Term sheet |
Term sheet to |
Structured |
JPMorgan Chase &
Co. $ Buffered Return Enhanced Notes Linked to the iShares® MSCI Brazil Index Fund due January 31, 2013 |
General
Key Terms
Index Fund: |
The iShares® MSCI Brazil Index Fund (EWZ) (the Index Fund). For additional information about the Index Fund, please see Appendix A to this term sheet. |
Upside Leverage Factor: |
1.5 |
Payment at Maturity: |
If the Final Share Price is greater than the Initial Share Price, you will receive a cash payment that provides you with a return per $1,000 principal amount note equal to the Index Fund Return multiplied by 1.5, subject to a Maximum Total Return on the notes that will not be less than 23%* or greater than 27%* at maturity. For example, assuming a Maximum Total Return of 23%*, if the Index Fund Return is equal to or greater than 15.3333%, you will receive the Maximum Total Return on the notes of 23%*, which entitles you to a maximum payment at maturity of $1,230* for every $1,000 principal amount note that you hold. Accordingly, if the Index Fund Return is positive, your payment 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 × Index Fund Return × 1.5) * The actual Maximum Total Return on the notes will be set on the pricing date and will not be less than 23% or greater than 27%. |
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If the Final Share Price is equal to or less than the Initial Share Price by up to 10%, 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 10% you will lose 1% of the principal amount of your notes for every 1% that the Index Fund declined beyond 10% and your payment at maturity per $1,000 principal amount note will be calculated as follows: |
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$1,000 + [$1,000 × (Index Fund Return + 10%)] |
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If the Final Share Price is less than the Initial Share Price by more than 10% you would lose up to $900 per $1,000 principal amount note at maturity. |
Buffer Amount: |
10%, which results in a minimum payment at maturity of $100 per $1,000 principal amount note. |
Index Fund Return: |
The performance of the Index Fund from the Initial Share Price to the Final Share Price, calculated as follows: Final Share Price Initial Share Price |
Initial Share Price: |
The closing price of one share of the Index Fund on the pricing date divided by the Share Adjustment Factor. |
Final Share Price: |
The closing price of one share of the Index Fund on the Observation Date. |
Share Adjustment Factor: |
1.0 on the pricing date and subject to adjustment under certain circumstances. See Description of Notes Payment at Maturity and General Terms of Notes Anti-Dilution Adjustments in the accompanying product supplement no. 39-A-VI for further information about these adjustments. |
Observation Date: |
January 28, 2013 |
Maturity Date: |
January 31, 2013 |
CUSIP: |
48125XXJ0 |
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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 in the accompanying product supplement no. 39-A-VI. |
Investing in the Buffered Return Enhanced Notes involves a number of risks. See Risk Factors beginning on page PS-10 of the accompanying product supplement no. 39-A-VI and Selected Risk Considerations beginning on page TS-2 of this term sheet.
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 SECs 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, each prospectus supplement, product supplement no. 39-A-VI 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.
Neither 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, the accompanying product supplement no. 39-A-VI or the accompanying prospectus supplements and prospectus. Any representation to the contrary is a criminal offense.
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Price to Public (1) |
Fees and Commissions (2) |
Proceeds to Us |
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Per note |
$ |
$ |
$ |
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Total |
$ |
$ |
$ |
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(1) |
The price to the public includes the estimated cost of hedging our obligations under the notes through one or more of our affiliates. |
(2) |
If the notes priced today and assuming a Maximum Total Return of 23%, J.P. Morgan Securities LLC, which we refer to as JPMS, acting as agent for JPMorgan Chase & Co., would receive a commission of approximately $22.50 per $1,000 principal amount note and may use a portion of that commission to pay selling concessions to other unaffiliated or affiliated dealers of approximately $2.50 per $1,000 principal amount note. The other dealers may forgo, in their sole discretion, some or all of their selling concessions. This commission includes the projected profits that our affiliates expect to realize, some of which may be allowed to other unaffiliated dealers, for assuming risks inherent in hedging our obligations under the notes. The actual commission received by JPMS may be more or less than $22.50 and will depend on market conditions on the pricing date. In no event will the commission received by JPMS exceed $25.00 per $1,000 principal amount note. See "Plan of Distribution (Conflicts of Interests)" beginning on page PS-184 of the accompanying product supplement no. 39-A-VI. |
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.
