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 August 23, 2011; Rule 433
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Structured
Investments
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$
Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess Return
due March 15, 2012 |
General
- The notes are designed
for investors who seek a fixed return that will not be less than 8.25%* if, on any
business day from and including November 23, 2011 to and including March 12,
2012 (i.e., any Review Date), the S&P GSCI Brent Crude Oil Index
Excess Return is at or above the Call Level. If the notes are not automatically
called, investors should be willing to lose some or all of their principal if the
Ending Index Level is less than the Strike Value by more than 20%. Investors
in the notes should be willing to accept this risk of loss and be willing to
forgo interest payments, in exchange for the opportunity to receive a premium
payment if the notes are automatically called. Any payment on the notes is
subject to the credit risk of JPMorgan Chase & Co.
- The notes are linked to
the S&P GSCI Brent Crude Oil Index Excess Return, a sub-index of the
S&P GSCI that generally references the front-month Brent crude oil futures
contract traded on ICE Futures Europe and does not reference the spot price of Brent
crude oil. See Selected Purchase Considerations Return Linked to the
S&P GSCI Brent Crude Oil Index Excess Return and Selected Risk
Considerations The Notes Do Not Offer Direct Exposure to Commodity Spot Prices
in this term sheet for more information.
- The first Review Date,
and therefore the earliest date on which a call may be initiated, is November 23, 2011.
- The notes are not
futures contracts and are not regulated under the Commodity Exchange Act of
1936, as amended (the Commodity Exchange Act). The notes are offered pursuant to an exemption from
regulation under the Commodity Exchange Act that is available to securities
that have one or more payments indexed to the value, level or rate of one or
more commodities, which is set out in section 2(f) of that statute. Accordingly,
you are not afforded any protection provided by the Commodity Exchange Act or
any regulation promulgated by the Commodity Futures Trading Commission.
- Senior unsecured
obligations of JPMorgan Chase & Co. maturing March 15, 2012
- Minimum denominations
of $20,000 and integral multiples of $1,000 in excess thereof
- The notes are expected
to price on or about August 23, 2011 and are expected to settle on or about August 26, 2011.
Key Terms
Index:
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The S&P GSCI Brent Crude Oil
Index Excess Return (the Index). The value of the S&P GSCI 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 GSCI Brent
Crude Oil Index Excess Return in this term sheet.
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Automatic Call:
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If the Index Closing Level on any Review Date is
greater than or equal to the Call Level, the notes will be automatically called
for a cash payment per note as described below.
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Call Level:
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100% of the Strike Value for each
Review Date
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Payment if Called:
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If the notes are automatically called
on any Review Date, for every $1,000 principal amount note, you will receive
one payment of $1,000 plus a call premium amount that will not be less than 8.25%*
× $1,000 and that will be payable on the applicable Call Settlement Date.
*The actual call premium used to calculate the call
price applicable to a Review Date will be determined on the pricing date and
will not be less than 8.25%.
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Payment at Maturity: |
If the notes are not automatically called and the
Ending Index Level is less than the Strike Value by up to 20%, you will
receive the principal amount of your notes at maturity. |
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If the notes are not automatically called and the
Ending Index Level is less than the Strike Value by more than 20%, you will
lose 1% of the principal amount of your notes for every 1% that the Ending
Index Level is less than the Strike
Value, and your payment at maturity
per $1,000 principal amount note will be calculated as follows:
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$1,000
+ ($1,000 × Index Return)
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If the notes are not automatically called, you will
lose at least 20% of your investment at maturity if the Ending Index Level is
less than the Strike Level by more than 20% and could lose up to your entire
investment at maturity. |
Knock-Out Buffer Percentage:
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20%
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Index Return:
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Ending Index Level Strike Value
Strike Value
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Strike Value:
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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.
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Ending Index Level:
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The Index Closing Level on the Final Review Date
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Review Dates:
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Each business day from and including November 23, 2011
to and including March 12, 2012 (the Final Review Date)
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Call Settlement Date:
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The third business day after the
applicable Review Date, except that if the notes are called on the Final
Review Date, the Call Settlement Date will be the maturity date.
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Maturity Date:
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March 15, 2012
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CUSIP:
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48125XR57
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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
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.
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Investing in the Review 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-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 product supplement 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)
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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.
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(2)
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Please see Supplemental
Plan of Distribution on the last page of this term sheet for information
about fees and commissions.
