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
|
|
Term
Sheet to
Product Supplement No. 206-A-I
Registration Statement No. 333-155535
Dated August 16, 2011; Rule 433 |
Structured
Investments
|
|
$
Digital
Market Plus Notes Linked to the Front Month Brent Crude Oil Futures Contract due December 22, 2011 |
General
- The notes are designed for investors
who anticipate that the arithmetic average of the Contract Prices of the then front month Brent
crude oil futures contract trade on ICE Futures Europe on each of the five Ending Averaging Dates (i.e.,
the Ending Contract Price) will not be less than the Strike Value by more
than the Knock-Out Buffer Percentage of at least 20.00%* and who seek a fixed
contingent return of at least 5.70%** in that scenario. Investors should
be willing to forgo interest payments and, if the Ending Contract Price is
less than the Strike Value by more than the Knock-Out Buffer Percentage of
at least 5.70%**, 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 December 22, 2011
- Minimum denominations of $20,000and integral
multiples of $1,000 in excess thereof
- The notes are expected to price on or
about August 17, 2011 and are expected to settle on or about August
22, 2011.
Key Terms
Commodity
Futures Contract: |
The
then front month Brent crude oil futures contract traded on the ICE Futures Europe as further described under Commodity Price.
|
Knock-Out
Event: |
On
the final Ending Averaging Date, a Knock-Out Event occurs if, the Ending
Contract Price is less than the Strike Value by more than the Knock-Out
Buffer Percentage. |
Knock-Out
Buffer Percentage: |
At
least 20.00%*
* The actual Knock-Out
Buffer Percentage will be set on the pricing date and will not be less
than 20.00%. |
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 Commodity Futures
Contract, which will always be negative. Under these circumstances, your
payment at maturity per $1,000 principal amount note will be calculated
as follows: |
|
$1,000 + ($1,000 × Contract Return) |
|
|
If
a Knock-Out Event has occurred, you will lose some or all of your investment
at maturity. |
|
If
a Knock-Out Event has not occurred, you will receive
a cash payment at maturity per $1,000 principal amount note that will equal $1,000 plus the product of (a) $1,000 and (b) the Contingent Return,
regardless of the performance of the Commodity Futures Contract. For
additional clarification, please see What Is the Return on the Notes
at Maturity, Assuming a Range of Performances for the Commodity Futures
Contract? in this term sheet.
|
Contingent
Return: |
At
least 5.70%**. This represents the maximum return on the notes, and,
accordingly, the maximum payment at maturity is at least $1,057* for every
$1,000 principal amount note that you hold.
** The actual Contingent
Return and maximum payment at maturity will be determined on the pricing
date and will not be less than 5.70% and $1,057 per $1,000 principal amount
note, respectively. |
Contract
Return: |
Ending
Contract Price Strike Value
Strike
Value |
Strike
Value: |
A
price to be determined on the pricing date in the sole discretion of the
calculation agent. The Strike Value may or may not
be the Contract Price 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
Contract Price: |
The
arithmetic average of the Contract Prices on each of the five Ending Averaging
Dates |
Contract
Price: |
On
any trading day, the official settlement price per barrel on ICE Futures
Europe of the first nearby month futures contract for Brent crude oil,
stated in U.S. dollars, as made public by ICE Futures Europe (Bloomberg
Ticker: CO1 <Comdty>), provided that if such date falls
on the last trading day of such futures contract (all pursuant to the
rules of ICE Futures Europe), then the second nearby month futures contract
(Bloomberg Ticker: CO2 <Comdty>) on such trading day. |
Ending
Averaging Dates: |
December
13, 2011, December 14, 2011, December 15, 2011 December 16, 2011 and December
19, 2011 |
Maturity
Date: |
December
22, 2011 |
CUSIP: |
48125XQ66 |
|
Subject to postponement in the event of
a market disruption event and as described under Description of Notes
Payment at Maturity and Description of Notes Postponement of a Determination
Date A. Notes Linked to a single Commodity or a single Commodity Futures
Contract 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 Digital
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 product supplement, prospectus supplement and prospectus.
Any representation to the contrary is a criminal offense.
|
|
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
on the last page of 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.
