determination Date to the next, the
Interest Rate for each Interest Payment Date may not increase in the same
proportion and may even decrease. In addition, the return from the Interest
Payments that you may receive over the term of the notes may be less than
the Index performance over the term of the notes. Please see What Are the
Interest Rates for Different Interest Payment Dates, Assuming a Range of Performances
for the Index? in this term sheet for more information.
- BECAUSE THE INDEX
FACTOR FOR EACH INTEREST DETERMINATION DATE NEGATIVELY AFFECTS THE INTEREST
RATE OVER TIME, EARLIER INCREASES IN THE INDEX WILL RESULT IN HIGHER INTEREST
PAYMENTS THAN LATER INCREASES IN THE INDEX The Index Factor for each
Interest Determination Date is always less than the Index Factor for the immediately
preceding Interest Determination Date. Accordingly, its negative impact on
the Interest Rate increases over time. As a result, earlier increases in
the Index will result in higher Interest Payments than later increases in
the Index, unless the later increases are sufficient to offset the negative
effect of the Index Factor. If the Index depreciates during the initial part
and appreciates in the later part of the term of the notes or if the Index
appreciates more later in the term of the notes than earlier in the term of
the notes, your aggregate Interest Payments may be less than the aggregate
Interest Payments you could have earned if the Index appreciated during the
initial part and depreciated in the later part of the term of the notes or
if the Index appreciated more earlier in the term of the notes than later
in the term of the notes. The negative impact of the Index Factor will also
be greater the longer the term of the notes.
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-3 |
- THE INTEREST RATE
DOES NOT REFLECT THE ACTUAL YEAR-OVER-YEAR PERFORMANCE OF THE INDEX FROM INTEREST
DETERMINATION DATE TO INTEREST DETERMINATION DATE The Interest Rate
for each annual Interest Payment Date is determined by multiplying the Cumulative
Index Return on the applicable Interest Determination Date by the applicable
Index Factor and is intended to reflect the annualized Index return on the
applicable Interest Determination Date, subject to the Minimum Interest Rate.
This is different from, and may be less than, an Interest Rate determined
based on the percentage difference of the Index closing levels between two
Interest Determination Dates (or the year-over-year performance of the Index
between the two Interest Determination Dates). Accordingly, the Interest
Payments on the notes may be less than the return you could earn on another
instrument linked to the Index that pays annual interest based on the year-over-year
performance of the Index. Please see Sensitivity Analysis Hypothetical
Interest Rates for Different Interest Payment Dates for Each $1,000 principal
amount note in this term sheet for more information.
- THE LEVEL OF THE INDEX
WILL INCLUDE THE DEDUCTION OF A FEE One way in which the Index may differ
from a typical index is that its level will include a deduction from the performance
of the Basket Constituents over the Cash Constituent of a fee of 0.50% per
annum. This fee will be deducted daily. As a result of the deduction of
this fee, the level of the Index will trail the value of a hypothetical identically
constituted synthetic portfolio from which no such fee is deducted.
- CREDIT RISK OF JPMORGAN
CHASE & CO. The notes are subject to the credit risk of JPMorgan
Chase & Co. and our credit ratings and credit spreads may adversely affect
the market value of the notes. Investors are dependent on JPMorgan Chase
& Co.s ability to pay all amounts due on the notes at maturity, and therefore
investors are subject to our credit risk and to changes in the markets view
of our creditworthiness. Any decline in our credit ratings or increase in
the credit spreads charged by the market for taking our credit risk is likely
to affect adversely the value of the notes.
- WE MAY ADJUST FURTHER
INTEREST PAYMENTS IF A COMMODITY HEDGING DISRUPTION EVENT OCCURS If
we or our affiliates are unable to effect transactions necessary to hedge
our obligations under the notes due to a commodity hedging disruption event,
we have the right, but not the obligation, to adjust further Interest Payments.
In making such adjustment, the calculation agent will determine in good faith
and in a commercially responsible manner the forward price of the embedded
option representing each of the Interest Payments from but excluding the commodity
hedging disruption date through and including the maturity date (the Option
Value) as of the date on which we declare a commodity hedging disruption
event (such date, a commodity hedging disruption date). Thereafter, the
Interest Payment payable on each Interest Payment Date occurring after the
commodity hedging disruption date (each, an Affected Interest Payment Date)
will be, instead of the amount calculated as described under Key Terms
Interest Payment above, an amount equal to, for each $1,000 principal amount
note, the Option Value divided by the number of Affected Interest Payment
Dates, provided that the Interest Payment will not be less than $1,000 × the
Minimum Interest Rate. Under these circumstances, the Interest Payment on
each Affected Interest Payment Date will be fixed, regardless of any appreciation
of the Index, which may be significant. Please see General Terms of the Notes
Consequences of a Commodity Hedging Disruption Event in the accompanying
disclosure statement for more information.
- POTENTIAL CONFLICTS
We and our affiliates play a variety of roles in connection with the
issuance of the notes, including acting as note calculation agent the entity
that, among other things, determines the Index closing levels to be used to
determine the Interest Payment, if any, we will pay you on each Interest Payment
Date and acting as index calculation agent and sponsor of the Index and
hedging our obligations under the notes. In performing these duties, the
economic interests of the note calculation agent, index calculation agent,
sponsor of the Index, and other affiliates of ours are potentially adverse
to your interests as an investor in the notes. It is possible that such hedging
activities or other trading activities of ours or other affiliates could result
in substantial returns for us or our affiliates while the value of the notes
declines.
