Term
sheet
To prospectus dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 192-A-II dated June 4, 2010
|
Term
Sheet
Product Supplement No. 192-A-II
Registration Statement No. 333-155535
Dated November 30, 2010; Rule 433 |
|
|
|
Structured
Investments
|
|
$
3.50% (equivalent to 7.00% per annum) Callable Yield Notes due June 8, 2011
Linked to the Lesser Performing of the S&P 500®
Index and the United States Oil Fund, LP |
General
- The notes are designed for investors
who seek a higher interest rate than the current yield on a conventional debt
security with the same maturity issued by us or an issuer with a comparable
credit rating. Investors should be willing to forgo the potential to participate
in the appreciation of either the S&P 500® Index or the United
States Oil Fund, LP and to forgo dividend payments. Investors should be willing
to assume the risk that the notes may be called and the investors will receive
less interest than if the notes were not called and the risk that, if the
notes are not called, the investors may lose some or all of their principal
at maturity.
- The notes will pay 3.50% (equivalent
to 7.00% per annum) interest over the term of the notes. However,
the notes do not guarantee any return of principal at maturity. Instead,
if the notes are not called, the payment at maturity will be based on the
performance of the Lesser Performing Underlying and whether the closing price
or closing level, as applicable, of either Underlying is less than the Starting
Underlying Level of such Underlying by more than the Protection Amount on
any day during the Monitoring Period, as described below. Any payment on
the notes is subject to the credit risk of JPMorgan Chase & Co.
- The notes may be called, in whole but
not in part, at our option (such an event, an Optional Call) on the Optional
Call Date set forth below. If the notes are called pursuant to an Optional
Call, payment on the Optional Call Date for each $1,000 principal amount note
will be a cash payment of $1,000, plus any accrued and unpaid interest, as
described below.
- Senior unsecured obligations of JPMorgan
Chase & Co. maturing June 8, 2011*
- 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.
- Minimum denominations of $1,000 and integral
multiples thereof
Key Terms
Underlyings: |
The S&P 500® Index (the Index)
and the United States Oil Fund, LP (the Fund) (each an Underlying,
and collectively, the Underlyings) |
Interest Rate: |
3.50%
(equivalent to 7.00% per annum) over the term of the notes, paid monthly
and calculated on a 30/360 basis.
The notes may be called, in whole
but not in part, at our option (such an event, an Optional Call) on
the Optional Call Date set forth below. |
Protection Amount: |
With
respect to each Underlying, an amount that represents 25.00% of the Starting
Underlying Level of such Underlying (in the case of the United States
Oil Fund, LP, subject to adjustments) |
Pricing Date: |
On or about December 3, 2010 |
Settlement Date: |
On or about December 8, 2010 |
Observation Date*: |
June 3, 2011 |
Maturity Date*: |
June 8, 2011 |
CUSIP: |
48124A4F1 |
Monitoring Period: |
The period from the Pricing Date to and including
the Observation Date |
Interest Payment Dates: |
Interest on the notes will be payable monthly
in arrears on the 8th calendar day of each month (each such day, an Interest
Payment Date), commencing January 10, 2011, to and including the Maturity
Date or, if the notes are called, to and including the Optional Call Date.
See Selected Purchase Considerations Monthly Interest Payments in
this term sheet for more information. |
Payment at Maturity: |
If the notes are not called, the payment at
maturity, in excess of any accrued and unpaid interest, will be based
on whether a Trigger Event has occurred and the performance of the Lesser
Performing Underlying. If the notes are not called, for each $1,000 principal
amount note, you will receive $1,000 plus any accrued and unpaid interest
at maturity, unless:
(a) the Ending Underlying Level of any Underlying
is less than the Starting Underlying Level of such Underlying; and
(b) a Trigger Event has occurred.
If the notes are not called and the conditions
described in (a) and (b) are satisfied, at maturity you will lose 1% of
the principal amount of your notes for every 1% that the Ending Underlying
Level of the Lesser Performing Underlying is less than the Starting Underlying
Level of such Underlying. Under these circumstances, your payment at
maturity per $1,000 principal amount note, in addition to any accrued
and unpaid interest, will be calculated as follows:
$1,000 +
($1,000 x Lesser Performing Underlying Return)
You will lose some
or all of your principal at maturity if the notes are not called and the
conditions described in (a) and (b) are both satisfied. |
Trigger Event: |
A Trigger Event occurs if, on any day during
the Monitoring Period, the closing level or closing price, as applicable,
of any Underlying is less than the Starting Underlying Level of such Underlying
by more than the applicable Protection Amount. |
Underlying Return: |
With respect to each Underlying, the Underlying
Return is calculated as follows:
Ending
Underlying Level Starting Underlying Level
Starting Underlying Level |
Optional Call: |
We, at our election, may call the notes, in
whole but not in part, on the Optional Call Date prior to the Maturity
Date at a price for each $1,000 principal amount note equal to $1,000
plus any accrued and unpaid interest to but excluding the Optional Call
Date. If we intend to call your notes, we will deliver notice to DTC
at least five business days before the Optional Call Date. |
Optional Call Date*: |
March 8, 2011 |
Additional Key Terms: |
See Additional Key Terms on the next page. |
* |
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 Payment upon Optional
Call, as applicable, in the accompanying product supplement no. 192-A-II |
Investing in the Callable Yield Notes
involves a number of risks. See Risk Factors beginning on page PS-10 of the
accompanying product supplement no. 192-A-II and Selected Risk Considerations
beginning on page TS-3 of this term sheet.
