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 May 16, 2011; Rule 433 |
Structured
Investments
|
|
$
Autocallable Buffered Return Enhanced Notes Linked an Equally Weighted Basket
Consisting of Brent Crude Oil Futures Contracts, Grade A Copper and Corn
Futures Contracts due June 1, 2012 |
General
- The notes
are designed for investors who seek a return of at least 1.5 times the appreciation
of a basket of one commodity and futures contracts on two commodities (each
a Commodity Futures Contract and together, the Commodity Futures Contracts)
up to a maximum total return on the notes of at least 30.00% at maturity,
or early exit prior to maturity at a premium if, on the Review Date, the Basket
Closing Level is at or above the Call Level. If the notes are not automatically
called, investors will lose some or all of their principal if the Ending Basket
Level is less than the Starting Basket Level by more than 10%. 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 or a capped, leveraged upside
payment if the notes are not automatically called. Any payment on the
notes is subject to the credit risk of JPMorgan Chase & Co.
- The notes are not
commodity futures contracts and are note 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.
- The Review Date, and therefore
the date on which an automatic call may be initiated, is November 21, 2011.
- Senior unsecured obligations
of JPMorgan Chase & Co. maturing June 1, 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 20, 2011 and are expected to settle on or about May
25, 2011.
Key
Terms
Basket: |
The
Basket will be composed of three equally weighted components (each a
Component and together the Components). The Components and their
weights in the Basket are as follows: |
|
Components |
Component
Weighting |
Contract
Price/Commodity
Price on the Pricing Date |
|
Brent
crude oil futures contracts (as referenced in the relevant definition
of Contract Price below) (Brent Crude Futures Contracts, Bloomberg
symbol CO1 or CO2)
|
1/3 |
|
|
Grade
A Copper (Copper, Bloomberg symbol LOCADY) |
1/3 |
|
|
Corn
futures contracts (as referenced in the relevant definition of Contract
Price below) (Corn Futures Contracts, Bloomberg symbol C 1 or
C 2)
|
1/3 |
|
Upside
Leverage Factor: |
At
least 1.5. The Upside Leverage Factor will be set on the pricing date
and will not be less than 1.5. |
Automatic
Call: |
If
the Basket Closing Level on the Review Date is greater than or equal
to the Call Level, the notes will be automatically called for a cash
payment as described below. |
Call
Level: |
100%
of the Starting Basket Level |
Payment
if Called: |
For every $1,000 principal amount
note, you will receive one payment of $1,000 plus a call premium amount
of at least $60.00* (equal to the call premium of at least 6.00%*
× $1,000) if called on the Review Date
*The actual call premium amount and
call premium will be determined on the pricing date but will not be
less than $60.00 and 6.00%, respectively. |
Payment
at Maturity: |
If
the notes have not been automatically called and the Ending Basket Level
is greater than the Starting Basket Level, you will receive at maturity
a cash payment that provides you with a return per $1,000 principal
amount note equal to the Basket Return multiplied by the Upside Leverage
Factor, subject to a Maximum Total Return on the notes of at least 30.00%**.
For example, assuming the Maximum Total Return is 30.00%** and the Upside
Leverage Factor is 1.5, if the Basket Return is equal to or greater
than 20%, you will receive the Maximum Total Return on the notes of
30.00%**, which entitles you to a maximum payment at maturity of $1,300**
for every $1,000 principal amount note that you hold. Accordingly,
if the Basket Return is positive, your payment at maturity per $1,000
principal amount note will be calculated as follows, subject to the
Maximum Total Return: |
$1,000 +($1,000
× Basket Return × Upside Leverage Factor)
** The actual Maximum
Total Return on the notes and the actual maximum payment at maturity
will be set on the pricing date and will not be less than 30.00% and
$1,300 per $1,000 principal amount note, respectively. |
If
the Ending Basket Level is equal to or less than the Starting Basket
Level by up to 10%, you will receive the principal amount of your notes
at maturity.