In addition, one of our affiliates, JPMS, is
the sponsor of one of the Basket Constituents of the Index (the Cash Constituent).
JPMS is also the sponsor of the JPMorgan EMBI Global Core Index, which is
the index underlying the iShares® JPMorgan USD Emerging Markets
Bond Fund. JPMS may, as a last resort, if there are no valid prices available
for composite instruments included in the JPMorgan EMBI Global Core Index,
price such composite instruments by asking JPMS traders to provide a market
bid and ask. We will not have any obligation to consider your interests as
a holder of the notes in taking any corporate action that might affect the
values of the Cash Constituents, the JPMorgan EMBI Core Index and the notes.
- OUR AFFILIATE, J.P.
MORGAN SECURITIES LTD., OR JPMSL, IS THE INDEX CALCULATION AGENT AND MAY ADJUST
THE INDEX IN A WAY THAT AFFECTS ITS LEVEL JPMSL, one of our affiliates,
acts as the index calculation agent and is responsible for calculating and
maintaining the Index and developing the guidelines and policies governing
its composition and calculation. The rules governing the Index may be amended
at any time by JPMSL, in its sole discretion, and the rules also permit the
use of discretion by JPMSL in specific instances, such as the right to substitute
a Basket Constituent. Unlike other indices, the maintenance of the Index
is not governed by an independent committee. Although judgments, policies
and determinations concerning the Index are made by JPMSL, JPMorgan Chase
& Co., as the parent company of JPMSL, ultimately controls JPMSL.
In addition, the policies and judgments for which JPMSL is responsible could
have an impact, positive or
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-4 |
negative, on the level of the Index and the
value of your notes. JPMSL is under no obligation to consider your interests
as an investor in the notes. Furthermore, the inclusion of the Basket Constituents
in the Index is not an investment recommendation by us or JPMSL of the Basket
Constituents or any of the securities, commodities, commodity futures contracts
or other assets underlying the Basket Constituents.
- JPMS
AND ITS AFFILIATES MAY HAVE PUBLISHED RESEARCH, EXPRESSED OPINIONS OR PROVIDED
RECOMMENDATIONS THAT ARE INCONSISTENT WITH INVESTING IN OR HOLDING THE NOTES.
ANY SUCH RESEARCH, OPINIONS, OR RECOMMENDATIONS COULD AFFECT THE MARKET VALUE
OF THE NOTES JPMS and its affiliates publish research from time
to time on financial markets and other matters that may influence the value
of the notes, or express opinions or provide recommendations that are inconsistent
with purchasing or holding the notes. JPMS and its affiliates may have published
research or other opinions that call into question the investment view implicit
in an investment in the notes. Any research, opinions or recommendations expressed
by JPMS or its affiliates may not be consistent with each other and may be
modified from time to time without notice. Investors should make their own
independent investigation of the merits of investing in the notes and the
Basket Constituents and the securities, commodities, commodity futures contracts
and currencies underlying the Basket Constituents to which the notes are linked.
- CERTAIN BUILT-IN COSTS
ARE LIKELY TO AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR TO MATURITY
While the payment at maturity described in this term sheet is based on the
full principal amount of your notes, the original issue price of the notes
includes the agents commission and the estimated cost of hedging our obligations
under the notes. As a result, and as a general matter, the price, if any,
at which JPMS will be willing to purchase notes from you in secondary market
transactions, if at all, will likely be lower than the original issue price
and any sale prior to the maturity date could result in a substantial loss
to you. This secondary market price will also be affected by a number of
factors aside from the agents commission and hedging costs, including those
set forth under Many Economic and Market Factors Will Affect the Value of
the Notes below.
The notes are not designed to be short-term
trading instruments. Accordingly, you should be able and willing to hold
your notes to maturity.
- THE COMMODITY FUTURES
CONTRACTS UNDERLYING SOME OF THE BASKET CONSTITUENTS ARE SUBJECT TO LEGAL
AND REGULATORY REGIMES The commodity futures contracts and commodities
that underlie two of the Basket Constituents, the iShares® S&P
GSCI Commodity-Indexed Trust and the SPDR® Gold Trust, and commodities
are subject to legal and regulatory regimes in the United States and, in some
cases, in other countries that may change in ways that could adversely affect
our ability to hedge our obligations under the notes and affect the level
of the Index. Such regimes may result in the index calculation agent exercising
its discretionary right to exclude or substitute Basket Constituents, which
may, in turn, have a negative effect on the level of the Index and the Interest
Payment, if any, on each Interest Payment Date. In addition, we or our affiliates
may be unable as a result of such restrictions to effect transactions necessary
to hedge our obligations under the notes, in which case we may, in our sole
and absolute discretion, cause the note calculation agent to adjust future
Interest Payments. Please see We May Adjust Further Interest Payments If
a Commodity Hedging Disruption Event Occurs.
- NO DIVIDEND PAYMENTS
OR VOTING RIGHTS As a holder of the notes, you will not have voting
rights or rights to receive cash dividends or other distributions or other
rights that holders of securities, commodities, commodity futures contracts
or other assets underlying the Basket Constituents would have.