August 16, 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 Ending Averaging Dates are subject
to postponement as described under Description of Notes Postponement of a
Determination Date A. Notes Linked to a single Commodity or a single Commodity
Futures Contract in the accompanying product supplement no. 206-A-I; and
(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 in the accompanying product supplement no. 206-A-I.
|
JPMorgan
Structured Investments
Digital
Market Plus Notes Linked to the Front Month Brent Crude Oil Futures Contract
|
TS-1 |
What
Is the Return on the Notes at Maturity, Assuming a Range of Performances for
the Commodity Futures Contract?
The following table illustrates
the hypothetical return at maturity on the notes. The 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
returns set forth below assume a Strike Value of $110, a Contingent Return of
5.70% and a Knock-Out Buffer Percentage of 20.00%. The hypothetical returns
set forth below are for illustrative purposes only and may not be the actual
returns applicable to a purchaser of the notes. The numbers appearing in the
following table and examples have been rounded for ease of analysis.
|
|
|
Return
on the Notes
|
|
|
|
Ending
Contract
Price
|
Contract
Return
|
Knock-Out
Event Has
Not Occurred(1)
|
Knock-Out
Event
Has Occurred(2)
|
|
$192.500
|
75.00%
|
5.70%
|
N/A
|
$181.500
|
65.00%
|
5.70%
|
N/A
|
$165.000
|
50.00%
|
5.70%
|
N/A
|
$154.000
|
40.00%
|
5.70%
|
N/A
|
$143.000
|
30.00%
|
5.70%
|
N/A
|
$132.000
|
20.00%
|
5.70%
|
N/A
|
$126.500
|
15.00%
|
5.70%
|
N/A
|
$121.000
|
10.00%
|
5.70%
|
N/A
|
$116.270
|
5.70%
|
5.70%
|
N/A
|
$115.500
|
5.00%
|
5.70%
|
N/A
|
$112.750
|
2.50%
|
5.70%
|
N/A
|
$110.000
|
0.00%
|
5.70%
|
N/A
|
$107.250
|
-2.50%
|
5.70%
|
N/A
|
$104.500
|
-5.00%
|
5.70%
|
N/A
|
$99.000
|
-10.00%
|
5.70%
|
N/A
|
$93.500
|
-15.00%
|
5.70%
|
N/A
|
$88.000
|
-20.00%
|
5.70%
|
N/A
|
$87.989
|
-20.01%
|
N/A
|
-20.01%
|
$82.500
|
-25.00%
|
N/A
|
-25.00%
|
$77.000
|
-30.00%
|
N/A
|
-30.00%
|
$66.000
|
-40.00%
|
N/A
|
-40.00%
|
$55.000
|
-50.00%
|
N/A
|
-50.00%
|
$44.000
|
-60.00%
|
N/A
|
-60.00%
|
$33.000
|
-70.00%
|
N/A
|
-70.00%
|
$22.000
|
-80.00%
|
N/A
|
-80.00%
|
$11.000
|
-90.00%
|
N/A
|
-90.00%
|
$0.000
|
-100.00%
|
N/A
|
-100.00%
|
|
(1) The Ending Contract Price is not less than
the Strike Value by more than 20.00%.
(2) The Ending Contract Price is less than
the Strike Value by more than 20.00%. |
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 price
of the Commodity Futures Contract increases from the Strike Value of $110 to
an Ending Contract Price of $121.00 a Knock-Out Event has not occurred.
Because the Ending Contract Price is greater than the Strike Value of $110,
a Knock-Out Event has not occurred and the investor receives a fixed payment
at maturity of $1,057 per $1,000 principal amount note, regardless of the Contract
Return.
Example 2: The price
of the Commodity Futures Contract decreases from the Strike Value of $110 to
an Ending Contract Price of $104.50 a Knock-Out Event has not occurred.
Although the Ending Contract Price of $104.50 is less than the Strike
Value of $110, because the Ending Contract Price is not less than the Strike Value
of $110 by more than the hypothetical Knock-Out Buffer Percentage of 20.00%,
a Knock-Out Event has not occurred and the investor receives a fixed payment
at maturity of $1,057 per $1,000 principal amount note, regardless of the Contract
Return.
