Term sheet
To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011,
underlying supplement no. 4-I dated November 14, 2011 and
product supplement no. 6-I dated November 14, 2011
|
Term Sheet to
Product Supplement No. 6-I
Registration Statement No. 333-177923
Dated March 1, 2012; Rule 433
|
Structured Investments |
$
Notes Linked to the JPMorgan ETF Efficiente 5 Index
due September 30, 2015
|
|
·
|
Senior unsecured obligations of JPMorgan Chase & Co. maturing September 30, 2015*
|
|
·
|
Cash payment at maturity of principal plus the Additional Amount†, as described below
|
|
·
|
The notes are designed for investors who seek exposure to any appreciation of the JPMorgan ETF Efficiente 5 Index over the term of the notes and may be appropriate for investors requiring asset and investment strategy diversification. Investors should be willing to forgo interest and dividend payments, while seeking payment of your principal in full at maturity. Any payment on the notes is subject to the credit risk of JPMorgan Chase & Co. If JPMorgan Chase & Co. were to default on its payment obligations, you may lose your entire investment.
|
|
·
|
Investing in the notes is not equivalent to investing in the JPMorgan ETF Efficiente 5 Index, any of the Basket Constituents or any of the assets underlying the Basket Constituents.
|
|
·
|
Minimum denominations of $1,000 and integral multiples thereof
|
|
·
|
The notes are expected to price on or about March 27, 2012 and are expected to settle on or about March 30, 2012.
|
|
·
|
The stated payout, including the repayment of principal, is only available from JPMorgan Chase & Co. at maturity.
|
|
·
|
The notes will not be listed on an exchange and may have limited or no liquidity.
|
Index:
|
JPMorgan ETF Efficiente 5 Index (the “Index”)
|
|
Payment at Maturity:
|
At maturity, you will receive a cash payment, for each $1,000 principal amount note, of $1,000 plus the Additional Amount†, which may be zero.
You will be entitled to repayment of principal in full only at maturity, subject to the credit risk of JPMorgan Chase & Co.
|
|
Additional Amount†:
|
The Additional Amount† per $1,000 principal amount note paid at maturity will equal $1,000 × the Index Return × the Participation Rate, provided that the Additional Amount† will not be less than zero.
|
|
Participation Rate:
|
At least 100%. The actual Participation Rate will be determined on the pricing date and will not be less than 100%
|
|
Index Return:
|
Ending Index Level – Initial Index Level
|
|
Initial Index Level
|
||
Initial Index Level:
|
The Index closing level on the pricing date
|
|
Ending Index Level:
|
The Index closing level on the Observation Date
|
|
Observation Date*:
|
September 25, 2015
|
|
Maturity Date*:
|
September 30, 2015
|
|
CUSIP:
|
48125VPW4
|
|
*
|
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. 6-I and “Supplemental Terms of Notes — Postponement of a Determination Date — Notes linked solely to the ETF Efficiente Index” in the accompanying underlying supplement no. 4-I
|
|
†
|
Subject to the impact of a commodity hedging disruption event as described under “General Terms of Notes — Additional Index Provisions — A. Consequences of a Commodity Hedging Disruption Event — Early Determination of the Additional Amount” in the accompanying product supplement no. 6-I, we have the right, but not the obligation, to cause the note calculation agent to determine on the commodity hedging disruption date the value of the Additional Amount payable at maturity. Under these circumstances, the value of the Additional Amount payable at maturity will be determined prior to, and without regard to the level of the Index on, the Observation Date. Please see “Selected Risk Considerations — We May Determine the Additional Amount for Your Notes Early If a Commodity Hedging Disruption Event Occurs” for additional information.
|
Price to Public (1)
|
Fees and Commissions (2)
|
Proceeds to Us
|
|
Per note
|
$1,000
|
$—
|
$1,000
|
Total
|
$
|
$
|
$
|
(1)
|
The price to the public includes the estimated cost of hedging our obligations under the notes through one or more of our affiliates, 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 and Hedging” beginning on page PS-44 of the accompanying product supplement no. 6-I.
|
(2)
|
All sales of these notes will be made to certain fee-based advisory accounts for which UBS Financial Services Inc, which we refer to as UBS, is an investment adviser. UBS will act as a placement agent with respect to these sales. The purchase price for these accounts is $1,000 principal amount note and UBS will forgo any commissions related to these sales.
|
UBS Financial Services Inc.