If the Ending Basket
Level is less than the Starting Basket Level by more than 10%, you will
lose 1.1111% of the principal amount of your notes for every 1% that
the Ending Basket Level is less than the Starting Basket Level by more
than 10%. Under these circumstances, your payment at maturity per $1,000
principal amount note will be calculated as follows: |
$1,000 + [$1,000 x (Basket Return +
10%) x 1.1111] |
If
the notes have not been automatically called, you will lose some or
all of your initial investment at maturity if the Ending Basket Level
is less than the Starting Basket Level by more than 10%. |
Buffer: |
10.00% |
Downside
Leverage Factor: |
1.1111
|
Basket
Return: |
The
performance of the Basket from the Starting Basket Level to the Ending
Basket Level calculated as follows: |
|
Ending
Basket Level Starting Basket Level
Starting Basket Level
See Additional Key Terms in this
term sheet for more information. |
Review
Date: |
November
21, 2011 |
Call
Settlement Date: |
The
third business day after the Review Date specified above |
Observation
Date: |
May 29, 2012 |
Maturity
Date: |
June
1, 2012 |
Other
Key Terms: |
See
Additional Key Terms on page TS-1 of this term sheet |
|
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 E. Notes linked to a Basket of
Components 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 Autocallable
Buffered Return Enhanced 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 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 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 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.
Additional
Key Terms
Starting Basket Level: |
Set equal to 100 on the pricing date |
Ending Basket Level: |
The Basket Closing Level on the Observation
Date |
Basket Closing Level: |
On any trading day, the Basket Closing Level
will be calculated as follows:
100 × [1 + (Brent Crude Futures
Return × 1/3) + (Copper Return × 1/3) +
(Corn Futures Return × 1/3)]
The Component Return of each Component refers
to its Contract Return (if it is a Commodity Futures Contract) or Commodity
Return (if it is Copper). |
Contract Return: |
With respect to each Commodity Futures Contract: |
|
Ending
Contract Price Initial Contract Price
Initial Contract Price
|
Initial Contract Price: |
With respect to each Commodity Futures Contract,
the Contract Price on the pricing date. |
Ending Contract Price: |
With respect to each Commodity Futures Contract,
the Contract Price on the Observation Date. |
Contract Price: |
With respect to a Commodity Futures Contract
on any trading day: |
|
(a) if the Commodity Futures Contract is a
Brent Crude Futures Contract, 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, or
(b) if the Commodity Futures Contract is a
Corn Futures Contract, the official settlement price per bushel on the
Chicago Board of Trade (the CBOT) of the first nearby month futures
contract for #2 Yellow Corn, stated in U.S. cents, as made public by
the CBOT (Bloomberg Ticker: C 1 <Comdty>), provided that
if such date falls within the notice period for delivery of corn under
such futures contract or on the last trading day of such futures contract
(all pursuant to the rules of the CBOT), then the second nearby month
futures contract (Bloomberg Ticker: C 2 <Comdty>) on such trading
day. |
Commodity Return: |
With respect to Copper: |
|
Ending
Commodity Price Initial Commodity Price
Initial Commodity Price |
Initial Commodity Price: |
With respect to Copper, the Commodity Price
on the pricing date. |
Ending Commodity Price: |
With respect to Copper, the Commodity Price
on the Observation Date. |
Commodity Price: |
With respect to Copper, on any trading day,
the official cash settlement price per metric ton of Grade A Copper,
stated in U.S. dollars, as determined by the London Metal Exchange (the
LME) and displayed on Bloomberg under the symbol LOCADY on such
trading day |
CUSIP: |
48125XRP3 |
Supplemental
Terms of the Notes
For purposes of the notes
offered by this term sheet:
(1) the Review Date and the
Observation Date are subject to postponement as described under Description
of Notes Postponement of a Determination Date E. Notes linked to a Basket
of Components 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.