Example 3: The price
of the Commodity Futures Contract decreases from the Strike Value of $110 to
an Ending Contract Price of $66.00 a Knock-Out Event has occurred. Because the Ending
Contract Price of $66 is less than the Strike Value of $110 by more than the
hypothetical Knock-Out Buffer Percentage of 20.00%, a Knock-Out Event has occurred
and because the Contract Return is -40%, the investor receives a payment at
maturity of $600 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × -40%) = $600
The hypothetical returns and hypothetical 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.
|
JPMorgan
Structured Investments
Digital
Market Plus Notes Linked to the Front Month Brent Crude Oil Futures Contract
|
TS-2 |
Selected
Purchase Considerations
- CAPPED APPRECIATION
POTENTIAL The notes provide the opportunity
to earn a fixed Contingent Return of at least 5.70%, at maturity, if a Knock-Out
Event has not occurred. If a Knock-Out Event has not occurred,
in addition to the principal amount, you will receive at maturity a fixed
return equal to the Contingent Return of not less than 5.70% on the notes.
This represents the maximum return on the notes, and accordingly, the
maximum payment at maturity is at least $1,057 per $1,000 principal amount
note. The actual Contingent Return and maximum payment at maturity
will be determined on the pricing date and will not be less than 5.70% and
$1,057 per $1,000 principal amount note, 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
PRICE OF THE FRONT MONTH BRENT CRUDE OIL FUTURES CONTRACTS The return on the notes is
linked to the price of the Commodity Futures Contract. Whether a Knock-Out
Event occurs and the Contract Return are based on the arithmetic average of
the Contract Prices on each of the five Ending Averaging Dates (i.e.,
the Ending Contract Price) as compared to the Strike Value. The Contract
Price on any trading day is the official settlement price per barrel on ICE
Futures Europe of the first nearby month futures contract for Brent crude
oil, stated in U.S. dollars, as made public by ICE Futures Europe and displayed
on Bloomberg under the symbol CO1 <Comdty>, provided that if
such date falls on the last trading day of such futures contract (all pursuant
to the rules of ICE Futures Europe), then the second nearby month futures
contract (Bloomberg Ticker: CO2 <Comdty>) on such trading day. For
additional information about Brent crude oil futures contracts, see the information
set forth under Description of Notes Payment at
Maturity and The Commodity Futures Contracts 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, as described in the section entitled Certain
U.S. Federal Income Tax ConsequencesTax Consequences to U.S. HoldersNotes
Treated as Open Transactions in the accompanying product supplement. Assuming
this characterization is respected, the gain or loss on your notes should
be treated as short-term capital gain or loss, 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, which might include 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; and the degree, if any, to which income
(including any mandated accruals) realized by Non-U.S. Holders should be subject
to withholding tax. 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 at a rate of up to 30% 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
Commodity Futures Contract, the underlying commodity or other instruments related
to the Commodity Futures Contract or the underlying commodity. 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 Commodity Futures Contract and will depend on whether a Knock-Out Event
has occurred and whether, and the extent to which, the Contract Return is
positive or negative. If the Ending Contract Price is less than the Strike
Value by more than the Knock-Out Buffer Percentage of at least 20.00%*, a
Knock-Out Event has occurred, the benefit provided by the Knock-Out Buffer
Percentage of at
|
JPMorgan
Structured Investments
Digital
Market Plus Notes Linked to the Front Month Brent Crude Oil Futures Contract
|
TS-3 |
least 20.00%* will terminate and for every 1% that the Ending
Contract Price is less than the Strike Value, you will lose an amount equal to
1% of the principal amount of your notes. Under these circumstances, you
could lose some or all of your principal.
*The actual Knock-Out
Buffer Percentage will be set on the pricing date and will not be less than
20.00%.
- YOUR MAXIMUM GAIN
ON THE NOTES IS LIMITED TO THE CONTINGENT RETURN If the Ending Contract
Price is not less the Strike Value by more than the Knock-Out Buffer Percentage
of at least 20.00%*, 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
price of the Commodity Futures Contract, which may be significant. We refer
to this percentage as the Contingent Return, which will be set on the pricing
date and will not be less than 5.70%.
