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Term sheet
To prospectus dated November 14, 2011,
prospectus supplement dated November 14, 2011,
product supplement no. 21-II dated April 2, 2013 and
underlying supplement no. 1-I dated November 14, 2011
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Term Sheet to
Product Supplement No. 21-II
Registration Statement No. 333-177923
Dated April 16, 2014; Rule 433
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Structured
Investments
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$
Review Notes Linked to the Lesser Performing of the Russell 2000® Index and the iShares® MSCI EAFE ETF due October 22, 2015
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General
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The notes are designed for investors who seek early exit prior to maturity at a premium if, on any Review Date, the Index closing level or closing price, as applicable, of each of the Russell 2000® Index and the iShares® MSCI EAFE ETF is at or above its Call Level. If the notes have not been automatically called, investors will receive their principal back at maturity if the Ending Underlying Value of each Underlying is less than its Initial Underlying Value by up to the Buffer Amount. However, investors will lose some or all of their principal if the Ending Underlying Value of either Underlying is less than its Initial Underlying Value by more than the Buffer Amount. Investors in the notes should be willing to accept this risk of loss and be willing to forgo interest and dividend 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.
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The first Review Date, and therefore the earliest date on which an automatic call may be initiated, is October 17, 2014*.
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Unsecured and unsubordinated obligations of JPMorgan Chase & Co. maturing October 22, 2015*
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The payment at maturity is not linked to a basket composed of the Underlyings. The payment at maturity is linked to the performance of each of the Underlyings individually, as described below.
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Minimum denominations of $1,000 and integral multiples thereof
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The notes are expected to price on or about April 17, 2014 and are expected to settle on or about April 23, 2014.
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Key Terms
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Underlyings:
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The Russell 2000® Index (Bloomberg ticker: RTY) (the “Index”) and the iShares® MSCI EAFE ETF (Bloomberg ticker: EFA) (the “Fund”) (each, an “Underlying” and collectively, the “Underlyings”)
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Automatic Call:
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If the Index closing level or closing price, as applicable, of each Underlying on any Review Date is greater than or equal to the applicable Call Level, the notes will be automatically called for a cash payment per $1,000 principal amount note that will vary depending on the applicable Review Date and call premium and that will be payable on the applicable Call Settlement Date.
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Call Level:
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With respect to each Underlying, an amount that represents 100% of its Initial Underlying Value for each Review Date
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Payment if Called:
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For every $1,000 principal amount note, you will receive one payment of $1,000 plus a call premium amount, calculated as follows:
• at least 5.65%† × $1,000 if automatically called on the first Review Date
• at least 11.30%† × $1,000 if automatically called on the second Review Date
• at least 16.95%† × $1,000 if automatically called on the final Review Date
† The actual call premiums applicable to the first, second and final Review Dates will be provided in the pricing supplement and will not be less than 5.65%, 11.30% and 16.95%, respectively.
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Payment at Maturity:
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If the notes have not been automatically called and the Ending Underlying Value of each Underlying is less than its Initial Underlying Value by up to the Buffer Amount, you will receive the principal amount of your notes at maturity.
If the notes have not been automatically called and the Ending Underlying Value of either Underlying is less than its Initial Underlying Value by more than the Buffer Amount, you will lose 1.25% of the principal amount of your notes for every 1% that the Ending Underlying Value of the Lesser Performing Underlying is less than its Initial Underlying Value by more than the Buffer Amount, and your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + [$1,000 × (Lesser Performing Underlying Return + 20%) × 1.25]
If the notes have not been automatically called and the Ending Underlying Value of either Underlying is less than its Initial Underlying Value by more than the Buffer Amount, you will lose some or all of your principal amount at maturity.
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Buffer Amount:
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20%
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Downside Leverage Factor:
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1.25
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Original Issue Date (Settlement Date):
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On or about April 23, 2014
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Review Dates**:
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October 17, 2014 (first Review Date), April 17, 2015 (second Review Date) and October 19, 2015 (final Review Date)
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Call Settlement Dates**:
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The third business day after the applicable Review Date, except that the final Call Settlement Date is the Maturity Date
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Maturity Date*:
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October 22, 2015
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CUSIP:
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48127DFL7
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Other Key Terms:
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See “Additional Key Terms” in this term sheet
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* Subject to postponement in the event of a market disruption event and as described under “Description of Notes — Postponement of a Review Date” and “Description of Notes — Payment at Maturity” in the accompanying product supplement no. 21-II
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Investing in the Review Notes involves a number of risks. See “Risk Factors” beginning on page PS-11 of the accompanying product supplement no. 21-II, “Risk Factors” beginning on page US-1 of the accompanying underlying supplement no. 1-I and “Selected Risk Considerations” beginning on page TS-3 of this term sheet.