|
|
·
|
Product supplement no. 6-I dated November 14, 2011:
|
|
·
|
Underlying supplement no. 4-I dated November 14, 2011:
|
|
·
|
Prospectus supplement dated November 14, 2011:
|
|
·
|
Prospectus dated November 14, 2011:
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-1
|
Sector Cap
|
Basket Constituent
|
Asset Cap
|
|
1
|
Developed Equities
50%
|
SPDR® S&P 500® ETF Trust
|
20%
|
2
|
iShares® Russell 2000 Index Fund
|
10%
|
|
3
|
iShares® MSCI EAFE Index Fund
|
20%
|
|
4
|
Bonds
50%
|
iShares® Barclays 20+ Year Treasury Bond Fund
|
20%
|
5
|
iShares® iBOXX $ Investment Grade Corporate Bond Fund
|
20%
|
|
6
|
iShares® iBOXX $ High Yield Corporate Bond Fund
|
20%
|
|
7
|
Emerging Markets
25%
|
iShares® MSCI Emerging Markets Index Fund
|
20%
|
8
|
iShares® Emerging Markets Bond Fund
|
20%
|
|
9
|
Alternative
Investments
25%
|
iShares® Dow Jones Real Estate Index Fund
|
20%
|
10
|
iShares® S&P GSCI™ Commodity-Indexed Trust
|
10%
|
|
11
|
SPDR® Gold Trust
|
10%
|
|
12
|
Inflation Protected Bonds
and Cash
50%
|
iShares® Barclays TIPS Bond Fund
|
50%
|
13
|
JPMorgan Cash Index USD 3 Month
|
50%
|
|
·
|
POTENTIAL PRESERVATION OF CAPITAL AT MATURITY — Subject to the credit risk of JPMorgan Chase & Co., the payout formula allows you to receive at least your initial investment in the notes if you hold the notes to maturity, regardless of the performance of the Index. Because the notes are our senior unsecured obligations, payment of any amount on the notes is subject to our ability to pay our obligations as they become due.
|
|
·
|
APPRECIATION POTENTIAL — At maturity, in addition to your principal, for each $1,000 principal amount note you will receive a payment equal to $1,000 × the Index Return × the Participation Rate**, provided that this payment (the Additional Amount) will not be less than zero.
** The Participation Rate will be determined on the pricing date and will not be less than 100%.
|
|
·
|
RETURN LINKED TO A NOTIONAL DYNAMIC BASKET THAT TRACKS THE EXCESS RETURN OF A PORTFOLIO OF TWELVE ETFs AND ONE INDEX, REPRESENTING A DIVERSE RANGE OF ASSETS AND GEOGRAPHIC REGIONS — The return on the notes is linked to the performance of the JPMorgan ETF Efficiente 5 Index. The Index tracks the excess return of a portfolio of twelve ETFs and the Cash Constituent using an investment strategy that is based on the modern portfolio theory of asset allocation, which suggests how a rational investor should allocate his capital across the available universe of assets to maximize return for a given risk appetite. The Index uses the concept of an “efficient frontier” to define the asset allocation of the Index. An efficient frontier for a portfolio of assets defines the optimum return of the portfolio for a given amount of risk. The Index uses the volatility of returns of hypothetical portfolios as the measure of risk. This strategy is based on the assumption that the
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-2
|
|
·
|
TAXED AS CONTINGENT PAYMENT DEBT INSTRUMENTS — You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” and in particular the subsection thereof entitled “—Notes Treated as Contingent Payment Debt Instruments” in the accompanying product supplement no. 6-I. In the opinion of our special tax counsel, Davis Polk & Wardwell LLP, the notes will be treated for U.S. federal income tax purposes as “contingent payment debt instruments.” You will be required to accrue as interest income original issue discount on your notes in each taxable year at the comparable yield, as determined by us, although we will not make any payment with respect to the notes until maturity. Upon sale or exchange (including redemption at maturity), you generally will recognize taxable income or loss equal to the difference between the amount received from the sale or exchange and your adjusted tax basis in the note. You generally must treat any income as interest income and any loss as ordinary loss to the extent of previous interest inclusions, and the balance as capital loss. The deductibility of capital losses is subject to limitations. Special rules may apply if the Additional Amount is determined prior to the Observation Date as a result of a commodity hedging disruption event. You should consult your tax adviser concerning the application of these rules. Purchasers who are not initial purchasers of notes at their issue price should consult their tax advisers with respect to the tax consequences of an investment in notes, including the treatment of the difference, if any, between the basis in their notes and the notes’ adjusted issue price.
