Term sheet
To prospectus
dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 196-A-II dated June 13, 2011
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Term Sheet to
Product Supplement No. 196-A-II
Registration Statement No. 333-155535
Dated June 14, 2011; Rule 433
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Structured
Investments
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$
Return
Enhanced Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5
(USD) due June 27, 2014
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General
- The notes are designed for investors
who seek an uncapped return of at least 1.35* times the appreciation of the
J.P. Morgan Alternative Index Multi-Strategy 5 (USD) at maturity and may be
appropriate for investors requiring asset and investment strategy
diversification. Investors should be willing to forgo interest and
dividend payments and, if the Ending Index Value is less than the Initial Index
Value, be willing to lose some or all of their principal. Any payment
on the notes is subject to the credit risk of JPMorgan Chase & Co.
- Senior unsecured
obligations of JPMorgan Chase & Co. maturing June 27, 2014
- Investing in
the notes is not equivalent to investing in the J.P. Morgan Alternative Index
Multi-Strategy 5 (USD), any of the Strategies or any of the assets underlying
the Strategies.
- Minimum denominations of
$1,000 and integral multiples thereof
- The notes are expected to
price on or about June 24, 2011 and are expected to settle on or about June 29,
2011.
Key Terms
Index:
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J.P. Morgan Alternative Index Multi-Strategy 5 (USD) (the
Multi-Strategy Index or the Index)
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Upside Leverage Factor:
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At least 1.35*
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* The actual Upside Leverage Factor will be set on the
pricing date and will not be less than 1.35.
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Payment at Maturity:
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If the Ending Index Value is greater
than the Initial Index Value, you will receive a cash payment that provides you
with a return per $1,000 principal amount note equal to the Index Return multiplied
by the Upside Leverage Factor of at least 1.35*. Accordingly, if
the Index Return is positive, your payment at maturity per $1,000 principal
amount note will be calculated as follows:
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$1,000 + ($1,000 ×
Index Return × Upside
Leverage Factor)
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Your investment will be fully exposed
to any decline of the Index at maturity. If the Ending Index Value is less than the Initial Index Value, you will lose 1% of the principal
amount of your notes for every 1% that the Ending Index Value is less than
the Initial Index Value. Accordingly, if the Index Return is negative,
your payment at maturity per $1,000 principal amount note will be calculated
as follows:
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$1,000 + ($1,000 × Index Return)
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In no event, however, will the payment at maturity be less
than zero.
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You will lose some or all of your investment at maturity if the
Ending Index Value is less than the Initial Index Value.
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Index Return:
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Ending Index Value Initial Index
Value
Initial Index Value
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Initial Index Value:
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The Index closing value on the pricing date, which is
expected to be on or about June 24, 2011
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Ending Index Value:
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The Index closing value on the
Observation Date
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Observation Date:
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June 24, 2014
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Maturity Date:
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June 27, 2014
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CUSIP:
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48125XUM6
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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 in the
accompanying product supplement no. 196-A-II or early acceleration in the
event of a commodity hedging disruption event as described under General
Terms of Notes Consequences of a Commodity Hedging Disruption Event in the
accompanying product supplement no. 196-A-II and in Selected Risk Considerations
The Commodity Futures Contracts Underlying the Relevant Strategies Are
Subject to Uncertain Legal and Regulatory Regimes in this term sheet.
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Investing in
the Return Enhanced Notes involves a number of risks. See Risk Factors
beginning on page PS-5 of the accompanying product supplement
no. 196-A-II and Selected Risk Considerations beginning on page TS-4 of this
term sheet.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or passed upon the accuracy
or the adequacy of this term sheet or the accompanying prospectus supplement
and prospectus. Any representation to the contrary is a criminal offense.
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Price
to Public (1)
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Fees
and Commissions (2)
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Proceeds
to Us
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Per note
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$
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$
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$
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Total
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$
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$
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$
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(1) |
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) |
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
$22.50 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 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, which
includes amounts that may be allowed to other dealers, exceed $40.00 per
$1,000 principal amount note. See Plan of Distribution (Conflicts of
Interest) beginning on page PS-144 of the accompanying product supplement
no. 196-A-II.
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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 14, 2011
Additional
Terms Specific to the Notes
JPMorgan Chase & Co.
has filed a registration statement (including a prospectus) with the Securities
and Exchange Commission, or SEC, for the offering to which
this term sheet relates. Before you invest, you should read the
prospectus in that registration statement and the other documents relating to
this offering that JPMorgan Chase & Co. has filed with the SEC for more complete
information about JPMorgan Chase & Co. and this offering. You may get
these documents without cost by visiting EDGAR on the SEC website at
www.sec.gov. Alternatively, JPMorgan Chase & Co., any agent or any
dealer participating in this offering will arrange to send you the prospectus,
the prospectus supplement, product supplement no. 196-A-II and this term sheet
if you so request by calling toll-free 866-535-9248.
You may revoke your offer
to purchase the notes at any time prior to the time at which we accept such
offer by notifying the applicable agent. We reserve the right to change
the terms of, or reject any offer to purchase, the notes prior to their
issuance. In the event of any changes to the terms of the notes, we will
notify you and you will be asked to accept such changes in connection with your
purchase. You may also choose to reject such changes in which case we may
reject your offer to purchase.
You should read this term
sheet together with the prospectus dated November
21, 2008, as supplemented by the prospectus supplement dated November 21, 2008 relating to our Series E medium-term notes of
which these notes are a part, and the more detailed information contained in
product supplement no. 196-A-II dated June 13,
2011.