June 30, 2011
Additional Terms Specific to the Notes
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. 39-A-VI dated February 22, 2010. This term sheet, together with the documents listed below, contains the terms of the notes and supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, fact sheets, brochures or other educational materials of ours. You should carefully consider, among other things, the matters set forth in Risk Factors in the accompanying product supplement no. 39-A-VI, 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 SECs website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
Product supplement no. 39-A-VI dated February 22, 2010:
http://www.sec.gov/Archives/edgar/data/19617/000089109210000670/e37841_424b2.pdf
Prospectus supplement dated November
21, 2008:
http://www.sec.gov/Archives/edgar/data/19617/000089109208005661/e33600_424b2.pdf
Prospectus dated November 21, 2008:
http://www.sec.gov/Archives/edgar/data/19617/000089109208005658/e33655_424b2.pdf
Our Central Index Key, or CIK, on the SECs website is 19617. As used in this term sheet, the Company, we, us or our refers to JPMorgan Chase & Co.
Supplemental Information
The following information supplements, and should be read in conjunction with, the information set forth in the accompanying product supplement no. 39-A-VI. For purposes of the notes offered hereby, when the accompanying product supplement no. 39-A-VI refers to a "Basket Fund, the Basket Funds, a Basket Component or the Basket Components, each such reference is deemed to include the iShares® MSCI Brazil Index Fund.
Selected Purchase Considerations
A constructive ownership transaction includes a contract under which an investor will receive payment equal to or credit for the future value of any equity interest in a regulated investment company (such as shares of the Index Fund (the Underlying Shares)). Under the constructive ownership rules, if an investment in the notes is treated as a constructive ownership transaction, any long-term capital gain recognized by a U.S. Holder in respect of a note will be recharacterized as ordinary income to the extent such gain exceeds the amount of net underlying long-term capital gain (as defined in Section 1260 of the Code) of the U.S. Holder, determined as if the U.S. Holder had acquired the Underlying Shares on the original issue date of the note at fair market value and sold them at fair market value on the maturity date (if the note was held until the maturity date) or on the date of sale or exchange of the note (if the note was sold or exchanged prior to the maturity date) (the Excess Gain). In addition, an interest charge will also apply to any deemed underpayment of tax in respect of any Excess Gain to the extent such gain would have
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JPMorgan Structured Investments | TS-1 |
Buffered Return Enhanced Notes Linked to the iShares® MSCI Brazil Index Fund |
resulted in gross income inclusion for the U.S. Holder in taxable years prior to the taxable year of the sale, exchange, settlement or maturity of the note (assuming such income accrued at a constant rate equal to the applicable federal rate as of the date of sale, exchange, settlement or maturity of the note).
Although the matter is not clear, there exists a risk that an investment in the notes will be treated as a constructive ownership transaction. If such treatment applies, it is not entirely clear to what extent any long-term capital gain recognized by a U.S. Holder in respect of a note will be recharacterized as ordinary income. It is possible, for example, that the amount of the Excess Gain (if any) that would be recharacterized as ordinary income in respect of each note will equal the excess of (i) any long-term capital gain recognized by the U.S. Holder in respect of a note over (ii) the net underlying long-term capital gain such U.S. Holder would have had if such U.S. Holder had acquired a number of the Underlying Shares at fair market value on the original issue date of the note for an amount equal to the issue price of the note and, upon the date of sale, exchange, settlement or maturity of the note, sold such Underlying Shares at fair market value (which would reflect the percentage increase in the value of the Underlying Shares over the term of the note). Accordingly, U.S. Holders should consult their tax advisors regarding the potential application of the constructive ownership rules.
