Term sheet
To prospectus
dated November
21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 206-A-I dated March 4, 2011
|
Term Sheet to
Product Supplement No.
206-A-I
Registration Statement No.
333-155535
Dated May 6, 2011; Rule 433
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Structured
Investments
|
|
$
Autocallable Buffered Return
Enhanced Notes Linked an Equally Weighted Basket Consisting of Brent Crude Oil Futures
Contracts, Grade A Copper and Corn Futures Contracts due May 24, 2012 |
General
- The notes are
designed for investors who seek a return of at least 1.5 times the appreciation
of a basket of one commodity and futures contracts on two commodities (each a
Commodity Futures Contract and together, the Commodity Futures Contracts)
up to a maximum total return on the notes of at least 30.00% at maturity, or early
exit prior to maturity at a premium if, on the Review Date, the Basket Closing
Level is at or above the Call Level. If the notes are not automatically
called, investors will lose some or all of their principal if the Ending Basket
Level is less than the Starting Basket Level by more than 10%. Investors
in the notes should be willing to accept this risk of loss and be willing to
forgo interest payments, in exchange for the opportunity to receive a premium
payment if the notes are automatically called or a capped, leveraged upside
payment if the notes are not automatically called. Any payment on the notes
is subject to the credit risk of JPMorgan Chase & Co.
- The Review
Date, and therefore the date on which an automatic call may be initiated, is November 14, 2011.
- Senior
unsecured obligations of JPMorgan Chase & Co. maturing May 24, 2012
- Minimum
denominations of $20,000 and integral multiples of $1,000 in excess thereof
- The notes are
expected to price on or about May 13,
2011 and are expected to settle on or
about May 18, 2011.
Key Terms
Basket:
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The Basket will be composed of three
equally weighted components (each a Component and together the Components).
The Components and their weights in the Basket are as follows:
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Components
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Component
Weighting
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Contract
Price/Commodity
Price on the Pricing Date
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Brent
Crude oil futures contracts (Brent Crude Futures, Bloomberg symbols CO1
and CO2)
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1/3
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|
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Grade
A Copper (Copper, Bloomberg symbol LOCADY)
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1/3
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Corn
futures contracts (Corn Futures, Bloomberg symbols C 1 and C 2)
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1/3
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Upside Leverage Factor:
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At least 1.5. The Upside Leverage
Factor will be set on the pricing date and will not be less than 1.5.
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Automatic Call:
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If the Basket Closing Level on the
Review Date is greater than or equal to the Call Level, the notes will be
automatically called for a cash payment as described below.
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Call Level:
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100% of the Starting Basket Level
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Payment if Called:
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For every $1,000 principal amount note, you will
receive one payment of $1,000 plus a call premium amount of at least $57.50*
(equal to the call premium of at least 5.75%* × $1,000) if called
on the Review Date
*The actual call premium amount and call premium
will be determined on the pricing date but will not be less than $57.50 and 5.75%,
respectively.
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Payment at Maturity:
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If the notes have not been
automatically called and the Ending Basket Level is greater than the Starting
Basket Level, you will receive at maturity a cash payment that provides you
with a return per $1,000 principal amount note equal to the Basket Return
multiplied by the Upside Leverage Factor, subject to a Maximum Total Return
on the notes of at least 30.00%**. For example, assuming the Maximum Total
Return is 30.00%** and the Upside Leverage Factor is 1.5, if the Basket
Return is equal to or greater than 20%, you will receive the Maximum Total
Return on the notes of 30.00%**, which entitles you to a maximum payment at
maturity of $1,300** for every $1,000 principal amount note that you hold.
Accordingly, if the Basket Return is positive, your payment at maturity per
$1,000 principal amount note will be calculated as follows, subject to the
Maximum Total Return:
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$1,000 +($1,000 × Basket Return × Upside Leverage Factor)
** The
actual Maximum Total Return on the notes and the actual maximum payment at
maturity will be set on the pricing date and will not be less than 30.00% and
$1,300 per $1,000 principal amount note, respectively.
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If the
Ending Basket Level is equal to or less than the Starting Basket Level by up
to 10%, you will receive the principal amount of your notes at maturity.
If the
Ending Basket Level is less than the Starting Basket Level by more than 10%,
you will lose 1.1111% of the principal amount of your notes for every 1% that
the Ending Basket Level is less than the Starting Basket Level by more than
10%. Under these circumstances, your payment at maturity per $1,000
principal amount note will be calculated as follows:
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$1,000 + [$1,000 x (Basket Return + 10%) x 1.1111]
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If
the notes have not been automatically called, you will lose some or all of
your initial investment at maturity if the Ending Basket Level is less than
the Starting Basket Level by more than 10%.