Neither the Securities and Exchange Commission (the “SEC”) 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, underlying 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 Issuer
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Per note
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$1,000
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$
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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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See “Supplemental Use of Proceeds” in this term sheet for information about the components of the price to public of the notes.
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(2)
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J.P. Morgan Securities LLC, which we refer to as JPMS, acting as agent for JPMorgan Chase & Co., will pay all of the selling commissions it receives from us to other affiliated or unaffiliated dealers. In no event will these selling commissions exceed $1.50 per $1,000 principal amount note. See “Plan of Distribution (Conflicts of Interest)” beginning on page PS-61 of the accompanying product supplement no. 21-II.
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If the notes priced today, the estimated value of the notes as determined by JPMS would be approximately $981.40 per $1,000 principal amount note. JPMS’s estimated value of the notes, when the terms of the notes are set, will be provided by JPMS in the pricing supplement and will not be less than $970.00 per $1,000 principal amount note. See “JPMS’s Estimated Value of the Notes” in this term sheet for additional information.
The notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
April 16, 2014
Additional Terms Specific to the Notes
JPMorgan Chase & Co. has filed a registration statement (including a prospectus) with the 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. 21-II, underlying supplement no. 1-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 14, 2011, as supplemented by the prospectus supplement dated November 14, 2011 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. 21-II dated April 2, 2013 and underlying supplement no. 1-I dated November 14, 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. 21-II and “Risk Factors” in the accompanying underlying supplement no. 1-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):
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Product supplement no. 21-II dated April 2, 2013:
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Underlying supplement no. 1-I dated November 14, 2011:
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Prospectus supplement dated November 14, 2011:
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Prospectus dated November 14, 2011:
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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
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Underlying Return:
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With respect to each Underlying:
(Ending Underlying Value – Initial Underlying Value)
Initial Underlying Value
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Initial Underlying Value:
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With respect to each Underlying, the Index closing level or closing price, as applicable, of that Underlying on the Pricing Date (in the case of the Fund, divided by the Share Adjustment Factor)
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Share Adjustment Factor:
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With respect to the Fund, set equal to 1.0 on the Pricing Date and subject to adjustment under certain circumstances. See “General Terms of Notes — Additional Fund Provisions — Anti-Dilution Adjustments” in the accompanying product supplement no. 21-II.
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Ending Underlying Value:
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With respect to each Underlying, the Index closing level or closing price, as applicable, of that Underlying on the final Review Date
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Lesser Performing Underlying:
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The Underlying with the Lesser Performing Underlying Return
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Lesser Performing Underlying Return:
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The lower of the Underlying Returns of the Underlyings
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Supplemental Terms of the Notes
Notwithstanding anything to the contrary in the accompanying product supplement no. 21-II, the “Index closing level” of the Russell 2000® Index or any relevant successor index (as defined in the accompanying product supplement no. 21-II) on any relevant day will equal the closing level of the Russell 2000® Index or that successor index, as applicable, as published by Bloomberg Financial Markets with respect to that day. Currently, Bloomberg Financial Markets publishes the closing level of the Russell 2000® Index to three decimal places, whereas Russell Investment Group (“Russell”), the index sponsor of the Russell 2000® Index, publishes the official closing level of the Russell 2000® Index to six decimal places. As a result, the closing level of the Russell 2000® Index published by Bloomberg Financial Markets will likely be slightly different from the official closing level of the Russell 2000® Index published by Russell.
| JPMorgan Structured Investments —
Review Notes Linked to the Lesser Performing of the Russell 2000® Index and the iShares® MSCI EAFE ETF
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TS-1 |
Selected Purchase Considerations
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FIXED APPRECIATION POTENTIAL — If the Index closing level or closing price, as applicable, of each Underlying is greater than or equal to the applicable Call Level on any Review Date, your investment will yield a payment per $1,000 principal amount note of $1,000 plus: (i) at least 5.65%† × $1,000 if automatically called on the first Review Date, (ii) at least 11.30%† × $1,000 if automatically called on the second Review Date or (iii) at least 16.95%† × $1,000 if automatically called on the final Review Date. Because the notes are our unsecured and unsubordinated obligations, payment of any amount on the notes is subject to our ability to pay our obligations as they become due.
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† The actual call premiums applicable to the first, second and final Review Dates will be provided in the pricing supplement and will not be less than 5.65%, 11.30% and 16.95%, respectively.
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POTENTIAL EARLY EXIT WITH APPRECIATION AS A RESULT OF AUTOMATIC CALL FEATURE — While the original term of the notes is approximately eighteen months, the notes will be automatically called before maturity if the Index closing level or closing price, as applicable, of each Underlying is at or above the applicable Call Level on any Review Date and you will be entitled to the applicable payment corresponding to that Review Date as set forth on the cover of this term sheet.