|
JPMorgan
Structured Investments
Autocallable
Buffered Return Enhanced Notes Linked an Equally Weighted Basket Consisting
of Brent Crude Oil Futures Contracts, Grade A Copper and Corn Futures
Contracts |
TS-1 |
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 Call Settlement
Date or at maturity for a range of movements in the Basket as shown under
the column Basket Level Appreciation/Depreciation at Review Date and Basket Return. The following table assumes a Maximum
Total Return of 30.00% and an Upside Leverage Factor of 1.5 and reflects the
Buffer Amount of 10.00%. The actual Maximum Total Return and Upside Leverage
Factor will be determined on the pricing date and will not be less than 30.00%
and 1.5, respectively. 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 Review Date and no payment would be made
for that 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.
|
|
Automatic
Call |
No
Automatic Call |
|
Basket
Closing Level |
Basket
Level
Appreciation/
Depreciation at
Review Date |
Total
Return at Call
Settlement
Date |
Basket
Return |
Total
Return at
Maturity |
|
180.00 |
80.00% |
6.00% |
80.00% |
30.00% |
170.00 |
70.00% |
6.00% |
70.00% |
30.00% |
160.00 |
60.00% |
6.00% |
60.00% |
30.00% |
150.00 |
50.00% |
6.00% |
50.00% |
30.00% |
140.00 |
40.00% |
6.00% |
40.00% |
30.00% |
130.00 |
30.00% |
6.00% |
30.00% |
30.00% |
120.00 |
20.00% |
6.00% |
20.00% |
30.00% |
110.00 |
10.00% |
6.00% |
10.00% |
15.00% |
105.00 |
5.00% |
6.00% |
5.00% |
7.50% |
102.50 |
2.50% |
6.00% |
2.50% |
3.75% |
100.00 |
0.00% |
6.00% |
0.00% |
0.000% |
95.00 |
-5.00% |
N/A |
-5.00% |
0.000% |
90.00 |
-10.00% |
N/A |
-10.00% |
0.000% |
80.00 |
-20.00% |
N/A |
-20.00% |
-11.11% |
70.00 |
-30.00% |
N/A |
-30.00% |
-22.22% |
60.00 |
-40.00% |
N/A |
-40.00% |
-33.33% |
50.00 |
-50.00% |
N/A |
-50.00% |
-44.44% |
40.00 |
-60.00% |
N/A |
-60.00% |
-55.56% |
30.00 |
-70.00% |
N/A |
-70.00% |
-66.67% |
20.00 |
-80.00% |
N/A |
-80.00% |
-77.78% |
10.00 |
-90.00% |
N/A |
-90.00% |
-88.89% |
0.00 |
-100.00% |
N/A |
-100.00% |
-100.00% |
|
The following examples illustrate how the total
returns set forth in the table above are calculated.
Example 1: The level
of the Basket increases from the Starting Basket Level of 100 to a Basket
Closing Level of 105 on the Review Date. Because the Basket Closing Level
on the Review Date of 105 is greater than the Call Level of 100, the notes
are automatically called on the Review Date, and the investor receives a single
payment of $1,060 per $1,000 principal amount note on the Call Settlement
Date.
Example 2: The notes
have not been automatically called, and the level of the Basket increases
from the Starting Basket Level of 100 to an Ending Basket Level of 102.50.
Because the Ending Basket Level of 102.50 is greater than the Starting
Basket Level of 100 and the Basket Return of 2.50% multiplied by 1.5 does
not exceed the hypothetical Maximum Total Return of 30%, the investor receives
a payment at maturity of $1,037.50 per $1,000 principal amount note, calculated
as follows:
$1,000 + ($1,000
× 2.50% × 1.5) = $1,037.50
Example 3: The notes have not been automatically called, and
the level of the Basket increases from the Starting Basket Level of 100 to
an Ending Basket Level of 130. Because the Ending Basket
Level of 130 is greater than the Starting Basket Level of 100 and the Basket
Return of 30% multiplied by 1.5 exceeds the hypothetical Maximum Total Return
of 30%, the investor receives a payment at maturity of $1,300 per $1,000 principal
amount note, the maximum payment on the notes.