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Buffer:
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10.00%
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Downside Leverage Factor:
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1.1111
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Basket Return:
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The performance of
the Basket from the Starting Basket Level to the Ending Basket Level
calculated as follows:
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Ending
Basket Level Starting Basket Level
Starting
Basket Level
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Starting Basket Level:
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Set equal to 100 on the pricing date
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Ending Basket Level:
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The Basket
Closing Level on the Observation Date
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Basket Closing Level:
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On any
trading day, the Basket Closing Level will be calculated as follows:
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100 × [1 + (Brent Crude Futures Return × 1/3) + (Copper
Return × 1/3) + (Corn Futures Return × 1/3)]
The Component
Return of each Component refers to its Contract Return (if it is a Commodity
Futures Contract) or Commodity Price (if it is Copper). See Additional Key
Terms in this term sheet for more information.
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Review Date:
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November 14, 2011
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Call Settlement Date:
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The third business day
after the Review Date specified above
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Observation Date:
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May 21, 2012
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Maturity Date:
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May 24, 2012
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CUSIP:
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48125XQE9
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Other Key Terms:
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See Additional Key Terms on page TS-1
of this term sheet
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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 E. Notes linked to a Basket of Components in the
accompanying product supplement no. 206-A-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 C.
Early Acceleration of Payment on the Notes in the accompanying product
supplement no. 206-A-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 Autocallable
Buffered Return Enhanced Notes involves a number of risks. See Risk Factors
beginning on page PS-16 of the accompanying product supplement no. 206-A-I and
Selected Risk Considerations beginning on page TS-4 of this term sheet.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
the notes or passed upon the accuracy or the adequacy of this term sheet or the
accompanying prospectus supplement and prospectus. Any representation to the
contrary is a criminal offense.
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Price to Public (1)
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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 cost of hedging
our obligations under the notes through one or more of our affiliates, which
includes our affiliates' expected cost of providing such hedge as well as the
profit our affiliates expect to realize in consideration for assuming the risks
inherent in providing such hedge. For additional related information, please
see Use of Proceeds beginning on page PS-40 of the accompanying product
supplement no. 206-A-I.
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(2) |
Please see Supplemental Plan of Distribution in
this term sheet for information about fees and commissions. |
The notes are not bank deposits and
are not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other governmental agency, nor are they obligations of, or guaranteed by, a
bank.
May 6, 2011
Additional Terms
Specific to the Notes
JPMorgan Chase & Co. has filed a registration
statement (including a prospectus) with the Securities and Exchange Commission,
or SEC, for the offering to which this term sheet relates.
Before you invest, you should read the prospectus in that registration
statement and the other documents relating to this offering that JPMorgan Chase
& Co. has filed with the SEC for more complete information about JPMorgan Chase
& Co. and this offering. You may get these documents without cost by
visiting EDGAR on the SEC website at www.sec.gov. Alternatively, JPMorgan
Chase & Co., any agent or any dealer participating in this offering will
arrange to send you the prospectus, the prospectus supplement, product
supplement no. 206-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. 206-A-I dated
March 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. 206-A-I, as the notes involve risks not associated with
conventional debt securities. We urge you to consult your investment, legal,
tax, accounting and other advisers before you invest in the notes.
You may access these documents on the SEC website
at www.sec.gov as follows (or if such address
has changed, by reviewing our filings for the relevant date on the SEC website):
Our Central Index Key, or CIK, on the SEC website
is 19617. As used in this term sheet, the Company, we, us and our
refer to JPMorgan Chase & Co.
Additional Key Terms
Contract
Return:
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With respect to each Commodity Futures Contract:
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|
Ending
Contract Price Initial Contract Price
Initial Contract Price
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Initial
Contract Price:
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With respect to each Commodity Futures Contract,
the Contract Price on the pricing date.
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Ending
Contract Price:
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With respect to each Commodity Futures Contract,
the Contract Price on the Observation Date.
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Contract
Price:
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With respect to a Commodity Futures Contract on any
trading day:
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(a) if the Commodity Futures Contract is Brent
Crude Futures, the official settlement price on ICE Futures Europe of the first
nearby month futures contract for Brent crude oil, stated in U.S. dollars, as
made public by ICE Futures Europe (Bloomberg Ticker: CO1 <Comdty>), provided
that if such date falls on the last trading day of such futures contract (all
pursuant to the rules of ICE Futures Europe), then the second nearby month
futures contract (Bloomberg Ticker: CO2 <Comdty>) on such trading
day, or
(b) if the Commodity Futures Contract is Corn
Futures, the official settlement price per bushel on the Chicago Board of
Trade (the CBOT) of the first nearby month futures contract for #2 Yellow
Corn, stated in U.S. cents, as made public by the CBOT (Bloomberg Ticker: C
1 <Comdty>), provided that if such date falls within the notice
period for delivery of corn under such futures contract or on the last
trading day of such futures contract (all pursuant to the rules of the CBOT),
then the second nearby month futures contract (Bloomberg Ticker: C 2
<Comdty>) on such trading day.