Moreover, on December 7, 2007, the Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of prepaid forward contracts and similar instruments, such as the notes. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of 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 that is subject to 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.
Subject to certain assumptions and representations received from us, the discussion in this section entitled Capital Gains Tax Treatment, 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 Sidley Austin LLP regarding the material U.S. federal income tax treatment of owning and disposing of the notes.
Selected Risk Considerations
An investment in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in the Index Fund or any of the equity securities held by the Index Fund. These risks are explained in more detail in the Risk Factors section of the accompanying product supplement no. 39-A-VI dated February 22, 2010.
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JPMorgan Structured Investments | TS-2 |
Buffered Return Enhanced Notes Linked to the iShares® MSCI Brazil Index Fund |
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JPMorgan Structured Investments | TS-3 |
Buffered Return Enhanced Notes Linked to the iShares® MSCI Brazil Index Fund |
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JPMorgan Structured Investments | TS-4 |
Buffered Return Enhanced Notes Linked to the iShares® MSCI Brazil Index Fund |
What Is the Total Return and Payment on the Notes at Maturity Assuming a Range of Performance for the Index Fund?
The following table illustrates the hypothetical total return at maturity and 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. The hypothetical total returns and hypothetical payments at maturity set forth below reflect the Upside Leverage Factor of 1.5 and the Buffer Amount of 10% and assume a Maximum Total Return on the notes of 23% and an Initial Share Price of $70.00 (which is not the actual Initial Share Price applicable to the notes). The actual Maximum Total Return will be set on the pricing date and will not be less than 23% or greater than 27%. The hypothetical total returns and hypothetical payments at maturity set forth below are for illustrative purposes only and may not be the actual total returns or payments 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. These returns 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 total returns shown below would likely be lower.
The following graph demonstrates the hypothetical total return on the notes at maturity for a sub-set of the Index Fund Returns detailed above (-30% to 30%). Your investment may result in a loss of up to 90% of your principal at maturity.
Buffered Return Enhanced Notes Linked
to the iShares® MSCI Brazil Index Fund
Total Return at Maturity
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JPMorgan Structured Investments | TS-5 |
Buffered Return Enhanced Notes Linked to the iShares® MSCI Brazil Index Fund |
Hypothetical Examples of Amounts Payable at Maturity
The following examples illustrate how the total returns set forth in the table on the previous page are calculated.
Example 1: The closing price of one share of the Index Fund increases from the Initial Share Price of $70.00 to a Final Share Price of $73.50. Because the Final Share Price of $73.50 is greater than the Initial Share Price of $70.00 and the Index Fund Return of 5% multiplied by 1.5 does not exceed the hypothetical Maximum Total Return of 23%, the investor receives a payment at maturity of $1,075 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × 5% × 1.5) = $1,075
Example 2: The closing price of one share of the Index Fund decreases from the Initial Share Price of $70.00 to a Final Share Price of $66.50. Because the Final Share Price of $66.50 is less than the Initial Share Price of $70.00 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 3: The closing price of one share of the Index Fund decreases from the Initial Share Price of $70.00 to a Final Share Price of $49.00. Because the Final Share Price of $49.00 is less than the Initial Share Price of $70.00 by more than the Buffer Amount of 10%, the investor receives a payment at maturity of $800 per $1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 × (-30% + 10%)] = $800
Example 4: The closing price of one share of the Index Fund increases from the Initial Share Price of $70.00 to a Final Share Price of $84.00. Because the Final Share Price of $84.00 is greater than the Initial Share Price of $70.00, and the Index Fund Return of 20% multiplied by 1.5 exceeds the hypothetical Maximum Total Return of 23%, the investor receives a payment at maturity of $1,230 per $1,000 principal amount note, the maximum payment on the notes.
