Term sheet
To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011,
product supplement no. 4-I dated November 14, 2011 and
underlying supplement no. 1-I dated November 14, 2011
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Term Sheet to
Product Supplement No. 4-I
Registration Statement No. 333-177923
Dated May 17, 2012; Rule 433
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Structured
Investments
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$
Capped Buffered Equity Notes Linked to the iShares® MSCI Emerging Markets Index Fund due June 20, 2013
General
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The notes are designed for investors who seek unleveraged exposure to the appreciation of the iShares® MSCI Emerging Markets Index Fund, up to a maximum return of at least 20.05% at maturity. Investors should be willing to forgo interest and dividend payments, and, if the Final Share Price is less than the Initial Share Price by more than 15%, 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 June 20, 2013*
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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 May 17, 2012 and are expected to settle on or about May 22, 2012.
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Fund:
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The iShares® MSCI Emerging Markets Index Fund (Bloomberg ticker symbol “EEM”)
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Payment at Maturity:
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If the Final Share Price is greater than the Initial Share Price, at maturity you will receive a cash payment that provides you with a return per $1,000 principal amount note equal to the Fund Return, subject to the Maximum Return. Accordingly, if the Final Share Price is greater than the Initial Share Price, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Fund Return), subject to the Maximum Return
If the Final Share Price is equal to or less than the Initial Share Price by up to 15%, you will receive the principal amount of your notes at maturity.
If the Final Share Price is less than the Initial Share Price by more than 15%, you will lose 1.1765% of the principal amount of your notes for every 1% that the Final Share Price is less than the Initial Share Price by more than 15%. Under these circumstances, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + [$1,000 × (Fund Return + 15%) × 1.1765]
You will lose some or all of your initial investment at maturity if the Final Share Price is less than the Initial Share Price by more than 15%.
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Maximum Return:
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At least 20.05%. The actual Maximum Return will be determined on the pricing date and will not be less than 20.05%. Accordingly, the actual maximum payment at maturity per $1,000 principal amount note will not be less than $1,200.50.
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Buffer Amount:
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15%
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Downside Leverage Factor:
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1.1765
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Fund Return:
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Final Share Price – Initial Share Price
Initial Share Price
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Initial Share Price:
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The closing price of one share of the Fund on the pricing date, divided by the Share Adjustment Factor
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Final Share Price:
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The closing price of one share of the Fund on the Observation Date
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Share Adjustment Factor:
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Set initially at 1.0 on the pricing date and subject to adjustment under certain circumstances. See “General Terms of Notes — Anti-Dilution Adjustments” in the accompanying product supplement no. 4-I for further information.
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Observation Date*:
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June 17, 2013
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Maturity Date*:
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June 20, 2013
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CUSIP:
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48125VZU7
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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 — A. Notes Linked to a Single Component” in the accompanying product supplement no. 4-I
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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, J.P. Morgan Securities LLC, which we refer to as JPMS, acting as agent for JPMorgan Chase & Co., would receive a commission of approximately $7.50 per $1,000 principal amount note and would use a portion of that commission to allow selling concessions to other affiliated or unaffiliated dealers of approximately $2.50 per $1,000 principal amount note. This commission includes the projected profits that our affiliates expect to realize, some of which may be allowed to other unaffiliated dealer, for assuming risks inherent in hedging our obligations under the notes. The actual commission received by JPMS may be more or less than $7.50 and will depend on market conditions on the Pricing Date. In no event will the commission received by JPMS, which includes concessions and other amounts that may be allowed to other dealers, exceed $20.00 per $1,000 principal amount note. See “Plan of Distribution (Conflicts of Interest)” beginning on page PS-77 of the accompanying product supplement no. 4-I.
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Product supplement no. 4-I dated November 14, 2011:
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Underlying supplement no. 1-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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JPMorgan Structured Investments —
Capped Buffered Equity Notes Linked to the iShares® MSCI Emerging Markets Index Fund
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TS-1
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CAPPED APPRECIATION POTENTIAL — The notes provide the opportunity to earn an unleveraged return equal to a positive Fund Return, up to the Maximum Return. The actual Maximum Return will be set on the pricing date and will not be less than 20.05%. Accordingly, the actual maximum payment at maturity will not be less than $1,200.50 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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LIMITED PROTECTION AGAINST LOSS — We will pay you your principal back at maturity if the Final Share Price is not less than the Initial Share Price by more than 15%. If the Final Share Price is less than the Initial Share Price by more than 15%, for every 1% that the Final Share Price is less than the Initial Share Price by more than 15%, you will lose an amount equal to 1.1765% of the principal amount of your notes. Accordingly, you could lose some or all of your initial investment at maturity.