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Commodity
Return:
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With respect to Copper:
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Ending
Commodity Price Initial Commodity Price
Initial Commodity Price
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Initial
Commodity Price:
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With respect to Copper, the Commodity Price on the
pricing date.
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Ending
Commodity Price:
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With respect to Copper, the Commodity Price on the
Observation Date.
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Commodity
Price:
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With respect to Copper, on any trading day, the
official cash settlement price per metric ton of Grade A Copper, stated in
U.S. dollars, as determined by the London Metal Exchange (the LME) and
displayed on Bloomberg under the symbol LOCADY on such trading day
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Supplemental Terms of the Notes
For purposes
of the notes offered by this term sheet:
(1) the Review
Date and the Observation Date are subject to postponement as described under Description
of Notes Postponement of a Determination Date E. Notes linked to a Basket
of Components in the accompanying product supplement no. 206-A-I; and
(2) 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.
|
JPMorgan
Structured Investments
Autocallable Buffered Return Enhanced
Notes Linked an Equally Weighted Basket Consisting of Brent Crude Oil Futures
Contracts, Grade A Copper and Corn Futures Contracts
|
TS-1 |
Hypothetical Examples of Amounts Payable upon Automatic Call
or at Maturity
The following table illustrates the hypothetical
simple total return (i.e., not compounded) on the notes that could be
realized on the Call Settlement Date or at maturity for a range of movements in
the Basket as shown under the column Basket Level Appreciation/Depreciation at
Review Date and Basket Return.
The following table assumes a Maximum Total Return of 30.00% and an Upside
Leverage Factor of 1.5 and reflects the Buffer Amount of 10.00%. The actual
Maximum Total Return and Upside Leverage Factor will be determined on the
pricing date and will not be less than 30.00% and 1.5, respectively. There
will be only one payment on the notes whether called or at maturity. An entry
of N/A indicates that the notes would not be called on the Review Date and no
payment would be made for that date. The hypothetical returns set forth below
are for illustrative purposes only and may not be the actual total returns
applicable to a purchaser of the notes.
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|
Automatic Call |
No Automatic Call |
|
Basket
Closing Level |
Basket Level
Appreciation/
Depreciation at
Review Date |
Total Return at Call
Settlement Date |
Basket
Return |
Total
Return at
Maturity |
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180.00
|
80.00%
|
5.75%
|
80.00%
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30.00%
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170.00
|
70.00%
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5.75%
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70.00%
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30.00%
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160.00
|
60.00%
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5.75%
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60.00%
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30.00%
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150.00
|
50.00%
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5.75%
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50.00%
|
30.00%
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140.00
|
40.00%
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5.75%
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40.00%
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30.00%
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130.00
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30.00%
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5.75%
|
30.00%
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30.00%
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120.00
|
20.00%
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5.75%
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20.00%
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30.00%
|
110.00
|
10.00%
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5.75%
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10.00%
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15.00%
|
105.00
|
5.00%
|
5.75%
|
5.00%
|
7.50%
|
102.50
|
2.50%
|
5.75%
|
2.50%
|
3.75%
|
100.00
|
0.00%
|
5.75%
|
0.00%
|
0.000%
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95.00
|
-5.00%
|
N/A
|
-5.00%
|
0.000%
|
90.00
|
-10.00%
|
N/A
|
-10.00%
|
0.000%
|
80.00
|
-20.00%
|
N/A
|
-20.00%
|
-11.11%
|
70.00
|
-30.00%
|
N/A
|
-30.00%
|
-22.22%
|
60.00
|
-40.00%
|
N/A
|
-40.00%
|
-33.33%
|
50.00
|
-50.00%
|
N/A
|
-50.00%
|
-44.44%
|
40.00
|
-60.00%
|
N/A
|
-60.00%
|
-55.56%
|
30.00
|
-70.00%
|
N/A
|
-70.00%
|
-66.67%
|
20.00
|
-80.00%
|
N/A
|
-80.00%
|
-77.78%
|
10.00
|
-90.00%
|
N/A
|
-90.00%
|
-88.89%
|
0.00
|
-100.00%
|
N/A
|
-100.00%
|
-100.00%
|
|
The
following examples illustrate how the total returns set forth in the table
above are calculated.
Example 1: The level
of the Basket increases from the Starting Basket Level of 100 to a Basket
Closing Level of 105 on the first Review Date. Because the Basket Closing Level on the Review Date
of 105 is greater than the Call Level of 100, the notes are automatically
called on the Review Date, and the investor receives a single payment of $1,057.50
per $1,000 principal amount note on the Call Settlement Date.