- 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 adversely affect 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. It is possible that such hedging
or other trading activities of ours or our affiliates could result in substantial
returns for us or our affiliates while the value of the notes declines. The
Strike Value will be a price 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 establishing 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 PERCENTAGE MAY TERMINATE ON THE FINAL ENDING AVERAGING
DATE If the arithmetic average of the Contract Prices on each of the
five Ending Averaging Dates (i.e.,the Ending Contract Price) is less
than the Strike Value by more than the Knock-Out Buffer Percentage of 20.00%*,
the benefit provided by the Knock-Out Buffer Percentage will terminate, and
you will be fully exposed to any depreciation in the Commodity Futures Contract.
- RISK OF KNOCK-OUT
EVENT OCCURRING IS GREATER IF THE CONTRACT PRICE OF THE COMMODITY FUTURES
CONTRACT IS VOLATILE The likelihood that the Ending Contract Price will
be less than the Strike Value by more than the Knock-Out Buffer Percentage
of at least 20.00%*, and thereby triggering a Knock-Out Event, will depend
in large part on the volatility of the Contract Price of the Commodity Futures
Contract the frequency and magnitude of changes in the Contract Price of
the Commodity Futures Contract. Commodity futures contracts such as those
on Brent crude oil may be more volatile than traditional securities investments.
See Prices of Commodity Futures Contracts Are Characterized by High and
Unpredictable Volatility 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
your notes to maturity.
- 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.
- COMMODITY FUTURES
CONTRACTS ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES Commodity
futures contracts 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 Commodity Futures Contract. Any future regulatory
changes, including but not limited to
|
JPMorgan
Structured Investments
Digital
Market Plus Notes Linked to the Front Month Brent Crude Oil Futures Contract
|
TS-4 |
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 energy and agricultural based commodities. 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.
- PRICES OF COMMODITY
FUTURES CONTRACTS ARE CHARACTERIZED BY HIGH AND UNPREDICTABLE VOLATILITY
Market prices of commodity futures contracts tend to be highly volatile
and may fluctuate rapidly based on numerous factors, including the factors
that affect the price of Brent crude oil, the commodity underlying the Commodity
Futures Contract. See The Market Price of Brent Crude Oil Will Affect
the Value of the Notes below. The Contract Price is subject to variables
that may be less significant to the values of traditional securities, such
as stocks and bonds. These additional 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.
- THE MARKET PRICE OF
BRENT CRUDE OIL WILL AFFECT THE VALUE OF THE NOTES Because the notes
are linked to the performance of the Commodity Futures Contract,
we expect that generally the market value of the notes will depend in part
on the market price of Brent crude oil. The price of IPE brent blend crude
oil futures is primarily affected by the global demand for and supply of crude
oil, but is also influenced significantly from time to time by speculative
actions and by currency exchange rates. Crude oil prices are generally more
volatile and subject to dislocation than prices of other commodities. Demand
for refined petroleum products by consumers, as well as the agricultural,
manufacturing and transportation industries, affects the price of crude oil.
Crude oils end-use as a refined product is often as transport fuel, industrial
fuel and in-home heating fuel. Potential for substitution in most areas exists,
although considerations including relative cost often limit substitution levels.
Because the precursors of demand for petroleum products are linked to economic
activity, demand will tend to reflect economic conditions. Demand is also
influenced by government regulations, such as environmental or consumption
policies. In addition to general economic activity and demand, prices for
crude oil are affected by political events, labor activity and, in particular,
direct government intervention (such as embargos) or supply disruptions in
major oil producing regions of the world. Such events tend to affect oil prices
worldwide, regardless of the location of the event. Supply for crude oil
may increase or decrease depending on many factors. These include production
decisions by the Organization of the Petroleum Exporting Countries (OPEC)
and other crude oil producers. Crude oil prices are determined with significant
influence by OPEC. OPEC has the potential to influence oil prices worldwide
because its members possess a significant portion of the worlds oil supply.
In the event of sudden disruptions in the supplies of oil, such as those caused
by war, natural events, accidents or acts of terrorism, prices of oil futures
contracts could 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 oil, the introduction
of new or previously withheld supplies into the market or the introduction
of substitute products or commodities. Crude oil prices may also be affected
by short-term changes in supply and demand because of trading activities in
the oil market and seasonality (e.g., weather conditions such as hurricanes).
It is not possible to predict the aggregate effect of all or any combination
of these factors.
- 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 Commodity Futures Contract
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 Commodity Futures Contract and, therefore,
the notes.
