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Term sheet
To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011 and
product supplement no. 2-I dated November 14, 2011
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Term Sheet to
Product Supplement No. 2-I
Registration Statement No. 333-177923
Dated April 10, 2013; Rule 433
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Structured
Investments
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$
Capped Dual Directional Knock-Out Buffered Notes Linked to the Dow Jones-UBS Commodity IndexSM due April 28, 2016
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General
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The notes are designed for investors who seek an unleveraged return equal to any appreciation (with a Maximum Return of 30.00%), or an unleveraged return equal to the absolute value of any depreciation (up to the Knock-Out Buffer Percentage of at least 15.00%), of the Dow Jones-UBS Commodity IndexSM, at maturity, and who anticipate that the Index Closing Level will not be less than the Initial Index Level by more than the Knock-Out Buffer Percentage on any day during the Monitoring Period. Investors should be willing to forgo interest and dividend payments, and, if the Index Closing Level is less than the Initial Index Level by more than the Knock-Out Buffer Percentage on any day during the Monitoring Period, be willing to lose some or all of their principal at maturity. Any payment on the notes is subject to the credit risk of JPMorgan Chase & Co
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Unsecured and unsubordinated obligations of JPMorgan Chase & Co. maturing April 28, 2016*
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Minimum denominations of $1,000 and integral multiples thereof
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The notes are expected to price on or about April 24, 2013 and are expected to settle on or about April 29, 2013.
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The notes are not commodity futures contracts and are not regulated under the Commodity Exchange Act of 1936, as amended (the “Commodity Exchange Act”). The notes are offered pursuant to an exemption from regulation under the Commodity Exchange Act, commonly known as the hybrid instrument exemption, that is available to securities that have one or more payments indexed to the value, level or rate of one or more commodities, as set out in section 2(f) of that statute. Accordingly, you are not afforded any protection provided by the Commodity Exchange Act or any regulation promulgated by the Commodity Futures Trading Commission.
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Key Terms
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Index:
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The Dow Jones-UBS Commodity IndexSM (the “Index”) (Bloomberg ticker: “DJUBS”)
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Knock-Out Event:
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A Knock-Out Event occurs if, on any day during the Monitoring Period, the level of the Index is less than the Initial Index Level by more than the Knock-Out Buffer Percentage.
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Knock-Out Buffer Percentage:
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At least 15.00% The actual Knock-Out Buffer Percentage will be set on the pricing date and will not be less than 15.00%.
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Payment at Maturity:
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If the Ending Index Level is greater than the Initial Index Level, you will receive at maturity a cash payment that provides you with a return per $1,000 principal amount note equal to the Index Return, subject to the Maximum Return. Accordingly, if the Index Return is positive, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Index Return), subject to the Maximum Return
If the Ending Index Level is equal to the Initial Index Level, you will receive at maturity a cash payment of $1,000 per $1,000 principal amount note.
If the Ending Index Level is less than the Initial Index Level and a Knock-Out Event has not occurred, you will receive at maturity a cash payment that provides you with a return per $1,000 principal amount note equal to the Absolute Index Return, and your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Absolute Index Return)
Because a Knock-Out Event will occur if the Ending Index Level is less than the Initial Index Level by more than the Knock-Out Buffer Percentage of at least 15.00%, your maximum payment at maturity if the Index Return is negative is at least $1,150 per $1,000 principal amount note.
If the Ending Index Level is less than the Initial Index Level and a Knock-Out Event has occurred, you will lose 1% of the principal amount of your notes for every 1% that the Ending Index Level is less than the Initial Index Level. Under these circumstances, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Index Return)
If a Knock-Out Event has occurred and the Ending Index Level is less than the Initial Index Level, you will lose some or all of your initial investment at maturity.
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Maximum Return:
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30.00%. Accordingly, the maximum payment at maturity if the Index Return is positive is $1,300 per $1,000 principal amount note.
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Monitoring Period:
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The period from but excluding the pricing date to and including the Observation Date
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Index Return:
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Ending Index Level – Initial Index Level
Initial Index Level
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Absolute Index Return:
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The absolute value of the Index Return. For example, if the Index Return is -5%, the Absolute Index Return will equal 5%.