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LIMITED PROTECTION AGAINST LOSS — If the notes have not been automatically called, we will pay you your principal back at maturity if the Ending Underlying Value of each Underlying is less than its Initial Underlying Value by up to the Buffer Amount. If the notes have not been automatically called and the Ending Underlying Value of either Underlying is less than its Initial Underlying Value by more than the Buffer Amount, you will lose 1.25% of the principal amount of your notes for every 1% that the Ending Underlying Value of the Lesser Performing Underlying is less than its Initial Underlying Value by more than the Buffer Amount. Accordingly, you could lose some or all of your principal amount at maturity.
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EXPOSURE TO EACH OF THE UNDERLYINGS — The return on the notes is linked to the Lesser Performing Underlying, which will be either the Russell 2000® Index or the iShares® MSCI EAFE ETF.
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The Russell 2000® Index consists of the middle 2,000 companies included in the Russell 3000E™ Index and, as a result of the index calculation methodology, consists of the smallest 2,000 companies included in the Russell 3000® Index. The Russell 2000® Index is designed to track the performance of the small capitalization segment of the U.S. equity market. For additional information about the Russell 2000® Index, see the information set forth under “Equity Index Descriptions — The Russell 2000® Index” in the accompanying underlying supplement no. 1-I.
The iShares® MSCI EAFE ETF is an exchange-traded fund of iShares® Trust, a registered investment company, which seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI EAFE® Index, which we refer to as the Underlying Index with respect to the iShares® MSCI EAFE ETF. The MSCI EAFE® Index is a free float-adjusted market capitalization index intended to measure the equity market performance of the developed equity markets in Europe, Asia, Australia and New Zealand. On July 1, 2013, the name of the iShares® MSCI EAFE ETF was changed from the iShares® MSCI EAFE Index Fund to the current name. For additional information about the iShares® MSCI EAFE ETF, see the information set forth under “Fund Descriptions — The iShares® MSCI EAFE Index Fund” in the accompanying underlying supplement no. 1-I.
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CAPITAL GAINS TAX TREATMENT — You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 21-II. The following discussion, when read in combination with that section, constitutes the full opinion of our special tax counsel, Davis Polk & Wardwell LLP, regarding the material U.S. federal income tax consequences of owning and disposing of notes.
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Based on current market conditions, in the opinion of our special tax counsel it is reasonable to treat the notes as “open transactions” that are not debt instruments for U.S. federal income tax purposes. Assuming this treatment 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 treatment, in which case the timing and character of any income or loss on the notes could be materially 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. The notice focuses in particular on whether to require investors in 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. investors 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 a notional 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
| JPMorgan Structured Investments —
Review Notes Linked to the Lesser Performing of the Russell 2000® Index and the iShares® MSCI EAFE ETF
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TS-2 |
the tax consequences of an investment in the notes, possibly with retroactive effect. You should consult your tax adviser 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.
Selected Risk Considerations
An investment in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in either or both of the Underlyings or any of the equity securities included in or held by the Underlyings. These risks are explained in more detail in the “Risk Factors” section of the accompanying product supplement no. 21-II dated April 2, 2013 and in the “Risk Factors” section of the accompanying underlying supplement no. 1-I dated November 14, 2011.
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal. Your investment will be exposed to loss on a leveraged basis if the notes are not automatically called and the Ending Underlying Value of either Underlying is less than its Initial Underlying Value by more than the Buffer Amount. For every 1% that the Ending Underlying Value of the Lesser Performing Underlying is less than its Initial Underlying Value by more than the Buffer Amount, you will lose an amount equal to 1.25% of the principal amount of your notes. Accordingly, you could lose some or all of your principal amount at maturity.
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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. Any actual or potential change in our creditworthiness or credit spreads, as determined by the market for taking our credit risk, is likely to adversely affect the value of the notes. If we were to default on our payment obligations, you may not receive any amounts owed to you under the notes and you could lose your entire investment.
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LIMITED RETURN ON THE NOTES — Your potential gain on the notes will be limited to the call premium applicable to the Review Dates, as set forth on the cover of this term sheet, regardless of the appreciation in the value of any Underlying, which may be significant. The Index closing level or closing price, as applicable, of any Underlying at various times during the term of the notes could be higher than on the Review Dates. You may receive a lower payment if the notes were automatically called or at maturity, as the case may be, than you would have if you had invested directly in any Underlying.