Example 5: The closing price of one share of the Index Fund decreases from the Initial Share Price of $70.00 to a Final Share Price of $0.00. Because the Final Share Price of $0.00 is less than the Initial Share Price of $70.00 by more than the Buffer Amount of 10%, the investor receives a payment at maturity of $100 per $1,000 principal amount note calculated as follows:
$1,000 + [$1,000 × (-100% + 10%)] = $100
Historical Information
The following graph sets forth the historical performance of the iShares® MSCI Brazil Index Fund based on the weekly closing price of one share of the Index Fund from January 6, 2006 through June 24, 2011. The closing price of one share of the Index Fund on June 29, 2011 was $72.85. We obtained the Index Fund closing prices below from Bloomberg Financial Markets. We make no representation or warranty as to the accuracy or completeness of the information obtained from Bloomberg Financial Markets.
The historical closing prices per share of the Index Fund should not be taken as an indication of future performance, and no assurance can be given as to the closing price per share of the Index Fund on the Observation Date. We cannot give you assurance that the performance of the Index Fund will result in the return of any of your initial investment.
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JPMorgan Structured Investments | TS-6 |
Buffered Return Enhanced Notes Linked to the iShares® MSCI Brazil Index Fund |
APPENDIX A
The iShares® MSCI Brazil Index Fund
We have derived all information contained in this document regarding the iShares® MSCI Brazil Index Fund, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information. Such information reflects the policies of, and is subject to change by, iShares®, Inc., BlackRock Institutional Trust Company, N.A. (BTC) and BlackRock Fund Advisors (BFA). The iShares® MSCI Brazil Index Fund is an investment portfolio maintained and managed by iShares®, Inc. BFA is currently the investment advisor to the iShares® MSCI Brazil Index Fund. The iShares® MSCI Brazil Index Fund is an exchange traded fund (ETF) that trades on the New York Stock Exchange (the NYSE) under the ticker symbol EWZ. We make no representations or warranty as to the accuracy or completeness of the information derived from these public sources.
iShares®, Inc. is a registered investment company that consists of numerous separate investment portfolios, including the iShares® MSCI Brazil Index Fund. Information provided to or filed with the SEC by iShares®, Inc. pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to SEC file numbers 033-97598 and 811-09102, respectively, through the SECs website at http://www.sec.gov. For additional information regarding iShares®, Inc., BFA and the iShares® MSCI Brazil Index Fund, please see the Prospectus, dated January 1, 2010 (as supplemented on February 2, 2010, September 30, 2010, October 7, 2010 and January 1, 2011). In addition, information about iShares® and the iShares® MSCI Brazil Index Fund may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents and the iShares® website at www.ishares.com. We make no representation or warranty as to the accuracy or completeness of such information. Information contained in the iShares® website is not incorporated by reference in, and should not be considered a part of, this document.
Investment Objective and Strategy
The iShares® MSCI Brazil Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the Brazilian market, as measured by the MSCI Brazil Index. The iShares® MSCI Brazil Index Fund holds equity securities traded primarily in Brazil. The MSCI Brazil Index was developed by MSCI Inc. (MSCI) as an equity benchmark for Brazilian stock performance, and is designed to measure equity market performance in Brazil.
As of May 31, 2011, the iShares® MSCI Brazil Index Funds three largest equity securities were Petrobras Petroleo Brasileiro SA, Preferred; Cia Vale do Rio Doce, Preferred-Class A and Itau Unibanco Banco Multiplo SA. Its three largest sectors were materials, financials and energy.
The iShares® MSCI Brazil Index Fund uses a representative sampling strategy (as described below under Representative Sampling) to try to track the MSCI Brazil Index. The iShares® MSCI Brazil Index Fund generally invests at least 95% of its assets in the securities of the MSCI Brazil Index and in depositary receipts representing securities included in the MSCI Brazil Index. The iShares® MSCI Brazil Index Fund will at all times invest at least 80% of its assets in the securities of the MSCI Brazil Index or in depositary receipts representing securities included in the MSCI Brazil Index. The iShares® MSCI Brazil Index Fund may invest the remainder of its assets in other securities, including securities not in the MSCI Brazil Index, futures contracts, options on futures contracts, other types of options and swaps related to the MSCI Brazil Index, as well as cash and cash equivalents, including shares of money market funds affiliated with BFA or its affiliates.