Neither 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 prospectus supplement and prospectus.
Any representation to the contrary is a criminal offense.
|
|
Price
to Public (1) |
Fees
and Commissions (2) |
Proceeds
to Us |
|
Per
note |
$ |
$ |
$ |
|
Total |
$ |
$ |
$ |
|
(1)
|
The price to the public includes the
estimated cost of hedging our obligations under the notes through one
or more of our affiliates. |
(2)
|
If the notes priced today, J.P. Morgan
Securities LLC, which we refer to as JPMS, acting as agent for JPMorgan
Chase & Co., would receive a commission of approximately $33.50 per
$1,000 principal amount note and would use a portion of that commission
to allow selling concessions to other affiliated or unaffiliated dealers
of approximately $17.50 per $1,000 principal amount note. The concessions
of approximately $17.50 per $1,000 principal amount note include concessions
to be allowed to selling dealers and concessions to be allowed to any arranging
dealer. This commission includes the projected profits that our affiliates
expect to realize, some of which may be allowed to other unaffiliated dealers,
for assuming risks inherent in hedging our obligations under the notes.
The actual commission received by JPMS may be more or less than $33.50 and
will depend on market conditions on the Pricing Date. In no event will
the commission received by JPMS, which includes concessions and other amounts
that may be allowed to other dealers, exceed $45.00 per $1,000 principal
amount note. See Plan of Distribution (Conflicts of Interest) beginning
on page PS-93 of the accompanying product supplement no. 192-A-II. |
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.
November 30, 2010
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. 192-A-II 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. 192-A-II dated June 4, 2010. 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. 192-A-II, 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 Underlying Level: |
With respect to the Index, the closing level
of such Index on the Pricing Date (the Initial Index Level). With respect
to the Fund, the closing price of such Fund on the Pricing Date divided
by the Share Adjustment Factor for such Fund (the Initial Share Price).
We refer to each of the Initial Index Level for the Index and the Initial
Share Price for the Fund as a Starting Underlying Level. |
Ending Underlying Level: |
With respect to the Index, the closing level
of such Index on the Observation Date (the Ending Index Level). With
respect to the Fund, the closing price of one share of such Fund on the
Observation Date (the Final Share Price). We refer to each of the Ending
Index Level for the Index and the Final Share Price for the Fund as an
Ending Underlying Level. |
Share Adjustment Factor: |
With respect to the Fund, 1.0 on the pricing
date and subject to adjustment under certain circumstances. See Description
of Notes Payment at Maturity and General Terms of Notes Anti-Dilution
Adjustments in the accompanying product supplement no. 192-A-II for further
information about these adjustments. |
Lesser Performing Underlying: |
The Underlying with the Lesser Performing
Underlying Return |
Lesser Performing Underlying Return: |
The lower of the Underlying Return of the
S&P 500® Index and the United States Oil Fund, LP |
Selected
Purchase Considerations
- THE NOTES OFFER A
HIGHER INTEREST RATE THAN THE YIELD ON DEBT SECURITIES OF COMPARABLE MATURITY
ISSUED BY US OR AN ISSUER WITH A COMPARABLE CREDIT RATING
The notes will pay interest at a rate of 3.50% (equivalent to 7.00%
per annum) over the term of the notes, which we believe is higher than the
yield received on debt securities of comparable maturity issued by us or an
issuer with a comparable credit rating. Because the notes are our senior
unsecured obligations, any interest payment or any payment at maturity is
subject to our ability to pay our obligations as they become due.
- MONTHLY
INTEREST PAYMENTS The notes offer monthly interest
payments at a rate of 3.50% (equivalent to 7.00% per annum)
over the term of the notes. Interest will be payable monthly in arrears on
the 8th calendar day of each month (each such day, an Interest Payment Date),
commencing January 8, 2011, to and including the Maturity Date or, if the
notes are called, to and including the Optional Call Date. Interest will
be payable to the
|
JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P
500® Index and the United States Oil
Fund, LP |
TS-1 |
holders of
record at the close of business on the date 15 calendar days prior to the
applicable Interest Payment Date or the Optional Call Date, as applicable.