- THE INDEX MAY
NOT BE SUCCESSFUL, OUTPERFORM ANY ALTERNATIVE STRATEGY THAT MIGHT BE EMPLOYED
IN RESPECT OF THE BASKET CONSTITUENTS OR ACHIEVE ITS TARGET VOLATILITY
The Index follows a notional rules-based proprietary strategy that
operates on the basis of pre-determined rules. No assurance can be given
that the investment strategy on which the Index is based will be successful
or that the Index will outperform any alternative strategy that might be employed
in respect of the Basket Constituents. Furthermore, no assurance can be given
that the JPMorgan ETF Efficiente 5 Index will achieve its target volatility
of 5%. The actual realized volatility of the JPMorgan ETF Efficiente 5 Index
may be greater or less than 5%.
- THE INDEX COMPRISES
NOTIONAL ASSETS AND LIABILITIES The exposures to the Basket Constituents
are purely notional and will exist solely in the records maintained by or
on behalf of the index calculation agent. There is no actual portfolio of
assets to which any person is entitled or in which any person has any ownership
interest. Consequently, you will not have any claim against any of the reference
assets that compose the Index. The Index tracks the excess return of a notional
dynamic basket of assets over the Cash Constituent and, as such, any allocation
to the Cash Constituent will result in this portion of the portfolio not being
invested. Unless an extraordinary event occurs, the Cash Constituent will
be subject to a maximum weight of 50% in the Index. See the risk factor in
this term sheet entitled The Basket Constituents Composing the Index May
Be Replaced by a Substitute ETF or Index for more information about the consequences
of an extraordinary event.
- OWNING THE NOTES INVOLVES
THE RISKS ASSOCIATED WITH THE INDEXS MOMENTUM INVESTMENT STRATEGY The
Index employs a mathematical model intended to implement what is generally
known as a momentum investment strategy, which seeks to capitalize on positive
market price trends based on the supposition that positive market price trends
may continue. This strategy is different from a strategy that seeks long-term
exposure to a portfolio consisting of constant components with fixed weights.
The Index may fail to realize gains that could occur as a result of holding
assets that have experienced price declines, but after which experience a
sudden price spike.
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-5 |
- THE INVESTMENT
STRATEGY USED TO CONSTRUCT THE INDEX INVOLVES MONTHLY REBALANCING AND WEIGHTING
CAPS THAT ARE APPLIED TO THE BASKET CONSTITUENTS The Basket
Constituents are subject to monthly rebalancing and maximum weighting caps
by asset type and on subsets of assets. By contrast, a synthetic portfolio
that does not rebalance monthly and is not subject to any weighting caps in
this manner could see greater compounded gains over time through exposure
to a consistently and rapidly appreciating portfolio consisting of the Basket
Constituents. Therefore, your return on the notes may be less than the return
you could realize on an alternative investment that was not subject to rebalancing
and weighting caps.
- CHANGES IN THE VALUES
OF THE BASKET CONSTITUENTS MAY OFFSET EACH OTHER Because the notes are
linked to the Index, which is linked to the performance of the Basket Constituents,
which collectively represent a diverse range of asset classes and geographic
regions, price movements between the Basket Constituents representing different
asset classes or geographic regions may not correlate with each other. At
a time when the value of a Basket Constituent representing a particular asset
class or geographic region increases, the value of other Basket Constituents
representing a different asset class or geographic region may not increase
as much or may decline. Therefore, in calculating the level of the Index,
increases in the values of some of the Basket Constituents may be moderated,
or more than offset, by lesser increases or declines in the values of other
Basket Constituents.
- CORRELATION OF PERFORMANCES
AMONG THE BASKET CONSTITUENTS MAY REDUCE PERFORMANCE OF THE NOTES Performances
of the Basket Constituents may become highly correlated from time to time
during the term of the notes, including, but not limited to, a period in which
there is a substantial decline in a particular sector or asset type represented
by the Basket Constituents and that has a higher weighting in the Index relative
to any of the other sectors or asset types, as determined by the Indexs strategy.
High correlation during periods of negative returns among Basket Constituents
representing any one sector or asset type and which Basket Constituents have
a substantial percentage weighting in the Index could cause the Notes to pay
only the Minimum Interest Return on an Interest Payment Date and a return
of your principal amount at maturity.
- THE INDEX HAS A LIMITED
OPERATING HISTORY AND MAY PERFORM IN UNANTICIPATED WAYS The Index was
established on October 29, 2010, and therefore has a limited operating history.
Any back-testing or similar analysis in respect of the Index must be considered
illustrative only and may be based on estimates or assumptions not used by
the index calculation agent when determining the level of the Index. Past
performance should not be considered indicative of future performance.
- AN INVESTMENT
IN THE NOTES IS SUBJECT TO RISKS ASSOCIATED WITH NON-U.S. SECURITIES MARKETS,
INCLUDING EMERGING MARKETS Some or all of the equity securities
that are held by two of the Basket Constituents, the iShares® MSCI
EAFE Index Fund and the iShares® MSCI Emerging Markets Index Fund,
have been issued by non-U.S. companies. In addition, the iShares®
iBOXX $ Investment Grade Corporate Bond Fund and the iShares® iBOXX
$ High Yield Corporate Bond Fund, which are also Basket Constituents, may
include U.S. dollar-denominated bonds of foreign corporations. Moreover,
the bonds held by the iShares® JPMorgan USD Emerging Markets Bond
Fund have been issued by 33 countries. Investments in the notes, which are
linked in part to the economic stability and development of such countries,
involve risks associated with investments in, or the securities markets in,
those countries. The impact of any of these risks may enhance or offset some
or all of any change resulting from another factor or factors. See Risk
Factors in the accompanying product supplement for more information on these
risks.