|
|
·
|
COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE — We will determine the comparable yield for the notes and will provide that comparable yield, and the related projected payment schedule, in the pricing supplement for the notes, which we will file with the SEC. If the notes had priced on February 29, 2012 and we had determined the comparable yield on that date, it would have been an annual rate of 2.16%, compounded semiannually. The actual comparable yield that we will determine for the notes may be more or less than 2.16%, and will depend upon a variety of factors, including actual market conditions and our borrowing costs for debt instruments of comparable maturities. Neither the comparable yield nor the projected payment schedule constitutes a representation by us regarding the actual Additional Amount, if any, that we will pay on the notes.
|
|
·
|
MARKET RISK — The return on the notes at maturity is linked to the performance of the Index, and will depend on whether, and the extent to which, the Index Return is positive. YOU WILL RECEIVE NO MORE THAN THE PRINCIPAL AMOUNT OF YOUR NOTES AT MATURITY IF THE INDEX RETURN IS ZERO OR NEGATIVE.
|
|
·
|
THE NOTES MIGHT NOT PAY MORE THAN THE PRINCIPAL AMOUNT AT MATURITY — You may receive a lower payment at maturity than you would have received if you had invested directly in the Index, any of its Basket Constituents or any of the securities, commodities, commodity futures contracts or other assets underlying the Basket Constituents or contracts relating to the Index or any of the Basket Constituents for which there is an active secondary market. If the Ending Index Level does not exceed the Initial Index Level, the Additional Amount will be zero. This will be true even if the level of the Index was higher than the Initial Index Level at some time during the term of the notes but falls below the Initial Index Level on the Observation Date.
|
|
·
|
THE LEVEL OF THE INDEX WILL INCLUDE THE DEDUCTION OF A FEE — One way in which the Index may differ from a typical index is that its level will include a deduction from the performance of the Basket Constituents over
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-3
|
|
·
|
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.
|
|
·
|
WE MAY DETERMINE THE ADDITIONAL AMOUNT FOR YOUR NOTES EARLY 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, cause the note calculation agent to determine the Additional Amount for your notes early, on the date on which the note calculation agent determines that a commodity hedging disruption event has occurred, which may be significantly earlier than the Observation Date. If the Additional Amount for your notes is determined early as the result of a commodity hedging disruption event, the amount due and payable on your notes will be due and payable only at maturity and the amount you receive at maturity will not reflect any further appreciation of the Index after such early determination. Please see “General Terms of Notes — Additional Index Provisions — A. Consequences of a Commodity Hedging Disruption Event — Early Determination of the Additional Amount” in the accompanying product supplement for more information.
|
|
·
|
POTENTIAL CONFLICTS — We and our affiliates play a variety of roles in connection with the issuance of the notes, including acting as note calculation agent — the entity that, among other things, determines the Index closing levels to be used to determine your payment at maturity — and acting as index calculation agent and sponsor of the Index and hedging our obligations under the notes. In performing these duties, our economic interests and the economic interests of the note calculation agent, index calculation agent, sponsor of the Index, and other affiliates of ours are potentially adverse to your interests as an investor in the notes. 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. 6-I for additional information about these risks.
|
|
·
|
OUR AFFILIATE, J.P. MORGAN SECURITIES LTD., OR JPMSL, IS THE INDEX CALCULATION AGENT AND MAY ADJUST THE INDEX IN A WAY THAT AFFECTS ITS LEVEL — JPMSL, one of our affiliates, acts as the index calculation agent and is responsible for calculating and maintaining the Index and developing the guidelines and policies governing its composition and calculation. The rules governing the Index may be amended at any time by JPMSL, in its sole discretion, and the rules also permit the use of discretion by JPMSL in specific instances, such as the right to substitute a Basket Constituent. Unlike other indices, the maintenance of the Index is not governed by an independent committee. Although judgments, policies and determinations concerning the Index are made by JPMSL, JPMorgan Chase & Co., as the parent company of JPMSL, ultimately controls JPMSL.