Example
2: The notes have not been automatically called, and the level of the Basket
increases from the Starting Basket Level of 100 to an Ending Basket Level of 102.50.
Because the Ending Basket Level of 102.50
is greater than the Starting Basket Level of 100 and the Basket Return of 2.50%
multiplied by 1.5 does not exceed the hypothetical Maximum Total Return of 30%,
the investor receives a payment at maturity of $1,037.50 per $1,000 principal
amount note, calculated as follows:
$1,000 + ($1,000 × 2.50% × 1.5) = $1,037.50
Example 3: The notes have not been automatically called, and the
level of the Basket increases from the Starting Basket Level of 100 to an Ending
Basket Level of 130. Because
the Ending Basket Level of 130 is greater than the Starting Basket Level of 100
and the Basket Return of 30% multiplied by 1.5 exceeds the hypothetical Maximum
Total Return of 30%, the investor receives a payment at maturity of $1,300 per
$1,000 principal amount note, the maximum payment on the notes.
Example
4: The notes have not been automatically called, and the level of the Basket
decreases from the Starting Basket Level of 100 to an Ending Basket Level of 95.
Although the Basket Return is
negative, because the Ending Basket Level of 90 is less than the Starting
Basket Level of 100 by not more than the Buffer Amount of 10%, the investor
receives a payment at maturity of $1,000 per $1,000 principal amount note.
Example
6: The notes have not been automatically called, and the level of the Basket
decreases from the Starting Basket Level of 100 to an Ending Basket Level of 80.
Because the Ending Basket Level of 80
is less than the Starting Basket Level of 100 by more than the Buffer Amount of
10%, the Basket Return is negative and the investor receives a payment at
maturity of $888.89 per $1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 x (-20% + 10%) x 1.1111] = $888.89
|
JPMorgan
Structured Investments
Autocallable Buffered Return Enhanced
Notes Linked an Equally Weighted Basket Consisting of Brent Crude Oil Futures
Contracts, Grade A Copper and Corn Futures Contracts
|
TS-2 |
Selected Purchase Considerations
- CAPPED APPRECIATION POTENTIAL If the Basket Closing Level is greater than or
equal to the Call Level on the Review Date, your investment will yield a
payment per $1,000 principal amount note of $1,000 plus a call premium amount
of at least $57.50* (equal to a call premium of at least 5.75%* × $1,000). In
addition, if the notes have not been automatically called, the notes provide
the opportunity to enhance returns by multiplying a positive Basket Return by the
Upside Leverage Factor of at least 1.5*, up to the Maximum Total Return on the
notes. The Maximum Total Return will be set on the pricing date and will not
be less than 30.00%, and accordingly, the maximum payment at maturity will not
be less than $1,300 per $1,000 principal amount note. Because the notes are
our senior unsecured obligations, payment of any amount if called or at
maturity is subject to our ability to pay our obligations as they become due.
*The actual Upside Leverage Factor, call premium
amount and call premium will be determined on the pricing date but will not be
less than 1.5, $57.50 and 5.75%, respectively.
- LIMITED PROTECTION AGAINST LOSS If the notes have not been automatically called, we
will pay you your principal back at maturity if the Ending Basket Level is not
less than the Starting Basket Level by more than 10.00%. If the Ending Basket
Level is less than the Starting Basket Level by more than 10.00%, for every 1%
that the Ending Basket Level is less than the Starting Basket Level by more
than 10.00%, you will lose an amount equal to 1.1111% of the principal amount
of your notes. Under these circumstances, you will lose some or all of your
initial investment at maturity. For additional clarification, please see
Hypothetical Examples of Amounts Payable upon Automatic Call or at Maturity
in this term sheet.
- POTENTIAL EARLY EXIT WITH APPRECIATION AS A RESULT OF
AUTOMATIC CALL FEATURE While the
original term of the notes is just over one year, the notes will be called
before maturity if the Basket Closing Level is at or above the Call Level on
the Review Date, and you will be entitled to the call premium amount set forth
on the cover of this term sheet.
- DIVERSIFICATION OF THE COMPONENTS The return on the notes is linked to an equally
weighted basket consisting of a commodity, Copper, which is traded on the
London Metal Exchange (LME), and futures contracts on two commodities (Brent
Crude, which is traded on ICE Futures Europe, and Corn, which is traded on the
Chicago Board of Trade (CBOT)). For
additional information about each Component, see the information set forth
under The Commodities and The
Commodity Futures in the accompanying product supplement no. 206-A-I.