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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 as an agent of the offering of the notes, hedging our obligations under the notes and making the assumptions used to determine the pricing of the notes and the estimated value of the notes when the terms of the notes are set, which we refer to as JPMS’s estimated value. In performing these duties, our economic interests and the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the notes. In addition, our business activities, including hedging and trading activities, could cause our economic interests to be adverse to yours and could adversely affect any payment on the notes and the value of the notes. It is possible that hedging or trading activities of ours or our affiliates in connection with the notes could result in substantial returns for us or our affiliates while the value of the notes declines. Please refer to “Risk Factors — Risks Relating to the Notes Generally” in the accompanying product supplement no. 21-II for additional information about these risks.
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We are also currently one of the companies that make up the S&P 500® Index. We will not have any obligation to consider your interests as a holder of the notes in taking any corporate action that might affect the value of the S&P 500® Index and the notes.
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YOU ARE EXPOSED TO THE RISK OF DECLINE IN THE VALUE OF EACH UNDERLYING — Your return on the notes and any payment on the notes is not linked to a basket consisting of the Underlyings. If the notes have not been automatically called, your payment at maturity is contingent upon the performance of each individual Underlying such that you will be equally exposed to the risks related to either of the Underlyings. The performance of the Underlyings may not be correlated. Poor performance by either of the Underlyings over the term of the notes could result in the notes not being automatically called on a Review Date, may negatively affect your payment at maturity and will not be offset or mitigated by positive performance by the other Underlying. Accordingly, your investment is subject to the risk of decline in the Index closing level or closing price, as applicable, of each Underlying.
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YOUR PAYMENT AT MATURITY MAY BE DETERMINED BY THE LESSER PERFORMING UNDERLYING — Because the payment at maturity will be determined based on the performance of the Lesser Performing Underlying, you will not benefit from the performance of the other Underlying. Accordingly, if the notes are not automatically called and the Ending Underlying Value of either Underlying is less than its Initial Underlying Value by more than the Buffer Amount, you will lose some or all of your principal amount at maturity, even if the Ending Underlying Value of the other Underlying is greater than or equal to its Initial Underlying Value.
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REINVESTMENT RISK — If your notes are automatically called early, the term of the notes may be reduced to as short as approximately six months. There is no guarantee that you would be able to
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| JPMorgan Structured Investments —
Review Notes Linked to the Lesser Performing of the Russell 2000® Index and the iShares® MSCI EAFE ETF
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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.
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JPMS’S ESTIMATED VALUE OF THE NOTES WILL BE LOWER THAN THE ORIGINAL ISSUE PRICE (PRICE TO PUBLIC) OF THE NOTES — JPMS’s estimated value is only an estimate using several factors. The original issue price of the notes will exceed JPMS’s estimated value because costs associated with selling, structuring and hedging the notes are included in the original issue price of the notes. These costs include the selling commissions, the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under the notes. See “JPMS’s Estimated Value of the Notes” in this term sheet.
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JPMS’S ESTIMATED VALUE DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES — JPMS’s estimated value of the notes is determined by reference to JPMS’s internal pricing models when the terms of the notes are set. This estimated value is based on market conditions and other relevant factors existing at that time and JPMS’s assumptions about market parameters, which can include volatility, dividend rates, interest rates and other factors. Different pricing models and assumptions could provide valuations for notes that are greater than or less than JPMS’s estimated value. In addition, market conditions and other relevant factors in the future may change, and any assumptions may prove to be incorrect. On future dates, the value of the notes could change significantly based on, among other things, changes in market conditions, our creditworthiness, interest rate movements and other relevant factors, which may impact the price, if any, at which JPMS would be willing to buy notes from you in secondary market transactions. See “JPMS’s Estimated Value of the Notes” in this term sheet.
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JPMS’S ESTIMATED VALUE IS NOT DETERMINED BY REFERENCE TO CREDIT SPREADS FOR OUR CONVENTIONAL FIXED-RATE DEBT — The internal funding rate used in the determination of JPMS’s estimated value generally represents a discount from the credit spreads for our conventional fixed-rate debt. The discount is based on, among other things, our view of the funding value of the notes as well as the higher issuance, operational and ongoing liability management costs of the notes in comparison to those costs for our conventional fixed-rate debt. If JPMS were to use the interest rate implied by our conventional fixed-rate credit spreads, we would expect the economic terms of the notes to be more favorable to you. Consequently, our use of an internal funding rate would have an adverse effect on the terms of the notes and any secondary market prices of the notes. See “JPMS’s Estimated Value of the Notes” in this term sheet.