|
|
·
|
JPMS, UBS AND THEIR AFFILIATES MAY HAVE PUBLISHED RESEARCH, EXPRESSED OPINIONS OR PROVIDED RECOMMENDATIONS THAT ARE INCONSISTENT WITH INVESTING IN OR HOLDING THE NOTES. ANY SUCH RESEARCH, OPINIONS, OR RECOMMENDATIONS COULD AFFECT THE MARKET VALUE OF THE NOTES — JPMS, UBS and their affiliates publish research from time to time on financial markets and other matters that may influence the value of the notes, or express opinions or provide recommendations that are inconsistent with purchasing or holding the notes. JPMS, UBS and their affiliates may have published research or other opinions that call into question the investment view implicit in an investment in the notes. Any research, opinions or recommendations expressed by JPMS, UBS or their affiliates may not be consistent with each other and may be modified from time to time without notice. Investors should make their own independent investigation of the merits of investing in the notes and the Basket Constituents and the securities,
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-4
|
|
·
|
CERTAIN BUILT-IN COSTS ARE LIKELY TO AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR TO MATURITY – While the payment at maturity described in this term sheet is based on the full principal amount of your notes, the original issue price of the notes includes the 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 hedging costs, including those set forth under “Many Economic and Market Factors Will Impact the Value of the Notes” below. You must hold your notes to maturity to receive the stated payout from JPMorgan Chase & Co., including the full repayment of your principal amount.
|
|
·
|
THE COMMODITY FUTURES CONTRACTS UNDERLYING SOME OF THE BASKET CONSTITUENTS ARE SUBJECT TO LEGAL AND REGULATORY REGIMES — The commodity futures contracts and commodities that underlie two of the Basket Constituents, the iShares® S&P GSCI™ Commodity-Indexed Trust and the SPDR® Gold Trust, and commodities are subject to legal and regulatory regimes in the United States and, in some cases, in other countries that may change in ways that could adversely affect our ability to hedge our obligations under the notes and affect the level of the Index. Such regimes may result in the index calculation agent exercising its discretionary right to exclude or substitute Basket Constituents, which may, in turn, have a negative effect on the level of the Index and your payment at maturity. In addition, we or our affiliates may be unable as a result of such restrictions to effect transactions necessary to hedge our obligations under the notes resulting in a commodity hedging disruption event, in which case we may, in our sole and absolute discretion, cause the note calculation agent to determine the value of the Additional Amount for your notes early. Please see “— We May Determine the Additional Amount for Your Notes Early If a Commodity Hedging Disruption Event Occurs” above and “General Terms of Notes — Additional Index Provisions — A. Consequences of a Commodity Hedging Disruption Event — Early Determination of the Additional Amount” in the accompanying product supplement for more information.
|
|
·
|
NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive any interest payments, and you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities, commodities, commodity futures contracts or other assets underlying the Basket Constituents would have.
|
|
·
|
THE INDEX MAY NOT BE SUCCESSFUL, OUTPERFORM ANY ALTERNATIVE STRATEGY THAT MIGHT BE EMPLOYED IN RESPECT OF THE BASKET CONSTITUENTS OR ACHIEVE ITS TARGET VOLATILITY — The Index follows a notional rules-based proprietary strategy that operates on the basis of pre-determined rules. No assurance can be given that the investment strategy on which the Index is based will be successful or that the Index will outperform any alternative strategy that might be employed in respect of the Basket Constituents. Furthermore, no assurance can be given that the JPMorgan ETF Efficiente 5 Index will achieve its target volatility of 5%. The actual realized volatility of the JPMorgan ETF Efficiente 5 Index may be greater or less than 5%.
|
|
·
|
THE INDEX COMPRISES NOTIONAL ASSETS AND LIABILITIES — The exposures to the Basket Constituents are purely notional and will exist solely in the records maintained by or on behalf of the index calculation agent. There is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest. Consequently, you will not have any claim against any of the reference assets that compose the Index. The Index tracks the excess return of a notional dynamic basket of assets over the Cash Constituent and, as such, any allocation to the Cash Constituent will result in this portion of the portfolio not being invested. Unless an extraordinary event occurs, the Cash Constituent will be subject to a maximum weight of 50% in the Index. Please see “— The Basket Constituents Composing the Index May Be Replaced by a Substitute ETF or Index” for more information about the consequences of an extraordinary event.