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Initial Index Level:
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The Index Closing Level on the pricing date
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Ending Index Level:
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The Index Closing Level on the Observation Date
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Observation Date*:
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April 25, 2016
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Maturity Date*:
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April 28, 2016
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CUSIP:
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48126DQ69
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*
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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 Determination Date — Single Component Notes Linked to a Single Index” in the accompanying product supplement no. 2-I or early acceleration in the event of a commodity hedging disruption event as described under “General Terms of Notes — Consequences of a Commodity Hedging Disruption Event — Early Acceleration of Payment on the Notes” in the accompanying product supplement no. 2-I and in “Selected Risk Considerations — We May Accelerate Your Notes If a Commodity Hedging Disruption Event Occurs” in this term sheet
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Investing in the Capped Dual Directional Knock-Out Buffered Notes involves a number of risks. See “Risk Factors” beginning on page PS-16 of the accompanying product supplement no. 2-I and “Selected Risk Considerations” beginning on page TS-2 of this term sheet.
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or the adequacy of this term sheet or the accompanying product supplement, prospectus supplement and prospectus. Any representation to the contrary is a criminal offense.
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Price to Public (1)
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Fees and Commissions (2)
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Proceeds to Us
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Per note
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$
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$
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$
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Total
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$
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$
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$
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(1)
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The price to the public includes the estimated cost of hedging our obligations under the notes through one or more of our affiliates.
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(2)
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If the notes priced today and assuming a Knock-Out Buffer Amount of 15.00%, J.P. Morgan Securities LLC, which we refer to as JPMS, acting as agent for JPMorgan Chase & Co., would receive a commission of approximately $10.00 per $1,000 principal amount note. This commission includes the projected profits that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes. The actual commission received by JPMS may be more or less than $10.00 and will depend on market conditions on the pricing date. In no event will the commission received by JPMS exceed $20.00 per $1,000 principal amount note. See “Plan of Distribution (Conflicts of Interest)” beginning on page PS-89 of the accompanying product supplement no. 2-I.
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The notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
April 10, 2013
Additional Terms Specific to the Notes
JPMorgan Chase & Co. has filed a registration statement (including a prospectus) with the 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. 2-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 14, 2011, as supplemented by the prospectus supplement dated November 14, 2011 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. 2-I dated November 14, 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. 2-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):
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Product supplement no. 2-I dated November 14, 2011:
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Prospectus supplement dated November 14, 2011:
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Prospectus dated November 14, 2011:
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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.
Supplemental Terms of the Notes
For purposes of the notes offered by this term sheet:
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(1)
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the Observation Date is subject to postponement as described under “Description of Notes — Postponement of a Determination Date — C. Notes linked to a single Index” in the accompanying product supplement no. 2-I; and
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(2)
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the consequences of a commodity hedging disruption event are described under “General Terms of Notes — Consequences of a Commodity Hedging Disruption Event — C. Early Acceleration of Payment on the Notes” in the accompanying product supplement no. 2-I.
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JPMorgan Structured Investments —
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TS-1
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Capped Dual Directional Knock-Out Buffered Notes Linked to the Dow Jones-UBS Commodity IndexSM
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Selected Purchase Considerations
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CAPPED, UNLEVERAGED APPRECIATION POTENTIAL IF THE INDEX RETURN IS POSITIVE — The notes provide the opportunity to earn an unleveraged return equal to any appreciation in the Index, up to the Maximum Return of 30.00%. Accordingly, the maximum payment at maturity if the Index Return is positive is $1,300.00 per $1,000 principal amount note. Because the notes are our unsecured and unsubordinated obligations, payment of any amount on the notes is subject to our ability to pay our obligations as they become due.
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POTENTIAL FOR UP TO A RETURN OF AT LEAST 15.00% ON THE NOTES EVEN IF THE INDEX RETURN IS NEGATIVE — If the Ending Index Level is less than the Initial Index Level and a Knock-Out Event has not occurred, you will earn a positive, unleveraged return on the notes equal to the Absolute Index Return. Because the Absolute Index Return is based on the absolute value of the change from the Initial Index Level to the Ending Index Level, if the Absolute Index Return is less than or equal to the Knock-Out Buffer Percentage, you will earn a positive return on the notes even if the Ending Index Level is less than the Initial Index Level. For example, if the Index Return is -5%, the Absolute Index Return will equal 5%. Because a Knock-Out Event will occur if the Ending Index Level is less than the Initial Index Level by more than the Knock-Out Buffer Percentage of at least 15.00%, your maximum payment at maturity if the Index Return is negative is at least $1,150 per $1,000 principal amount note. The Knock-Out Buffer Percentage will be set on the pricing date and will not be less than 15.00%, and accordingly, the maximum payment at maturity if the Index Return is negative will not be less than $1,150 per $1,000 principal amount note.
