Term Sheet
To prospectus dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 206-A-I dated March 4, 2011
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|
Term
Sheet to
Product Supplement No. 206-A-I
Registration Statement No. 333-155535
Dated May 20, 2011; Rule 433 |
Structured
Investments
|
|
$
Capped
Market Plus Notes Linked to the S&P GSCITM
Brent Crude Oil Index Excess Return due June 7, 2012 |
General
- The notes are designed for investors
who seek to participate in the appreciation of the S&P GSCITM
Brent Crude Oil Index Excess Return from and including the pricing date to
and including the Observation Date, up to the Maximum Return of at least 16.40%,
and who anticipate that the Index Closing Level will not be less than the
Strike Value by 30% or more on any day during the Monitoring Period. Investors
should be willing to forgo interest payments and, if the Index Closing Level
is less than the Strike Value by 30% or more on any day during the Monitoring
Period, be willing to lose some or all of their principal. If the Index Closing
Level is not less than the Strike Value by 30% or more on any day during the
Monitoring Period, investors have the opportunity to receive the greater of
(a) the Contingent Minimum Return of at least 10.00% and (b) the Index Return,
subject to the Maximum Return of at least 16.40% at maturity.
- Any payment on the
notes is subject to the credit risk of JPMorgan Chase & Co.
- Senior unsecured obligations of JPMorgan
Chase & Co. maturing June 7, 2012
- Minimum denominations of $20,000 and
integral multiples of $1,000 in excess thereof
- The notes are expected to price on or
about May 27, 2011 and are expected to settle on or about June
2, 2011.
Key
Terms
Index: |
The
S&P GSCITM Brent Crude Oil Index Excess Return (the Index).
The value of the S&P GSCITM Brent Crude Oil Index Excess
Return is published each trading day under the Bloomberg ticker symbol
SPGCBRP. For more information on the Index, please see Selected
Purchase Considerations Return Linked to the S&P GSCITM
Brent Crude Oil Index Excess Return in this term sheet. |
Knock-Out
Event: |
A
Knock-Out Event occurs if, on any day during the Monitoring Period,
the Index Closing Level is less than the Strike Value by a percentage
that is equal to or greater than the Knock-Out Buffer Amount. |
Knock-Out
Buffer Amount: |
30% |
Payment
at Maturity:
|
If
a Knock-Out Event has occurred, you will receive a cash payment
at maturity that will reflect the performance of the Index, subject
to the Maximum Return. Under these circumstances, your payment at maturity
per $1,000 principal amount note will be calculated as follows: |
|
$1,000 + ($1,000 × Index Return), subject
to the Maximum Return |
|
|
If
a Knock-Out Event has occurred, you will lose some or all of your investment
at maturity if the Ending Index Level is less than the Strike Value. |
|
If
a Knock-Out Event has not occurred, you will receive
a cash payment at maturity that will reflect the performance of the
Index, subject to the Contingent Minimum Return and the Maximum Return.
If a Knock-Out Event has not occurred, your payment at maturity per
$1,000 principal amount note will equal $1,000 plus
the product of (a) $1,000 and (b) the greater of (i) the Contingent
Minimum Return and (ii) the Index Return, subject to the Maximum Return.
For additional clarification, please see What Is the Total Return on
the Notes at Maturity, Assuming a Range of Performances for the Index?