Example 4: The notes
have not been automatically called, and the level of the Basket decreases
from the Starting Basket Level of 100 to an Ending Basket Level of 95. Although
the Basket Return is negative, because the Ending Basket Level of 90 is less
than the Starting Basket Level of 100 by not more than the Buffer Amount of
10%, the investor receives a payment at maturity of $1,000 per $1,000 principal
amount note.
Example 6: The notes
have not been automatically called, and the level of the Basket decreases
from the Starting Basket Level of 100 to an Ending Basket Level of 80. Because
the Ending Basket Level of 80 is less than the Starting Basket Level of 100
by more than the Buffer Amount of 10%, the Basket Return is negative and the
investor receives a payment at maturity of $888.89 per $1,000 principal amount
note, calculated as follows:
$1,000 + [$1,000
× (-20% + 10%) × 1.1111] = $888.89
|
JPMorgan
Structured Investments
Autocallable
Buffered Return Enhanced Notes Linked an Equally Weighted Basket Consisting
of Brent Crude Oil Futures Contracts, Grade A Copper and Corn Futures
Contracts |
TS-2 |
Selected
Purchase Considerations
- CAPPED APPRECIATION
POTENTIAL If the Basket Closing Level is greater than or equal to the
Call Level on the Review Date, your investment will yield a payment per $1,000
principal amount note of $1,000 plus a call premium amount of at least $60.00*
(equal to a call premium of at least 6.00%* × $1,000). In addition, if the
notes have not been automatically called, the notes provide the opportunity
to enhance returns by multiplying a positive Basket Return by the Upside Leverage
Factor of at least 1.5*, up to the Maximum Total Return on the notes. The
Maximum Total Return will be set on the pricing date and will not be less
than 30.00%, and accordingly, the maximum payment at maturity will not be
less than $1,300 per $1,000 principal amount note. 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 Upside Leverage Factor, call
premium amount and call premium will be determined on the pricing date but
will not be less than 1.5, $60.00 and 6.00%, respectively.
- LIMITED PROTECTION
AGAINST LOSS If the notes have not been automatically called, we will
pay you your principal back at maturity if the Ending Basket Level is not
less than the Starting Basket Level by more than 10.00%. If the Ending Basket
Level is less than the Starting Basket Level by more than 10.00%, for every
1% that the Ending Basket Level is less than the Starting Basket Level by
more than 10.00%, you will lose an amount equal to 1.1111% of the principal
amount of your notes. Under these circumstances, you will lose some or all
of your initial investment at maturity. For additional clarification, please
see Hypothetical Examples of Amounts Payable upon Automatic Call or at Maturity
in this term sheet.
- POTENTIAL EARLY
EXIT WITH APPRECIATION AS A RESULT OF AUTOMATIC CALL FEATURE
While the original term of the notes is just over one year, the notes will
be called before maturity if the Basket Closing Level is at or above the Call
Level on the Review Date, and you will be entitled to the call premium amount
set forth on the cover of this term sheet.
- DIVERSIFICATION OF
THE COMPONENTS The return on the notes is linked to an equally weighted
basket consisting of a commodity, copper, which is traded on the London Metal
Exchange (LME), and futures contracts on two commodities (Brent crude oil,
which is traded on ICE Futures Europe, and corn, which is traded on the Chicago
Board of Trade (CBOT)). For additional information about each Component,
see the information set forth under The Commodities and The Commodity Futures
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 short-term capital gain or loss unless you hold your notes for more than
a year, in which case the gain or loss should be long-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, 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 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.
|
JPMorgan
Structured Investments
Autocallable
Buffered Return Enhanced Notes Linked an Equally Weighted Basket Consisting
of Brent Crude Oil Futures Contracts, Grade A Copper and Corn Futures
Contracts |
TS-3 |
Selected
Risk Considerations
An investment in the notes
involves significant risks. Investing in the notes is not equivalent to investing
directly in the Basket, any of the Components or any related futures contracts.