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RETURN LINKED TO THE iSHARES® MSCI EMERGING MARKETS INDEX FUND — The return on the notes is linked to the iShares® MSCI Emerging Markets Index Fund. The iShares® MSCI Emerging Markets Index Fund is an exchange-traded fund of iShares, Inc., a registered investment company, which seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Index, which we refer to as the Underlying Index. The Underlying Index is a free-float adjusted market capitalization index that is designed to measure equity market performance of global emerging markets. Effective May 27, 2010, Israel has been reclassified as a developed market by MSCI Inc. Since that date, Israel is no longer included in the Underlying Index. For additional information about the Fund, see the information set forth under “Fund Descriptions — The iShares® MSCI Emerging Markets Index Fund” in the accompanying underlying supplement no. 1-I.
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TAX TREATMENT — You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4-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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JPMorgan Structured Investments —
Capped Buffered Equity Notes Linked to the iShares® MSCI Emerging Markets Index Fund
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TS-2
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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 Fund and will depend on whether, and the extent to which, the Fund Return is positive or negative. Your investment will be exposed to loss on a leveraged basis if the Final Share Price is less than the Initial Share Price by more than 15%. For every 1% that the Final Share Price is less than the Initial Share Price by more than 15%, you will lose an amount equal to 1.1765% of the principal amount of your notes. Accordingly, you could lose some or all of your initial investment at maturity.
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YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM RETURN — If the Final Share Price is greater than the Initial Share Price, 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 Index, which may be significant. We refer to this predetermined percentage as the Maximum Return, which will be set on the pricing date and will not be less than 20.05%.
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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 affect adversely 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 calculation agent and hedging our obligations under the notes. In performing these duties, our economic interests and the economic interests of the 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 — Risks Relating to the Notes Generally” in the accompanying product supplement no. 4-I for additional information about these risks.
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CERTAIN BUILT-IN COSTS ARE LIKELY TO AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR TO MATURITY — While the payment at maturity, if any, 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. This secondary market price will also be affected by a number of factors aside from the agent’s commission and hedging costs, including those referred to under “Many Economic and Market Factors Will Impact the Value of the Notes” below.
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NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive interest payments, and you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of shares of the Fund or the equity securities held by the Fund or included in the Underlying Index would have.
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THERE ARE RISKS ASSOCIATED WITH THE FUND — Although the Fund’s shares are listed for trading on NYSE Arca and a number of similar products have been traded on NYSE Arca and other securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for the shares of the Fund or that there will be liquidity in the trading market. The Fund is subject to management risk, which is the risk that the investment strategies of the Fund’s investment adviser, the implementation of which is subject to a number of
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JPMorgan Structured Investments —
Capped Buffered Equity Notes Linked to the iShares® MSCI Emerging Markets Index Fund
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TS-3
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constraints, may not produce the intended results. These constraints could adversely affect the market price of the shares of the Fund, and consequently, the value of the notes.
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DIFFERENCES BETWEEN THE FUND AND THE UNDERLYING INDEX — The Fund does not fully replicate the Underlying Index and may hold securities not included in the Underlying Index. In addition, its performance will reflect additional transaction costs and fees that are not included in the calculation of the Underlying Index. All of these factors may lead to a lack of correlation between the Fund and the Underlying Index. In addition, corporate actions with respect to the sample of equity securities (such as mergers and spin-offs) may impact the variance between the Fund and the Underlying Index. Finally, because the shares of the Fund are traded on NYSE Arca and are subject to market supply and investor demand, the market value of one share of the Fund may differ from the net asset value per share of the Fund. For all of the foregoing reasons, the performance of the Fund may not correlate with the performance of the Underlying Index.
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NON-U.S. SECURITIES RISK — The equity securities underlying the Fund have been issued by non-U.S. companies. Investments in securities linked to the value of such non-U.S. equity securities involve risks associated with the securities markets in those countries, including risks of volatility in those markets, government intervention in those markets and cross shareholdings in companies in certain countries. Also, there is generally less publicly available information about companies in some of these jurisdictions than there is about U.S. companies that are subject to the reporting requirements of the SEC, and generally non-U.S. companies are subject to accounting, auditing and financial reporting standards and requirements and securities trading rules different from those applicable to U.S. reporting companies. The prices of securities in foreign markets may be affected by political, economic, financial and social factors in those countries, or global regions, including changes in government, economic and fiscal policies and currency exchange laws.