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THE VALUE OF THE NOTES AS PUBLISHED BY JPMS (AND WHICH MAY BE REFLECTED ON CUSTOMER ACCOUNT STATEMENTS) MAY BE HIGHER THAN JPMS’S THEN-CURRENT ESTIMATED VALUE OF THE NOTES FOR A LIMITED TIME PERIOD — We generally expect that some of the costs included in the original issue price of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined period. These costs can include projected hedging profits, if any, and, in some circumstances, estimated hedging costs and our secondary market credit spreads for structured debt issuances. See “Secondary Market Prices of the Notes” in this term sheet for additional information relating to this initial period. Accordingly, the estimated value of your notes during this initial period may be lower than the value of the notes as published by JPMS (and which may be shown on your customer account statements).
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SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE ORIGINAL ISSUE PRICE OF THE NOTES — Any secondary market prices of the notes will likely be lower than the original issue price of the notes because, among other things, secondary market prices take into account our secondary market credit spreads for structured debt issuances and, also, because secondary market prices (a) exclude selling commissions and (b) may exclude projected hedging profits, if any, and estimated hedging costs that are included in the original issue price of the notes. As a result, the price, if any, at which JPMS will be willing to buy notes from you in secondary market transactions, if at all, is likely to be lower than the original issue price. Any sale by you prior to the Maturity Date could result in a substantial loss to you. See the immediately following risk consideration for information about additional factors that will impact any secondary market prices of the notes.
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The notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your notes to maturity. See “— Lack of Liquidity” below.
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SECONDARY MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS — The secondary market price of the notes during their term will be impacted by a number of economic and market factors, which may either offset or magnify each other, aside from the selling commissions, projected hedging profits, if any, estimated hedging costs and the level or price, as applicable, of the Underlyings, including:
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any actual or potential change in our creditworthiness or credit spreads;
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customary bid-ask spreads for similarly sized trades;
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secondary market credit spreads for structured debt issuances;
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the actual and expected volatility of the levels or prices, as applicable, of the Underlyings;
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the time to maturity of the notes;
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| JPMorgan Structured Investments —
Review Notes Linked to the Lesser Performing of the Russell 2000® Index and the iShares® MSCI EAFE ETF
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the likelihood of an automatic call being triggered;
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the dividend rates on the Fund and the equity securities included in or held by the Underlyings;
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the actual and expected positive or negative correlation between the Underlyings, or the actual or expected absence of any such correlation;
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interest and yield rates in the market generally;
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the exchange rates and the volatility of the exchange rates between the U.S. dollar and each of the currencies in which the equity securities held by the Fund trade and the correlation among those rates and the prices of the Fund;
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the occurrence of certain events to the Fund that may or may not require an adjustment to the Share Adjustment Factor; and
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a variety of other economic, financial, political, regulatory and judicial events.
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Additionally, independent pricing vendors and/or third party broker-dealers may publish a price for the notes, which may also be reflected on customer account statements. This price may be different (higher or lower) than the price of the notes, if any, at which JPMS may be willing to purchase your notes in the secondary market.
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NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive interest payments, and you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of shares of the Fund or the securities included in or held by the Underlyings would have.
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AN INVESTMENT IN THE NOTES IS SUBJECT TO RISKS ASSOCIATED WITH SMALL CAPITALIZATION STOCKS WITH RESPECT TO THE INDEX — The stocks that constitute the Russell 2000® Index are issued by companies with relatively small market capitalization. The stock prices of smaller companies may be more volatile than stock prices of large capitalization companies. Small capitalization companies may be less able to withstand adverse economic, market, trade and competitive conditions relative to larger companies. Small capitalization companies are less likely to pay dividends on their stocks, and the presence of a dividend payment could be a factor that limits downward stock price pressure under adverse market conditions.
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THERE ARE RISKS ASSOCIATED WITH THE FUND — Although the shares of the Fund are listed for trading on NYSE Arca and a number of similar products have been traded on NYSE Arca and other securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for the shares of the Fund or that there will be liquidity in the trading market. The Fund is subject to management risk, which is the risk that the investment strategies of the Fund’s investment adviser, the implementation of which is subject to a number of constraints, may not produce the intended results. These constraints could adversely affect the market price of the shares of the Fund and, consequently, the value of the notes.
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DIFFERENCES BETWEEN THE FUND AND THE UNDERLYING INDEX — The Fund does not fully replicate the Underlying Index and may hold securities not included in the Underlying Index. In addition, the performance of the Fund will reflect additional transaction costs and fees that are not included in the calculation of the Underlying Index. All of these factors may lead to a lack of correlation between the Fund and the Underlying Index. In addition, corporate actions with respect to the equity securities held by the Fund (such as mergers and spin-offs) may impact the variance between the Fund and the Underlying Index. Finally, because the shares of the Fund are traded on NYSE Arca and are subject to market supply and investor demand, the market value of one share of the Fund may differ from the net asset value per share of the Fund. For all of the foregoing reasons, the performance of the Fund may not correlate with the performance of the Underlying Index.