in this term sheet. |
Maximum
Return: |
At
least 16.40%. The actual Maximum Return and the actual maximum payment
at maturity will be set on the pricing date and will not be less than
16.40% and $1,164 per $1,000 principal amount note, respectively. |
Contingent
Minimum Return: |
At
least 10.00%. The actual Contingent Minimum Return will be determined
on the pricing date and will not be less than 10.00%. |
Monitoring
Period: |
The
period from but excluding the pricing date to and including the Observation
Date |
Index
Return: |
Ending
Index Level Strike Value
Strike
Value |
Strike
Value: |
An
Index level to be determined on the pricing date in the sole discretion
of the calculation agent. The Strike Value may
or may not be the regular official weekday closing level of the Index
on the pricing date. Although the calculation agent will make all determinations and
will take all actions in relation to the establishment of the Strike
Value in good faith, it should be noted that such discretion could have
an impact (positive or negative) on the value of your notes. The calculation
agent is under no obligation to consider your interests as a holder
of the notes in taking any actions, including the determination of the
Strike Value, that might affect the value of your notes. |
Ending
Index Level: |
The
Index Closing Level on the Observation Date |
Observation
Date: |
June
4, 2012 |
Maturity
Date: |
June
7, 2012 |
CUSIP: |
48125XSQ0 |
|
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 C. Notes linked to a single Index in the accompanying
product supplement no. 206-A-I or early acceleration in the event of a
commodity hedging disruption event as described under General Terms of
Notes Consequences of a Commodity Hedging Disruption Event C. Early
Acceleration of Payment on the Notes in the accompanying product supplement
no. 206-A-I and in Selected Risk Considerations We May Accelerate Your
Notes If a Commodity Hedging Disruption Event Occurs in this term sheet. |
Investing in the Capped
Market Plus Notes involves a number of risks. See Risk Factors beginning
on page PS-16 of the accompanying product supplement no. 206-A-I and Selected
Risk Considerations beginning on page TS-3 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) |
Fees
and Commissions (2) |
Proceeds
to Us |
|
Per
note |
$ |
$ |
$ |
|
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 beginning on page PS-40
of the accompanying product supplement no. 206-A-I.
|
(2) |
Please see Supplemental Plan of Distribution
in this term sheet for information about fees and commissions. |
The notes are not bank
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency, nor are they obligations of, or
guaranteed by, a bank.
May 20, 2011
Additional
Terms Specific to the Notes
JPMorgan Chase & Co. has filed a
registration statement (including a prospectus) with the Securities and Exchange
Commission, or SEC, for the offering to which this term sheet relates. Before
you invest, you should read the prospectus in that registration statement
and the other documents relating to this offering that JPMorgan Chase &
Co. has filed with the SEC for more complete information about JPMorgan Chase
& Co. and this offering. You may get these documents without cost by
visiting EDGAR on the SEC website at www.sec.gov. Alternatively, JPMorgan
Chase & Co., any agent or any dealer participating in this offering will
arrange to send you the prospectus, the prospectus supplement, product supplement
no. 206-A-I and this term sheet if you so request by calling toll-free 866-535-9248.
You may revoke your offer
to purchase the notes at any time prior to the time at which we accept such
offer by notifying the applicable agent. We reserve the right to change the
terms of, or reject any offer to purchase, the notes prior to their issuance.
In the event of any changes to the terms of the notes, we will notify you
and you will be asked to accept such changes in connection with your purchase.
You may also choose to reject such changes in which case we may reject your
offer to purchase.
You should read this term
sheet together with the prospectus dated November 21, 2008, as supplemented
by the prospectus supplement dated November 21, 2008 relating to our Series
E medium-term notes of which these notes are a part, and the more detailed
information contained in product supplement no. 206-A-I dated March 4, 2011.
This term sheet, together with the documents listed below, contains the
terms of the notes and supersedes all other prior or contemporaneous oral
statements as well as any other written materials including preliminary or
indicative pricing terms, correspondence, trade ideas, structures for implementation,
sample structures, fact sheets, brochures or other educational materials of
ours. You should carefully consider, among other things, the matters
set forth in Risk Factors in the accompanying product supplement no. 206-A-I,
as the notes involve risks not associated with conventional debt securities.
We urge you to consult your investment, legal, tax, accounting and other advisers
before you invest in the notes.
You may access these documents
on the SEC website at www.sec.gov as follows (or if such address has changed,
by reviewing our filings for the relevant date on the SEC website):
Our Central Index Key, or CIK, on the SEC website
is 19617. As used in this term sheet, the Company, we, us and our
refer to JPMorgan Chase & Co.
Supplemental
Terms of the Notes
For purposes of the notes
offered by this term sheet:
(1) the Observation Date is
subject to postponement as described under Description of Notes Postponement
of a Determination Date C. Notes linked to a single Index in the accompanying
product supplement no. 206-A-I;
(2) the consequences of a commodity
hedging disruption event are described under General Terms of Notes Consequences
of a Commodity Hedging Disruption Event C. Early Acceleration of Payment on
the Notes; and
(3) for purposes of calculating
the amount due and payable per $1,000 principal amount note upon acceleration
due to an event of default as described under General Terms of Notes Payment
upon an Event of Default in the accompanying product supplement
no. 206-A-I, the date of acceleration will also be deemed to be the last day
of the Monitoring Period.