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RETURN LINKED TO THE DOW JONES-UBS COMMODITY INDEXSM — The return on the notes is linked to the Dow Jones-UBS Commodity IndexSM, which is calculated, maintained and published daily by UBS Securities LLC and CME Group Index Services LLC. The Dow Jones-UBS Commodity IndexSM is composed of exchange-traded futures contracts on physical commodities and is designed to be a highly liquid and diversified benchmark for commodities as an asset class. Its component weightings are determined primarily based on liquidity data, which is the relative amount of trading activity of a particular commodity. See “The Dow Jones-UBS Commodity Indices” in the accompanying product supplement no. 2-I.
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CAPITAL GAINS TAX TREATMENT — You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 2-I. The following discussion, when read in combination with that section, constitutes the full opinion of our special tax counsel, Davis Polk & Wardwell LLP, regarding the material U.S. federal income tax consequences of owning and disposing of notes.
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Based on current market conditions, in the opinion of our special tax counsel it is reasonable to treat the notes as “open transactions” that are not debt instruments for U.S. federal income tax purposes. Assuming this treatment is respected, the gain or loss on your notes should be treated as long-term capital gain or loss if you hold your notes for more than a year, whether or not you are an initial purchaser of notes at the issue price. However, the Internal Revenue Service (the “IRS”) or a court may not respect this treatment of the notes, in which case the timing and character of any income or loss on the notes could be materially 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. The notice focuses in particular on whether to require investors in these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; the relevance of factors such as the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors 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 a notional 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. You should consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the notes, including possible alternative treatments and the issues presented by this notice.
An investment in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in the Index or in any futures contracts or exchange-traded or over-the-counter instruments based on, or other instruments linked to, the Index. These risks are explained in more detail in the “Risk Factors” section of the accompanying product supplement no. 2-I dated November 14, 2011.
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal. The return on the notes at maturity is linked to the performance of the Index and will depend on whether a Knock-Out Event has occurred and whether, and the extent to which, the Index Return is positive or negative. If the Index Closing Level is less than the Initial Index Level by more than the Knock-Out Buffer Percentage on any day during the Monitoring Period, a Knock-Out Event has occurred, and the benefit provided by the Knock-Out Buffer Percentage will terminate. Under these circumstances, if the Ending Index Level is less than the Initial Index Level, you will lose 1% of the principal amount of your notes for every 1% that the Ending Index Level is less that the Initial Index Level. Accordingly, you could lose some or all of your initial investment at maturity.
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JPMorgan Structured Investments —
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TS-2
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Capped Dual Directional Knock-Out Buffered Notes Linked to the Dow Jones-UBS Commodity IndexSM
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YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED BY THE MAXIMUM RETURN AND THE KNOCK-OUT BUFFER PERCENTAGE — If the Ending Index Level is greater than the Initial Index Level, for each $1,000 principal amount note, you will receive at maturity $1,000 plus an additional return that will not exceed the Maximum Return of 30.00%, regardless of the appreciation in the Index, which may be significant. Accordingly, the maximum payment at maturity if the Index Return is positive is $1,300 per $1,000 principal amount note. In addition, if the Ending Index Level is less than the Initial Index Level and a Knock-Out Event has not occurred, you will receive at maturity $1,000 plus an additional return equal to the Absolute Index Return, up to the Knock-Out Buffer Percentage. Because a Knock-Out Event will occur if the Ending Index Level is less than the Initial Index Level by more than the Knock-Out Buffer Percentage of at least 15.00%, your maximum payment at maturity if the Index Return is negative is at least $1,150 per $1,000 principal amount note. The Knock-Out Buffer Percentage will be set on the pricing date and will not be less than 15.00%, and accordingly, the maximum payment at maturity if the Index Return is negative will not be less than $1,150 per $1,000 principal amount note.
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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, and therefore investors are subject to our credit risk and to changes in the market’s 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 adversely affect the value of the notes. If we were to default on our payment obligations, you may not receive any amounts owed to you under the notes and you could lose your entire investment.