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 at maturity. The return on the notes at maturity is linked to
the performance of the Basket and will depend on whether, and the extent to
which, the Basket Return is positive or negative. Your investment will be
exposed to loss on a leveraged basis if the notes have not been automatically
called and the Ending Basket Level is less than the Starting Basket Level
by more than the Buffer Amount of 10.00%. For every 1% that the Ending Basket
Level is less than the Starting Basket Level by more than 10.00%, you will
lose an amount equal to 1.1111% of the principal amount of your notes. If
the notes have not been automatically called, you will lose some or all of
your initial investment at maturity if the Ending Basket Level is less than
the Starting Basket Level by more than 10.00%.
- 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 adversely affect the value of the
notes.
- CERTAIN BUILT-IN COSTS
ARE LIKELY TO AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR TO MATURITY
While the payment on the Review Date or 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.
- IF THE NOTES ARE CALLED
EARLY, YOUR RETURN IS LIMITED TO THE CALL PREMIUM If the notes are automatically
called, your potential gain on the notes will be limited to the call premium,
as set forth on the cover of this term sheet, regardless of the appreciation
in the Basket, which may be significant. Because the Basket Closing Level
at various times during the term of the notes could be higher than on the
Review Date 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 Basket.
- IF THE NOTES ARE NOT
CALLED EARLY, YOUR RETURN IS LIMITED TO THE MAXIMUM TOTAL RETURN In
addition, if the notes have not been automatically called and the Ending Basket
Level is greater than the Starting Basket Level, 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 Basket, which may be significant. We refer to
this predetermined percentage as the Maximum Total Return, which will be set
on the pricing date and will not be less than 30.00%.
- REINVESTMENT RISK
If your notes are automatically called early, the term of the notes
may be reduced to as short as six 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.
- CORRELATION (OR LACK
OF CORRELATION) OF PERFORMANCES AMONG THE COMPONENTS MAY REDUCE THE PERFORMANCE
OF THE BASKET, AND CHANGES IN THE VALUE OF THE COMPONENTS MAY OFFSET EACH
OTHER The notes are linked to an equally weighted Basket consisting
of a commodity and commodity futures contracts on two commodities. Movements
and performances in the Components may or may not be correlated with each
other. At a time when the value of one or more of the Components increases,
the value of the other Components may not increase as much or may decline.
Therefore, in calculating the Ending Basket Level, increases in the value
of one or more of the Components may be moderated, or more than offset, by
the lesser increases or declines in the values of the other Components. There
can be no assurance that the Ending Basket Level will be higher than the Starting
Basket Level.
- PRICES OF COMMODITIES
AND COMMODITY FUTURES CONTRACTS ARE CHARACTERIZED BY HIGH AND UNPREDICTABLE
VOLATILITY, WHICH COULD LEAD TO HIGH AND UNPREDICTABLE VOLATILITY IN THE COMPONENTS
Market prices of the Components included in the Basket tend to be highly
volatile and may fluctuate rapidly based on numerous factors, including the
factors that affect the price of copper, Brent crude oil and corn. See
The Market Price of Brent Crude Oil Will Affect the Value of the Notes,
The Market Price of Copper Will Affect the Value of the Notes and The Market
Price of Corn Will Affect the Value of the Notes 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
Autocallable
Buffered Return Enhanced Notes Linked an Equally Weighted Basket Consisting
of Brent Crude Oil Futures Contracts, Grade A Copper and Corn Futures
Contracts |
TS-4 |
- COMMODITY FUTURES
CONTRACTS ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES The
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 Basket. 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.
- THE NOTES DO NOT OFFER
DIRECT EXPOSURE TO COMMODITY SPOT PRICES OF CRUDE OIL OR CORN The notes
are linked in part to commodity futures contracts on Brent crude oil and corn,
but not to the physical commodities (or their spot prices) on which they are
based. 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.