- THE NOTES ARE SUBJECT
TO CURRENCY EXCHANGE RISK Because the prices of some or all of the securities
composing two of the thirteen Basket Constituents (the iShares®
MSCI EAFE Index Fund and the iShares® MSCI Emerging Markets Index
Fund) (the Component Securities) are converted into U.S. dollars for purposes
of calculating the value of the relevant Basket Constituent, your notes will
be exposed to currency exchange rate risk with respect to each of the relevant
currencies. Your net exposure will depend on the extent to which such currencies
strengthen or weaken against the U.S. dollar and the weight of the Component
Securities denominated in each such currency. If, taking into account such
weighting, the U.S. dollar strengthens against such currencies, the value
of the relevant Basket Constituents will be adversely affected and an Interest
Payment may be reduced.
- THERE
ARE RISKS ASSOCIATED WITH THE ETF CONSTITUENTS
Although shares of the ETF Constituents are listed for trading on NYSE Arca,
Inc. (the NYSE Arca) and a number of similar products have been traded on
various national securities exchanges for varying periods of time, there is
no assurance that an active trading market will continue for the shares of
the ETF Constituents or that there will be liquidity in the trading market.
The ETF Constituents are subject to management risk, which is the risk that
the investment strategies of their investment advisers, the implementation
of which is subject to a number of constraints, may not produce the intended
results. These constraints could adversely affect the market prices of the
shares of the ETF Constituents, and consequently, the value of the notes.
- THERE ARE DIFFERENCES
BETWEEN THE ETF CONSTITUENTS AND THEIR UNDERLYING INDICES The ETF
Constituents do not fully replicate their respective underlying indices and
may hold securities not included in their respective underlying indices, and
their performances will reflect additional transaction costs and fees that
are not included in the calculation of their underlying indices, all of which
may lead to a lack of correlation between the ETF Constituents and their respective
underlying indices. In addition, corporate actions with respect to the sample
of securities (such as mergers and spin-offs) may impact the variance between
the ETF Constituents and their respective underlying indices. Finally, because
the shares of the ETF Constituents are traded on the NYSE Arca and are subject
to market supply and investor demand, the market value of one share of any
of the ETF Constituents may differ from the net asset value per share of such
ETF Constituent.
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-6 |
- THE
NOTES ARE SUBJECT TO SIGNIFICANT RISKS ASSOCIATED WITH FIXED-INCOME SECURITIES,
INCLUDING INTEREST RATE-RELATED AND CREDIT-RELATED RISKS Five of the Basket Constituents (the iShares®
Barclays 20+ Year Treasury Bond Fund, the iShares® iBOXX $ Investment
Grade Corporate Bond Fund, the iShares® iBOXX $ High Yield Corporate
Bond Fund, the iShares® Emerging Markets Bond Fund and the iShares®
Barclays TIPS Bond Fund, which we collectively refer to as the Bond ETFs)
are bond ETFs that attempt to track the performance of indices composed of
fixed income securities. Investing in the notes linked indirectly to these Basket Constituents
differs significantly from investing directly in bonds to be held to maturity
as the values of the Bond ETFs change, at times significantly, during each
trading day based upon the current market prices of their underlying bonds.
The market prices of these bonds are volatile and significantly influenced
by a number of factors, particularly the yields on these bonds as compared
to current market interest rates and the actual or perceived credit quality
of the issuer of these bonds. The market prices of the bonds underlying each
of the iShares® iBOXX $ Investment Grade Corporate Bond
Fund and the iShares® iBOXX $ High Yield Corporate Bond Fund are determined by reference to the bid and ask quotations provided
by 9 contributing banks, one of which is us. JPMS is also the sponsor
of the JPMorgan EMBI Global Core Index, which is the index underlying the
iShares® JPMorgan USD Emerging Markets Bond Fund. JPMS may, as
a last resort, if there are no valid prices available for instruments included
in the JPMorgan EMBI Global Core Index, price such instruments by asking JPMS
traders to provide a market bid and ask.
Interest rates are subject to volatility due
to a variety of factors, including:
- sentiment regarding underlying strength in the
U.S. economy and global economies;
- expectations regarding the level of price inflation;
- sentiment regarding credit quality in the U.S.
and global credit markets;
- central bank policies regarding interest rates;
and
- the performance of U.S. and foreign capital
markets.
Recently, U.S. treasury notes have been trading
near their historic high trading price. If the price of the U.S. treasury
notes reverts to its historic mean or otherwise falls, as a result of a general
increase in interest rates or perceptions of reduced credit quality of the
U.S. government or otherwise, the value of the bonds underlying the iShares®
Barclays 20+ Year Treasury Bond Fund will decline, which could have a negative
impact on the performance of the ETF Efficiente Index and the return on your
notes.
In addition, the prices of the underlying bonds
are significantly influenced by the creditworthiness of the issuers of the
bonds. The bonds underlying the Bond ETFs may have their credit ratings downgraded,
including in the case of the bonds included in the iShares® iBOXX
$ Investment Grade Corporate Bond Fund, a downgrade from investment grade
to non-investment grade status, or have their credit spreads widen significantly.
Following a ratings downgrade or the widening of credit spreads, some or all
of the underlying bonds may suffer significant and rapid price declines.
These events may affect only a few or a large number of the underlying bonds.