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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 and hedging our obligations under the notes. In performing these duties, our economic interests and the economic interests of the Note Calculation Agent and other affiliates of ours are potentially adverse to your interests as an investor in the notes. In addition, our business activities, including hedging and trading activities, could cause our economic interests to be adverse to yours and could adversely affect any payment on the notes and the value of the notes. It is possible that hedging or trading activities of ours or our affiliates could result in substantial returns for us or our affiliates while the value of the notes declines. Please refer to “Risk Factors” in the accompanying product supplement no. 2-I for additional information about these risks.
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THE BENEFIT PROVIDED BY THE KNOCK-OUT BUFFER PERCENTAGE MAY TERMINATE ON ANY DAY DURING THE MONITORING PERIOD — If the Index Closing Level on any day during the Monitoring Period is less than the Initial Index Level by more than the Knock-Out Buffer Percentage, you will at maturity be fully exposed to any depreciation in the Index. We refer to this feature as a contingent buffer. Under these circumstances, if the Ending Index Level is less than the Initial Index Level, you will lose 1% of the principal amount of your investment for every 1% that the Ending Index Level is less than the Initial Index Level. You will be subject to this potential loss of principal even if the Index subsequently increases such that the Ending Index Level is less than the Initial Index Level by not more than the Knock-Out Buffer Percentage. If these notes had a non-contingent buffer feature, under the same scenario, you would have received the full principal amount of your notes plus a return equal to the Index Return if the Ending Index Level is less than the Initial Index Level by up to the Knock-Out Buffer or a return equal to the Index Return (which will be negative) plus the Knock-Out Buffer Percentage at maturity. As a result, your investment in the notes may not perform as well as an investment in a security with a return that includes a non-contingent buffer.
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RISK OF A KNOCK-OUT EVENT OCCURRING IS GREATER IF THE INDEX IS VOLATILE — The likelihood that the Index Closing Price is less than the Initial Index Level by more than the Knock-Out Buffer Percentage on any day during the Monitoring Period, thereby triggering a Knock-Out Event, will depend in large part on the volatility of the Index — the frequency and magnitude of changes in the Index Closing Level.
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CERTAIN BUILT-IN COSTS ARE LIKELY TO AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR TO MATURITY — While any payment on the notes described in this term sheet is based on the full principal amount of your notes, the original issue price of the notes includes the agent’s 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.
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This secondary market price will also be affected by a number of factors aside from the agent’s commission and hedging costs, including those set forth under “Many Economic and Market Factors Will Impact the Value of the Notes” below. The notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your notes to maturity.
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PRICES OF COMMODITY FUTURES CONTRACTS ARE CHARACTERIZED BY HIGH AND UNPREDICTABLE VOLATILITY, WHICH COULD LEAD TO HIGH AND UNPREDICTABLE VOLATILITY IN THE INDEX — Market prices of the commodity futures contracts included in the Index tend to be highly volatile and may fluctuate rapidly based on numerous factors, including the factors that affect the price of the commodities underlying the commodity futures contracts included in the Index. See “The Market Prices of the Commodities Underlying the Futures Contracts Included in the Index Will Affect the Value of the Notes” below. The prices of commodity futures contracts are subject to variables that may be less significant to the values of traditional securities, such as stocks and bonds. These variables may create additional investment risks that cause the value of the notes to be more volatile than the values of traditional securities. As a general matter, the risk of low liquidity or volatile pricing around the maturity date of a commodity futures contract is greater than in the case of other futures contracts because (among other factors) a number of market participants take physical delivery of the underlying commodities. Many
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JPMorgan Structured Investments —
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TS-3
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Capped Dual Directional Knock-Out Buffered Notes Linked to the Dow Jones-UBS Commodity IndexSM
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commodities are also highly cyclical. The high volatility and cyclical nature of commodity markets may render such an investment inappropriate as the focus of an investment portfolio.
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WE MAY ACCELERATE YOUR NOTES 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 may, in our sole and absolute discretion, accelerate the payment on your notes and pay you an amount determined in good faith and in a commercially reasonable manner by the Note Calculation Agent. If the payment on your notes is accelerated, your investment may result in a loss and you may not be able to reinvest your money in a comparable investment. Please see “General Terms of Notes — Consequences of a Commodity Hedging Disruption Event — Early Acceleration of Payment on the Notes” in the accompanying product supplement no. 2-I for more information.