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NON-U.S. SECURITIES RISK WITH RESPECT TO THE FUND — The equity securities held by the Fund have been issued by non-U.S. companies. Investments in securities linked to the value of such non-U.S. equity securities involve risks associated with the securities markets in the home countries of the issuers of those non-U.S. equity securities, including risks of volatility in those markets, governmental intervention in those markets and cross shareholdings in companies in certain countries. Also, there is generally less publicly available information about companies in some of these jurisdictions than there is about U.S. companies that are subject to the reporting requirements of the SEC.
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THE NOTES ARE SUBJECT TO CURRENCY EXCHANGE RISK WITH RESPECT TO THE FUND — Because the prices of the equity securities held by the Fund are converted into U.S. dollars for purposes of calculating the net asset value of the Fund, holders of the notes will be exposed to currency exchange rate risk with respect to each of the currencies in which the equity securities held by the Fund trade. Your net exposure will depend on the extent to which those currencies strengthen or weaken against the U.S. dollar and the relative weight of equity securities held by the Fund denominated in each of those currencies. If, taking into account the relevant weighting, the U.S. dollar strengthens against those currencies, the price of the Fund will be adversely affected and any payment on the notes may be reduced. Of particular importance to potential currency exchange risk are:
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existing and expected rates of inflation;
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Review Notes Linked to the Lesser Performing of the Russell 2000® Index and the iShares® MSCI EAFE ETF
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TS-5 |
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existing and expected interest rate levels;
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the balance of payments in the countries issuing those currencies and the United States and between each country and its major trading partners;
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political, civil or military unrest in the countries issuing those currencies and the United States; and
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the extent of government surpluses or deficits in the countries issuing those currencies and the United States.
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All of these factors are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of the countries issuing those currencies and the United States and other countries important to international trade and finance.
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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.
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THE ANTI-DILUTION PROTECTION FOR THE FUND IS LIMITED — The calculation agent will make adjustments to the Share Adjustment Factor for certain events affecting the shares of the Fund. However, the calculation agent will not make an adjustment in response to all events that could affect the shares of the Fund. If an event occurs that does not require the calculation agent to make an adjustment, the value of the notes may be materially and adversely affected.
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THE FINAL TERMS AND VALUATION OF THE NOTES WILL BE PROVIDED IN THE PRICING SUPPLEMENT — The final terms of the notes will be based on relevant market conditions when the terms of the notes are set and will be provided in the pricing supplement. In particular, each of JPMS’s estimated value and the call premiums will be provided in the pricing supplement and each may be as low as the applicable minimum set forth on the cover of this term sheet. Accordingly, you should consider your potential investment in the notes based on the minimums for JPMS’s estimated value and the call premiums.
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| JPMorgan Structured Investments —
Review Notes Linked to the Lesser Performing of the Russell 2000® Index and the iShares® MSCI EAFE ETF
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TS-6 |
Hypothetical Examples of Amount 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 with respect to the applicable Review Date for a range of movements in the Lesser Performing Underlying as shown under the column “Lesser Performing Underlying Appreciation/Depreciation at Review Date.” Each hypothetical total return or payment set forth below assumes that the Lesser Performing Underlying is the Russell 2000® Index. We make no representation or warranty as to which of the Underlyings will be the Lesser Performing Underlying for purposes of calculating your actual payment at maturity, if any, or as to what the Index closing level or closing price, as applicable, of any Underlying will be on any Review Date. In addition, the following table and examples assume an Initial Underlying Value and a Call Level for the Lesser Performing Underlying of 1,120 and that the call premiums used to calculate the call premium amount applicable to the first, second and final Review Dates are 5.65%, 11.30% and 16.95%, respectively, and reflect the Buffer Amount of 20%. The actual call premiums applicable to the first, second and final Review Dates will be determined on the pricing date and will not be less than 5.65%, 11.30% and 16.95%, 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 applicable Review Date and no payment would be made on the applicable Call Settlement Date. Each hypothetical total return or payment on the notes set forth below is for illustrative purposes only and may not be the actual total return or payment on the notes applicable to a purchaser of the notes.