|
|
·
|
OWNING THE NOTES INVOLVES THE RISKS ASSOCIATED WITH THE INDEX’S MOMENTUM INVESTMENT STRATEGY — The Index employs a mathematical model intended to implement what is generally known as a momentum investment strategy, which seeks to capitalize on positive market price trends based on the supposition that positive market price trends may continue. This strategy is different from a strategy that seeks long-term exposure to a portfolio consisting of constant components with fixed weights. The Index may fail to realize gains that could occur as a result of holding assets that have experienced price declines, but after which experience a sudden price spike.
|
|
·
|
THE INVESTMENT STRATEGY USED TO CONSTRUCT THE INDEX INVOLVES MONTHLY REBALANCING AND WEIGHTING CAPS THAT ARE APPLIED TO THE BASKET CONSTITUENTS — The Basket Constituents are subject to monthly rebalancing and maximum weighting caps by asset type and on subsets of assets. By contrast, a synthetic portfolio that does not rebalance monthly and is not subject to any weighting caps in this manner could see greater compounded gains over time through exposure to a consistently and rapidly appreciating portfolio consisting of the Basket Constituents. Therefore, your return on the notes may be less than the return you could realize on an alternative investment that was not subject to rebalancing and weighting caps.
|
|
·
|
CHANGES IN THE VALUES OF THE BASKET CONSTITUENTS MAY OFFSET EACH OTHER — Because the notes are linked
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-5
|
|
·
|
THE ETF EFFICIENTE INDEX MAY BE PARTIALLY UNINVESTED — The weight of the Cash Constituent at any given time represents the portion of the synthetic portfolio that is uninvested at that time. The ETF Efficiente Index will reflect no return for any uninvested portion (i.e., any portion represented by the Cash Constituent). While the weight of the Cash Constituent is normally limited by a weighting constraint of 50%, if, as a result of an extraordinary event, any Basket Constituent is replaced with the Cash Constituent, the aggregate weight of the Cash Constituent would be allowed to exceed 50% because a portion of such aggregate weight would be subject to the weighting constraints specific to the replaced Basket Constituent and not the weighting constraints specific to the Cash Constituent. See “The Basket Constituents Composing the Index May Be Replaced by a Substitute ETF or Index” below.
|
|
·
|
CORRELATION OF PERFORMANCES AMONG THE BASKET CONSTITUENTS MAY REDUCE PERFORMANCE OF THE NOTES — Performances of the Basket Constituents may become highly correlated from time to time during the term of the notes, including, but not limited to, a period in which there is a substantial decline in a particular sector or asset type represented by the Basket Constituents and that has a higher weighting in the Index relative to any of the other sectors or asset types, as determined by the Index’s strategy. High correlation during periods of negative returns among Basket Constituents representing any one sector or asset type and which Basket Constituents have a substantial percentage weighting in the Index could cause you to only receive a return of your principal amount at maturity.
|
|
·
|
THE INDEX HAS A LIMITED OPERATING HISTORY AND MAY PERFORM IN UNANTICIPATED WAYS — The Index was established on October 29, 2010, and therefore has a limited operating history. Any back-testing or similar analysis in respect of the Index must be considered illustrative only and may be based on estimates or assumptions not used by the index calculation agent when determining the level of the Index. Past performance should not be considered indicative of future performance.
|
|
·
|
AN INVESTMENT IN THE NOTES IS SUBJECT TO RISKS ASSOCIATED WITH NON-U.S. SECURITIES MARKETS, INCLUDING EMERGING MARKETS — Some or all of the equity securities that are held by two of the Basket Constituents, the iShares® MSCI EAFE Index Fund and the iShares® MSCI Emerging Markets Index Fund, have been issued by non-U.S. companies. In addition, the iShares® iBOXX $ Investment Grade Corporate Bond Fund and the iShares® iBOXX $ High Yield Corporate Bond Fund, which are also Basket Constituents, may include U.S. dollar-denominated bonds of foreign corporations. Moreover, the bonds held by the iShares® JPMorgan USD Emerging Markets Bond Fund have been issued by 33 countries. Investments in the notes, which are linked in part to the economic stability and development of such countries, involve risks associated with investments in, or the securities markets in, those countries. The impact of any of these risks may enhance or offset some or all of any change resulting from another factor or factors. See “Risk Factors” in the accompanying product supplement and “Risk Factors” in the accompanying underlying supplement for more information on these risks.