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COMMODITY FUTURES CONTRACTS ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES — The commodity futures contracts that underlie the Index 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. Any future regulatory changes, including but not limited to changes resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was enacted on July 21, 2010, may have a substantial adverse effect on the value of your notes. Additionally, in accordance with the Dodd-Frank Act, the U.S. Commodity Futures Trading Commission has adopted regulations that establish position limits for certain commodity-based futures contracts, such as futures contracts on certain energy, agricultural and metals based commodities. These regulations may reduce liquidity in the exchange-traded market for those commodity-based futures contracts. Furthermore, we or our affiliates may be unable as a result of those restrictions to effect transactions necessary to hedge our obligations under the notes, in which case we may, in our sole and absolute discretion, accelerate the payment on your notes. See “We May Accelerate Your Notes If a Commodity Hedging Disruption Event Occurs” above.
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THE MARKET PRICES OF THE COMMODITIES UNDERLYING THE FUTURES CONTRACTS INCLUDED IN THE INDEX WILL AFFECT THE VALUE OF THE NOTES — The prices of the commodities upon which the futures contracts that compose the Index are based are affected by numerous factors, including: changes in supply and demand relationships, governmental programs and policies, national and international monetary, trade, political and economic events, wars and acts of terror, changes in interest and exchange rates, speculation and trading activities in commodities and related contracts, general weather conditions, and agricultural, trade, fiscal and exchange control policies. Many commodities are also highly cyclical. These factors, some of which are specific to the market for each such commodity, may cause the value of the different commodities upon which the futures contracts that compose the Index are based, as well as the futures contracts themselves, to move in inconsistent directions at inconsistent rates. This, in turn, will affect the value of the notes linked to the Index. It is not possible to predict the aggregate effect of all or any combination of these factors.
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A DECISION BY AN EXCHANGE ON WHICH THE FUTURES CONTRACTS UNDERLYING THE INDEX ARE TRADED TO INCREASE MARGIN REQUIREMENTS MAY AFFECT THE LEVEL OF THE INDEX — If an exchange on which the futures contract underlying the Index are traded increases the amount of collateral required to be posted to hold positions in those futures contracts (i.e., the margin requirements), market participants who are unwilling or unable to post additional collateral may liquidate their positions, which may cause the level of the Index to decline significantly.
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THE NOTES DO NOT OFFER DIRECT EXPOSURE TO COMMODITY SPOT PRICES — The notes are linked to the Index, which tracks commodity futures contracts, not physical commodities (or their spot prices). The price of a futures contract reflects the expected value of the commodity upon delivery in the future, whereas the spot price of a commodity reflects the immediate delivery value of the commodity. A variety of factors can lead to a disparity between the expected future price of a commodity and the spot price at a given point in time, such as the cost of storing the commodity for the term of the futures contract, interest charges incurred to finance the purchase of the commodity and expectations concerning supply and demand for the commodity. The price movements of a futures contract are typically correlated with the movements of the spot price of the referenced commodity, but the correlation is generally imperfect and price movements in the spot market may not be reflected in the futures market (and vice versa). Accordingly, the notes may underperform a similar investment that is linked to commodity spot prices.
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OWNING THE NOTES IS NOT THE SAME AS OWNING ANY COMMODITIES OR COMMODITY FUTURES CONTRACTS — The return on your notes will not reflect the return you would realize if you actually purchased the futures contracts composing the Index, the commodities upon which the futures contracts that compose the Index are based, or other exchange-traded or over-the-counter instruments based on the Index. You will not have any rights that holders of those assets or instruments have.
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HIGHER FUTURES PRICES OF THE COMMODITY FUTURES CONTRACTS UNDERLYING THE INDEX RELATIVE TO THE CURRENT PRICES OF THOSE CONTRACTS MAY AFFECT THE LEVEL OF THE INDEX AND THE VALUE OF THE NOTES — The Index is composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally specify a certain date for delivery of the underlying physical commodity. As the exchange-traded futures contracts that compose the Index approach expiration, they are replaced by contracts that have a later expiration. Thus, for example, a contract purchased and held in August may specify an October expiration. As time passes, the contract expiring in October is replaced with a contract for delivery in November. This process is referred to as “rolling.” If the market for these contracts is (putting aside other considerations) in “contango,” where the prices are higher in the distant delivery months than in the nearer delivery months, the purchase of the November contract would take
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JPMorgan Structured Investments —
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TS-4
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Capped Dual Directional Knock-Out Buffered Notes Linked to the Dow Jones-UBS Commodity IndexSM
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place at a price that is higher than the price of the October contract, thereby creating a negative “roll yield.” Contango could adversely affect the level of the Index and thus the value of notes linked to the Index. The futures contracts underlying the Index have historically been in contango.