This term sheet, together with the documents listed below, contains the
terms of the notes and supersedes all other prior or contemporaneous oral
statements as well as any other written materials including preliminary or
indicative pricing terms, correspondence, trade ideas, structures for
implementation, sample structures, fact sheets, brochures or other educational
materials of ours. You should carefully consider, among other things,
the matters set forth in Risk Factors in the accompanying product supplement
no. 196-A-II, as the notes involve risks not associated with conventional debt
securities. We urge you to consult your investment, legal, tax,
accounting and other advisers before you invest in the notes.
You may access these documents on the SEC website at www.sec.gov
as follows (or if such address has changed, by reviewing our filings for the
relevant date on the SEC website):
You may access additional information
regarding The J.P. Morgan Alternative Index Multi-Strategy 5 (USD) in the
Strategy Guide at the following URL:
http://www.sec.gov/Archives/edgar/data/19617/000095010311001340/crt_dp22023-fwp.pdf
Our Central Index Key, or CIK, on the SEC website is 19617. As used in
this term sheet, the Company, we, us and our refer to JPMorgan Chase
& Co.
We may create and issue additional notes with the same terms
as these notes, so that any additional notes will be considered part of the
same tranche as these notes.
The J.P. Morgan Alternative Index
Multi-Strategy 5 (USD)
The J.P. Morgan Alternative Index
Multi-Strategy 5 (USD), which we refer to as the Multi-Strategy Index or the
Index, was developed and is maintained and calculated by J.P. Morgan
Securities Ltd. (which we refer to as JPMSL or the Index Calculation Agent),
one of our affiliates. The Index is a notional rules-based proprietary
index that tracks the return of twenty-six alternative investment strategies
(each of which we refer to as a Strategy). The Index is based on the
theory that returns may be generated from capturing inefficiencies or trends in
market prices of multiple asset classes. The Index is not intended to
track a single asset class or outperform any particular asset class, benchmark
or investment strategy. Instead, the Index employs several alternative
investment strategies covering different styles and asset classes, in order to
seek to generate positive performance with a low correlation to traditional
asset classes. The Index also seeks to cap its volatility at a target volatility
of 5% or less.
The Investment Strategies and Asset
Classes Represented in the Index
Each of the Strategies can be
categorized based on the underlying investment strategy employed and the asset
class covered, as follows:
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Underlying investment strategy employed:
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Momentum strategy: which seeks to
capitalize on the observed tendency of many markets to trend either up or down
for sustained time periods;
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Carry strategy: which seeks to
capitalize on the value differential between certain assets and is typically
implemented by notionally investing in an asset that is on a relative basis
lower priced or higher yielding and selling an asset that on a relative basis
is higher priced or lower yielding; or
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Satellite strategy: which consists of
one of two types of strategies that fall outside of the momentum and carry
strategies, namely, mean reversion and short volatility strategies.
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The mean reversion strategies seek to
capitalize on the view that over certain periods of time, markets are cyclical
meaning that an upward trend in the level of certain assets is usually
followed by a downward trend and vice versa.
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The short volatility strategy aims to
exploit the observed tendency of the implied volatility of an equity index to
be higher than the volatility experienced by the index.
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Asset class: equities, interest
rates, currencies or commodities.
Each Strategy is a notional rules-based
proprietary index developed and maintained by JPMSL, and is based, in turn, on
a number of underlying indices or assets, each of we refer to as an Underlying
Constituent.
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JPMorgan
Structured Investments |
TS-1 |
Return Enhanced
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD) |
Index Rebalancings and Weightings
The Index rebalances monthly a
synthetic portfolio composed of the Strategies. The Index rebalancing is
based on a risk-budgeting approach to asset allocation in which each Strategy
is assigned a fixed percentage of the target volatility of 5%. The Index
assigns a preliminary weight to each Strategy based upon the constituents
daily maximum one-year volatility measured over the previous five years.
The higher the volatility has been for a Strategy, the lower the preliminary
weight assigned; conversely, the lower the volatility has been, the higher the
preliminary weight. If the maximum one-year volatility of the synthetic
portfolio (based on these preliminary weights) measured over the previous five
years is greater than the target volatility of 5%, all the preliminary weights
are scaled down accordingly. However, if the portfolio volatility is
lower than the target volatility, all the preliminary weights are scaled up,
subject to a maximum total weight of 200%. As the maximum total weight is
200%, no individual weight can exceed 200%.
Calculation of the
level of the Multi-Strategy Index
The level of the Index on any day
reflects the sum of the weighted returns of the Strategies since the
immediately preceding rebalancing date, adjusted for the change in the
applicable currency exchange rate for each Strategy and the deduction of an
adjustment factor of 0.80% per annum. The deduction of the adjustment
factor of 0.80% per annum may have a considerable impact on the level of the
Index. In addition, adjustments are made to the levels of the Strategies
to reflect notional trading costs related to the Underlying Constituents of the
relevant Strategy. The adjustment factor of 0.80% per annum from the
level of the Index does not reflect any notional trading costs relating to the
Strategies or any Underlying Constituents.
Strategies
The twenty-six Strategies categorized
under momentum, carry and satellite are listed in Tables 1, 2 and 3 below,
respectively.