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Lesser
Performing
Underlying
Closing Level at
Review Date
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Lesser
Performing
Underlying
Appreciation/
Depreciation at
Review Date
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Total Return at
First Review Date
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Total Return at
Second Review
Date
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Total Return at
Final Review
Date (1)
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2,016.00
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80.00%
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5.65%
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11.30%
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16.95%
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1,904.00
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70.00%
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5.65%
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11.30%
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16.95%
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1,792.00
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60.00%
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5.65%
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11.30%
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16.95%
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1,680.00
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50.00%
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5.65%
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11.30%
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16.95%
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1,568.00
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40.00%
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5.65%
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11.30%
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16.95%
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1,456.00
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30.00%
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5.65%
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11.30%
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16.95%
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1,344.00
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20.00%
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5.65%
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11.30%
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16.95%
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1,232.00
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10.00%
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5.65%
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11.30%
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16.95%
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1,120.00
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0.00%
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5.65%
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11.30%
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16.95%
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1,064.00
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-5.00%
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N/A
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N/A
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0.00%
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1,008.00
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-10.00%
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N/A
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N/A
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0.00%
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952.00
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-15.00%
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N/A
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N/A
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0.00%
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896.00
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-20.00%
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N/A
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N/A
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0.00%
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784.00
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-30.00%
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N/A
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N/A
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-12.50%
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672.00
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-40.00%
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N/A
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N/A
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-25.00%
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560.00
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-50.00%
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N/A
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N/A
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-37.50%
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448.00
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-60.00%
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N/A
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N/A
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-50.00%
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336.00
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-70.00%
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N/A
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N/A
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-62.50%
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224.00
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-80.00%
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N/A
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N/A
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-75.00%
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112.00
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-90.00%
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N/A
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N/A
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-87.50%
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0.00
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-100.00%
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N/A
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N/A
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-100.00%
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(1) If the notes have not been automatically called and the Ending Underlying Value of the Lesser Performing Underlying is less than its Initial Underlying Value by more than the Buffer Amount of 20%, you will lose some or all of your principal amount at maturity.
The following examples illustrate how the payment on the notes in different hypothetical scenarios is calculated.
Example 1: The Index closing level of the Lesser Performing Underlying increases from the Initial Underlying Value of 1,120 to an Index closing level of 1,232 on the first Review Date. Because the Index closing level of the Lesser Performing Underlying on the first Review Date of 1,232 is greater than the corresponding Call Level of 1,120, the notes are automatically called, and the investor receives a single payment of $1,056.50 per $1,000 principal amount note on the first Call Settlement Date.
Example 2: The Index closing level of the Lesser Performing Underlying decreases from the Initial Underlying Value of 1,120 to an Index closing level of 1,064 on the first Review Date and 896 on the second Review Date and increases to an Index closing level of 1,344 on the final Review Date. Because the Index closing level of the Lesser Performing Underlying on each of the first and second Review Dates (1,064 and 896) is less than the corresponding Call Level of 1,120, the notes are not automatically called on these Review Dates. However, because the Index closing level of the Lesser Performing Underlying on the final Review Date of 1,344 is greater than the corresponding Call Level of 1,120, the notes are automatically called on the final Review Date, and the investor receives a single payment of $1,169.50 per $1,000 principal amount note on the Maturity Date. This represents the maximum total payment an investor may receive over the term of the notes.
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TS-7 |
Example 3: The Index closing level of the Lesser Performing Underlying decreases from the Initial Underlying Value of 1,120 to an Index closing level of 672 on the first Review Date, 784 on the second Review Date and 952 on the final Review Date. Because (a) the Index closing level of the Lesser Performing Underlying on each of the Review Dates (672, 784 and 952) is less than the corresponding Call Level of 1,120 and (b) the Ending Underlying Value of the Lesser Performing Underlying is not less than its Initial Underlying Value by more than the Buffer Amount of 20%, the notes are not automatically called and the payment at maturity is the principal amount of $1,000 per $1,000 principal amount note.
Example 4: The Index closing level of the Lesser Performing Underlying decreases from the Initial Underlying Value of 1,120 to an Index closing level of 1,008 on the first Review Date, 896 on the second Review Date and 672 on the final Review Date. Because (a) the Index closing level of the Lesser Performing Underlying on each of the Review Dates (1,008, 896 and 672) is less than the corresponding Call Level of 1,120 and (b) the Ending Underlying Value of the Lesser Performing Underlying is less than its Initial Underlying Value by more than the Buffer Amount of 20%, the notes are not automatically 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 × (-40% + 20%) × 1.25] = $750
The hypothetical returns and hypothetical payments on the notes shown above apply only if you hold the notes for their entire term or until automatically called. These hypotheticals 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 returns and hypothetical payments shown above would likely be lower.
| JPMorgan Structured Investments —
Review Notes Linked to the Lesser Performing of the Russell 2000® Index and the iShares® MSCI EAFE ETF
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TS-8 |
Historical Information
The following graphs show the historical weekly performance of the Russell 2000® Index and the iShares® MSCI EAFE ETF from January 2, 2009 through April 11, 2014. The Index closing level of the Russell 2000® Index on April 15, 2014 was 1,119.495. The closing price of one share of the iShares® MSCI EAFE ETF on April 15, 2014 was $66.36.