|
|
·
|
THE NOTES ARE SUBJECT TO CURRENCY EXCHANGE RISK — Because the prices of some or all of the securities composing two of the thirteen Basket Constituents (the iShares® MSCI EAFE Index Fund and the iShares® MSCI Emerging Markets Index Fund) (the “Component Securities”) are converted into U.S. dollars for purposes of calculating the value of the relevant Basket Constituent, your notes will be exposed to currency exchange rate risk with respect to each of the relevant currencies. Your net exposure will depend on the extent to which such currencies strengthen or weaken against the U.S. dollar and the weight of the Component Securities denominated in each such currency. If, taking into account such weighting, the U.S. dollar strengthens against such currencies, the value of the relevant Basket Constituents will be adversely affected and the payment at maturity may be reduced.
|
|
·
|
THERE ARE RISKS ASSOCIATED WITH THE ETF CONSTITUENTS — Although shares of the ETF Constituents are listed for trading on NYSE Arca, Inc. (the “NYSE Arca”) and a number of similar products have been traded on various national securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for the shares of the ETF Constituents or that there will be liquidity in the trading market. The ETF Constituents are subject to management risk, which is the risk that the investment strategies of their investment advisers, the implementation of which is subject to a number of constraints, may not produce the intended results. These constraints could adversely affect the market prices of the shares of the ETF Constituents, and consequently, the value of the notes.
|
|
·
|
THERE ARE DIFFERENCES BETWEEN THE ETF CONSTITUENTS AND THEIR UNDERLYING INDICES — The ETF Constituents do not fully replicate their respective underlying indices and may hold securities not included in their respective underlying indices, and their performances will reflect additional transaction costs and fees that are not included in the calculation of their underlying indices, all of which may lead to a lack of correlation between the ETF Constituents and their respective underlying indices. In addition, corporate actions with respect to the sample of securities (such as mergers and spin-offs) may impact the variance between the ETF Constituents and their respective underlying indices. Finally, because the shares of the ETF Constituents are traded on the NYSE Arca and are subject to market supply and investor demand, the market value of one share of any of the ETF Constituents may differ from the net asset value per share of such ETF Constituent.
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-6
|
|
·
|
THE NOTES ARE SUBJECT TO SIGNIFICANT RISKS ASSOCIATED WITH FIXED-INCOME SECURITIES, INCLUDING INTEREST RATE-RELATED AND CREDIT-RELATED RISKS — Five of the Basket Constituents (the iShares® Barclays 20+ Year Treasury Bond Fund, the iShares® iBOXX $ Investment Grade Corporate Bond Fund, the iShares® iBOXX $ High Yield Corporate Bond Fund, the iShares® Emerging Markets Bond Fund and the iShares® Barclays TIPS Bond Fund, which we collectively refer to as the Bond ETFs) are bond ETFs that attempt to track the performance of indices composed of fixed income securities. Investing in the notes linked indirectly to these Basket Constituents differs significantly from investing directly in bonds to be held to maturity as the values of the Bond ETFs change, at times significantly, during each trading day based upon the current market prices of their underlying bonds. The market prices of these bonds are volatile and significantly influenced by a number of factors, particularly the yields on these bonds as compared to current market interest rates and the actual or perceived credit quality of the issuer of these bonds. The market prices of the bonds underlying each of the iShares® iBOXX $ Investment Grade Corporate Bond Fund and the iShares® iBOXX $ High Yield Corporate Bond Fund are determined by reference to the bid and ask quotations provided by 9 contributing banks, one of which is us. JPMS is also the sponsor of the JPMorgan EMBI Global Core Index, which is the index underlying the iShares® JPMorgan USD Emerging Markets Bond Fund. JPMS may, as a last resort, if there are no valid prices available for instruments included in the JPMorgan EMBI Global Core Index, price such instruments by asking JPMS traders to provide a market bid and ask.
|
|
·
|
INVESTMENTS RELATED TO THE VALUE OF COMMODITIES TEND TO BE MORE VOLATILE THAN TRADITIONAL NOTE INVESTMENTS — The market values of commodities tend to be highly volatile. Commodity market values are not related to the value of a future income or earnings stream, as tends to be the case with fixed-income and equity investments, but are subject to variables that are specific to commodities markets. These factors may have a larger impact on commodity prices and commodity-linked instruments than on traditional notes. These variables may create additional investment risks that cause the value of the notes to be more volatile than the values of traditional notes. These and other factors may affect the values of the constituents included from time to time in the Index, and thus the value of your notes, in unpredictable or unanticipated ways. The high volatility and cyclical nature of commodity markets may render these investments inappropriate as the focus of an investment portfolio.