Table 1
Investment
Strategy
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Asset Class
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Strategy*
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Momentum
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Equities
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US Equity Momentum Strategy
European Equity Momentum Strategy
Japan Equity Momentum Strategy
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Interest
Rates
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Money Market Momentum US Strategy
Money Market Momentum Europe Strategy
Money Market Momentum Japan Strategy
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FX
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EURUSD FX Momentum Strategy
USDJPY FX Momentum Strategy
EURJPY FX Momentum Strategy
USDCAD FX Momentum Strategy
AUDUSD FX Momentum Strategy
EURGBP FX Momentum Strategy
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Commodities
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Commodity Momentum Energy Strategy
Commodity Momentum Non-Energy
Strategy
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Table 2
Investment
Strategy
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Asset Class
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Strategy*
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Carry
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Equities
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Equity Value Carry Strategy
Equity Small Cap Carry Strategy
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Interest
Rates
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Bond 2Y Carry Long Strategy
Bond 10Y Carry Long Strategy
Bond 2Y Carry Long-Short Strategy
Bond 10Y Carry Long-Short Strategy
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FX
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G10 FX Carry Strategy
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Commodities
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Commodity Carry
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JPMorgan
Structured Investments |
TS-2 |
Return Enhanced
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD) |
Table 3
Investment
Strategy
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Asset
Class
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Strategy*
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Satellite
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Equities
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Mean Reversion US Strategy
Mean Reversion Europe Strategy
Mean Reversion Japan Strategy
Short Volatility Strategy
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* The words J.P. Morgan Alternative
Index precede the name of each Strategy but for the ease of display in the above
table, those words are not shown in the names of the Strategies.
See The J.P. Morgan
Alternative Index Multi-Strategy 5 (USD) and The J.P. Morgan Alternative
Index Multi-Strategy 5 (USD) The Strategies in the accompanying product
supplement no. 196-A-II for more information about the Index and the
Strategies.
The Index is described as a notional
or synthetic portfolio or basket of assets because there is no actual portfolio
of assets to which any person is entitled or in which any person has any
ownership interest. The Index merely references certain assets, the performance
of which will be used as a reference point for calculating the level of the
Index.
The value of the Index is published
each trading day under the Bloomberg ticker symbol AIJPM5UE.
Selected
Purchase Considerations
- UNCAPPED APPRECIATION POTENTIAL The notes provide the opportunity to
enhance returns by multiplying a positive Index Return by an Upside Leverage Factor
of at least 1.35. The actual Upside Leverage Factor will be set on the pricing
date and will not be less than 1.35. The notes are not subject to a
predetermined maximum gain and, accordingly, any return at maturity will be
determined by the appreciation of the Index and the Upside Leverage Factor.
Because the notes are our senior unsecured obligations, payment of any
amount at maturity is subject to our ability to pay our obligations as they
become due.
- RETURN LINKED TO A NOTIONAL DYNAMIC
BASKET THAT TRACKS THE RETURNS OF A PORTFOLIO OF A DIVERSE RANGE OF INVESTMENT
STRATEGIES AND ASSETS The return on the notes is linked to the performance of the
Multi-Strategy Index. The Multi-Strategy Index references the value of a
synthetic portfolio of Strategies using three main underlying strategies and
covering four asset classes. The three main underlying strategies
employed by the Multi-Strategy Index are the momentum, carry and satellite
investing strategies (the satellite strategies consist of mean reversion
strategies and a short volatility strategy). The four asset classes
covered by the Multi-Strategy Index are equities, interest rates, currencies
and commodities. For more information, please see The J.P. Morgan
Alternative Index Multi-Strategy 5 (USD) in this term sheet and the
accompanying product supplement no. 196-A-II.
- TAX TREATMENT You should review
carefully the section entitled Certain U.S. Federal Income Tax Consequences
in the accompanying product supplement no. 196-A-II. Subject to the
limitations described therein, and based on certain factual representations
received from us, in the opinion of our special tax counsel, Davis Polk &
Wardwell LLP, it is reasonable to
treat the notes as open transactions for U.S. federal income tax
purposes. Assuming this characterization is respected and subject to the
possible application of Section 988 of the Internal Revenue Code of 1986, as
amended (the Code), and the regulations thereunder, as discussed below, the gain
or loss on your notes should be treated as long-term capital gain or loss if
you hold your notes for more than a year, whether or not you are an initial
purchaser of notes at the issue price. Because payment at maturity may be
determined in part by reference to the FX Momentum Strategies and the FX Carry
Strategy described in the accompanying product supplement, it is possible that
some or all of your gain or loss from a sale or exchange of a note could be
treated as ordinary foreign currency income or loss under Section 988 of the
Code. However, under that Section, holders of certain forward contracts,
futures contracts or option contracts generally are entitled to make an
election to treat foreign currency gain or loss as capital gain or loss (a Section
988 Election). Although the matter is uncertain, we believe that it is
reasonable to treat the Section 988 Election as available, and there should be
no adverse consequences as a result of having made a protective Section 988
Election. Assuming the Section 988 Election is available, if you make it
before the close of the day on which you acquire a note, all gain or loss you
recognize on a sale or exchange of that note should be treated as long-term
capital gain or loss, assuming that you have held the note for more than one
year. Please refer to Certain U.S. Federal Income Tax ConsequencesTax
Consequences to U.S. HoldersTax Treatment of the NotesSale, Exchange or Redemption of
a Note in the accompanying product supplement for more detailed information on
making the Section 988 Election. You should consult your tax adviser
regarding the advisability, availability, mechanics and consequences of a
Section 988 Election.