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JPMorgan
Structured Investments
Capped
Market Plus Notes Linked to the S&P GSCITM Brent Crude
Oil Index Excess Return
|
TS-1 |
What
Is the Total Return on the Notes at Maturity, Assuming a Range of Performances
for the Index?
The following table illustrates
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 a Strike
Value of 780, a Contingent Minimum Return of 10.00% and a Maximum Return of
16.40% and reflect the Knock-Out Buffer Amount of 30.00%. 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.
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|
Total
Return |
|
Ending
Index
Level |
Index
Return |
Knock
Out Event Has
Not Occurred(1) |
Knock
Out Event
Has Occurred(2) |
|
1404.000 |
80.00% |
16.40% |
16.40% |
1287.000 |
65.00% |
16.40% |
16.40% |
1170.000 |
50.00% |
16.40% |
16.40% |
1092.000 |
40.00% |
16.40% |
16.40% |
1014.000 |
30.00% |
16.40% |
16.40% |
936.000 |
20.00% |
16.40% |
16.40% |
907.920 |
16.40% |
16.40% |
16.40% |
897.000 |
15.00% |
15.00% |
15.00% |
858.000 |
10.00% |
10.00% |
10.00% |
819.000 |
5.00% |
10.00% |
5.00% |
799.500 |
2.50% |
10.00% |
2.50% |
780.000 |
0.00% |
10.00% |
0.00% |
741.000 |
-5.00% |
10.00% |
-5.00% |
702.000 |
-10.00% |
10.00% |
-10.00% |
663.000 |
-15.00% |
10.00% |
-15.00% |
624.000 |
-20.00% |
10.00% |
-20.00% |
553.800 |
-29.00% |
10.00% |
-29.00% |
546.078 |
-29.99% |
10.00% |
-29.99% |
546.000 |
-30.00% |
N/A |
-30.00% |
468.000 |
-40.00% |
N/A |
-40.00% |
390.000 |
-50.00% |
N/A |
-50.00% |
312.000 |
-60.00% |
N/A |
-60.00% |
234.000 |
-70.00% |
N/A |
-70.00% |
156.000 |
-80.00% |
N/A |
-80.00% |
78.000 |
-90.00% |
N/A |
-90.00% |
0.000 |
-100.00% |
N/A |
-100.00% |
|
(1) The Index Closing Level is not less than
the Strike Value by 30.00% or more on any day during the Monitoring Period.
(2) The Index Closing Level is less than the
Strike Value by 30.00% or more on any day during the Monitoring Period.
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: A Knock-Out Event has not occurred, and the level of the Index increases
from the Strike Value of 780 to an Ending Index Level of 799.50. Because
a Knock-Out Event has not occurred and the Index Return of 2.50% is less than
the hypothetical Contingent Minimum Return of 10.00%, the investor receives
a payment at maturity of $1,100 per $1,000 principal amount note.
Example 2: A Knock-Out
Event has not occurred, and the level of the Index decreases from the Strike
Value of 780 to an Ending Index Level of 741. Because a Knock-Out Event
has not occurred and the Index Return of -5% is less than the hypothetical
Contingent Minimum Return of 10.00%, the investor receives a payment at maturity
of $1,100 per $1,000 principal amount note.
Example 3: A Knock-Out
Event has not occurred, and the level of the Index increases from the Strike
Value of 780 to an Ending Index Level of 897. Because a Knock-Out Event
has not occurred and the Index Return of 15.00% is greater than the hypothetical
Contingent Minimum Return of 10.00% but less than the hypothetical Maximum
Return of 16.40%, the investor receives a payment at maturity of $1,150 per
$1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × 15%) = $1,150
Example 4: A Knock-Out
Event has occurred, and the level of the Index decreases from the Strike Value
of 780 to an Ending Index Level of 702. Because a Knock-Out Event has
occurred and the Index Return is -10%, the investor receives a payment at
maturity of $900 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × -10%) = $900
Example 5: A Knock-Out
Event has occurred, and the level of the Index increases from the Strike Value
of 780 to an Ending Index Level of 897. Because a Knock-Out Event has
occurred and the Index Return of 15% is less than the hypothetical Maximum
Return of 16.40%, the investor receives a payment at maturity of $1,150 per
$1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × 15%) = $1,150
|
JPMorgan
Structured Investments
Capped
Market Plus Notes Linked to the S&P GSCITM Brent Crude
Oil Index Excess Return
|
TS-2 |
Example 6: The level
of the Index increases from the Strike Value of 780 to an Ending Index Level
of 1170. Because the Index Return of 50% is greater than the hypothetical
Maximum Return of 16.40%, regardless of whether a Knock-Out Event has occurred,
the investor receives a payment at maturity of $1,164 per $1,000 principal amount
note, the maximum payment on the notes.