- CAPITAL GAINS TAX TREATMENT You
should review carefully the section entitled Certain U.S. Federal Income Tax
Consequences in the accompanying product supplement no. 206-A-I. Subject to
the limitations described therein, and based on certain factual representations
received from us, in the opinion of our special tax counsel, Davis Polk &
Wardwell LLP, it is reasonable to treat the notes as open transactions for U.S. federal
income tax purposes. Assuming this characterization is respected, the gain or
loss on your notes should be treated as short-term capital gain or loss unless
you hold your notes for more than a year, in which case the gain or loss should
be long-term capital gain or loss, 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 characterization or treatment of the notes, in which
case the timing and character of any income or loss on the notes could be
significantly and adversely affected. In addition, in 2007 Treasury and the IRS released
a notice requesting comments on the U.S. federal income tax treatment of prepaid forward
contracts and similar instruments, which might include the notes. The notice
focuses in particular on whether to require holders of these instruments to
accrue income over the term of their investment. It also asks for comments on
a number of related topics, including the character of income or loss with
respect to these instruments; the relevance of factors such as the nature of
the underlying property to which the instruments are linked; the degree, if
any, to which income (including any mandated accruals) realized by Non-U.S.
Holders should be subject to withholding tax; and whether these instruments are
or should be subject to the constructive ownership regime, which very
generally can operate to recharacterize certain long-term capital gain as
ordinary income and impose an interest charge. While the notice requests
comments on appropriate transition rules and effective dates, any Treasury
regulations or other guidance promulgated after consideration of these issues
could materially and adversely affect the tax consequences of an investment in
the notes, possibly with retroactive effect. Both U.S. and
Non-U.S. Holders should consult their tax advisers regarding the U.S. federal
income tax consequences of an investment in the notes, including possible
alternative treatments and the issues presented by this notice. Non-U.S.
Holders should also note that they may be withheld upon at a rate of up to 30% unless
they have submitted a properly completed IRS Form W-8BEN or otherwise satisfied the applicable documentation
requirements.
The discussion in the preceding paragraph, when read
in combination with the section entitled Certain U.S. Federal Income Tax
Consequences in the accompanying product supplement, constitutes the full
opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal
income tax consequences of owning and disposing of notes.
|
JPMorgan
Structured Investments
Autocallable Buffered Return Enhanced
Notes Linked an Equally Weighted Basket Consisting of Brent Crude Oil Futures
Contracts, Grade A Copper and Corn Futures Contracts
|
TS-3 |
Selected Risk Considerations
An
investment in the notes involves significant risks. Investing in the notes is
not equivalent to investing directly in the Basket, any of the Components or
any related futures contracts. These risks are explained in more detail in the
Risk Factors section of the accompanying product supplement no. 206-A-I dated
March 4, 2011.
- YOUR INVESTMENT IN THE NOTES MAY
RESULT IN A LOSS The notes do not
guarantee any return of principal at maturity. The return on the notes at
maturity is linked to the performance of the Basket and will depend on whether,
and the extent to which, the Basket Return is positive or negative. Your
investment will be exposed to loss on a leveraged basis if the notes have not
been automatically called and the Ending Basket Level is less than the Starting
Basket Level by more than the Buffer Amount of 10.00%. For every 1% that the
Ending Basket Level is less than the Starting Basket Level by more than 10.00%,
you will lose an amount equal to 1.1111% of the principal amount of your notes.
If the notes have not been automatically called, you will lose some or all of
your initial investment at maturity if the Ending Basket Level is less than the
Starting Basket Level by more than 10.00%.
- 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 or upon an
automatic call, 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 adversely affect the value of the notes.
- CERTAIN BUILT-IN COSTS ARE
LIKELY TO AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR TO MATURITY While the payment on the Review Date or 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, the price, if any, at which J.P. Morgan Securities LLC, which we
refer to as 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. The notes are not designed to be short-term trading instruments.
Accordingly, you should be able and willing to hold the notes to maturity.
- IF THE NOTES ARE CALLED EARLY, YOUR
RETURN IS LIMITED TO THE CALL PREMIUM
If the notes are automatically called, your potential gain on the notes will
be limited to the call premium, as set forth on the cover of this term sheet,
regardless of the appreciation in the Basket, which may be significant.
Because the Basket Closing Level at various times during the term of the notes
could be higher than on the Review Date and at maturity, you may receive a
lower payment if called or at maturity, as the case may be, than you would have
if you had invested directly in the Basket.
- IF THE NOTES ARE NOT CALLED EARLY,
YOUR RETURN IS LIMITED TO THE MAXIMUM TOTAL RETURN In addition, if the notes have not been
automatically called and the Ending Basket Level is greater than the Starting
Basket Level, for each $1,000 principal amount note, you will receive at
maturity $1,000 plus an additional return that will not exceed a predetermined
percentage of the principal amount, regardless of the appreciation in the
Basket, which may be significant. We refer to this predetermined percentage as
the Maximum Total Return, which will be set on the pricing date and will not be
less than 30.00%.