The Internal Revenue
Service (the IRS) or a court may not respect our characterization
or treatment of the notes, in which case the timing and character of any income
or loss on the notes could be significantly and adversely affected. In
addition, in 2007 Treasury and the IRS released a notice
requesting comments on the U.S. federal income tax
treatment of prepaid forward contracts and similar instruments, 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 and impose an interest
charge. While the notice requests comments on appropriate transition
rules and effective dates, any Treasury regulations or other guidance
promulgated after consideration of these issues could materially and adversely
affect the tax consequences of an investment in the notes, possibly with
retroactive effect. Both U.S. and Non-U.S. Holders
should consult their tax advisers regarding the U.S. federal income tax
consequences of an investment in the notes, including possible alternative
treatments and the issues presented by this notice. Non-U.S. Holders
should also note that they may be withheld upon unless they have submitted a
properly completed IRS Form W-8BEN or otherwise satisfied the
applicable documentation
|
JPMorgan
Structured Investments |
TS-3 |
Return Enhanced
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD) |
requirements.
The discussion in the two
preceding paragraphs, when read in combination with the section entitled
Certain U.S. Federal Income Tax Consequences in the accompanying product
supplement, constitutes the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal income tax
consequences of owning and disposing of notes.
Selected
Risk Considerations
An investment in the notes involves significant risks. Investing in
the notes is not equivalent to investing directly in the Strategies, the
Underlying Constituents or the securities, futures contracts or currencies
underlying the Strategies or the Underlying Constituents. These risks are
explained in more detail in the Risk Factors section of the accompanying product
supplement no. 196-A-II dated June 13, 2011.
- YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS The notes do not guarantee any
return of principal at maturity. The return on the notes at maturity is
linked to the performance of the Index and will depend on whether, and the
extent to which, the Index Return is positive or negative. If the Index
Return is negative, at maturity, you will lose some or all of your
investment. For each 1% that the Ending Index Value is less than the
Initial Index Value, you will lose 1% of your investment in the notes, provided
that the payment at maturity will not be less than zero.
- CREDIT RISK OF
JPMORGAN CHASE & CO. The notes are
subject to the credit risk of JPMorgan Chase & Co. and our credit ratings
and credit spreads may adversely affect the market value of the notes.
Investors are dependent on JPMorgan Chase & Co.s ability to pay all
amounts due on the
notes at maturity, and therefore investors are subject
to our credit risk and to changes in the markets view of our
creditworthiness. Any decline in our credit ratings or increase in the
credit spreads charged by the market for taking our credit risk is likely to
affect adversely the value of the notes.
- 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 values to be used to determine your payment at maturity and acting as
Index Calculation Agent and sponsor of the Index, the Strategies and most of
the Underlying Constituents and hedging our obligations under the notes.
In performing these duties, the economic interests of the Note Calculation
Agent, Index Calculation Agent, sponsor of the Multi-Strategy Index, sponsor of
the Strategies and other affiliates of ours are potentially adverse to your
interests as an investor in the notes. It is possible that such hedging
activities or other trading activities of ours could result in substantial
returns for us or our affiliates while the value of the notes declines.
- 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 agents 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
agents commission and hedging costs, including those set forth under Many
Economic and Market Factors Will Affect the Value of the Notes below.
The notes are not designed
to be short-term trading instruments. Accordingly, you should be able and
willing to hold your notes to maturity.
- OUR AFFILIATE, J.P. MORGAN SECURITIES LTD., OR JPMSL, IS THE INDEX CALCULATION
AGENT ANDMAY ADJUST THE INDEX IN A WAY THAT AFFECTS ITS LEVEL JPMSL, one of our affiliates, acts
as the Index Calculation Agent and sponsor of the Index, the Strategies and
most of the Underlying Constituents and is responsible for calculating and
maintaining the Index, the Strategies and these Underlying Constituents and
developing the guidelines and policies governing their composition and
calculation. The rules governing the Index, the Strategies and these
Underlying Constituents 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 another index or asset as
an Underlying Constituent or the right to remove a Strategy or an Underlying
Constituent. Unlike other indices, the maintenance of the Index, the
Strategies and these Underlying Constituents is not governed by an independent
committee. Although judgments, policies and determinations concerning the
Index, the Strategies and these Underlying Constituents are made by JPMSL,
JPMorgan Chase & Co., as the parent company of JPMSL, ultimately controls
JPMSL.
In addition, the policies and judgments
for which JPMSL is responsible could have an impact, positive or negative, on
the level of the Index and the value of your notes. JPMSL is under no
obligation to consider your interests as an investor in the notes. Furthermore,
the inclusion of the Strategies (and indirectly, these Underlying Constituents)
in the Index is not an investment recommendation by us or JPMSL of the
Strategies or these Underlying Constituents, or any of the securities, futures
contracts or other assets underlying the Strategies or these Underlying
Constituents.
- JPMS AND ITS
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 and its 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 and its 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 or
its 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 Strategies and
the securities, futures contracts and currencies underlying the Strategies to
which the notes are linked.
- 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 or futures contracts
underlying the Strategies would have.