These returns and 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.
Selected
Purchase Considerations
- CAPPED APPRECIATION
POTENTIAL The notes provide the opportunity to participate in the
appreciation of the Index, up to the Maximum Return of at least 16.40%, at
maturity. If a Knock-Out Event has not occurred, in addition
to the principal amount, you will receive at maturity at least the Contingent
Minimum Return of not less than 10.00% on the notes, or a minimum payment
at maturity of at least $1,100 for every $1,000 principal amount note, subject
to the Maximum Return of at least 16.40% and the credit risk of JPMorgan Chase
& Co. Even if a Knock-Out Event has occurred, if the Ending Index
Level is greater than the Strike Value, in addition to the principal amount,
you will receive at maturity a return on the notes equal to the Index Return,
subject to the Maximum Return of at least 16.40%. The maximum payment at
maturity is at least $1,164 per $1,000 principal amount note, regardless of
whether a Knock-Out Event has occurred. The actual Contingent Minimum
Return and Maximum Return will be set on the pricing date and will not be
less than 10.00% and 16.40%, respectively. 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 THE
S&P GSCI BRENT CRUDE OIL INDEX EXCESS RETURN The return on the
notes is linked solely to the S&P GSCI Brent Crude Oil Index Excess Return,
a sub-index of the S&P GSCI, a composite index of commodity sector returns,
calculated, maintained and published daily by Standard & Poors Financial
Services LLC. The S&P GSCI is a world production-weighted index that
is designed to reflect the relative significance of principal non-financial
commodities (i.e., physical commodities) in the world economy. The S&P
GSCI represents the return of a portfolio of the futures contracts for the
underlying commodities. The S&P GSCI Brent Crude Oil Index Excess Return
references the front-month brent crude oil futures contract (i.e.,
the brent crude futures contract generally closest to expiration) traded on
ICE Futures Europe. The S&P GSCI Brent Crude Oil Index Excess Return
provides investors with a publicly available benchmark for investment performance
in the brent crude oil commodity markets. The S&P GSCI Brent Crude Oil
Index Excess Return is an excess return index and not a total return index.
An excess return index reflects the returns that are potentially available
through an unleveraged investment in the contracts composing the index (which,
in the case of the Index, are the designated crude oil futures contracts).
By contrast, a total return index, in addition to reflecting those returns,
also reflects interest that could be earned on funds committed to the trading
of the underlying futures contracts. See The S&P GSCI Indices in the
accompanying product supplement no. 206-A-I.
- CAPITAL GAINS TAX
TREATMENT You should review carefully
the section entitled Certain U.S. Federal Income Tax Consequences in the
accompanying product supplement no. 206-A-I. Subject to the limitations described
therein, and based on certain factual representations received from us, in
the opinion of our special tax counsel, Davis Polk & Wardwell LLP, it
is reasonable to treat the notes as open transactions for U.S. federal income
tax purposes. Assuming this characterization is respected, the gain or loss
on your notes should be treated as 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. However, the Internal Revenue Service (the IRS)
or a court may not respect this characterization or treatment of the notes,
in which case the timing and character of any income or loss on the notes
could be significantly and adversely affected. In addition, in 2007 Treasury
and the IRS released a notice requesting comments on the U.S. federal income
tax treatment of prepaid forward contracts and similar instruments, 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 requirements.
The discussion in the preceding
paragraph, when read in combination with the section entitled Certain U.S.
Federal Income Tax Consequences in the accompanying product supplement, constitutes
the full opinion of Davis Polk & Wardwell LLP regarding the material U.S.
federal income tax consequences of owning and disposing of notes.
Selected Risk Considerations
An investment in the notes involves significant
risks. Investing in the notes is not equivalent to investing directly in
the Index or in any futures contracts or exchange-traded or over-the-counter
instruments based on, or other instruments linked to, the Index. These risks
are explained in more detail in the Risk Factors section of the accompanying
product supplement no. 206-A-I dated March 4, 2011.