The iShares® Emerging Markets Bond
Fund is composed of U.S. dollar-denominated bonds of sovereign and quasi-sovereign
entities of emerging market countries and the iShares® iBOXX $
Investment Grade Corporate Bond Fund, the iShares® iBOXX $ High
Yield Corporate Bond Fund may include U.S. dollar-denominated bonds of foreign
corporations. See Risk Considerations An Investment in the Notes Is Subject
to Risks Associated with Non-U.S. Securities Markets, Including Emerging Markets
in this term sheet.
Further, the iShares® iBOXX $ High
Yield Corporate Bond Fund is designed to provide a representation of the U.S.
dollar high yield corporate market and is therefore subject to high yield
securities risk, being the risk that securities that are rated below investment
grade (commonly known as junk bonds, including those bonds rated at BB+
or lower by S&P or Fitch or Ba1 by Moodys) may be more volatile than
higher-rated securities of similar maturity. High yield securities may also
be subject to greater levels of credit or default risk than higher-rated securities.
Finally, for the iShares® Barclays
TIPS Bond Fund, if inflation is low, the benefit received from the inflation-protected
feature of the underlying bonds may not sufficiently compensate you for their
reduced yield.
- INVESTMENTS RELATED
TO THE VALUE OF COMMODITIES TEND TO BE MORE VOLATILE THAN TRADITIONAL NOTE
INVESTMENTS The market values of commodities tend to be highly volatile.
Commodity market values are not related to the value of a future income or
earnings stream, as tends to be the case with fixed-income and equity investments,
but are subject to variables that are specific to commodities markets. These
factors may have a larger impact on commodity prices and commodity-linked
instruments than on traditional notes. These variables may create additional
investment risks that cause the value of the notes to be more volatile than
the values of traditional notes. These and other factors may affect the values
of the constituents included from time to time in the Index, and thus the
value of your notes, in unpredictable or unanticipated ways. The high volatility
and cyclical nature of commodity markets may render these investments inappropriate
as the focus of an investment portfolio.
- HIGHER FUTURE PRICES
OF THE COMMODITY FUTURES CONTRACTS CONSTITUTING THE iSHARES® S&P
GSCI COMMODITY-INDEXED TRUST RELATIVE TO THEIR CURRENT PRICES MAY DECREASE
THE AMOUNT PAYABLE AT MATURITY As the exchange-traded futures contracts
that compose the iShares® S&P GSCI Commodity-Indexed Trust
approach expiration, they are replaced by contracts that have a later expiration.
If the market for these contracts is (putting aside other considerations)
in backwardation, where the prices are lower in the distant delivery months
than in the nearer delivery months, the sale of the October contract would
take place at a price that is higher than the price of the November contract,
thereby creating a roll yield. There can be no assurance that backwardation
will exist at times that are advantageous, with respect to your interests
as a holder of the
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-7 |
notes, to the valuation of the iShares®
S&P GSCI Commodity-Indexed Trust. Moreover, certain commodities, such
as gold, have historically traded in contango markets. Contango markets are
those in which the prices of contracts are higher in the distant delivery months
than in the nearer delivery months. The presence of contango in the commodity
markets could result in negative roll yields, which could adversely affect
the price of shares of the iShares® S&P GSCI Commodity-Indexed
Trust and, therefore, the level of the Index and the value of your notes.
- RISKS ASSOCIATED
WITH THE REAL ESTATE INDUSTRY WILL AFFECT THE VALUE OF YOUR NOTES
The iShares® Dow Jones Real Estate Index Fund, one of the
Basket Constituents composing the Index, holds a variety of real estate-related
securities. The following are some of the conditions that might impact the
value of the securities held by the iShares® Dow Jones Real Estate
Index Fund and the value of the iShares® Dow Jones Real Estate
Index Fund, and accordingly, the level of the Index and the value of your
notes:
- a decline in the value of real estate properties;
- increases in property and operating taxes;
- increased competition or overbuilding;
- a lack of available mortgage funds or other
limits on accessing capital;
- tenant bankruptcies and other credit problems;
- changes in zoning laws and governmental regulations;
- changes in interest rates; and
- uninsured damages from floods, earthquakes or
other natural disasters.
- The difficulties described above could cause
an upturn or a downturn in the real estate industry generally or regionally
and could cause the value of the securities held by the iShares®
Dow Jones Real Estate Index Fund and thus the value of the iShares®
Dow Jones Real Estate Index Fund to decline or remain flat during the term
of the notes, which may adversely affect the level of the Index and the value
of your notes.
- AN INVESTMENT
IN THE NOTES IS SUBJECT TO RISKS ASSOCIATED WITH SMALL CAPITALIZATION STOCKS
The equity securities held by the iShares®
Russell 2000 Index Fund and included in the Russell 2000® Index
have been issued by companies with relatively small market capitalization.
The stock prices of smaller companies may be more volatile than stock prices
of large capitalization companies. Small capitalization companies may be
less able to withstand adverse economic, market, trade and competitive conditions
relative to larger companies. Small capitalization companies are less likely
to pay dividends on their stocks, and the presence of a dividend payment could
be a factor that limits downward stock price pressure under adverse market
conditions. The stocks of small capitalization companies may be thinly traded
and thus may be difficult for the iShares® Russell 2000 Index Fund
to buy and sell.
- THE MARKET PRICE OF
GOLD WILL AFFECT THE VALUE OF THE NOTES Because the Index is linked
in part to the performance of the price of gold, we expect that generally
the market value of the notes will depend in part on the market price of gold.