If an Interest Payment Date or Optional Call Date is not a business day, payment
will be made on the next business day immediately following such day, but
no additional interest will accrue as a result of the delayed payment. For
example, the monthly Interest Payment Date for January 2011 is January 8,
2011, but due to January 8, 2011 being a Saturday, payment of interest with
respect to that Interest Payment Date will be made on January 10, 2011, the
next succeeding business day.
- POTENTIAL
EARLY EXIT AS A RESULT OF THE OPTIONAL CALL FEATURE
If the notes are called pursuant to an Optional Call, on the Optional
Call Date, for each $1,000 principal
amount note, you will receive $1,000 plus accrued and unpaid interest to but
excluding the Optional
Call Date.
- THE NOTES DO NOT GUARANTEE
THE RETURN OF YOUR PRINCIPAL IF THE NOTES ARE NOT
CALLED If the notes are not called, we will pay you your
principal back at maturity so long as a Trigger Event has not occurred or
if the Ending Underlying Level of each Underlying is not less than its Starting
Underlying Level. A Trigger Event occurs if, on any day during the Monitoring
Period, the closing level or closing price, as applicable, of any Underlying
is less than the Starting Underlying Level of such Underlying by more than
the applicable Protection Amount. However, if the notes are not called,
a Trigger Event has occurred and the Ending Underlying Level of either Underlying
is less than the Starting Underlying Level of such Underlying, you could lose
the entire principal amount of your notes.
- EXPOSURE TO EACH OF
THE UNDERLYINGS The return on the notes is linked to the Lesser
Performing Underlying, which will be either the S&P 500®
Index or the United States Oil Fund, LP.
The S&P 500® Index consists of 500 component stocks selected
to provide a performance benchmark for the U.S. equity markets.
The United States Oil Fund,
LP, a Delaware limited partnership, is a commodity pool that issues units
(which we refer to as shares for purposes of this term sheet and
the accompanying product supplement) that may be purchased and sold on NYSE
Arca, Inc. (the NYSE Arca) under the ticker symbol USO.
The investment objective of the United States Oil Fund, LP is for changes
in percentage terms of the net asset value of the units of the Fund to reflect
the changes in percentage terms of the spot prices of light, sweet crude oil
delivered to Cushing, Oklahoma as traded on the New York Mercantile Exchange,
less the Funds expenses. The Fund seeks to achieve its investment objective
by investing in a mix of oil futures contracts and other oil interests such
that changes in the Funds net asset value will closely track the changes
in the price of a specified oil futures contract.
For additional information
on each Underlying, see the information set forth under The S&P
500® Index and The United States
Oil Fund, LP in the accompanying product supplement no. 192-A-II.
- TAX
TREATMENT AS A UNIT COMPRISING A PUT OPTION AND A DEPOSIT You should review carefully
the section entitled Certain U.S. Federal Income Tax Consequences
in the accompanying product supplement no. 192-A-II. We and you agree (in
the absence of an administrative determination or judicial ruling to the contrary)
to treat the notes for U.S. federal income tax purposes as units comprising:
(i) a Put Option written by you that is terminated if an Optional Call occurs
and that, if not terminated,
in circumstances where the payment at maturity is less than $1,000 (excluding
accrued and unpaid interest) requires you to pay us an amount equal to $1,000
multiplied by the absolute value of the Lesser Performing Underlying Return
and (ii) a Deposit of $1,000 per $1,000 principal amount note to secure your
potential obligation under the Put Option. We will determine the portion of
each coupon payment that we will allocate to interest on the Deposit and to
Put Premium, respectively, and will provide that allocation in the pricing
supplement for the notes. If the notes had priced on November 29, 2010, we
would have treated approximately 5.14% of each coupon payment as interest
on the Deposit and the remainder as Put Premium. The actual allocation that
we will determine for the notes may differ from this hypothetical allocation,
and will depend upon a variety of factors, including actual market conditions
and our borrowing costs for debt instruments of comparable maturities on the
Pricing Date. Assuming this characterization is respected, amounts treated
as interest on the Deposit will be taxed as ordinary income, while the Put
Premium will not be taken into account prior to sale or settlement, including
a settlement following an Optional Call. However, there are other reasonable
treatments that the Internal Revenue Service (the IRS) or a court
may adopt, 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. While it is not clear whether the notes would be viewed as similar
to the typical prepaid forward contract described in the notice, it is possible
that 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. The notice
focuses on a number of issues, the most relevant of which for holders of the
notes are the character of income or loss (including whether the Put Premium
might be currently included as ordinary income) and the degree, if any, to
which income realized by Non-U.S. Holders should be subject to withholding
tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding
all aspects of the U.S. federal income tax consequences of an investment in
the notes, including possible alternative treatments and the issues presented
by this notice. Non-U.S. Holders should also note that they may be withheld
upon unless they have submitted a properly completed IRS Form W-8BEN or otherwise
satisfied the applicable documentation requirements. Purchasers who are not
initial purchasers of notes at the issue price should also consult their tax
advisers with respect to the tax consequences of an investment in the notes,
including possible alternative characterizations, as well as the allocation
of the purchase price of the notes between the Deposit and the Put Option.
|
JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P
500® Index and the United States Oil
Fund, LP |
TS-2 |
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, any equity securities included in the Index or any
commodity futures contracts held by the Fund. These risks are explained in more
detail in the Risk Factors section of the accompanying product supplement
no. 192-A-II dated June 4, 2010.