- YOUR INVESTMENT IN
THE NOTES MAY RESULT IN A LOSS The notes do not guarantee any return
of principal. The return on the notes at maturity is linked to the performance
of the Index and will depend on whether a Knock-Out Event has occurred and
whether, and the extent to which, the Index Return is positive or negative.
If the Index Closing Level is less than the Strike Value by the Knock-Out
Buffer Amount of 30.00% or more on any day during the Monitoring Period, a
Knock-Out Event has occurred, and the benefit provided by the Knock-Out Buffer
Amount of 30.00% will terminate. Under these circumstances, you could lose
some or all of your principal.
|
JPMorgan
Structured Investments
Capped
Market Plus Notes Linked to the S&P GSCITM Brent Crude
Oil Index Excess Return
|
TS-3 |
- YOUR MAXIMUM GAIN
ON THE NOTES IS LIMITED TO THE MAXIMUM RETURN If the Ending Index Level
is greater than the Strike Value, for each $1,000 principal amount note, you
will receive at maturity $1,000 plus an additional return that will not exceed
a predetermined percentage of the principal amount, regardless of the appreciation
in the Index, which may be significant. We refer to this predetermined percentage
as the Maximum Return, which will be set on the pricing date and will not
be less than 16.40%.
- 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 calculation agent and hedging our obligations
under the notes. In performing these duties, the economic interests of the
calculation agent and other affiliates of ours are potentially adverse to
your interests as an investor in the notes. The Strike Value will be an Index
level determined on the pricing date in the sole discretion of the calculation
agent. Although the calculation agent will make all determinations and will
take all actions in relation to the establishment of the Strike Value in good
faith, it should be noted that such discretion could have an impact (positive
or negative) on the value of your notes. The calculation agent is under no
obligation to consider your interests as a holder of the notes in taking any
actions, including the determination of the Strike Value, that might affect
the value of your notes.
- THE BENEFIT PROVIDED
BY THE KNOCK-OUT BUFFER AMOUNT MAY TERMINATE ON ANY DAY DURING THE MONITORING
PERIOD If the Index Closing Level on any day during the Monitoring Period
is less than the Strike Value by the Knock-Out Buffer Amount of 30.00% or
more, you will at maturity be fully exposed to any depreciation in the Index.
We refer to this feature as a contingent buffer. Under these circumstances,
if the Ending Index Level is less than the Strike Value, you will lose 1%
of the principal amount of your investment for every 1% that the Ending Index
Level is less than the Strike Value. You will be subject to this potential
loss of principal even if the Index subsequently increases such that the Index
Closing Level is less than the Strike Value by less than the Knock-Out Buffer
Amount of 30.00%, or is equal to or greater than the Strike Value. If these
notes had a non-contingent buffer feature, under the same scenario, you would
have received the full principal amount of your notes plus the Contingent
Minimum Return at maturity. As a result, your investment in the notes may
not perform as well as an investment in a security with a return that includes
a non-contingent buffer.
- YOUR ABILITY TO RECEIVE
THE CONTINGENT MINIMUM RETURN OF AT LEAST 10.00*% MAY TERMINATE ON ANY DAY
DURING THE MONITORING PERIOD If the Index Closing Level on any day during
the Monitoring Period is less than the Strike Value by the Knock-Out Buffer
Amount of 30.00% or more, you will not be entitled to receive the Contingent
Minimum Return of at least 10.00%* on the notes. Under these circumstances,
you may lose some or all of your investment at maturity and will be fully
exposed to any depreciation in the Index.
* The actual Contingent Minimum Return
on the notes will be set on the pricing date and will not be less than 10.00%.
- RISK OF KNOCK-OUT
EVENT OCCURRING IS GREATER IF THE INDEX IS VOLATILE The likelihood that
the Index Closing Level will be less than the Strike Value by the Knock-Out
Buffer Amount of 30.00% or more on any day during the Monitoring Period, thereby
triggering a Knock-Out Event, will depend in large part on the volatility
of the Index the frequency and magnitude of changes in the level of the
Index. The Index may experience significant volatility. See Prices of Commodity
Futures Contracts are Characterized by High and Unpredictable Volatility,
Which Could Lead to High and Unpredictable Volatility in the Index below.