|
|
·
|
HIGHER FUTURE PRICES OF THE COMMODITY FUTURES CONTRACTS CONSTITUTING THE iSHARES® S&P GSCI™ COMMODITY-INDEXED TRUST RELATIVE TO THEIR CURRENT PRICES MAY DECREASE THE AMOUNT PAYABLE AT MATURITY — As the exchange-traded futures contracts that compose the iShares® S&P GSCI™ Commodity-Indexed Trust approach expiration, they are replaced by contracts that have a later expiration. If the market for these contracts is (putting aside other considerations) in “backwardation,” where the prices are lower in the distant delivery months than in the nearer delivery months, the sale of the October contract would take place at a price that is higher than the price of the November contract, thereby creating a “roll yield.” There can be no assurance that backwardation will exist at times that are advantageous, with respect to your interests as a holder of the
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-7
|
|
·
|
RISKS ASSOCIATED WITH THE REAL ESTATE INDUSTRY WILL AFFECT THE VALUE OF YOUR NOTES — The iShares® Dow Jones Real Estate Index Fund, one of the Basket Constituents composing the Index, holds a variety of real estate-related securities. The following are some of the conditions that might impact the value of the securities held by the iShares® Dow Jones Real Estate Index Fund and the value of the iShares® Dow Jones Real Estate Index Fund, and accordingly, the level of the Index and the value of your notes:
|
|
·
|
a decline in the value of real estate properties;
|
|
·
|
increases in property and operating taxes;
|
|
·
|
increased competition or overbuilding;
|
|
·
|
a lack of available mortgage funds or other limits on accessing capital;
|
|
·
|
tenant bankruptcies and other credit problems;
|
|
·
|
changes in zoning laws and governmental regulations;
|
|
·
|
changes in interest rates; and
|
|
·
|
uninsured damages from floods, earthquakes or other natural disasters.
|
|
·
|
AN INVESTMENT IN THE NOTES IS SUBJECT TO RISKS ASSOCIATED WITH SMALL CAPITALIZATION STOCKS — The equity securities held by the iShares® Russell 2000 Index Fund and included in the Russell 2000® Index have been issued by companies with relatively small market capitalization. The stock prices of smaller companies may be more volatile than stock prices of large capitalization companies. Small capitalization companies may be less able to withstand adverse economic, market, trade and competitive conditions relative to larger companies. Small capitalization companies are less likely to pay dividends on their stocks, and the presence of a dividend payment could be a factor that limits downward stock price pressure under adverse market conditions. The stocks of small capitalization companies may be thinly traded and thus may be difficult for the iShares® Russell 2000 Index Fund to buy and sell.
|
|
·
|
THE MARKET PRICE OF GOLD WILL AFFECT THE VALUE OF THE NOTES — Because the Index is linked in part to the performance of the price of gold, we expect that generally the market value of the notes will depend in part on the market price of gold. The price of gold is primarily affected by the global demand for and supply of gold. The market for gold bullion is global, and gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors, including macroeconomic factors such as the structure of and confidence in the global monetary system, expectations regarding the future rate of inflation, the relative strength of, and confidence in, the U.S. dollar (the currency in which the price of gold is usually quoted), interest rates, gold borrowing and lending rates, and global or regional economic, financial, political, regulatory, judicial or other events. Gold prices may be affected by industry factors such as industrial and jewelry demand as well as lending, sales and purchases of gold by the official sector, including central banks and other governmental agencies and multilateral institutions which hold gold. Additionally, gold prices may be affected by levels of gold production, production costs and short-term changes in supply and demand due to trading activities in the gold market.
|
|
·
|
THE BASKET CONSTITUENTS COMPOSING THE INDEX MAY BE REPLACED BY A SUBSTITUTE ETF OR INDEX — Following the occurrence of certain extraordinary events with respect to a Basket Constituent, the affected Basket Constituent may be replaced by a substitute ETF or index. If the index calculation agent determines in its discretion that no suitable substitute ETF or index is available for an affected Basket Constituent (other than the Cash Constituent), then the index calculation agent will replace such Basket Constituent with the Cash Constituent as its substitute. Under such circumstances, the aggregate weight of the Cash Constituent in the Index may be greater than the maximum 50% weight limit allocated to the Cash Constituent because a portion of such aggregate weight would be subject to the separate maximum weight limit specific to the affected Basket Constituent. The substitution of a Basket Constituent may affect the performance of the Index, and therefore, the return on the notes, as the replacement Basket Constituent may perform significantly better or worse than the affected Basket Constituent.