- YOUR INVESTMENT IN
THE NOTES MAY RESULT IN A LOSS The notes
do not guarantee any return of principal if the notes are not called. If the
notes are not called, we will pay you your principal back at maturity only
so long as a Trigger Event has not occurred or the Ending Underlying Level
of each Underlying is equal to or greater than the Starting Underlying Level
of such Underlying. If the notes are not called, a Trigger Event has occurred
and the Ending Underlying Level of either Underlying is less than the Starting
Underlying Level of such Underlying, you will lose 1% of your principal amount
at maturity for every 1% that the Ending Underlying Level of the Lesser Performing
Underlying is less than the Starting Underlying Level of such Underlying.
Accordingly, you could lose up to the entire principal amount of your notes.
- 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 on the
Optional Call Date or Interest Payment Dates, and therefore investors are
subject to our credit risk and to changes in the markets view of our
creditworthiness. Any decline in our credit ratings or increase in the credit
spreads charged by the market for taking our credit risk is likely to adversely
affect the value of the notes.
- POTENTIAL CONFLICTS We and our affiliates play a variety of roles in connection
with the issuance of the notes, including acting as calculation agent. 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. In addition, we are 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.
- YOUR RETURN ON THE
NOTES IS LIMITED TO THE PRINCIPAL AMOUNT PLUS ACCRUED INTEREST REGARDLESS
OF ANY APPRECIATION IN THE VALUE OF EITHER UNDERLYING
If the notes are not called, unless a Trigger Event has occurred
and the Ending Underlying Level of either Underlying is less than the Starting
Underlying Level of such Underlying, for each $1,000 principal amount note,
you will receive $1,000 at maturity plus any accrued and unpaid interest,
regardless of any appreciation in the value of either Underlying, which may
be significant. If the notes are called, for each $1,000 principal amount
note, you will receive $1,000 on the Optional Call Date plus any accrued and
unpaid interest, regardless of the appreciation in the value of the Underlyings,
which may be significant. Accordingly, the return on the notes may be significantly
less than the return on a direct investment in either Underlying during the
term of the notes.
- YOU ARE EXPOSED TO
THE RISK OF DECLINE IN THE CLOSING LEVEL OR CLOSING PRICE OF EACH UNDERLYING
Your return on the notes and your payment at maturity, if any, is not
linked to a basket consisting of the Underlyings. If the notes are not 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 both
of the Underlyings. Poor performance by either of the Underlyings over the
term of the notes 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 closing
level or closing price of each Underlying.
- YOUR PROTECTION MAY
TERMINATE ON ANY DAY DURING THE TERM OF THE NOTES If, on any day
during the Monitoring Period, the closing level or closing price, as applicable,
of either Underlying is less than the Starting Underlying Level of such Underlying
by more than the applicable Protection Amount, a Trigger Event will occur,
and you will be fully exposed to any depreciation in the Lesser Performing
Underlying. We refer to this feature as a contingent buffer. Under these circumstances,
and if the Ending Underlying Level of either Underlying is less than the Starting
Underlying Level for such Underlying, you will lose 1% of the principal amount
of your investment for every 1% that the Ending Underlying Level of the Lesser
Performing Underlying is less than the Starting Underlying Level. You will
be subject to this potential loss of principal even if the relevant Underlying
subsequently recovers such that the closing level or closing price, as applicable,
is less than the Starting Underlying Level of such Underlying by less than
the Protection Amount. If these notes had a non-contingent buffer feature,
under the same scenario, you would have received the full principal amount
of your notes plus accrued and unpaid interest at maturity. As a result, your
investment in the notes may not perform as well as an investment in a security
with a return that includes a non-contingent buffer.
- YOUR PAYMENT AT MATURITY
MAY BE DETERMINED BY THE LESSER PERFORMING UNDERLYING If the notes
are not called and a Trigger Event occurs, you will lose some or all of your
investment in the notes if the Ending Underlying Level of either Underlying
is below its Starting Underlying Level. This will be true even if the Ending
Underlying Level of the other Underlying is greater than or equal to its Starting
Underlying Level. The two Underlyings respective performances may not
be correlated and, as a result, if the notes are not called, you may receive
the principal amount of your notes at maturity only if there is a broad based
rise in the performance of equities across diverse markets during the term
of the notes.
- THE OPTIONAL CALL
FEATURE MAY FORCE A POTENTIAL EARLY EXIT Upon an Optional Call,
the amount of interest payable on the notes will be less than the full amount
of interest that would have been payable if the notes were held to maturity,
and, for each $1,000 principal amount note, you will receive $1,000 plus accrued
and unpaid interest to but excluding the Optional Call Date.