Representative Sampling
BFA uses a representative sampling indexing strategy to manage the iShares® MSCI Brazil Index Fund. Representative sampling is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the MSCI Brazil Index. Securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the MSCI Brazil Index. The iShares® MSCI Brazil Index Fund may or may not hold all of the securities in the MSCI Brazil Index.
Correlation
The MSCI Brazil Index is a theoretical financial calculation, while the iShares® MSCI Brazil Index Fund is an actual investment portfolio. The performance of the iShares® MSCI Brazil Index Fund and the MSCI Brazil Index may vary due to transaction costs, non-U.S. currency valuation, asset valuations, corporate actions (such as mergers and spin-offs), timing variances and differences between the iShares® MSCI Brazil Index Funds portfolio and the MSCI Brazil Index resulting from legal restrictions (such as diversification requirements) that apply to the iShares® MSCI Brazil Index Fund but not to the MSCI Brazil Index or the use of representative sampling. Tracking error is the difference between the performance (return) of a funds portfolio and that of its underlying index. BFA expects that, over time, the iShares® MSCI Brazil Index Funds tracking error will not exceed 5%. The iShares® MSCI Brazil Index Fund, using a representative sampling strategy, can be expected to have a greater tracking error than a fund using a replication strategy. Replication
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JPMorgan Structured Investments | TS-7 |
Buffered Return Enhanced Notes Linked to the iShares® MSCI Brazil Index Fund |
is a strategy in which a fund invests in substantially all of the securities in its underlying index in approximately the same proportions as in the underlying index.
Industry Concentration Policy
The iShares® MSCI Brazil Index Fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to approximately the same extent that the MSCI Brazil Index is concentrated. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities) and repurchase agreements collateralized by U.S. government securities are not considered to be issued by members of any industry.
Holdings Information
As of May 31, 2011, 99.15% of the iShares® MSCI Brazil Index Funds holdings consisted of equity securities, 0.09% consisted of cash and 0.76% was in other assets, including dividends booked but not yet received. The following tables summarize the iShares® MSCI Brazil Index Funds top holdings in individual companies and by sector as of such date.
Top holdings in individual securities as of May 31, 2011
Company
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Percentage of Total Holdings |
Petrobras Petroleo Brasileiro SA, Preferred |
10.26% |
Cia Vale do Rio Doce, Preferred-Class A |
9.16% |
Itau Unibanco Banco Multiplo SA |
8.30% |
Petrobras Petroleo Brasileiro SA |
8.09% |
Cia Vale do Rio Doce, ADR |
6.59% |
Banco Bradesco SA, Preferred |
5.20% |
Cia de Bebidas das Americas, Preferred |
3.67% |
Itausa-Investimentos Itau, Preferred |
2.80% |
BM&F Bovespa SA |
2.26% |
OGX Petroleo e Gas Participa |
2.08% |
Top holdings by sector as of May 31, 2011
Sector
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Percentage of Total Holdings |
Materials |
23.78% |
Financials |
23.74% |
Energy |
21.96% |
Consumer Staples |
9.05% |
Utilities |
5.86% |
Consumer Discretionary |
5.05% |
Industrials |
3.49% |
Telecommunications Services |
3.19% |
Information Technology |
2.07% |
Health Care |
0.97% |
Other |
0.85% |
The information above was compiled from the iShares® website. We make no representation or warranty as to the accuracy or completeness of such information. Information contained in the iShares® website is not incorporated by reference in, and should not be considered a part of, this document.
Disclaimer
The notes are not sponsored, endorsed, sold, or promoted by BTC. BTC makes no representations or warranties to the owners of the notes or any member of the public regarding the advisability of investing in the notes. BTC has no obligation or liability in connection with the operation, marketing, trading or sale of the notes.
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JPMorgan Structured Investments | TS-8 |
Buffered Return Enhanced Notes Linked to the iShares® MSCI Brazil Index Fund |