- 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 agents commission and the estimated cost of hedging our obligations
under the notes. As a result, the price, if any, at which J.P. Morgan Securities
LLC, which we refer to as JPMS, will be willing to purchase notes from you
in secondary market transactions, if at all, will likely be lower than the
original issue price, and any sale prior to the maturity date could result
in a substantial loss to you. The notes are not designed to be short-term
trading instruments. Accordingly, you should be able and willing to hold
the notes to maturity.
- PRICES OF COMMODITY
FUTURES CONTRACTS ARE CHARACTERIZED BY HIGH AND UNPREDICTABLE VOLATILITY,
WHICH COULD LEAD TO HIGH AND UNPREDICTABLE VOLATILITY IN THE INDEX Market
prices of the commodity futures contracts included in the Index tend to be
highly volatile and may fluctuate rapidly based on numerous factors, including
the factors that affect the price of the commodities underlying the commodity
futures contracts included in the Index. See There Are Risks Associated
With an Investment Linked to Crude Oil below. The prices of commodities
and commodity futures contracts are subject to variables that may be less
significant to the values of traditional securities, such as stocks and bonds.
These variables may create additional investment risks that cause the value
of the notes to be more volatile than the values of traditional securities.
As a general matter, the risk of low liquidity or volatile pricing around
the maturity date of a commodity futures contract is greater than in the case
of other futures contracts because (among other factors) a number of market
participants take physical delivery of the underlying commodities. Many
commodities are also highly cyclical. The high volatility and cyclical
nature of commodity markets may render such an investment inappropriate as
the focus of an investment portfolio.
- WE MAY ACCELERATE
YOUR NOTES IF A COMMODITY HEDGING DISRUPTION EVENT OCCURS If we or our
affiliates are unable to effect transactions necessary to hedge our obligations
under the notes due to a commodity hedging disruption event, we may, in our
sole and absolute discretion, accelerate the payment on your notes and pay
you an amount determined in good faith and in a commercially reasonable manner
by the calculation agent. If the payment on your notes is accelerated, your
investment may result in a loss and you may not be able to reinvest your money
in a comparable investment. Please see General Terms of Notes Consequences
of a Commodity Hedging Disruption Event C. Early Acceleration of Payment
on the Notes in the accompanying product supplement no. 206-A-I for more
information.
|
JPMorgan
Structured Investments
Capped
Market Plus Notes Linked to the S&P GSCITM Brent Crude
Oil Index Excess Return
|
TS-4 |
- COMMODITY FUTURES
CONTRACTS ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES The
commodity futures contracts that underlie the Index 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 Index. Any future
regulatory changes, including but not limited to changes resulting from the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank
Act), which was enacted on July 21, 2010, may have a substantial adverse
effect on the value of your notes. Additionally, in accordance with the Dodd-Frank
Act, the U.S. Commodity Futures Trading Commission is drafting regulations
that will affect market participants position limits in certain commodity-based
futures contracts, such as futures contracts on certain agricultural commodities,
energy commodities and metals. These proposed regulations, when final and
implemented, may reduce liquidity in the exchange-traded market for such commodity-based
futures contracts. Furthermore, we or our affiliates may
be unable as a result of such restrictions to effect transactions necessary
to hedge our obligations under the notes, in which case we may, in our sole
and absolute discretion, accelerate the payment on your notes. See
We May Accelerate Your Notes If a Commodity Hedging Disruption Event Occurs
above.
- THERE ARE RISKS ASSOCIATED
WITH AN INVESTMENT LINKED INDIRECTLY TO CRUDE OIL Global prices of energy
commodities, including crude oil, are primarily affected by the global demand
for and supply of these commodities, but are also significantly influenced
by speculative actions and by currency exchange rates. In addition, prices
for energy commodities are affected by governmental programs and policies,
national and international political and economic events, changes in interest
and exchange rates, trading activities in commodities and related contracts,
trade, fiscal, monetary and exchange control policies and with respect to
oil, drought, floods, weather, government intervention, environmental policies,
embargoes and tariffs. Demand for refined petroleum products by consumers,
as well as the agricultural, manufacturing and transportation industries,
affects the price of energy commodities. Sudden disruptions in the supplies
of energy commodities, such as those caused by war, natural events, accidents
or acts of terrorism, may cause prices of energy commodities futures contracts
to become extremely volatile and unpredictable. Also, sudden and dramatic
changes in the futures market may occur, for example, upon a cessation of
hostilities that may exist in countries producing energy commodities, the
introduction of new or previously withheld supplies into the market or the
introduction of substitute products or commodities. In particular, supplies
of crude oil may increase or decrease depending on, among other factors, production
decisions by the Organization of the Oil and Petroleum Exporting Countries
(OPEC) and other crude oil producers. Crude oil prices are determined with
significant influence by OPEC, which has the capacity to influence oil prices
worldwide because its members possess a significant portion of the worlds
oil supply. Crude oil prices are generally more volatile and subject to dislocation
than prices of other commodities. Demand for energy commodities such as oil
and gasoline is generally linked to economic activity, and will tend to reflect
general economic conditions.