- THE INDEX MAY NOT BE SUCCESSFUL ANDMAY NOT OUTPERFORM ANY ALTERNATIVE
STRATEGY THAT MIGHT BE EMPLOYED The Index follows and is constructed on twenty-six notional
rules-based proprietary strategies that operate on the basis of pre-determined
rules. No assurance can be given that any investment strategy or
combination of investment strategies on which the Index is based will be
successful or that the Index will outperform any alternative strategy that
might be employed.
|
JPMorgan
Structured Investments |
TS-4 |
Return Enhanced
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD) |
- THE TARGET VOLATILITY OF THE
MULTI-STRATEGY INDEX MAY NOT BE ACHIEVED The Multi-Strategy Index rebalances
monthly by assigning weights to the Strategies that are intended to achieve a
target volatility of up to 5%. However, because these weights are
assigned based on historical volatility of the Strategies and are subject to a
maximum aggregate and individual weight of 200%, the actual realized volatility
of the Multi-Strategy Index may be greater than or less than 5%, which may
adversely affect the level of the Multi-Strategy Index and the value of the
notes.
- THE REPORTED LEVELS OF THE
MULTI-STRATEGY INDEX AND MOST OF THE STRATEGIES WILL INCLUDE
THE DEDUCTION OF AN ADJUSTMENT FACTOR One way in which the Multi-Strategy Index and most of the
Strategies differ from a typical index is that their daily reported levels include
a deduction from the aggregate values of their respective constituents of an
adjustment factor assessed at varying annual rates (0.80% per annum for the
Multi-Strategy Index and a range of adjustment factors depending on the
Strategy). Each adjustment factor is deducted daily. As a result of
the deduction of these multiple adjustment factors, the value of the
Multi-Strategy Index will trail the value of a hypothetical identically
constituted synthetic portfolio from which no such amounts are deducted.
- THE INDEX MAY NOT BE A FULLY DIVERSIFIED PORTFOLIO Diversification is generally
considered to reduce the amount of risk associated with generating
returns. There can be no assurance that the Index, a synthetic portfolio
of Strategies, will be sufficiently diversified at any time.
- THE INDEX COMPRISES NOTIONAL ASSETS AND LIABILITIES The exposures to the Strategies and
any of their Underlying 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 Strategies composing the Index or any of their
Underlying Constituents.
- THE INVESTMENT STRATEGY USED TO
CONSTRUCT THE INDEX INVOLVES MONTHLY REBALANCING The Strategies are subject to
monthly rebalancing. A synthetic portfolio that does not rebalance
monthly and is not subject to any weighting caps could see greater compounded
gains over time through exposure to a consistently and rapidly appreciating
portfolio consisting of the Strategies.
- THE NOTES MAY BE SUBJECT TO INCREASED VOLATILITY DUE
TO THE USE OF LEVERAGE
The Index and some of the Strategies (including the momentum strategies and
some of the bond carry strategies) may use leverage to increase the return from
any Strategy or Underlying Constituent, as applicable. It is possible,
though unlikely, that the maximum total weight of the Index and the Strategies
will be 200%. Where the synthetic portfolio is leveraged, any price
movements in the Strategies or Underlying Constituents, as applicable, may
result in greater changes in the value of Strategies or Underlying
Constituents, as applicable, than if leverage was not used. In
particular, the use of leverage will magnify any negative performance of the
Strategies or Underlying Constituents, as applicable, which in turn could cause
you to receive a lower payment at maturity than you otherwise would have
received. In addition, some of the Underlying Constituents are composed
of highly leveraged instruments, such as futures contracts. The use of
these futures contracts as components of these Underlying Constituents may
potentially result in higher volatility than would occur in the absence of
their usage.
- BECAUSE THE MOMENTUM STRATEGIES, THE
CARRY STRATEGIES AND THE MEAN REVERSION STRATEGIES INCLUDE OR PERMIT
NOTIONAL SHORT POSITIONS, THE INDEX MAY BE SUBJECT TO ADDITIONAL RISKS Each Strategy that is a momentum
strategy, a carry strategy or a mean reversion strategy includes or permits
notional short positions in its Underlying Constituents. Unlike long
positions, short positions are subject to unlimited risk of loss because there
is no limit on the amount by which the price that the relevant asset may
appreciate before the short position is closed. It is possible that any
notional short position included in any such Strategy may appreciate
substantially with an adverse impact on the value of such Strategy and the
Index, and, consequently, on the amount you will receive at maturity for your
notes.
- CHANGES IN THE VALUE OF THE STRATEGIES MAY OFFSET EACH OTHER AND CORRELATION OF PERFORMANCES AMONG THE
STRATEGIES MAY REDUCE PERFORMANCE OF THE NOTES Because the notes are linked to the
Index, which is linked to the performance of the Strategies, which collectively
represent a diverse range of asset classes and geographic regions, price
movements among the Strategies representing different asset classes or
geographic regions may not correlate with each other. At a time when the value
of a Strategy representing a particular asset class or geographic region
increases, the value of other Strategies representing a different asset class or
geographic region may not increase as much or may decline. Therefore, in
calculating the level of the Index, increases in the level of some of the
Strategies may be moderated, or more than offset, by lesser increases or
declines in the level of other Strategies. However, high correlation
during periods of negative returns among Strategies that represent any one
sector or asset type and that have a substantial percentage weighting in the
Index could have an adverse effect on your return on your investment at
maturity.
- THE MULTI-STRATEGY INDEX AND THE STRATEGIES HAVE A LIMITED
OPERATING HISTORY The
Multi-Strategy Index was established in November 2009. The Strategies
were established in or prior to November 2009. Therefore, the
Multi-Strategy Index and the Strategies have limited historical
performance. Back-testing or similar analysis in respect of the
Multi-Strategy Index and the Strategies must be considered illustrative only
and may be based on estimates or assumptions not used by the Index Calculation
Agent when determining the Multi-Strategy Index values.