- REINVESTMENT RISK
If your notes are called, the term of the notes may be reduced to as
short as three months and you will not receive interest payments after the
Optional Call Date. There is no guarantee that you would be able to reinvest
the proceeds from an investment in the notes at a comparable return and/or
with a comparable interest rate for a similar level of risk in the event the
notes are called prior to the Maturity Date.
- CERTAIN
BUILT-IN COSTS ARE LIKELY TO AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR
TO MATURITY While the payment at maturity,
if any, or upon a call described in this term sheet is based on the full principal
amount of your notes, the original issue price of the notes includes the agents
commission and the estimated cost of hedging our obligations under the notes.
As a result, and as a general matter, the price, if any, at which 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. This
|
JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P
500® Index and the United States Oil
Fund, LP |
TS-3 |
secondary market price
will also be affected by a number of factors aside from the agents commission
and hedging costs, including those referred to under Many Economic and
Market Factors Will Influence the Value of the Notes below.
The notes are not designed to be short-term trading instruments. Accordingly,
you should be able and willing to hold your notes to maturity.
- PROTECTION
AMOUNT APPLIES ONLY IF YOU HOLD THE NOTES TO MATURITY
Assuming the notes are not called, we will pay you your principal back at
maturity only if the closing level or closing price, as applicable, of each
Underlying does not fall below its Starting Underlying Level by more than
the applicable Protection Amount on any day during the Monitoring Period or
the Ending Underlying Level of each Underlying is equal to or greater than
the Starting Underlying Level of such Underlying and the notes are held to
maturity. If the notes are not called and a Trigger Event has occurred, the
protection provided by the Protection Amount of each Underlying will be eliminated
and you will be fully exposed at maturity to any decline in the value of the
Lesser Performing Underlying.
- VOLATILITY RISK
Greater expected volatility with respect to an Underlying indicates
a greater likelihood as of the Pricing Date that such Underlying could close
below its Starting Underlying Level by more than the applicable Protection
Amount on any day during the Monitoring Period. An Underlyings volatility,
however, can change significantly over the term of the notes. The closing
level or closing price, as applicable, of an Underlying could fall sharply
on any day during the Monitoring Period, which could result in a significant
loss of principal.
- COMMODITY PRICES ARE
CHARACTERIZED BY HIGH AND UNPREDICTABLE VOLATILITY, WHICH COULD LEAD TO A
HIGH AND UNPREDICTABLE VOLATILITY IN THE FUND Market prices of
the commodity futures contracts held by the Fund tend to be highly volatile
and may fluctuate rapidly based on numerous factors, including changes in
supply and demand relationships, governmental programs and policies, national
and international monetary, trade, political and economic events, changes
in interest and exchange rates, speculation and trading activities in crude
oil and related contracts, weather, and trade, fiscal and exchange control
policies. Market price of crude oil futures contracts are significantly influenced
by the Organization of Petroleum Exporting Countries (OPEC). OPEC
has the potential to influence crude oil futures prices worldwide because
its members possess a significant portion of the worlds oil supply.
These factors may affect the price of the Fund in varying ways, and different
factors may cause the value of the commodity futures contracts included in
the Fund or their prices to move in inconsistent directions at inconsistent
rates. This, in turn, will affect the value of the notes linked to the Fund.
The high volatility and cyclical nature of commodity markets may render such
an investment inappropriate as the focus of an investment portfolio.
- OWNING THE NOTES IS
NOT THE SAME AS OWNING ANY COMMODITY FUTURES CONTRACTS OR THE RELATED COMMODITIES
The return on your notes will not reflect the return you would
realize if you actually held the commodity contracts held by the Fund or owned
the related commodities. As a result, a holder of the notes will not have
any direct or indirect rights to any commodity futures contracts or the related
commodities.
- THE NOTES DO NOT OFFER
DIRECT EXPOSURE TO COMMODITY SPOT PRICES Your payment at maturity
may reflect the performance of the Fund, which holds commodity futures contracts,
not physical commodities (or their spot prices). The price of a futures contract
reflects the expected value of the commodity upon delivery in the future,
whereas the spot price of a commodity reflects the immediate delivery value
of the commodity. A variety of factors can lead to a disparity between the
expected future price of a commodity and the spot price at a given point in
time, such as the cost of storing the commodity for the term of the futures
contract, interest charges incurred to finance the purchase of the commodity
and expectations concerning supply and demand for the commodity. The price
movements of a futures contract are typically correlated with the movements
of the spot price of the referenced commodity, but the correlation is generally
imperfect and price moves 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.