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SUSPENSION OR DISRUPTIONS OF MARKET TRADING IN THE COMMODITY MARKETS AND RELATED FUTURES MARKETS MAY ADVERSELY AFFECT THE LEVEL OF THE INDEX, AND THEREFORE THE LEVEL OF THE NOTES — The commodity markets are subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity in the markets, the participation of speculators and government regulation and intervention. In addition, U.S. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices that may occur during a single day. These limits are generally referred to as “daily price fluctuation limits” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “limit price.” Once the limit price has been reached in a particular contract, no trades may be made at a different price. Limit prices have the effect of precluding trading in a particular contract or forcing the liquidation of contracts at disadvantageous times or prices. These circumstances could adversely affect the level of the Index and, therefore, the value of your notes.
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THE NOTES ARE LINKED TO AN EXCESS RETURN INDEX AND NOT A TOTAL RETURN INDEX — The notes are linked to an excess return index and not a total return index. An excess return index, such as the Index, reflects the returns that are potentially available through an unleveraged investment in the contracts composing that index. By contrast, a “total return” index, in addition to reflecting those returns, also reflects interest that could be earned on funds committed to the trading of the underlying futures contracts.
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NO INTEREST PAYMENTS — As a holder of the notes, you will not receive any interest payments.
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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.
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MANY ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE NOTES — In addition to the level of the Index on any day, the value of the notes will be impacted by a number of economic and market factors that may either offset or magnify each other, including:
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the actual and expected volatility of the Index and the underlying futures contracts;
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the time to maturity of the notes;
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whether a Knock-Out Event has occurred or is expected to occur;
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the market price of the physical commodities upon which the futures contracts underlying the Index are based;
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interest and yield rates in the market generally;
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a variety of economic, financial, political, regulatory, geographical, agricultural, meteorological and judicial events; and
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JPMorgan Structured Investments —
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TS-5
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Capped Dual Directional Knock-Out Buffered Notes Linked to the Dow Jones-UBS Commodity IndexSM
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What Is the Total Return on the Notes at Maturity, Assuming a Range of Performances for the Index?
The following table and examples illustrate the hypothetical total return or hypothetical payment at maturity on the notes. The “total return” as used in this term sheet is the number, expressed as a percentage, that results from comparing the payment at maturity per $1,000 principal amount note to $1,000. Each hypothetical total return and hypothetical payment at maturity set forth below assumes an Initial Index Level of 135 and a Knock-Out Buffer Percentage of 15.00% and reflects the Maximum Return of 30.00%. Each hypothetical total return or hypothetical payment at maturity set forth below is for illustrative purposes only and may not be the actual total return or payment at maturity applicable to a purchaser of the notes. The numbers appearing in the following table and examples have been rounded for ease of analysis.
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Total Return
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Ending Index Level
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Index Return
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Absolute
Index Return
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Knock-Out Event Has Not Occurred(1)
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Knock-Out Event Has Occurred(2)
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243.0000
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80.00%
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80.00%
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30.00%
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30.00%
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222.7500
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65.00%
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65.00%
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30.00%
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30.00%
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202.5000
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50.00%
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50.00%
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30.00%
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30.00%
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189.0000
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40.00%
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40.00%
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30.00%
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30.00%
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175.5000
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30.00%
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30.00%
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30.00%
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30.00%
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168.7500
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25.00%
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25.00%
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25.00%
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25.00%
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162.0000
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20.00%
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20.00%
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20.00%
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20.00%
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155.2500
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15.00%
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15.00%
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15.00%
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15.00%
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148.5000
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10.00%
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10.00%
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10.00%
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10.00%
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141.7500
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5.00%
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5.00%
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5.00%
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5.00%
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138.3750
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2.50%
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2.50%
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2.50%
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2.50%
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136.3500
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1.00%
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1.00%
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1.00%
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1.00%
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135.0000
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0.00%
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0.00%
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0.00%
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0.00%
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133.6500
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-1.00%
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1.00%
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1.00%
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-1.00%
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128.2500
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-5.00%
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5.00%
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5.00%
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-5.00%
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121.5000
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-10.00%
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10.00%
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10.00%
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-10.00%
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114.7500
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-15.00%
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15.00%
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15.00%
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-15.00%
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114.7365
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-15.01%
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15.01%
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N/A
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-15.01%
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108.0000
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-20.00%
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20.00%
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N/A
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-20.00%
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94.5000
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-30.00%
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30.00%
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N/A
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-30.00%
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81.0000
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-40.00%
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40.00%
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N/A
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-40.00%
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67.5000
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-50.00%
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50.00%
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N/A
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-50.00%
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54.0000
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-60.00%
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60.00%
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N/A
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-60.00%
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40.5000
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-70.00%
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70.00%
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N/A
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-70.00%
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27.0000
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-80.00%
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80.00%
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N/A
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-80.00%
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13.5000
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-90.00%
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90.00%
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N/A
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-90.00%
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0.0000
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-100.00%
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100.00%
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N/A
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-100.00%
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(1) The Index Closing Level is greater than or equal to 114.75 (85.00% of the hypothetical Initial Index Level) on each day during the Monitoring Period.