- THE INDEX AND THE STRATEGIES ARE EXCESS RETURN INDICES AND NOT TOTAL RETURN INDICES The Index is linked to 26
Strategies, each of which is an excess return index. An excess return
index reflects the returns that are potentially available through an
uncollateralized or unfunded investment in the assets underlying such
index. By contrast, a total return index also reflects interest that
could be earned on funds committed to the trading of the underlying
assets. Investing in the notes will therefore not generate the same
return as one would obtain from investing directly in the relevant underlying
assets or in a total return index related to such underlying assets.
- OWNING THE NOTES INVOLVES THE RISKS
ASSOCIATED WITH THE MULTI-STRATEGY INDEXS MOMENTUM INVESTMENT STRATEGY Each Strategy that is a momentum
strategy employs a mathematical model that seeks to capitalize
on positive and negative trends in the prices of assets on the assumption that
if an asset performs well or poorly, it will continue to perform well or poorly
in the future. Consequently,
a momentum investing strategy may perform poorly in non-trending markets
characterized by short term volatility. No
assurance can be given that a momentum investment strategy will be successful
or that it will outperform any alternative strategy.
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JPMorgan
Structured Investments |
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- OWNING THE NOTES INVOLVES THE RISKS ASSOCIATED WITH THE MULTI-STRATEGY INDEXS CARRY
INVESTMENT STRATEGY Each
Strategy that is a carry strategy employs an investment
strategy that broadly seeks to capitalize on the observed value
differential between an asset that is on a relative basis lower priced or
higher yielding and an asset that on a relative basis is higher priced or lower
yielding. However, if the underlying assets move
against the direction expected by the strategy, the strategy may perform
poorly. No assurance can be given that a carry strategy will be
successful or that it will outperform any alternative strategy.
- OWNING THE NOTES INVOLVES
THE RISKS ASSOCIATED WITH THE MULTI-STRATEGY INDEXS MEAN REVERSION INVESTMENT
STRATEGY
Each Strategy that is a
mean reversion strategyseeks to capitalize on
the view that over short periods of time, markets are cyclical meaning that
an upward trend in the level of an Underlying Constituent is usually followed
by a downward trend or vice versa. However, any
sustained decline or increase in the level of the relevant index at a time when
the mean reversion theory would suggest that the index level should increase or
decline may result in unexpected losses, which could be significant. No
assurance can be given that a mean reversion strategy will be successful or
that it will outperform any alternative strategy.
- OWNING THE NOTES INVOLVES THE
RISKS ASSOCIATED WITH THE MULTI-STRATEGY INDEXS SHORT VOLATILITY STRATEGY The short volatility
strategy seeks to
capitalize from the long-term trend of the observed volatility of a broad
market equity index, such as the S&P 500® Index, tending to be
less than the volatility implied by prices in the equity options market, as
represented by the CBOE Volatility Index®. However, we cannot guarantee that the implied volatility
will always be greater than the realized volatility, and the value of the short
volatility strategy will decrease if the implied volatility is less than the
realized volatility. No assurance can be given that a short volatility
strategy will be successful or that it will outperform any alternative
strategy.
- THE BOND CARRY STRATEGIES ARE BASED ON SYNTHETIC ZERO COUPON BONDS,
WHICH MAY DIFFER FROM ACTUAL BONDS THAT ARE PUBLICLY TRADED Each Strategy that is a bond carry
strategy tracks the performance of a notional portfolio of synthetic zero
coupon bonds (which could be long only or long-short, depending on the
particular bond carry strategy) denominated in different currencies.
These synthetic zero coupon bonds are purely hypothetical and are not
tradeable, and there is no publicly available source for the prices of these bonds.
The prices of these synthetic bonds, which are used in the calculation of the
value of the relevant Strategy, are synthetically constructed to equal the
present value of the principal amount to be paid at maturity. These
synthetic bonds may perform differently from actual bonds that are publicly
traded, and these Strategies may not perform as well as another index or
strategy that tracks actual, publicly traded bonds or other measures of
interest rates.
- AN INVESTMENT IN THE NOTES CARRIES THE
RISKS ASSOCIATED WITH THE SELECTION METHODOLOGY USED FOR THE LONG CONSTITUENT
IN THE COMMODITY CARRY STRATEGY The long constituent for the commodity carry strategy is
constructed, in part, using an algorithmic methodology which uses, along with
other criteria, the slope of the commodities futures curve in order to select a
particular futures contract for each eligible commodity in which to
synthetically gain exposure (the Selection Methodology). The futures contract
with respect to each eligible commodity with the highest level of
backwardation is selected, subject to certain limitations. Backwardation
refers to the situation where commodities futures contracts with a delivery
month further away in time have lower settlement prices than futures contracts
with a delivery month closer in time. If there is no futures contract for
one or more eligible commodities with backwardation, the Selection Methodology
will select the futures contract with the lowest level of contango for any such
commodities. Contango refers to the situation where the futures
contracts for a commodity with a delivery month further in time have higher
contract prices than futures contracts for the same commodity with a delivery
month closer in time. There is no guarantee that the commodities futures
market will be, and continue to be, in backwardation throughout the term of the
notes. The presence of contango in the commodity markets could result
in negative roll yields. The long constituent may perform poorly in
such markets and accordingly, the level of the commodity carry strategy and
your payment at maturity, if any, may be adversely affected.