We obtained the various Index closing levels or closing prices, as applicable, of the Underlyings below from Bloomberg Financial Markets, without independent verification. Although Russell publishes the official closing levels of the Russell 2000® Index to six decimal places, Bloomberg Financial Markets publishes the closing levels of the Russell 2000® Index to only three decimal places. The historical levels or prices, as applicable, of each Underlying should not be taken as an indication of future performance, and no assurance can be given as to the Index closing level or closing price, as applicable, of any Underlying on the pricing date or any Review Date. We cannot give you assurance that the performance of the Underlyings will result in the return of any of your principal. We make no representation as to the amount of dividends, if any, that the Fund will pay in the future. In any event, as an investor in the notes, you will not be entitled to receive dividends, if any, that may be payable on the Fund.
| JPMorgan Structured Investments —
Review Notes Linked to the Lesser Performing of the Russell 2000® Index and the iShares® MSCI EAFE ETF
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TS-9 |
JPMS’s Estimated Value of the Notes
JPMS’s estimated value of the notes set forth on the cover of this term sheet is equal to the sum of the values of the following hypothetical components: (1) a fixed-income debt component with the same maturity as the notes, valued using our internal funding rate for structured debt described below, and (2) the derivative or derivatives underlying the economic terms of the notes. JPMS’s estimated value does not represent a minimum price at which JPMS would be willing to buy your notes in any secondary market (if any exists) at any time. The internal funding rate used in the determination of JPMS’s estimated value generally represents a discount from the credit spreads for our conventional fixed-rate debt. For additional information, see “Selected Risk Considerations — JPMS’s Estimated Value Is Not Determined by Reference to Credit Spreads for Our Conventional Fixed-Rate Debt.” The value of the derivative or derivatives underlying the economic terms of the notes is derived from JPMS’s internal pricing models. These models are dependent on inputs such as the traded market prices of comparable derivative instruments and on various other inputs, some of which are market-observable, and which can include volatility, dividend rates, interest rates and other factors, as well as assumptions about future market events and/or environments. Accordingly, JPMS’s estimated value of the notes is determined when the terms of the notes are set based on market conditions and other relevant factors and assumptions existing at that time. See “Selected Risk Considerations — JPMS’s Estimated Value Does Not Represent Future Values of the Notes and May Differ from Others’ Estimates.”
JPMS’s estimated value of the notes will be lower than the original issue price of the notes because costs associated with selling, structuring and hedging the notes are included in the original issue price of the notes. These costs include the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under the notes. Because hedging our obligations entails risk and may be influenced by market forces beyond our control, this hedging may result in a profit that is more or less than expected, or it may result in a loss. A portion of the profits realized in hedging our obligations under the notes may be allowed to other affiliated or unaffiliated dealers, and we or one or more of our affiliates will retain any remaining hedging profits. See “Selected Risk Considerations — JPMS’s Estimated Value of the Notes Will Be Lower Than the Original Issue Price (Price to Public) of the Notes” in this term sheet.
Secondary Market Prices of the Notes
For information about factors that will impact any secondary market prices of the notes, see “Selected Risk Considerations — Secondary Market Prices of the Notes Will Be Impacted by Many Economic and Market Factors” in this term sheet. In addition, we generally expect that some of the costs included in the original issue price of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined period that is intended to be the shorter of six months and one-half of the stated term of the notes. The length of any such initial period reflects the structure of the notes, whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated costs of hedging the notes and when these costs are incurred, as determined by JPMS. See “Selected Risk Considerations — The Value of the Notes as Published by JPMS (and Which May Be Reflected on Customer Account Statements) May Be Higher Than JPMS’s Then-Current Estimated Value of the Notes for a Limited Time Period.”
Supplemental Use of Proceeds
The net proceeds we receive from the sale of the notes will be used for general corporate purposes and, in part, by us or one or more of our affiliates in connection with hedging our obligations under the notes.
The notes are offered to meet investor demand for products that reflect the risk-return profile and market exposure provided by the notes. See “Hypothetical Examples of Amount Payable upon Automatic Call or at Maturity” in this term sheet for an illustration of the risk-return profile of the notes and “Selected Purchase Considerations — Exposure to Each of the Underlyings” in this term sheet for a description of the market exposure provided by the notes.
The original issue price of the notes is equal to JPMS’s estimated value of the notes plus the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes, plus the estimated cost of hedging our obligations under the notes.
For purposes of the notes offered by this term sheet, the first and second paragraphs of the section entitled “Use of Proceeds and Hedging” on page PS-35 of the accompanying product supplement no. 21-II are deemed deleted in their entirety. Please refer instead to the discussion set forth above.
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TS-10 |