- FUTURES CONTRACTS
ON BRENT CRUDE OIL ARE THE BENCHMARK CRUDE OIL CONTRACTS IN EUROPEAN AND ASIAN
MARKETS Because futures contracts on Brent crude oil are the benchmark
crude oil contracts in European and Asian markets, the brent crude oil futures
contracts included in the Index will be affected by economic conditions in
Europe and Asia. A decline in economic activity in Europe or Asia could result
in decreased demand for crude oil and for futures contracts on crude oil,
which could adversely affect the value of the brent crude oil futures contracts
included in the Index and, therefore, the Index and the notes.
- A DECISION BY AN EXCHANGE
ON WHICH THE FUTURES CONTRACTS UNDERLYING THE INDEX ARE TRADED TO INCREASE
MARGIN REQUIREMENTS MAY AFFECT THE LEVEL OF THE INDEX If an exchange
on which the futures contract underlying the Index are traded increases the
amount of collateral required to be posted to hold positions in such futures
contracts (i.e., the margin requirements), market participants who
are unwilling or unable to post additional collateral may liquidate their
positions, which may cause the level of the Index to decline significantly.
- THE INDEX MAY BE MORE
VOLATILE AND SUSCEPTIBLE TO PRICE FLUCTUATIONS OF COMMODITY FUTURES CONTRACTS
THAN A BROADER COMMODITIES INDEX The Index may be more volatile and
susceptible to price fluctuations than a broader commodities index, such as
the S&P GSCI. In contrast to the S&P GSCI,
which includes contracts on crude oil and non-crude oil commodities, the Index
comprises contracts on only crude oil. As a result, price volatility in the
contracts included in the Index will likely have a greater impact on the Index
than it would on the broader S&P GSCI.
In addition, because the Index omits principal market sectors composing the
S&P GSCI, it will be less representative of
the economy and commodity markets as a whole and will therefore not serve
as a reliable benchmark for commodity market performance generally.
- THE NOTES DO NOT OFFER
DIRECT EXPOSURE TO COMMODITY SPOT PRICES The notes are linked to the
Index, which tracks commodity futures contracts, not physical commodities
(or their spot prices). The price of a futures contract reflects the expected
value of the commodity upon delivery in the future, whereas the spot price
of a commodity reflects the immediate delivery value of the commodity. A
variety of factors can lead to a disparity between the expected future price
of a commodity and the spot price at a given point in time, such as the cost
of storing the commodity for the term of the futures contract, interest charges
incurred to finance the purchase of the commodity and expectations concerning
supply and demand for the commodity. The price movements of a futures contract
are typically correlated with the movements of the spot price of the referenced
commodity, but the correlation is generally imperfect and price movements
in the spot market may not be reflected in the futures market (and vice versa).
Accordingly, the notes may underperform a similar investment that is linked
to commodity spot prices.
- OWNING THE NOTES IS
NOT THE SAME AS OWNING ANY COMMODITIES OR COMMODITY FUTURES CONTRACTS
The return on your notes will not reflect the return you would realize if
you actually purchased the futures contracts composing the Index, the commodities
upon which the futures contracts that compose the Index are based, or other
exchange-traded or over-the-counter instruments based on the Index. You will
not have any rights that holders of such assets or instruments have.
|
JPMorgan
Structured Investments
Capped
Market Plus Notes Linked to the S&P GSCITM Brent Crude
Oil Index Excess Return
|
TS-5 |
- HIGHER FUTURES PRICES
OF THE COMMODITY FUTURES CONTRACTS UNDERLYING THE INDEX RELATIVE TO THE CURRENT
PRICES OF SUCH CONTRACTS MAY AFFECT THE VALUE OF THE INDEX AND THE VALUE OF
THE NOTES The Index is composed of futures contracts
on physical commodities. Unlike equities, which typically entitle the holder
to a continuing stake in a corporation, commodity futures contracts normally
specify a certain date for delivery of the underlying physical commodity.