- THE VOLATILITY MATCHING USED IN THE
COMMODITY CARRY STRATEGY MAY NOT ACHIEVE ITS INTENDED RESULT The commodity carry strategy uses a
long-short strategy. In order to limit realized volatility, the commodity
carry strategy uses volatility matching by attempting to match the volatility
of the short constituent to the volatility of the long constituent.
However, there can be no guarantee that the volatility matching mechanism will
effectively lead to a reduced volatility of the commodity carry strategy.
- THE SHORT VOLATILITY STRATEGY MAY LEAD TO LARGE NEGATIVE RETURNS IN
PERIODS OF HIGH VOLATILITY The strategy of synthetically selling volatility can lead to large
negative returns in periods of high volatility in the underlying equity
index. Therefore, increased returns (or volatility) of the underlying
equity index will result in proportionally higher negative returns in the short
volatility strategy, which may adversely affect the value of the notes and the
amount you receive at maturity.
- AN INVESTMENT IN THE NOTES IS SUBJECT
TO RISKS ASSOCIATED WITH NON-U.S. SECURITIES MARKETS Some or all of the securities of
certain Underlying Constituents (the MSCI Daily Value Total Return Gross World
Index and the MSCI Daily Total Return Gross World Index (together, the
MSCI Indices)) and the
indices (the EURO STOXX 50® Index and the Nikkei 225 Index)
underlying some of the Underlying Constituents have been issued by non-U.S.
issuers. 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 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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JPMorgan
Structured Investments |
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Return Enhanced
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- THE COMMODITY FUTURES CONTRACTS
UNDERLYING THE RELEVANT STRATEGIES ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES The commodity futures contracts that
underlie the relevant Strategies are subject to legal and regulatory regimes in
the United States and, in some cases, in other countries that may change in
ways that could adversely affect our ability to hedge our obligations under the
notes and affect the value of the Multi-Strategy Index. The effect on the value
of the notes of any future regulatory change, including but not limited to changes
resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act,
which was enacted on July 21, 2010, is impossible to predict, but could be
substantial and adverse to your interest. In addition, the Commodity
Futures Trading Commission has recently announced that it is considering
imposing position limits on certain commodities (such as energy commodities)
and the manner in which current exemptions for bona fide hedging transactions
or positions are implemented in order to protect against excessive
speculation. Such restrictions may result in the Index Calculation Agent
exercising its discretionary right to exclude or substitute constituents of the
Index, which may, in turn, have a negative effect on the level of the Index and
your payment at maturity. Please see The J.P. Morgan Alternative Index
Multi-Strategy 5 (USD) Extraordinary Events Affecting the Index and the
Underlying Constituents in the accompanying product supplement no. 196-A-II
for more information. 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, in which case we may, in our sole and absolute
discretion, accelerate the payment on your notes and pay you an amount determined
in good faith and in a commercially reasonable manner by the Note Calculation
Agent. If the payment on your notes is accelerated, your investment may result
in a loss and you may not be able to reinvest your money in a comparable
investment. Please see General Terms of Notes Consequences of a
Commodity Hedging Disruption Event in the accompanying product supplement no.
196-A-II for more information.
- INVESTMENTS RELATED TO THE VALUE OF
COMMODITIES TEND TO BE MORE VOLATILE THAN TRADITIONAL SECURITIES 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 of specific
application to commodities markets. These variables include changes in
supply and demand relationships, governmental programs and policies, national
and international monetary, trade, political and economic events, changes in interest
and exchange rates, speculation and trading activities in commodities and
related contracts, weather, and agricultural, trade, fiscal and exchange
control policies. These variables may create additional investment risks
that cause the value of the notes to be more volatile than the values of
traditional securities.
- THE NOTES ARE SUBJECT TO CURRENCY EXCHANGE RISK Because some of the Strategies are
based on foreign currency exchange rates and the prices of the securities or futures
contracts included in the Underlying Constituents of some of the other
Strategies are converted into U.S. dollars for purposes of calculating the
value of the relevant Strategy, your notes will be exposed to currency exchange
rate risk. The exchange rate between two currencies is at any moment a
result of the supply and demand for those currencies. Of particular
importance to potential currency exchange risk are:
- existing and
expected rates of inflation;
- existing and
expected interest rate levels;
- the balance
of payments in the countries issuing the relevant currencies; and
- the extent
of governmental surplus or deficit in the countries issuing the relevant
currencies.
All of these factors are, in turn,
sensitive to the monetary, fiscal and trade policies pursued by the countries
issuing the relevant currencies and those of other countries important to
international trade and finance.
- THE NOTES ARE SUBJECT TO INTEREST RATE RISK Some of the Strategies are based on changes in, or
differences between, interest rates. Interest rates are subject to
volatility due to a variety of factors, including:
- sentiment
regarding underlying strength in the relevant economy and global economies;
- expectation
regarding the level of price inflation;
- sentiment regarding
credit quality in the relevant economy and global credit markets;
- central bank
policy regarding interest rates; and
- performance
of capital markets.
Fluctuations in interest rates could
affect the value of these Strategies, the Index and the notes.
- LACK OF LIQUIDITY The notes will not be listed on any
securities exchange. JPMS intends to offer to purchase the notes in the
secondary market but is not required to do so. Even if there is a
secondary market, it may not provide enough liquidity to allow you to trade or
sell the notes easily. Because other dealers are not likely to make a
secondary market for the notes, the price at which you may be able to trade
your notes is likely to depend on the price, if any, at which JPMS is willing
to buy the notes.