The price of gold is primarily affected by the global demand for and supply
of gold. The market for gold bullion is global, and gold prices are subject
to volatile price movements over short periods of time and are affected by
numerous factors, including macroeconomic factors such as the structure of
and confidence in the global monetary system, expectations regarding the future
rate of inflation, the relative strength of, and confidence in, the U.S. dollar
(the currency in which the price of gold is usually quoted), interest rates,
gold borrowing and lending rates, and global or regional economic, financial,
political, regulatory, judicial or other events. Gold prices may be affected
by industry factors such as industrial and jewelry demand as well as lending,
sales and purchases of gold by the official sector, including central banks
and other governmental agencies and multilateral institutions which hold gold.
Additionally, gold prices may be affected by levels of gold production, production
costs and short-term changes in supply and demand due to trading activities
in the gold market.
- THE BASKET CONSTITUENTS
COMPOSING THE INDEX MAY BE REPLACED BY A SUBSTITUTE ETF OR INDEX Following
the occurrence of certain extraordinary events with respect to a Basket Constituent,
the affected Basket Constituent may be replaced by a substitute ETF or index.
If the index calculation agent determines in its discretion that no suitable
substitute ETF or index is available for an affected Basket Constituent (other
than the Cash Constituent), then the index calculation agent will replace
such Basket Constituent with the Cash Constituent as its substitute. Under
such circumstances, the aggregate weight of the Cash Constituent in the Index
may be greater than the maximum 50% weight limit allocated to the Cash Constituent
because a portion of such aggregate weight would be subject to the separate
maximum weight limit specific to the affected Basket Constituent. The substitution
of a Basket Constituent may affect the performance of the Index, and therefore,
the return on the notes, as the replacement Basket Constituent may perform
significantly better or worse than the affected Basket Constituent.
- LACK OF LIQUIDITY
The notes will not be listed on any securities exchange. JPMS intends to
offer to purchase the notes in the secondary market but is not required to
do so. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the notes easily. Because other dealers are
not likely to make a secondary market for the notes, the price at which you
may be able to trade your notes is likely to depend on the price, if any,
at which JPMS is willing to buy the notes.
- MANY ECONOMIC AND
MARKET FACTORS WILL AFFECT THE VALUE OF THE NOTES In addition to the
Index closing value on any day, the value of the notes will be affected by
a number of economic and market factors that may either offset or magnify
each other, including:
- the actual and expected volatility in the Index
and the Basket Constituents;
- the time to maturity of the notes;
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-8 |
- the dividend rate on the equity securities underlying
some of the Basket Constituents;
- the market price of gold and the market price
of the physical commodities upon which the commodity futures contracts that
compose some of the Basket Constituents are based;
- interest and yield rates in the market generally;
- foreign currency exchange rates;
- economic, financial, political, regulatory,
geographical, agricultural, meteorological and judicial events that affect
the securities, commodities, commodity contracts or other assets, underlying
stock markets or a Basket Constituent or markets generally and which may
affect the closing levels of the Basket Constituents; and
- our creditworthiness, including actual or anticipated
downgrades in our credit ratings.
- STANDARD & POORS
RECENT DOWNGRADE OF THE U.S. GOVERNMENTS CREDIT RATING, AND ANY FUTURE DOWNGRADES
BY CREDIT RATING AGENCIES, MAY ADVERSELY AFFECT THE PERFORMANCE OF THE INDEX
AND THE NOTES On August 6, 2011, Standard & Poors Ratings Services
(Standard & Poors), downgraded the U.S. governments credit rating
from AAA to AA+. Additionally, Standard & Poors and Moodys Investor
Services, Inc. have assigned a negative outlook on the U.S. governments credit
rating, meaning that the agencies may downgrade the U.S. governments credit
rating in the next year or two. The recent downgrade has increased and may
continue to increase volatility in the global equity and credit markets, which
may adversely affect the levels of the Non-Cash Constituents. Future downgrades
by credit ratings agencies may also increase this volatility. These events
may also increase short-term borrowing costs, including the 3-month LIBOR
rate underlying the Cash Constituent, which will adversely affect the level
of the Index. All of the above may adversely affect the performance of the
Index and the notes.
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-9 |
What
Are the Interest Rates for Different Interest Payment Dates, Assuming a Range
of Performances for the Index?
The following tables and examples illustrate
hypothetical Interest Rates for different Interest Payment Dates, based on a
range of Cumulative Index Returns on the various Interest Determination Dates.
The tables and examples assume a hypothetical Initial Index Level of 110 and
a Minimum Interest Rate of 1.00%. The actual Minimum Interest Rate will be
determined on the pricing date and will not be less than 1.00% per annum. Each
example below assumes a set of specific, hypothetical Cumulative Index Returns
and shows how the Index Factor for each of the seven Interest Determination
Dates would affect the determination of the applicable Interest Rate. The hypothetical
Interest Rates set forth below are for illustrative purposes only and may not
be the actual Interest Rates applicable to a purchaser of the notes. You should
consider carefully whether the notes are suitable to your investment goals.