- REINVESTMENT RISK If your notes are automatically called early, the term of the notes
may be reduced to as short as six months. There is no guarantee that you would
be able to reinvest the proceeds from an investment in the notes at a
comparable return for a similar level of risk in the event the notes are
automatically called prior to the maturity date.
- CORRELATION (OR LACK OF CORRELATION) OF PERFORMANCES
AMONG THE COMPONENTS MAY REDUCE THE PERFORMANCE OF THE BASKET, AND
CHANGES IN THE VALUE OF THE COMPONENTS MAY OFFSET EACH OTHER The notes are linked to an equally weighted Basket
consisting of a commodity and commodity futures contracts on two commodities.
Movements and performances in the Components may or may not be correlated with
each other. At a time when the value of one or more of the Components
increases, the value of the other Components may not increase as much or may
decline. Therefore, in calculating the Ending Basket Level, increases in the
value of one or more of the Components may be moderated, or more than offset,
by the lesser increases or declines in the values of the other Components.
There can be no assurance that the Ending Basket Level will be higher than the
Starting Basket Level.
- COMMODITY PRICES ARE
CHARACTERIZED BY HIGH AND UNPREDICTABLE VOLATILITY, WHICH COULD LEAD TO HIGH AND
UNPREDICTABLE VOLATILITY IN THE COMPONENTS Market prices of the Components included in the Basket tend to be
highly volatile and may fluctuate rapidly based on numerous factors. Many
commodities are also highly cyclical. These factors may affect the level of the
Components in varying ways, and different factors may cause the value of
different commodities, and the prices of commodity futures contracts included
in the Basket to move in inconsistent directions at inconsistent rates. This,
in turn, will affect the value of the notes linked, in part, to the
Components. The high volatility and cyclical nature of commodity markets may
render such an investment inappropriate as the focus of an investment
portfolio.
|
JPMorgan
Structured Investments
Autocallable Buffered Return Enhanced
Notes Linked an Equally Weighted Basket Consisting of Brent Crude Oil Futures
Contracts, Grade A Copper and Corn Futures Contracts
|
TS-4 |
- 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 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 C. Early Acceleration of
Payment on the Notes in the accompanying product supplement no. 206-A-I for
more information.
- COMMODITY FUTURES CONTRACTS ARE
SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES The Commodity Futures Contracts 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 value of the Basket. 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 is drafting regulations that will
affect market participants position limits in certain commodity-based futures
contracts, such as futures contracts on certain energy and agricultural based
commodities. These proposed regulations, when final and implemented, may reduce
liquidity in the exchange-traded market for such commodity-based futures
contracts. Furthermore, 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,
accelerate the payment on your notes. See We May Accelerate Your Notes If a
Commodity Hedging Disruption Event Occurs above.
- THE NOTES DO NOT OFFER DIRECT EXPOSURE TO COMMODITY SPOT
PRICES OF CRUDE OIL OR CORN
The notes are linked in part to commodity futures contracts on Brent Crude Oil
and Corn, but not to the physical commodities (or their spot prices) on which
they are based. 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.
- SUSPENSION OR DISRUPTIONS OF MARKET TRADING IN THE
COMMODITY MARKETS AND RELATED FUTURES MARKETS MAY
ADVERSELY AFFECT THE LEVEL OF THE COMPONENTS, AND
THEREFORE, THE VALUE 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 options futures contract
prices that may occur during a single business 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 value of the Components and,
therefore, the value of your notes.
- INVESTMENTS RELATED TO THE LEVEL OF THE COMPONENTS MAY BE
MORE VOLATILE THAN TRADITIONAL SECURITIES INVESTMENTS The prices of the Components are subject to
variables that may be less significant to the values of traditional securities
such as stocks and bonds, and where the return on the securities is not related
to commodities or commodities futures contracts. Variables such as changes in
supply and demand relationships, governmental programs and policies, national
and international political and economic events, changes in interest and
exchange rates, trading activities in commodities and related contracts,
weather, and trade, fiscal, monetary and exchange control policies may have a
larger impact on commodity prices and commodity-linked indices than on
traditional securities. These additional variables may create additional
investment risks that cause the value of the notes to be more volatile than the
prices of the Components to move in unpredictable and unanticipated directions
and at unpredictable or unanticipated rates.