- THE CONTRACT PRICE
IS DETERMINED BY REFERENCE TO THE OFFICIAL SETTLEMENT PRICE OF THE COMMODITY
FUTURES CONTRACT AS DETERMINED BY ICE FUTURES EUROPE, AND THERE ARE CERTAIN
RISKS RELATING TO THE CONTRACT PRICE BEING DETERMINED BY ICE FUTURES EUROPE
The Commodity Futures Contract is traded on ICE Future Europe.
The Contract Price will be determined by reference to the official settlement
price per barrel on ICE Futures Europe, stated in U.S. dollars, as made public
by ICE Futures Europe. Investments in securities linked to the value of commodity
futures contracts that are traded on non-U.S. exchanges, such as ICE Futures
Europe, involve risks associated with the markets in those countries, including
risks of volatility in those markets and governmental intervention in those
markets.
- A DECISION BY ICE
FUTURES EUROPE TO INCREASE MARGIN REQUIREMENTS FOR BRENT CRUDE OIL FUTURES
CONTRACTS MAY AFFECT THE CONTRACT PRICE If ICE Futures Europe increases
the amount of collateral required to be posted to hold positions in the Commodity Futures Contract (i.e. the margin requirements),
market
|
JPMorgan
Structured Investments
Digital
Market Plus Notes Linked to the Front Month Brent Crude Oil Futures Contract
|
TS-5 |
participants who are unwilling
or unable to post additional collateral may liquidate their positions, which
may cause the Contract Price of the Commodity Futures Contract
to decline significantly.
- OWNING THE NOTES IS NOT THE SAME AS OWNING BRENT CRUDE OIL FUTURES
CONTRACTS The return on your notes will not reflect the return you would realize
if you actually purchased Brent crude oil futures contracts, or exchange-traded
or over-the-counter instruments based on Brent crude oil futures contracts.
You will not have any rights that holders of such assets or instruments have.
- SINGLE COMMODITY FUTURES
CONTRACT PRICES TEND TO BE MORE VOLATILE THAN, AND MAY NOT CORRELATE WITH,
THE PRICES OF COMMODITIES GENERALLY The notes are linked exclusively
to the Commodity Futures Contract and not to a diverse basket of commodities
or commodity futures contracts or a broad-based commodity index. The Commodity
Futures Contract may not correlate to the price of commodities or commodity
futures contracts generally and may diverge significantly from the prices
of commodities or commodity futures contracts generally. Because the notes
are linked to the price of a single commodity futures contract, they carry
greater risk and may be more volatile than notes linked to the prices of multiple
commodities or commodity futures contracts or a broad-based commodity index.
- NO INTEREST PAYMENTS
As a holder of the notes, you will not receive 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 IMPACT THE VALUE OF THE NOTES In addition to the
price of Commodity Futures Contract and interest rates at any time 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 actual and expected volatility
the frequency and magnitude of changes in the Contract Price;
- supply and demand trends for Brent crude
oil and Brent crude oil futures contracts;
- the time to maturity of the notes;
- whether a Knock-Out Event is expected
to occur;
- interest and yield rates in the market
generally;
- a variety of economic, financial, political,
regulatory, geographical, meteorological and judicial events; and
- our creditworthiness, including actual
or anticipated downgrades in our credit ratings.
|
JPMorgan
Structured Investments
Digital
Market Plus Notes Linked to the Front Month Brent Crude Oil Futures Contract
|
TS-6 |
Historical
Information
The following graph sets forth the historical
performance of Brent crude oil futures contracts based on the weekly Contract
Prices from January 6, 2006 through August 12, 2011. The Contract Price on
August 15, 2011 was $109.91. We obtained the Contract Prices below from Bloomberg
Financial Markets. We make no representation or warranty as to the accuracy
or completeness of the information obtained from Bloomberg Financial Markets.
The historical Contract Prices should not be
taken as an indication of future performance, and no assurance can be given
as to the Contract Price on the pricing date or on any of the Ending Averaging
Dates. We cannot give you assurance that the performance of the Contract Price
of the Commodity Futures Contract 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 $3.00
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 $3.00 per $1,000 principal
amount note.
|
JPMorgan
Structured Investments
Digital
Market Plus Notes Linked to the Front Month Brent Crude Oil Futures Contract
|
TS-7 |