- SUSPENSION OR DISRUPTIONS
OF MARKET TRADING IN THE COMMODITY MARKETS AND RELATED FUTURES MARKETS MAY
ADVERSELY AFFECT THE LEVEL OF THE COMPONENTS, 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 options futures contract
prices that may occur during a single business 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 value of the Components and, therefore, the value of
your notes.
- AN INCREASE IN
THE MARGIN REQUIREMENTS FOR THE COMMODITY FUTURES CONTRACTS MAY ADVERSELY
AFFECT THE VALUE OF THE NOTES Futures exchanges require
market participants to post collateral in order to open and to maintain positions
in futures contracts. If an exchange increases the amount of collateral
required to be posted to hold positions in the Commodity Futures Contracts,
market participants who are unwilling or unable to post additional collateral
may liquidate their positions, which may cause the Contract Prices of the
Commodity Futures Contracts to decline significantly. As a result, the
level of the Basket and the value of the notes may be adversely affected.
- OWNING THE NOTES IS
NOT THE SAME AS OWNING ANY COMPONENT The return on your notes will not
reflect the return you would realize if you actually held the Components.
As a result, a holder of the notes will not have any direct or indirect rights
to any Component.
- THE MARKET PRICE OF
BRENT CRUDE OIL WILL AFFECT THE VALUE OF THE NOTES Because the notes
are linked in part to the performance of the Contract Prices of Brent Crude
Futures Contracts, 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.
|
JPMorgan
Structured Investments
Autocallable
Buffered Return Enhanced Notes Linked an Equally Weighted Basket Consisting
of Brent Crude Oil Futures Contracts, Grade A Copper and Corn Futures
Contracts |
TS-5 |
- THE CONTRACT PRICES
OF BRENT CRUDE FUTURES CONTRACTS ARE DETERMINED BY REFERENCE TO THE OFFICIAL
SETTLEMENT PRICES OF BRENT CRUDE FUTURES CONTRACTS AS DETERMINED BY ICE FUTURES
EUROPE, AND THERE ARE CERTAIN RISKS RELATING TO THE CONTRACT PRICES OF BRENT
CRUDE FUTURES CONTRACTS BEING DETERMINED BY ICE FUTURES EUROPE Brent
Crude Futures Contractsare traded on ICE Future Europe. The Contract Prices
of Brent Crude Futures Contracts will be determined by reference to the official
settlement prices of Brent Crude Futures Contracts, stated in U.S. dollars
per barrel, as determined 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.
- THE MARKET PRICE OF
COPPER WILL AFFECT THE VALUE OF THE NOTES Because the notes are linked
in part to the performance of the Commodity Price of Copper, we expect that
generally the market value of the notes will depend in part on the market
price of copper. The price of copper is primarily affected by the global
demand for and supply of copper, but is also influenced significantly from
time to time by speculative actions and by currency exchange rates. Demand
for copper is significantly influenced by the level of global industrial economic
activity. Industrial sectors which are particularly important to demand for
copper include the electrical and construction sectors. In recent years,
demand has been supported by strong consumption from newly industrializing
countries due to their copper-intensive economic growth and industrial development.
An additional, but highly volatile, component of demand is adjustments to
inventory in response to changes in economic activity and/or pricing levels.
There are substitutes for copper in various applications. Their availability
and price will also affect demand for copper. Apart from the United States,
Canada and Australia, the majority of copper concentrate supply (the raw material)
comes from outside the Organization for Economic Cooperation and Development
countries. The supply of copper is also affected by current and previous
price levels, which will influence investment decisions in new smelters.
In previous years, copper supply has been affected by strikes, financial problems
and terrorist activity. It is not possible to predict the aggregate effect
of all or any combination of these factors.