(2) The Index Closing Level is less than 114.75 (85.00% of the hypothetical Initial Index Level) on at least one day during the Monitoring Period.
Hypothetical Examples of Amounts Payable at Maturity
The following examples illustrate how the payment at maturity in different hypothetical scenarios is calculated.
Example 1: The level of the Index increases from the Initial Index Level of 135 to an Ending Index Level of 141.75. Because the Ending Index Level of 141.75 is greater than the Initial Index Level of 135 and the Index Return of 5% does not exceed the Maximum Return of 30.00%, regardless of whether a Knock-Out Event has occurred, the investor receives a payment at maturity of $1,050 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × 5%) = $1,050
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JPMorgan Structured Investments —
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TS-6
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Capped Dual Directional Knock-Out Buffered Notes Linked to the Dow Jones-UBS Commodity IndexSM
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Example 2: A Knock-Out Event has not occurred, and the level of the Index decreases from the Initial Index Level of 135 to an Ending Index Level of 128.25. Although the Index Return is negative, because a Knock-Out Event has not occurred and the Absolute Index Return is 5%, the investor receives a payment at maturity of $1,050 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × 5%) = $1,050
Example 3: A Knock-Out Event has occurred, and the level of the Index decreases from the Initial Index Level of 135 to an Ending Index Level of 121.50. Because a Knock-Out Event has occurred and the Index Return is -10%, the investor receives a payment at maturity of $900 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × -10%) = $900
Example 4: The level of the Index increases from the Initial Index Level of 135 to an Ending Index Level of 189. Because the Ending Index Level of 189 is greater than the Initial Index Level of 135 and the Index Return of 40% exceeds the Maximum Return of 30.00%, regardless of whether a Knock-Out Event has occurred, the investor receives a payment at maturity of $1,300 per $1,000 principal amount note, the maximum payment at maturity if the Index Return is positive.
Example 5: A Knock-Out Event has not occurred, and the level of the Index decreases from the Initial Index Level of 135 to an Ending Index Level of 114.75. Although the Index Return is negative, because a Knock-Out Event has not occurred and the Absolute Index Return is 15.00%, the investor receives a payment at maturity of $1,150 per $1,000 principal amount note, the maximum payment at maturity if the Index Return is negative, calculated as follows:
$1,000 + ($1,000 × 15%) = $1,150
The hypothetical returns and hypothetical payments on the notes shown above do not reflect fees or expenses that would be associated with any sale in the secondary market. If these fees and expenses were included, the hypothetical returns and hypothetical payments shown above would likely be lower.
Historical Information
The following graph sets forth the historical performance of the Index based on the weekly historical Index Closing Levels from January 4, 2008 through April 5, 2013. The Index Closing Level on April 9, 2013 was 135.2981. We obtained the Index Closing Levels below from Bloomberg Financial Markets, without independent verification. The historical Index Closing Levels should not be taken as an indication of future performance, and no assurance can be given as to the Index Closing Level on the pricing date or on the Observation Date. We cannot give you assurance that the performance of the Index will result in the return of any of your initial investment.
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JPMorgan Structured Investments —
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TS-7
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Capped Dual Directional Knock-Out Buffered Notes Linked to the Dow Jones-UBS Commodity IndexSM
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