- OWNING THE NOTES IS NOT THE SAME AS OWNING ANY COMPONENT The return on your notes will not reflect the
return you would realize if you actually held the Components. As a result, a
holder of the notes will not have any direct or indirect rights to any Component.
|
JPMorgan
Structured Investments
Autocallable Buffered Return Enhanced
Notes Linked an Equally Weighted Basket Consisting of Brent Crude Oil Futures
Contracts, Grade A Copper and Corn Futures Contracts
|
TS-5 |
- THE MARKET PRICE OF BRENT CRUDE OIL WILL
AFFECT THE VALUE OF THE NOTES
Because the notes are linked in part to the performance of the price of Brent
Crude Futures, we expect that generally the market value of the notes will
depend in part on the market price of Brent Crude Oil. The price of IPE brent
blend crude oil futures is primarily affected by the global demand for and
supply of crude oil, but is also influenced significantly from time to time by
speculative actions and by currency exchange rates. Crude oil prices are
generally more volatile and subject to dislocation than prices of other
commodities. Demand for refined petroleum products by consumers, as well as
the agricultural, manufacturing and transportation industries, affects the
price of crude oil. Crude oils end-use as a refined product is often as transport
fuel, industrial fuel and in-home heating fuel. Potential for substitution in
most areas exists, although considerations including relative cost often limit
substitution levels. Because the precursors of demand for petroleum products
are linked to economic activity, demand will tend to reflect economic
conditions. Demand is also influenced by government regulations, such as
environmental or consumption policies. In addition to general economic activity
and demand, prices for crude oil are affected by political events, labor
activity and, in particular, direct government intervention (such as embargos)
or supply disruptions in major oil producing regions of the world. Such events
tend to affect oil prices worldwide, regardless of the location of the event.
Supply for crude oil may increase or decrease depending on many factors. These
include production decisions by the Organization of the Petroleum Exporting
Countries (OPEC) and other crude oil producers. Crude oil prices are
determined with significant influence by OPEC. OPEC has the potential to
influence oil prices worldwide because its members possess a significant
portion of the worlds oil supply. In the event of sudden disruptions in the
supplies of oil, such as those caused by war, natural events, accidents or acts
of terrorism, prices of oil futures contracts could become extremely volatile
and unpredictable. Also, sudden and dramatic changes in the futures market may
occur, for example, upon a cessation of hostilities that may exist in countries
producing oil, the introduction of new or previously withheld supplies into the
market or the introduction of substitute products or commodities. Crude oil
prices may also be affected by short-term changes in supply and demand because
of trading activities in the oil market and seasonality (e.g., weather
conditions such as hurricanes). It is not possible to predict the aggregate
effect of all or any combination of these factors.
- THE CONTRACT PRICE OF BRENT CRUDE FUTURES IS
DETERMINED BY REFERENCE TO THE OFFICIAL SETTLEMENT PRICE OF BRENT CRUDE FUTURES
AS DETERMINED BY ICE FUTURES EUROPE, AND THERE ARE
CERTAIN RISKS RELATING TO THE CONTRACT PRICE OF BRENT CRUDE FUTURES BEING
DETERMINED BY ICE FUTURES EUROPE
Brent Crude Futures are traded on ICE Future Europe. The Contract Price of
Brent Crude Futures will be determined by reference to the official settlement
price of Brent Crude Futures as determined by ICE Futures Europe. Investments
in securities linked to the value of commodity futures contracts that are
traded on non-U.S. exchanges, such as ICE Futures Europe, involve risks
associated with the markets in those countries, including risks of volatility
in those markets and governmental intervention in those markets.
- THE MARKET PRICE OF COPPER WILL AFFECT THE VALUE OF
THE NOTES Because the notes are
linked in part to the performance of the price of Copper, we expect that
generally the market value of the notes will depend in part on the market price
of Copper. The price of copper is primarily affected by the global demand for
and supply of copper, but is also influenced significantly from time to time by
speculative actions and by currency exchange rates. Demand for copper is
significantly influenced by the level of global industrial economic activity.
Industrial sectors which are particularly important to demand for copper
include the electrical and construction sectors. In recent years, demand has
been supported by strong consumption from newly industrializing countries due
to their copper-intensive economic growth and industrial development. An
additional, but highly volatile, component of demand is adjustments to
inventory in response to changes in economic activity and/or pricing levels.
There are substitutes for copper in various applications. Their availability
and price will also affect demand for copper. Apart from the United States,
Canada and Australia, the majority of copper concentrate supply (the raw
material) comes from outside the Organization for Economic Cooperation and
Development countries. The supply of copper is also affected by current and
previous price levels, which will influence investment decisions in new
smelters. In previous years, copper supply has been affected by strikes,
financial problems and terrorist activity. It is not possible to predict the
aggregate effect of all or any combination of these factors.