The following results are based solely
on the hypothetical examples cited and assume that a commodity hedging disruption
event has not occurred during the term of the notes. The hypothetical Interest
Payments set forth below are for illustrative purposes only and may not be the
actual Interest Payments applicable to a purchaser of the notes. The numbers
appearing in the following table and examples have been rounded for ease of
analysis.
|
Ending
Index
Level |
Cumulative
Index
Return |
Interest
Rate for each Interest Payment Date |
|
|
|
First |
Second |
Third |
Fourth |
Fifth |
|
198.00 |
80.00% |
80.00% |
40.00% |
26.67% |
20.00% |
16.00% |
187.00 |
70.00% |
70.00% |
35.00% |
23.33% |
17.50% |
14.00% |
176.00 |
60.00% |
60.00% |
30.00% |
20.00% |
15.00% |
12.00% |
165.00 |
50.00% |
50.00% |
25.00% |
16.67% |
12.50% |
10.00% |
154.00 |
40.00% |
40.00% |
20.00% |
13.33% |
10.00% |
8.00% |
143.00 |
30.00% |
30.00% |
15.00% |
10.00% |
7.50% |
6.00% |
132.00 |
20.00% |
20.00% |
10.00% |
6.67% |
5.00% |
4.00% |
126.50 |
15.00% |
15.00% |
7.50% |
5.00% |
3.75% |
3.00% |
121.00 |
10.00% |
10.00% |
5.00% |
3.33% |
2.50% |
2.00% |
115.50 |
5.00% |
5.00% |
2.50% |
1.67% |
1.25% |
1.00% |
110.00 |
0.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
104.50 |
-5.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
99.00 |
-10.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
93.50 |
-15.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
88.00 |
-20.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
77.00 |
-30.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
66.00 |
-40.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
55.00 |
-50.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
44.00 |
-60.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
33.00 |
-70.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
22.00 |
-80.00% |
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
|
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-10 |
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:
|
Interest
Determination
Date |
Ending
Index Level |
Cumulative
Index Return |
Index
Factor |
Cumulative
Index Return ×
Index Factor |
Interest
Rate |
Interest
Payment |
|
First |
112.20 |
2.00% |
1 |
2.00% |
2.00% |
$20.00 |
Second |
114.40 |
4.00% |
1/2 |
2.00% |
2.00% |
$20.00 |
Third |
116.60 |
6.00% |
1/3 |
2.00% |
2.00% |
$20.00 |
Fourth |
118.80 |
8.00% |
1/4 |
2.00% |
2.00% |
$20.00 |
Fifth |
121.00 |
10.00% |
1/5 |
2.00% |
2.00% |
$20.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Payments: |
$100.00
|
Explanation
for Example 1
In example 1, the Index increases by approximately
2% during each year over the term of the notes. Because, on each Interest Determination
Date, the product of the Cumulative Index Return and the Index Factor is equal
to 2%, which is greater than the Minimum Interest Rate, the Interest Rate for
each Determination Date is equal to 2%. Accordingly, the investor receives
the total Interest Payments over the term of the notes equal to $100.00 per
$1,000 principal amount note.
Example 2:
|
Interest
Determination
Date |
Ending
Index Level |
Cumulative
Index Return |
Index
Factor |
Cumulative
Index Return ×
Index Factor |
Interest
Rate |
Interest
Payment |
|
First |
107.80 |
-2.00% |
1 |
-2.00% |
1.00% |
$10.00 |
Second |
105.60 |
-4.00% |
1/2 |
-2.00% |
1.00% |
$10.00 |
Third |
103.40 |
-6.00% |
1/3 |
-2.00% |
1.00% |
$10.00 |
Fourth |
101.20 |
-8.00% |
1/4 |
-2.00% |
1.00% |
$10.00 |
Fifth |
99.00 |
-10.00% |
1/5 |
-2.00% |
1.00% |
$10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Payments: |
$50.00
|
Explanation
for Example 2
In example 2, the Index decreases by approximately
2% during each year over the term of the notes. Because, on each Interest Determination
Date, the product of the Cumulative Index Return and the Index Factor is equal
to -2%, which is less than the Minimum Interest Rate, the Interest Rate for
each Determination Date is equal to the Minimum Interest Payment of 1.00%.
Accordingly, the investor receives the total Interest Payments over the term
of the notes equal to $50.00 per $1,000 principal amount note.
Example 3:
|
Interest
Determination
Date |
Ending
Index Level |
Cumulative
Index Return |
Index
Factor |
Cumulative
Index Return ×
Index Factor |
Interest
Rate |
Interest
Payment |
|
First |
111.10 |
1.00% |
1 |
1.00% |
1.00% |
$10.00 |
Second |
111.65 |
1.50% |
1/2 |
0.75% |
1.00% |
$10.00 |
Third |
116.60 |
6.00% |
1/3 |
2.00% |
2.00% |
$20.00 |
Fourth |
117.70 |
7.00% |
1/4 |
1.75% |
1.75% |
$17.50 |
Fifth |
118.25 |
7.50% |
1/5 |
1.50% |
1.50% |
$15.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Payments: |
$72.50 |
Explanation
for Example 3
In example 3, the Index increases by varying
amounts during each year over the term of the notes. Even though the Index
increases over the term of the notes, due to the application of the Index Factor,
the Interest Payments do not increase at the same rate and, in some cases, the
Interest Payments decrease. The investor receives the total Interest Payments
over the term of the notes equal to $72.50 per $1,000 principal amount note.