- MANY ECONOMIC AND MARKET FACTORS WILL AFFECT THE VALUE
OF THE NOTES In
addition to the Index closing value on any day, the value of the notes will be
affected by a number of economic and market factors that may either offset or
magnify each other, including:
- the volatility in the Index, the
Strategies, and the Underlying Constituents;
- the time to maturity of the notes;
- the dividend rate on the equity
securities underlying some of the Underlying Constituents;
- the market price of the physical commodities
upon which the futures contracts that compose the Underlying Constituents are
based;
- interest and yield rates in the market
generally;
- foreign currency exchange rates;
- economic, financial, political,
regulatory, judicial, geographical, agricultural and meteorological events that
affect the commodities underlying the Underlying Constituents or markets
generally and which may affect the value of the commodity futures contracts,
and thus the closing levels of the Underlying Constituents; and
- our creditworthiness, including actual
or anticipated downgrades in our credit ratings.
|
JPMorgan
Structured Investments |
TS-7 |
Return Enhanced
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What Is the Total Return on the Notes at Maturity,
Assuming a Range of Performances for the Index?
The
following table and examples illustrate the hypothetical total return 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 set forth below assume an Initial Index Value of 100 and an
Upside Leverage Factor of 1.35. The actual Upside Leverage Factor
will be determined on the pricing date and will not be less than 1.35.
The hypothetical total returns set forth below are for illustrative
purposes only and may not be the actual total returns applicable to a purchaser
of the notes. The numbers appearing in the following table and examples
have been rounded for ease of analysis.
|
Ending Index Value
|
Index Return
|
Total Return
|
|
180.00
|
80.00%
|
108.00%
|
170.00
|
70.00%
|
94.50%
|
160.00
|
60.00%
|
81.00%
|
150.00
|
50.00%
|
67.50%
|
140.00
|
40.00%
|
54.00%
|
130.00
|
30.00%
|
40.50%
|
120.00
|
20.00%
|
27.00%
|
110.00
|
10.00%
|
13.50%
|
105.00
|
5.00%
|
6.75%
|
100.00
|
0.00%
|
0.00%
|
90.00
|
-10.00%
|
-10.00%
|
80.00
|
-20.00%
|
-20.00%
|
70.00
|
-30.00%
|
-30.00%
|
60.00
|
-40.00%
|
-40.00%
|
50.00
|
-50.00%
|
-50.00%
|
40.00
|
-60.00%
|
-60.00%
|
30.00
|
-70.00%
|
-70.00%
|
20.00
|
-80.00%
|
-80.00%
|
10.00
|
-90.00%
|
-90.00%
|
0.00
|
-100.00%
|
-100.00%
|
|
Hypothetical Examples of
Amounts Payable at Maturity
The following examples illustrate how the total returns
set forth in the table above are calculated.
Example 1: The value of the Index increases from the
Initial Index Value of 100 to an Ending Index Value of 105. Because the Ending Index Value of 105 is greater than
the Initial Index Value of 100, the investor receives a payment at maturity of
$1,067.50 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × 5% × 1.35) = $1,067.50
Example 2: The value of the Index decreases from the
Initial Index Value of 100 to an Ending Index Value of 80. Because the Ending Index Value of 80 is less
than the Initial Index Value of 100, the Index Return is negative and the
investor receives a payment at maturity of $800 per $1,000 principal amount
note, calculated as follows:
$1,000 + ($1,000 × -20%) = $800
These returns and the payouts on the notes shown above do not
reflect fees or expenses that would be associated with any sale in the
secondary market. If these fees and expenses were included, the
hypothetical total returns and payouts shown above would likely be lower.
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JPMorgan
Structured Investments |
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Return Enhanced
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Hypothetical Back-tested Data and Historical
Information
The
following graph sets forth the hypothetical back-tested performance of the
Index based on the hypothetical back-tested weekly Index closing values from
January 6, 2006 through November 30, 2009, and the historical performance of
the Index based on the weekly Index closing values from November 30, 2009
through June 10, 2011. The Index was
established on November 30, 2009. The Index closing value on June 13,
2011 was 103.03. We obtained the Index closing
values 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
hypothetical back-tested and historical values of the Index should not be taken
as an indication of future performance, and no assurance can be given as to the
Index closing value on the pricing date or the Observation Date. We
cannot give you assurance that the performance of the Index will result in the
return of any of your initial investment at maturity.
The hypothetical back-tested performance of the Multi-Strategy Index set
forth in the following graph was calculated on materially the same basis as the
performance of the Multi-Strategy Index is now calculated but does not
represent the actual historical performance of the Index. Hypothetical
daily performance data for the Multi-Strategy Index is net of an adjustment
factor of 0.80% per annum.
The
hypothetical historical values above have not been verified by an independent
third party. The back-tested, hypothetical historical results above have
inherent limitations. These back-tested results are achieved by means of
a retroactive application of a back-tested model designed with the benefit of
hindsight. No representation is made that an investment in the notes will
or is likely to achieve returns similar to those shown.
Alternative
modeling techniques or assumptions would produce different hypothetical
historical information that might prove to be more appropriate and that might
differ significantly from the hypothetical historical information set forth
above. Hypothetical back-tested results are neither an indicator nor a
guarantee of future returns. Actual results will vary, perhaps
materially, from the analysis implied in the hypothetical historical
information that forms part of the information contained in the chart above.
|
JPMorgan
Structured Investments |
TS-9 |
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Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD) |