- THE PERFORMANCE OF
THE UNITED STATES OIL FUND, LP MAY NOT FULLY REPLICATE THE PERFORMANCE OF
THE PRICE OF LIGHT, SWEET CRUDE OIL United States Commodity Funds,
LLC, the general partner of the United States Oil Fund, LP, is responsible
for investing the assets of the United States Oil Fund, LP in accordance with
the objectives and policies of the United States Oil Fund, LP. The assets
of the United States Oil Fund, LP consist primarily of investments in futures
contracts for light, sweet crude oil, other types of crude oil, heating oil,
gasoline, natural gas, and other petroleum-based fuels that are traded on
the New York Mercantile Exchange, ICE Futures or other U.S. and foreign exchanges
(collectively, "oil futures contracts") and other oil interests
such as cash-settled options on oil futures contracts, forward contracts for
oil, and over-the-counter transactions that are based on the price of oil,
other petroleum-based fuels, oil futures contracts and indices based on the
foregoing (collectively, other oil interests and together with
oil futures contracts, oil interests). The United States Oil Fund,
LP seeks to achieve its investment objective by investing in a mix of oil
futures contracts and other oil interests such that changes in the net asset
value of the United States Oil Fund, LP will closely track the changes in
the price of a specified oil futures contract (the benchmark oil futures
contract). The United States Oil Fund, LPs general partner believes
that the benchmark oil futures contract historically has exhibited a close
correlation with the spot price of light, sweet crude oil. There is no assurance
that the general partner of the United States Oil Fund, LP will successfully
implement its investment strategy and there is a risk that changes in the
price of United States Oil Fund, LP units will not closely track changes in
the spot price of light, sweet crude oil. The performance of the Fund may
not exactly replicate the performance of the oil interests underlying the
Fund because the Fund will reflect transaction costs and fees. It is also
possible that the Fund may not fully replicate or may in certain circumstances
diverge significantly from the performance of the oil interests underlying
the Fund due to the temporary unavailability of certain securities in the
secondary market or the performance of any derivative instruments contained
in the Fund. This could also happen if the price of the units does not correlate
closely with the United States Oil Fund, LPs net asset value; changes
in the United States Oil Fund, LPs net asset value do not closely correlate
with changes in the price of the benchmark oil futures contract; or changes
in the price of the benchmark oil futures contract do not closely correlate
with changes in the cash or spot price of light, sweet crude oil. Light, sweet
crude oil has also demonstrated a lack of correlation with world crude oil
prices due to structural differences between the U.S. market for crude oil
and the international market for crude oil. The price of light, sweet crude
oil may be more volatile than world crude oil prices generally.
- THE PRICE
OF CRUDE OIL MAY CHANGE UNPREDICTABLY AND AFFECT THE PRICE OF THE FUND AND
THE VALUE OF
|
JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P
500® Index and the United States Oil
Fund, LP |
TS-4 |
- THE NOTES
IN UNFORESEEN WAYS The price of the Fund is affected by
the price of light, sweet crude oil. The price of crude oil is subject to
volatile price movements over short periods of time and is generally affected
by numerous factors including:
- demand for refined
petroleum products by consumers, as well as the agricultural, manufacturing
and transportation industries;
- economic conditions
that affect the end-use of crude oil as a refined product such as transport
fuel, industrial fuel and in-home heating fuel;
- U.S. government regulations,
such as environmental or consumption policies;
- geopolitical events,
labor activity and, in particular, direct government intervention such
as embargos;
- supply disruptions
in major oil producing regions of the world, production decisions by OPEC
and other crude oil producers and cessation of hostilities that may exist
in countries producing oil;
- sudden disruptions
in the supply of oil due to war, natural events, accidents or acts of
terrorism; and
- the introduction
of new or previously withheld supplies into the market or the introduction
of substitute products or commodities.
- THERE
ARE RISKS ASSOCIATED WITH THE UNITED STATES OIL FUND, LP
Although the United States Oil Fund, LPs shares are listed for
trading on the 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 United States Oil Fund, LP or that there will be liquidity in the trading
market. The United States Oil Fund, LP is subject to management risk, which
is the risk that United States Commodity Funds LLCs investment strategy,
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 United States Oil Fund, LP, and consequently,
the value of 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.
- NO DIVIDEND PAYMENTS
OR VOTING RIGHTS As a holder of the notes, you will not have voting
rights or rights to receive cash dividends or other distributions or other
rights that holders of the securities included in the Index would have.
- HEDGING AND TRADING
IN THE UNDERLYINGS While the notes are
outstanding, we or any of our affiliates may carry out hedging activities
related to the notes, including instruments related to the Underlyings, the
equity securities included in the Index or the commodity futures contracts
held by the Fund. We or our affiliates may also trade in the Fund, instruments
related to Underlyings, the equity securities included in the Index or the
commodity futures contracts held by the Fund from time to time. Any of these
hedging or trading activities as of the Pricing Date and during the term of
the notes could adversely affect the likelihood of a call or our payment to
you at maturity.
- THE
ANTI-DILUTION PROTECTION FOR THE UNITED STATES OIL FUND, LP IS LIMITED
The calculation agent will make adjustments to the Share Adjustment Factor
for certain events affecting the shares of the United States Oil Fund, LP.