|
|
·
|
LACK OF LIQUIDITY — The notes will not be listed on any securities exchange. JPMS intends to offer to purchase the notes in the secondary market but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Because other dealers are not likely to make a secondary market for the notes, the price at which you may be able to trade your notes is likely to depend on the price, if any, at which JPMS is willing to buy the notes.
|
|
·
|
MANY ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE NOTES — In addition to the Index closing level 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:
|
|
·
|
the actual and expected volatility in the Index and the Basket Constituents;
|
|
·
|
the time to maturity of the notes;
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-8
|
|
·
|
the dividend rate on the equity securities underlying some of the Basket Constituents;
|
|
·
|
the market price of gold and the market price of the physical commodities upon which the commodity futures contracts that compose some of the Basket Constituents are based;
|
|
·
|
interest and yield rates in the market generally;
|
|
·
|
foreign currency exchange rates;
|
|
·
|
a variety of economic, financial, political, regulatory, geographical, agricultural, meteorological and judicial events; and
|
|
·
|
our creditworthiness, including actual or anticipated downgrades in our credit ratings.
|
|
·
|
STANDARD & POOR’S RECENT DOWNGRADE OF THE U.S. GOVERNMENT’S CREDIT RATING, AND ANY FUTURE DOWNGRADES BY CREDIT RATING AGENCIES, MAY ADVERSELY AFFECT THE PERFORMANCE OF THE INDEX AND THE NOTES — On August 6, 2011, Standard & Poor’s Ratings Services (“Standard & Poor’s”), downgraded the U.S. government’s credit rating from AAA to AA+. Additionally, Standard & Poor’s and Moody’s Investor Services, Inc. have assigned a negative outlook on the U.S. government’s credit rating, meaning that the agencies may downgrade the U.S. government’s credit rating in the next year or two. The downgrade has increased and may continue to increase volatility in the global equity and credit markets, which may adversely affect the levels of the Non-Cash Constituents. Future downgrades by credit ratings agencies may also increase this volatility. These events may also increase short-term borrowing costs, including the 3-month LIBOR rate underlying the Cash Constituent, which will adversely affect the level of the Index. All of the above may adversely affect the performance of the Index and the notes.
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-9
|
Ending Index Level
|
Index Return
|
Index Return × Participation Rate (100%)
|
Additional Amount
|
Principal
|
Payment at Maturity
|
||
198.00
|
80.00%
|
80.00%
|
$800.00
|
+
|
$1,000.00
|
=
|
$1,800.00
|
187.00
|
70.00%
|
70.00%
|
$700.00
|
+
|
$1,000.00
|
=
|
$1,700.00
|
176.00
|
60.00%
|
60.00%
|
$600.00
|
+
|
$1,000.00
|
=
|
$1,600.00
|
165.00
|
50.00%
|
50.00%
|
$500.00
|
+
|
$1,000.00
|
=
|
$1,500.00
|
154.00
|
40.00%
|
40.00%
|
$400.00
|
+
|
$1,000.00
|
=
|
$1,400.00
|
143.00
|
30.00%
|
30.00%
|
$300.00
|
+
|
$1,000.00
|
=
|
$1,300.00
|
132.00
|
20.00%
|
20.00%
|
$200.00
|
+
|
$1,000.00
|
=
|
$1,200.00
|
126.50
|
15.00%
|
15.00%
|
$150.00
|
+
|
$1,000.00
|
=
|
$1,150.00
|
121.00
|
10.00%
|
10.00%
|
$100.00
|
+
|
$1,000.00
|
=
|
$1,100.00
|
115.50
|
5.00%
|
5.00%
|
$50.00
|
+
|
$1,000.00
|
=
|
$1,050.00
|
110.00
|
0.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
104.50
|
-5.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
99.00
|
-10.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
93.50
|
-15.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
88.00
|
-20.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
77.00
|
-30.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
66.00
|
-40.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
55.00
|
-50.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
44.00
|
-60.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
33.00
|
-70.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
22.00
|
-80.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-10
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-11
|
JPMorgan Structured Investments —
Notes Linked to the JPMorgan ETF Efficiente 5 Index
|
TS-12
|