- THE COMMODITY PRICE
OF COPPER IS DETERMINED BY REFERENCE TO THE OFFICIAL CASH SETTLEMENT PRICE
OF COPPER AS DETERMINED BY THE LME, AND THERE ARE CERTAIN RISKS RELATING TO
THE COMMODITY PRICE OF COPPER BEING DETERMINED BY THE LME Copper is
traded on the LME. The Commodity Price of Copper will be determined by reference
to the official cash settlement price of Copper as determined by the LME.
The LME is a principals market which operates in a manner more closely analogous
to the over-the-counter physical commodity markets than regulated futures
markets. For example, there are no daily price limits on the LME, which would
otherwise restrict the extent of daily fluctuations in the prices of LME contracts.
In a declining market, therefore, it is possible that prices would continue
to decline without limitation within a trading day or over a period of trading
days. In addition, a contract may be entered into on the LME calling for
delivery on any day from one day to three months following the date of such
contract and for monthly delivery up to 123 months forward following such
third month, in contrast to trading on futures exchanges, which call for delivery
in stated delivery months. As a result, there may be a greater risk of a
concentration of positions in LME contracts on particular delivery dates,
which in turn could cause temporary aberrations in the prices of LME contracts
for certain delivery dates. Such aberrations could adversely affect the Commodity
Price of Copper and, therefore, the value of the notes. The LME has no obligation
to consider your interests in calculating or revising the official cash settlement
price of Copper.
- THE MARKET PRICE OF
CORN WILL AFFECT THE VALUE OF THE NOTES Because the notes are linked
in part to the performance of the Contract Prices of Corn Futures Contracts,
we expect that generally the market value of the notes will depend in part
on the market price of corn. The price of corn is primarily affected by the
global demand for, and supply of, corn. The demand for corn is in part linked
to the development of industrial and energy uses for corn. This includes the
use of corn in the production of ethanol. The demand for corn is also affected
by the production and profitability of the pork and poultry sectors, which
use corn for feed. Negative developments in those industries may lessen the
demand for corn. For example, if avian flu were to have a negative effect
on world poultry markets, the demand for corn might decrease. The supply
of corn is dependent on many factors including weather patterns, government
regulation, the price of fuel and fertilizers and the current and previous
price of corn. The United States is the worlds largest supplier of corn,
followed by China and Brazil. The supply of corn is particularly sensitive
to weather patterns in the United States and China. In addition, technological
advances could lead to increases in worldwide production of corn and corresponding
decreases in the price of corn.
- 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.
- 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 Basket on any day, the value of the notes will be affected by
a number of economic and market factors that may either offset or magnify
each other, including:
- the volatility, frequency
and magnitude of changes in the price of the Components;
- supply and demand trends for the Components;
- the time to maturity
of the notes;
- 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
Autocallable
Buffered Return Enhanced Notes Linked an Equally Weighted Basket Consisting
of Brent Crude Oil Futures Contracts, Grade A Copper and Corn Futures
Contracts |
TS-6 |
Historical Information
The following graphs set forth
the weekly historical performance of each Component, as well as the Basket
as a whole, from January 6, 2006 through May 13, 2011. The graph of the historical
Basket performance assumes the Basket Closing Level on January 6, 2006 was
100 and the weightings for each Component were as specified on the cover of
this term sheet on that date. The Contract Prices or Commodity Prices, as
applicable, of Brent Crude Futures Contracts, Copper and Corn Futures Contracts
on May 13, 2011 were $113.83, $8,857 and 679¢, respectively.
We obtained the various closing
levels and prices and other information below from Bloomberg Financial Markets
and accordingly, we make no representation or warranty as to their accuracy
or completeness. The historical price of each Component should not be taken
as an indication of future performance, and no assurance can be given as to
the price of any Component on the pricing date, the Review Date or the Observation
Date.
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, which includes structuring
and development fees, 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 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
Autocallable
Buffered Return Enhanced Notes Linked an Equally Weighted Basket Consisting
of Brent Crude Oil Futures Contracts, Grade A Copper and Corn Futures
Contracts |
TS-7 |