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-11 |
Example 4:
|
Interest
Determination
Date |
Ending
Index Level |
Cumulative
Index Return |
Index
Factor |
Cumulative
Index Return ×
Index Factor |
Interest
Rate |
Interest
Payment |
|
First |
114.40 |
4.00% |
1 |
4.00% |
4.00% |
$40.00 |
Second |
118.80 |
8.00% |
1/2 |
4.00% |
4.00% |
$40.00 |
Third |
123.20 |
12.00% |
1/3 |
4.00% |
4.00% |
$40.00 |
Fourth |
117.70 |
7.00% |
1/4 |
1.75% |
1.75% |
$17.50 |
Fifth |
112.20 |
2.00% |
1/5 |
0.40% |
1.00% |
$10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Payments: |
$147.50
|
Explanation
for Example 4
In example 4, the Index increases by approximately
4% during each of the first three years of the term of the notes, then decreases
by approximately 5% during each of the final two years of the term of the notes.
In this example, because the increase in the level of the Index occurs early
in the term of the notes (and the decrease in the level of the Index occurs
late in the term of the notes), the Interest Rate remains above the Minimum
Interest Rate for four of the five Interest Determination Dates, and the investor
receives the total Interest Payments over the term of the notes equal to $147.50
per $1,000 principal amount note.
Example 5:
|
Interest
Determination
Date |
Ending
Index Level |
Cumulative
Index Return |
Index
Factor |
Cumulative
Index Return ×
Index Factor |
Interest
Rate |
Interest
Payment |
|
First |
105.60 |
-4.00% |
1 |
-4.00% |
1.00% |
$10.00 |
Second |
101.20 |
-8.00% |
1/2 |
-4.00% |
1.00% |
$10.00 |
Third |
106.70 |
-3.00% |
1/3 |
-1.00% |
1.00% |
$10.00 |
Fourth |
112.20 |
2.00% |
1/4 |
0.50% |
1.00% |
$10.00 |
Fifth |
117.70 |
7.00% |
1/5 |
1.40% |
1.40% |
$14.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Payments: |
$54.00
|
Explanation
for Example 5
In example 5, the Index decreases by approximately
4% during each of the first two years of the term of the notes, then approximately
increases by approximately 5% during each of the final three years of the term
of the notes. In this example, because the decrease in the level of the Index
occurs early in the term of the notes (and the increase in the level of the
Index occurs late in the term of the notes), the Interest Rate remains below
the Minimum Interest Rate for four of the five Interest Determination Dates,
and the investor receives the total Interest Payments over the term of the notes
equal to $54.00 per $1,000 principal amount note.
Example 6:
|
Interest
Determination
Date |
Ending
Index Level |
Cumulative
Index Return |
Index
Factor |
Cumulative
Index Return ×
Index Factor |
Interest
Rate |
Interest
Payment |
|
First |
121.00 |
10.00% |
1 |
10.00% |
10.00% |
$100.00 |
Second |
132.00 |
20.00% |
1/2 |
10.00% |
10.00% |
$100.00 |
Third |
143.00 |
30.00% |
1/3 |
10.00% |
10.00% |
$100.00 |
Fourth |
154.00 |
40.00% |
1/4 |
10.00% |
10.00% |
$100.00 |
Fifth |
165.00 |
50.00% |
1/5 |
10.00% |
10.00% |
$100.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Payments: |
$500.00
|
Explanation
for Example 6
In example 6, the Index increases by approximately
10% during each year over the term of the notes. Because, on each Interest
Determination Date, the product of the Cumulative Index Return and the Index
Factor is equal to 10%, which is greater than the Minimum Interest Rate, the
Interest Rate for each Determination Date is equal to 10%. Accordingly, the
investor receives the total Interest Payments over the term of the notes equal
to $500.00 per $1,000 principal amount note.
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-12 |
The hypothetical payouts on the notes shown
above do not reflect fees or expenses that would associated with any sale in
the secondary market. If these fees and expenses were included, the hypothetical
payouts shown above would likely be lower.
Hypothetical Back-Tested
Data and Historical Information
The following graph sets forth
the hypothetical back-tested performance of the Index based on the hypothetical
back-tested weekly Index closing levels from January 6, 2006 through October
22, 2010 and the historical performance of the Index based on the Index closing
levels from October 29, 2010 through September 30, 2011. The Index was established
on October 29, 2010. The Index closing level on October 3, 2011 was 108.50.
We obtained the Index closing levels below from Bloomberg Financial Markets.
We make no representation or warranty as to the accuracy or completeness of
the information obtained from Bloomberg Financial Markets.
The hypothetical back-tested
and historical values of the Index should not be taken as an indication of future
performance, and no assurance can be given as to the Index closing levels on
the pricing date or the Observation Date. The data for the hypothetical back-tested
performance of the Index set forth in the following graph were calculated on
materially the same basis on which the performance of the Index is now calculated
but does not represent the actual historical performance of the Index.
![](https://cdn.kscope.io/769c9e710d732eefa93b28d09420a07d-img002.gif)
The hypothetical historical
values above have not been verified by an independent third party. The back-tested,
hypothetical historical results above have inherent limitations. These back-tested
results are achieved by means of a retroactive application of a back-tested
model designed with the benefit of hindsight. No representation is made that
an investment in the notes will or is likely to achieve returns similar to those
shown.
Alternative modeling techniques
or assumptions would produce different hypothetical historical information that
might prove to be more appropriate and that might differ significantly from
the hypothetical historical information set forth above. Hypothetical back-tested
results are neither an indicator nor a guarantee of future returns. Actual
results will vary, perhaps materially, from the analysis implied in the hypothetical
historical information that forms part of the information contained in the chart
above.
|
JPMorgan
Structured Investments
Index
Annual Income Notes Linked to the JPMorgan ETF Efficiente 5 Index |
TS-13 |