However, the calculation agent will not make an adjustment in response to
all events that could affect the shares of the United States Oil Fund, LP.
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.
- THE FUND HAS A LIMITED
OPERATING HISTORY AND MAY PERFORM IN UNANTICIPATED WAYS The Fund
was established on April 10, 2006 and therefore has a limited operating history.
Past performance should not be considered indicative of future performance.
- MANY ECONOMIC AND
MARKET FACTORS WILL INFLUENCE THE VALUE OF THE NOTES In
addition to the level and price of the Underlyings 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:
- whether a Trigger Event
has occurred;
- the interest rate on the
notes;
- the expected volatility
of the Underlyings and the futures contracts held by the Fund;
- the time to maturity of
the notes;
- the Optional Call feature
and whether we are expected to call the notes, which are likely to limit
the value of the notes;
- the market price of the physical commodities
upon which the futures contracts held by the Fund are based;
- the dividend rates on the
equity securities included in the Index;
- the market price of the
commodities or commodity futures contracts underlying the Fund;
- the expected positive or
negative correlation between the Index and the Fund, or the expected absence
of any such correlation;
- interest and yield rates
in the market generally as well as in the markets of the equity securities
underlying the Index;
- a variety of economic,
financial, political, regulatory, geographical, agricultural, meteorological
and judicial events that affect the Index or the equity
securities included in the Index or markets generally and the commodities
or commodity futures contracts underlying a Fund or commodity markets
generally and which may affect the value of the commodity futures contracts
and other investments held by the Fund, and thus the closing prices of
the Fund;
- the occurrence of certain
events to the United States Oil Fund, LP that may or may not require an
adjustment to the applicable Share Adjustment Factor; and
- our creditworthiness, including
actual or anticipated downgrades in our credit ratings.
|
JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P
500® Index and the United States Oil
Fund, LP |
TS-5 |
Historical
Information
The following graphs show the historical weekly
performance of the S&P 500® Index from January 7, 2005 through
November 26, 2010 and the United States Oil Fund, LP from April 14, 2006 through
November 26, 2010. The Index closing level of the S&P 500® Index
on November 29, 2010 was 1187.76. The closing price of one share of the United
States Oil Fund, LP on November 29, 2010 was $36.78.
We obtained the
various closing levels and prices of the Underlyings below from Bloomberg Financial
Markets. We make no representation or warranty as to the accuracy or completeness
of information obtained from Bloomberg Financial Markets. The historical levels
and prices of each Underlying should not be taken as an indication of future
performance, and no assurance can be given as to the closing level or closing
price, as applicable, of any Underlying on any day during the Monitoring Period
or the Observation Date. We cannot give you assurance that the performance
of the Underlyings will result in the return of any of your initial investment.
|
JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P
500® Index and the United States Oil
Fund, LP |
TS-6 |
What
Is the Total Return on the Notes at Maturity, Assuming a Range of Performances
for the Lesser Performing Underlying?
The following table and examples illustrate
the hypothetical total return at maturity on the notes. The note total return
as used in this term sheet is the number, expressed as a percentage, that results
from comparing the payment at maturity plus the interest payments received over
the term of the notes per $1,000 principal amount note to $1,000. The table
and examples below assume that the notes are not called prior to maturity and
that the Lesser Performing Underlying is the S&P 500® 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. In addition, the following table and examples assume a Starting
Underlying Level for the Lesser Performing Underlying of 1200 and reflect Interest
Rate of 3.50% (equivalent
to 7.00% per annum)
over the term of the notes and the Protection Amount of 25.00%. If the notes
are called prior to maturity, your total return and total payment may be less
than the amounts indicated below. The hypothetical total returns and total
payments set forth below are for illustrative purposes only and may not be the
actual total returns or total payments applicable to a purchaser of the notes.
The numbers appearing in the following table and examples have been rounded
for ease of analysis.