- THE COMMODITY PRICE OF COPPER IS DETERMINED BY
REFERENCE TO THE OFFICIAL CASH SETTLEMENT PRICE OF COPPER AS DETERMINED BY THE LME,
AND THERE ARE CERTAIN RISKS RELATING TO THE COMMODITY PRICE OF
COPPER BEING DETERMINED BY THE LME
Copper is traded on the LME. The Commodity Price of Copper will be determined
by reference to the official cash settlement price of Copper as determined by
the LME. The LME is a principals market which operates in a manner more
closely analogous to the over-the-counter physical commodity markets than
regulated futures markets. For example, there are no daily price limits on the
LME, which would otherwise restrict the extent of daily fluctuations in the
prices of LME contracts. In a declining market, therefore, it is possible that
prices would continue to decline without limitation within a trading day or
over a period of trading days. In addition, a contract may be entered into on
the LME calling for delivery on any day from one day to three months following
the date of such contract and for monthly delivery up to 123 months forward
following such third month, in contrast to trading on futures exchanges, which
call for delivery in stated delivery months. As a result, there may be a
greater risk of a concentration of positions in LME contracts on particular
delivery dates, which in turn could cause temporary aberrations in the prices
of LME contracts for certain delivery dates. If such aberrations occur on any
trading day during the Monitoring Period, the official cash settlement prices
of Copper and, consequently, the Underlying Return, could be adversely
affected. The LME has no obligation to consider your interests in calculating
or revising the official cash settlement price of Copper.
|
JPMorgan
Structured Investments
Autocallable Buffered Return Enhanced
Notes Linked an Equally Weighted Basket Consisting of Brent Crude Oil Futures
Contracts, Grade A Copper and Corn Futures Contracts
|
TS-6 |
- THE MARKET PRICE OF CORN WILL AFFECT THE VALUE OF THE
NOTES Because the notes are linked
in part to the performance of the price of Corn Futures, we expect that
generally the market value of the notes will depend in part on the market price
of Corn. The price of corn is primarily affected by the global demand for, and
supply of, corn. The demand for corn is in part linked to the development of
industrial and energy uses for corn. This includes the use of corn in the
production of ethanol. The demand for corn is also affected by the production
and profitability of the pork and poultry sectors, which use corn for feed.
Negative developments in those industries may lessen the demand for corn. For
example, if avian flu were to have a negative effect on world poultry markets,
the demand for corn might decrease. The supply of corn is dependent on many
factors including weather patterns, government regulation, the price of fuel
and fertilizers and the current and previous price of corn. The United States
is the worlds largest supplier of corn, followed by China and Brazil. The
supply of corn is particularly sensitive to weather patterns in the United States
and China. In addition, technological advances could lead to increases in
worldwide production of corn and corresponding decreases in the price of corn.
- POTENTIAL CONFLICTS We and our affiliates play a variety of roles in connection with the
issuance of the notes, including acting as calculation agent and hedging our
obligations under the notes. In performing these duties, the economic
interests of the calculation agent and other affiliates of ours are potentially
adverse to your interests as an investor in the notes.
- 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
IMPACT THE VALUE OF THE NOTES In
addition to the level of the Basket 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 volatility, frequency and magnitude of changes in
the price of the Components;
- supply and demand trends for the Components;
- the time to maturity of the notes;
- interest and yield rates in the market generally;
- a variety of economic, financial, political, regulatory,
geographical, meteorological and judicial events; and
- our creditworthiness, including
actual or anticipated downgrades in our credit ratings.
|
JPMorgan
Structured Investments
Autocallable Buffered Return Enhanced
Notes Linked an Equally Weighted Basket Consisting of Brent Crude Oil Futures
Contracts, Grade A Copper and Corn Futures Contracts
|
TS-7 |
Historical Information
The following
graphs set forth the weekly historical performance of each Component, as well
as the Basket as a whole, from January
6, 2006 through April 29, 2011. The
graph of the historical Basket performance assumes the Basket Closing Level on January 6, 2006 was
100 and the weightings for each Component were as specified on the cover of
this term sheet on that date. The Contract Prices or Commodity Prices, as
applicable, of Brent Crude Futures, Copper and Corn Futures on May 5, 2011 were $110.80,
$8,791 and 705¢, respectively.
We obtained
the various closing levels and prices and other information below from
Bloomberg Financial Markets and accordingly, we make no representation or
warranty as to their accuracy or completeness. The historical price of each
Component should not be taken as an indication of future performance, and no
assurance can be given as to the price of any Component on the pricing date,
the Review Date or the Observation Date.
Supplemental Plan of Distribution
JPMS, acting as agent for JPMorgan Chase & Co.,
will receive a commission that will depend on market conditions on the pricing
date. In no event will that commission, which includes structuring and
development fees, exceed $10.00 per $1,000
principal amount note. See Plan of Distribution (Conflicts of Interest)
beginning on page PS-89 of the accompanying product supplement no. 206-A-I.
For a different portion of the notes to be sold in
this offering, an affiliated bank will receive a fee and another affiliate will
receive a structuring and development fee. In no event will the total amount
of these fees exceed $10.00 per $1,000
principal amount note.
|
JPMorgan
Structured Investments
Autocallable Buffered Return Enhanced
Notes Linked an Equally Weighted Basket Consisting of Brent Crude Oil Futures
Contracts, Grade A Copper and Corn Futures Contracts
|
TS-8 |