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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.
August 23, 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 Review Dates are
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; 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.
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JPMorgan
Structured Investments |
TS-1 |
Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess Return |
Hypothetical Examples of Amounts Payable
upon Automatic Call or at Maturity
The following table illustrates the hypothetical
simple total return (i.e., not compounded) on the notes that could be
realized on the applicable Review Date for a range of movements in the Index
Closing Level as shown under the column Index Closing Level Appreciation /
Depreciation at Review Date. The
following table assumes a hypothetical Strike Value of 760 and a call premium
used to calculate the call price applicable to any Review Date of 8.25%,
regardless of the appreciation of the Index Closing Level, which may be
significant. The actual call premium will be determined on the pricing date
and will not be less than 8.25%. There will be only one payment on the
notes whether called or at maturity. An entry of N/A indicates that the
notes would not be called on the applicable Review Date and no payment would be
made for such date. The hypothetical returns set forth below are for
illustrative purposes only and may not be the actual total returns applicable
to a purchaser of the notes.
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Index Closing
Level at Review
Date
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Index Closing Level
Appreciation /
Depreciation at
Review Date
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Total Return at
any Call
Settlement Date
Prior to
the
Maturity Date
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Total Return at Maturity
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1368.000
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80.00%
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8.25%
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8.25%
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1292.000
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70.00%
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8.25%
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8.25%
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1216.000
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60.00%
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8.25%
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8.25%
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1140.000
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50.00%
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8.25%
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8.25%
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1064.000
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40.00%
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8.25%
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8.25%
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988.000
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30.00%
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8.25%
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8.25%
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912.000
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20.00%
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8.25%
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8.25%
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836.000
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10.00%
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8.25%
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8.25%
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798.000
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5.00%
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8.25%
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8.25%
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767.600
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1.00%
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8.25%
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8.25%
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760.000
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0.00%
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8.25%
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8.25%
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752.400
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-1.00%
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N/A
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0.00%
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722.000
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-5.00%
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N/A
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0.00%
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684.000
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-10.00%
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N/A
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0.00%
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646.000
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-15.00%
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N/A
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0.00%
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608.000
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-20.00%
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N/A
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0.00%
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607.924
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-20.01%
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N/A
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-20.01%
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532.000
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-30.00%
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N/A
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-30.00%
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456.000
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-40.00%
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N/A
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-40.00%
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380.000
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-50.00%
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N/A
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-50.00%
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304.000
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-60.00%
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N/A
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-60.00%
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228.000
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-70.00%
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N/A
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-70.00%
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152.000
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-80.00%
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N/A
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-80.00%
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76.000
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-90.00%
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N/A
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-90.00%
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0.000
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-100.00%
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N/A
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-100.00%
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The following examples illustrate how the total
returns set forth in the table above are calculated.
Example
1: The level of the Index increases from the Strike Value of 760 to an Index Closing Level of 836 on any Review Date. Because the Index Closing Level on the applicable
Review Date (836) is greater than the Strike Value of 760, the notes are
automatically called, and the investor receives a single payment of $1,082.50 per
$1,000 principal amount note on the applicable Call Settlement Date.
Example
2: The Index Closing Level is less than the Strike Value on every Review Date,
and the level of the Index decreases from the Strike Value of 760 to an Index Closing Level of 608 on the Final Review Date. Because (a) the Index Closing Level is less than the Strike
Value on every Review Date, (b) the Index Closing Level on the Final Review
Date (608) is less than the Strike Value of 760 and (c) the Ending Index Level is
not less than the Strike Value by more than 20%, the notes are not called and
the payment at maturity is the principal amount of $1,000 per $1,000 principal
amount note.
Example
3: The Index Closing Level is less than the Strike Value on every Review Date,
and the level of the Index decreases from the Strike Value of 760 to an Index Closing Level of 380 on the Final Review Date. Because (a) the Index Closing Level is less than
the Strike Value on every Review Date, (b) the Index Closing Level on the Final
Review Date (380) is less than the Strike Value of 760 and (c) the Index
Closing Level is less than the Strike Value by more than 20%, the notes are not
called and the investor receives a payment at maturity that is less than the
principal amount for each $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 x -50%) = $500
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.