|
|
Trigger
Event Has Not Occurred (1) |
Trigger
Event Has Occurred (1) |
|
Ending
Underlying
Level |
Lesser
Performing
Underlying
Return |
Note
Total
Return |
Total
Payments over the
Term of the Notes |
Note
Total Return |
Total
Payments over the
Term of the Notes |
|
2160.00 |
80.00% |
3.50% |
$1,035.00 |
3.50% |
$1,035.00 |
1980.00 |
65.00% |
3.50% |
$1,035.00 |
3.50% |
$1,035.00 |
1800.00 |
50.00% |
3.50% |
$1,035.00 |
3.50% |
$1,035.00 |
1680.00 |
40.00% |
3.50% |
$1,035.00 |
3.50% |
$1,035.00 |
1560.00 |
30.00% |
3.50% |
$1,035.00 |
3.50% |
$1,035.00 |
1440.00 |
20.00% |
3.50% |
$1,035.00 |
3.50% |
$1,035.00 |
1320.00 |
10.00% |
3.50% |
$1,035.00 |
3.50% |
$1,035.00 |
1260.00 |
5.00% |
3.50% |
$1,035.00 |
3.50% |
$1,035.00 |
1200.00 |
0.00% |
3.50% |
$1,035.00 |
3.50% |
$1,035.00 |
1140.00 |
-5.00% |
3.50% |
$1,035.00 |
-1.50% |
$985.00 |
1080.00 |
-10.00% |
3.50% |
$1,035.00 |
-6.50% |
$935.00 |
960.00 |
-20.00% |
3.50% |
$1,035.00 |
-16.50% |
$835.00 |
900.00 |
-25.00% |
3.50% |
$1,035.00 |
-21.50% |
$785.00 |
840.00 |
-30.00% |
N/A |
N/A |
-26.50% |
$735.00 |
720.00 |
-40.00% |
N/A |
N/A |
-36.50% |
$635.00 |
600.00 |
-50.00% |
N/A |
N/A |
-46.50% |
$535.00 |
480.00 |
-60.00% |
N/A |
N/A |
-56.50% |
$435.00 |
360.00 |
-70.00% |
N/A |
N/A |
-66.50% |
$335.00 |
240.00 |
-80.00% |
N/A |
N/A |
-76.50% |
$235.00 |
120.00 |
-90.00% |
N/A |
N/A |
-86.50% |
$135.00 |
0.00 |
-100.00% |
N/A |
N/A |
-96.50% |
$35.00 |
|
(1) A Trigger Event occurs if the closing level
or closing price, as applicable, of either Underlying is less than the Starting
Underlying Level of such Underlying by more than 25% on any day during the Monitoring
Period.
The following examples illustrate how the note
total returns and total payments set forth in the table above are calculated.
Example 1: The level
of the Lesser Performing Underlying increases from the Starting Underlying Level
of 1200 to an Ending Underlying Level of 1260. Because the Ending
Underlying Level of the Lesser Performing Underlying of 1260 is greater than
its Starting Underlying Level of 1200, regardless of whether a Trigger Event
has occurred, the investor receives total payments of $1,035 per $1,000 principal
amount note over the term of the notes, consisting of interest payments of $35
per $1,000 principal amount note over the term of the notes and a payment at
maturity of $1,000 per $1,000 principal amount note. This represents the maximum
total payment an investor may receive over the term of the notes.
Example 2: A Trigger
Event has not occurred and the level of the Lesser Performing Underlying decreases
from the Starting Underlying Level of 1200 to an Ending Underlying Level of
960. Even though the Ending Underlying Level of the Lesser Performing
Underlying of 960 is less than its Starting Underlying Level of 1200, because
a Trigger Event has not occurred, the investor receives total payments of $1,035
per $1,000 principal amount note over the term of the notes, consisting of interest
payments of $35 per $1,000 principal amount note over the term of the notes
and a payment at maturity of $1,000 per $1,000 principal amount note.
|
JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P
500® Index and the United States Oil
Fund, LP |
TS-7 |
Example 3: A Trigger
Event has occurred and the level of the Lesser Performing Underlying decreases
from the Starting Underlying Level of 1200 to an Ending Underlying Level of
960. Because a Trigger Event has occurred and the Ending Underlying
Level of the Lesser Performing Underlying of 960 is less than its Starting Underlying
Level of 1200, the investor receives total payments of $835 per $1,000 principal
amount note over the term of the notes, consisting of interest payments of $35
per $1,000 principal amount note over the term of the notes and a payment at
maturity of $800 per $1,000 principal amount note, calculated as follows:
[$1,000 + ($1,000
× -20%)] + $35 = $835
Example 4: A Trigger
Event has occurred and the level of the Lesser Performing Underlying decreases
from the Starting Underlying Level of 1200 to an Ending Underlying Level of
720. Because a Trigger Event has occurred and the Ending Underlying
Level of the Lesser Performing Underlying of 720 is less than its Starting Underlying
Level of 1200, the investor receives total payments of $635 per $1,000 principal
amount note over the term of the notes, consisting of interest payments of $35
per $1,000 principal amount note over the term of the notes and a payment at
maturity of $600 per $1,000 principal amount note, calculated as follows:
[$1,000 + ($1,000
× -40%)] + $35 = $635
Example 5: A Trigger
Event has occurred and the level of the Lesser Performing Underlying decreases
from the Starting Underlying Level of 1200 to an Ending Underlying Level of
0. Because a Trigger Event has occurred and the Ending Underlying
Level of the Lesser Performing Underlying of 0 is less than its Starting Underlying
Level of 1200, the investor receives total payments of $35 per $1,000 principal
amount note over the term of the notes, consisting solely of interest payments
of $35 per $1,000 principal amount note over the term of the notes, calculated
as follows:
[$1,000 + ($1,000 × -100%)] + $35 = $35
|
JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P
500® Index and the United States Oil
Fund, LP |
TS-8 |