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EMERGING MARKETS RISK — The equity securities underlying the Fund have been issued by non-U.S. companies located in emerging markets countries. Countries with emerging markets may have relatively unstable governments, may present the risks of nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets, and may have less protection of property rights than more developed countries. The economies of countries with emerging markets may be based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible at times. Moreover, the economies in such countries may differ favorably or unfavorably from the economy in the United States in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency. Any of the foregoing could adversely affect the market value of shares of the Fund and the notes.
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THE NOTES ARE SUBJECT TO CURRENCY EXCHANGE RISK — Because the prices of the equity securities held by the Fund are converted into U.S. dollars for the purposes of calculating the net asset value of the Fund, holders of the notes will be exposed to currency exchange rate risk with respect to each of the currencies in which the equity securities held by the Fund trade. Your net exposure will depend on the extent to which those currencies strengthen or weaken against the U.S. dollar and the relative weight of equity securities denominated in those currencies in the Fund. If, taking into account the relevant weighting, the U.S. dollar strengthens against those currencies, the net asset value of the Fund will be adversely affected and the payment at maturity, if any, may be reduced. Of particular importance to potential currency exchange risk are:
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existing and expected rates of inflation;
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existing and expected interest rate levels;
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the balance of payments; and
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the extent of government surpluses or deficits in issuing countries of those currencies and the United States.
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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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THE ANTI-DILUTION PROTECTION FOR THE FUND IS LIMITED — The calculation agent will make adjustments to the Share Adjustment Factor for certain events affecting the shares of the Fund. However, the calculation agent will not make an adjustment in response to all events that could affect the shares of the Fund. If an event occurs that does not require the calculation agent to make an adjustment, the value of the notes may be materially and adversely affected.
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MANY ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE NOTES — In addition to the closing price of one share of the Fund 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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JPMorgan Structured Investments —
Capped Buffered Equity Notes Linked to the iShares® MSCI Emerging Markets Index Fund
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TS-4
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the actual and expected volatility of the Fund;
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the time to maturity of the notes;
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the dividend rates on the equity securities underlying the Fund;
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interest and yield rates in the market generally;
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a variety of economic, financial, political, regulatory and judicial events;
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the exchange rate and volatility of the exchange rate between the U.S. dollar and the currencies in which the equity securities held by the Fund trade and correlation between those rates and the prices of shares of the Fund;
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the occurrence of certain events to the Fund that may or may not require an adjustment to the Share Adjustment Factor; and
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our creditworthiness, including actual or anticipated downgrades in our credit ratings.
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Final Share Price
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Fund Return
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Total Return on the Notes
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$68.40
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80.00%
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20.05%
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$62.70
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65.00%
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20.05%
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$57.00
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50.00%
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20.05%
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$53.20
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40.00%
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20.05%
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$49.40
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30.00%
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20.05%
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$45.62
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20.05%
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20.05%
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$45.60
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20.00%
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20.00%
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$43.70
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15.00%
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15.00%
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$41.80
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10.00%
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10.00%
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$39.90
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5.00%
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5.00%
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$38.95
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2.50%
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2.50%
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$38.38
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1.00%
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1.00%
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$38.00
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0.00%
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0.00%
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$36.10
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-5.00%
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0.00%
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$34.20
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-10.00%
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0.00%
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$32.30
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-15.00%
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0.00%
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$30.40
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-20.00%
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-5.88%
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$26.60
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-30.00%
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-17.65%
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$22.80
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-40.00%
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-29.41%
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$19.00
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-50.00%
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-41.18%
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$15.20
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-60.00%
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-52.94%
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$11.40
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-70.00%
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-64.71%
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$7.60
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-80.00%
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-76.47%
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$3.80
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-90.00%
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-88.24%
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$0.00
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-100.00%
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-100.00%
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JPMorgan Structured Investments —
Capped Buffered Equity Notes Linked to the iShares® MSCI Emerging Markets Index Fund
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TS-5
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JPMorgan Structured Investments —
Capped Buffered Equity Notes Linked to the iShares® MSCI Emerging Markets Index Fund
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TS-6
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