As the exchange-traded futures contracts that compose the Index approach expiration,
they are replaced by contracts that have a later expiration. Thus, for example,
a contract purchased and held in August may specify an October expiration.
As time passes, the contract expiring in October is
replaced with a contract for delivery in November. This process is referred
to as rolling. If the market for these contracts is (putting aside other
considerations) in contango, where the prices are higher in the distant
delivery months than in the nearer delivery months, the purchase of the November
contract would take place at a price that is higher than the price of the
October contract, thereby creating a negative roll yield. Contango
could adversely affect the value of the Index and thus the value of notes
linked to the Index. The futures contracts underlying the Index have historically
been in contango.
- SUSPENSION OR DISRUPTIONS
OF MARKET TRADING IN THE COMMODITY MARKETS AND RELATED FUTURES MARKETS MAY
ADVERSELY AFFECT THE LEVEL OF THE INDEX, AND THEREFORE THE VALUE OF THE NOTES
The commodity markets are subject to temporary distortions or other
disruptions due to various factors, including the lack of liquidity in the
markets, the participation of speculators and government regulation and intervention.
In addition, U.S. futures exchanges and some foreign exchanges have regulations
that limit the amount of fluctuation in futures contract prices that may occur
during a single day. These limits are generally referred to as daily price
fluctuation limits and the maximum or minimum price of a contract on any
given day as a result of these limits is referred
to as a limit price. Once the limit price has been reached in a particular
contract, no trades may be made at a different price. Limit prices have the
effect of precluding trading in a particular contract or forcing the liquidation
of contracts at disadvantageous times or prices. These circumstances could
adversely affect the level of the Index and, therefore, the value of your
notes.
- THE NOTES ARE
LINKED TO AN EXCESS RETURN INDEX AND NOT A TOTAL RETURN INDEX
The notes are linked to an excess return index and not a total return
index. An excess return index, such as the Index, reflects the returns that
are potentially available through an unleveraged investment in the contracts
composing such index. By contrast, a total return index, in addition to
reflecting those returns, also reflects interest that could be earned on funds
committed to the trading of the underlying futures contracts.
- NO INTEREST PAYMENTS
As a holder of the notes, you will not receive any interest payments.
- 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 level of the Index 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 expected volatility of the Index
and the underlying futures contracts;
- the time to maturity of the notes;
- whether a Knock-Out Event is expected
to occur;
- the market price of the physical commodities
upon which the futures contracts underlying the Index are based;
- interest and yield rates in the market
generally;
- 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.
|
JPMorgan
Structured Investments
Capped
Market Plus Notes Linked to the S&P GSCITM Brent Crude
Oil Index Excess Return
|
TS-6 |
Historical
Information
The following graph sets forth the historical
performance of the S&P GSCI Brent Crude Oil Index Excess Return based
on the weekly historical Index Closing Levels from January 6, 2006 through
May 13, 2011. The Index Closing Level on May 19, 2011 was 779.1030. We obtained
the Index Closing Levels below from Bloomberg Financial Markets. We make
no representation or warranty as to the accuracy or completeness of the information
obtained from Bloomberg Financial Markets.
The historical levels of the
Index should not be taken as an indication of future performance, and no assurance
can be given as to the Index Closing Level on any day during the Monitoring
Period or on 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.
Supplemental
Plan of Distribution
JPMS, acting as agent for
JPMorgan Chase & Co., will receive a commission that will depend on market
conditions on the pricing date. In no event will that commission exceed $10.00 per $1,000 principal amount note. See
Plan of Distribution (Conflicts of Interest) beginning on page PS-89 of
the accompanying product supplement no. 206-A-I.
For a different portion of the notes to be sold
in this offering, an affiliated bank will receive a fee and another affiliate
of ours will receive a structuring and development fee. In no event will
the total amount of these fees exceed $10.00 per $1,000 principal amount note.
|
JPMorgan
Structured Investments
Capped
Market Plus Notes Linked to the S&P GSCITM Brent Crude
Oil Index Excess Return
|
TS-7 |