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JPMorgan
Structured Investments |
TS-2 |
Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess Return |
Selected Purchase Considerations
- CAPPED APPRECIATION POTENTIAL If the Index Closing Level is greater than or
equal to the Call Level on any Review Date, your investment will yield a
payment per $1,000 principal amount note of $1,000 plus a call premium amount
that will not be less than 8.25%* x $1,000. Because the notes are our senior
unsecured obligations, payment of any amount if called or at maturity is
subject to our ability to pay our obligations as they become due.
* *The actual call premium will be determined
on the pricing date and will not be less than 8.25%.
- POTENTIAL EARLY EXIT WITH APPRECIATION AS A RESULT OF
AUTOMATIC CALL FEATURE While the
original term of the notes is just over six months, the notes will be called
before maturity if the Index Closing Level is at or above the Call Level on any
Review Date and you will be entitled to the call price as set forth on the
cover of this term sheet.
- CONTINGENT PROTECTION AGAINST LOSS If the notes are not automatically called and the
Ending Index level is less than the Strike Value by no more than 20%, you will
be entitled to receive the full principal amount of your notes at maturity,
subject to the credit risk of JPMorgan Chase & Co. If the notes are not
automatically called and the Ending Index Level is less than the Strike Value
by more than 20%, you will lose 1% of the principal amount of your notes for
every 1% that the Ending Index Level is less than the Strike Value. Under
these circumstances, you will lose at least 20% of your investment at maturity
and could lose up to your entire investment at maturity.
- 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 generally 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, 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
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.
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JPMorgan
Structured Investments |
TS-3 |
Review Notes Linked to the S&P GSCI Brent Crude Oil Index Excess Return |
- YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS The notes do not guarantee any return of
principal. If the notes are not automatically called and the Ending Index
Level is less than the Strike Value by more than 20%, you will lose 1% of your
principal amount at maturity for every 1% that the Ending Index Level is less
than the Strike Value. Under these circumstances, you will lose at least 20%
of your investment at maturity and could lose up to your entire investment at
maturity.
- 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 or upon an automatic call, 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. It is possible that
such hedging activities 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. Although the calculation agent will make
all determinations and will take all actions in relation to establishing 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.
- LIMITED RETURN ON THE NOTES Your potential gain on the notes will be limited
to the call premium of not less than 8.25%*, regardless of the appreciation in
the Index, which may be significant. Because the Index Closing Level at
various times during the term of the notes could be higher than on the Review
Dates and at maturity, you may receive a lower payment if called or at
maturity, as the case may be, than you would have if you had invested directly
in the Index.
*The actual call premium will be determined on the pricing date and will not be
less than 8.25%.
- REINVESTMENT RISK If your notes are automatically called, the term of the notes may be
as short as approximately three months. There is no guarantee that you would
be able to reinvest the proceeds from an investment in the notes at a
comparable return for a similar level of risk in the event the notes are
automatically called prior to the maturity date.
- CERTAIN BUILT-IN COSTS ARE LIKELY TO AFFECT ADVERSELY
THE VALUE OF THE NOTES PRIOR TO MATURITY While the payment at maturity or upon an automatic call 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.
- THE BENEFIT PROVIDED BY THE KNOCK-OUT BUFFER PERCENTAGE
MAY TERMINATE ON THE FINAL REVIEW DATE If the notes have not been automatically called previously and the Index
Closing Level on the Final Review Date (i.e., the Ending Index Level) is
less than the Strike Value by more than the 20% Knock-Out Buffer Percentage,
the benefit provided by the Knock-Out Buffer Percentage will terminate and you
will be fully exposed to any depreciation in the Index.
- 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 Indirectly 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.
- 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
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Commission is drafting regulations that
will affect market participants position limits in certain commodity-based
futures contracts, such as futures contracts on certain energy, agricultural and
metals 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.
- 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.
- 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
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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 IMPACT 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 actual and expected volatility of the Index and
the underlying futures contracts;
- the time to maturity of the notes;
- 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;
- various economic, financial, political, regulatory,
geographical, agricultural, meteorological and judicial events; and
- our creditworthiness, including actual or anticipated downgrades in our
credit ratings.
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Historical Information
The following graph sets forth the
historical performance of the Index based on the weekly historical Index
Closing Levels from January 6, 2006 through August 19, 2011.
The Index Closing Level on August 22, 2011 was 761.2068. 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 the pricing date or any Review 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 $2.50 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 $2.50 per $1,000 principal amount
note.
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