Term Sheet
To
prospectus dated November 21, 2008,
prospectus supplement dated November
21, 2008 and
product supplement no. 129-A-II dated February
5, 2009
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Term Sheet to
Product Supplement No. 129-A-II
Registration Statement No. 333-155535
Dated July 16, 2010;
Rule 433
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Structured
Investments
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JPMorgan Chase &
Co.
$
Callable Leveraged Capped Floating Rate Notes Linked to the Spread
Between the 10-Year U.S. Dollar Constant Maturity Swap Rate and the 2-Year U.S.
Dollar Constant Maturity Swap Rate due August 18, 2025 |
General
- Senior unsecured
obligations of JPMorgan Chase & Co. maturing August 18, 2025, subject to
postponement as described below.
- The notes are
designed for investors who seek (a) quarterly interest payments that are, for
the Initial Interest Periods, fixed at 9.00% per annum, and then for all
subsequent Interest Periods, linked to the spread between the 10-Year U.S.
Dollar Constant Maturity Swap Rate and the 2-Year U.S. Dollar Constant Maturity
Swap Rate subject to the Maximum Interest Rate of 9.00% per annum and the
Minimum Interest Rate of 0.00% per annum, and (b) full principal protection at
maturity. Any payment on the notes is subject to the credit risk of JPMorgan
Chase & Co.
- Interest will be
payable based on 90 days for each Interest Period and a 360-day year.
- Minimum
denominations of $1,000 and integral multiples thereof.
- At our option, we
may redeem the notes, in whole or in part, on any of the Redemption Dates
specified below.
- The terms of the
notes as set forth below, to the extent they differ or conflict with those set
forth in the accompanying product supplement no. 129-A-II, will supersede the
terms set forth in product supplement no. 129-A-II.
- The notes are
expected to price on or about August 13, 2010 and are expected to settle on or about August 18, 2010.
Key Terms
Maturity Date:
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August 18, 2025, or if such day
is not a business day, the next succeeding business day.
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Payment at Maturity:
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At maturity you will receive a cash
payment for each $1,000 principal amount note of $1,000 plus any
accrued and unpaid Interest.
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Payment upon Redemption:
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At our option, we may redeem the notes, in
whole or in part, on the 18th calendar day of each February, May, August and
November of each year (each such date, a Redemption Date), commencing
August 18, 2015. If the notes are redeemed, you will receive on the
applicable Redemption Date a cash payment equal to $1,000 for each $1,000
principal amount note redeemed. Any accrued and unpaid interest on notes
redeemed will be paid to the person who is the holder of record of such notes
at the close of business on the 18th calendar day prior to the Redemption
Date. We will provide notice of redemption at least 5 calendar days prior to
the applicable Redemption Date.
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Interest:
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With respect to each Interest Period, for
each $1,000 principal amount note, the interest payment will be calculated as
follows:
$1,000 x Interest Rate x (90 / 360).
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Interest Rate:
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(1) With respect
to each Initial Interest Period, the Initial Interest Rate, and (2) with
respect to each Interest Period following the final Initial Interest Period,
a rate per annum equal to the product of (i) the Leverage Factor and (ii) the
Spread.
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Notwithstanding the foregoing, in no event
will the Interest Rate be less than the Minimum Interest Rate of 0.00% per
annum or greater than the Maximum Interest Rate of 9.00% per annum.
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Initial Interest Rate:
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9.00% per annum
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Minimum Interest Rate:
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0.00% per annum
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Maximum Interest Rate:
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9.00% per annum
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Leverage Factor:
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4
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Reference Rate 1:
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The rate for U.S. Dollar swap with a
Designated Maturity of 10 years that appears on Reuters page ISDAFIX1 (or
any successor page) at approximately 11:00 a.m., New York City time, on such
Determination Date, as determined by the calculation agent.
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Reference Rate 2:
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The rate for U.S. Dollar swap with a
Designated Maturity of 2 years that appears on Reuters page ISDAFIX1 (or
any successor page) at approximately 11:00 a.m., New York City time, on such
Determination Date, as determined by the calculation agent.
We refer to Reference Rate 1 and Reference
Rate 2, each, as a CMS Rate and together, the CMS Rates. If on the applicable
Determination Date, either CMS Rate cannot be determined by reference to Reuters
page ISDAFIX1 (or any successor page), then the calculation agent will
determine such CMS Rate in accordance with the procedures set forth under
Supplemental Information Relating to the Terms of the Notes.
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Spread:
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On the applicable Determination Date,
Reference Rate 1 minus Reference Rate 2.
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Other Key Terms:
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Please see Additional Key Terms in this
term sheet for other key terms.
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Investing in the
Callable Leveraged Floating Rate Notes Linked to the Spread Between the 10-Year
U.S. Dollar Constant
Maturity Swap Rate and the 2-Year U.S. Dollar Constant Maturity Swap Rate involves
a number of risks. See Risk Factors beginning on page PS-6 of the
accompanying product supplement no. 129-A-II and Selected Risk Considerations
beginning on page TS-2 of this term sheet.
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 supplemental 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. 129-A-II and this supplemental 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.
Neither the
Securities and Exchange Commission nor any state securities commission has
approved or disapproved of the notes or passed upon the accuracy or the
adequacy of this term sheet, the accompanying product supplement no. 129-A-II
or the accompanying prospectus supplement and prospectus. Any representation
to the contrary is a criminal offense.
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Price to Public(1)
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Fees and Commissions (2)
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Proceeds to Us
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Per note
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$1,000
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$
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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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The price to the
public includes the estimated cost of hedging our obligations under the
notes.
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(2)
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If the notes
priced today, J.P. Morgan Securities Inc., which we refer to as JPMSI, acting
as agent for JPMorgan Chase & Co., would receive a commission of
approximately $40.00 per $1,000 principal amount note and would use a portion
of that commission to pay selling concessions to other unaffiliated or
affiliated dealers of approximately $25.00 per $1,000 principal amount
note. 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 JPMSI may be more or
less than $40.00 and will depend on market conditions on the pricing
date. In no event will the commission received by JPMSI, which includes
concessions to be allowed to other dealers, exceed $45.00 per $1,000
principal amount note. See "Plan of Distribution" beginning
on page PS-19 of the accompanying product supplement no. 129-A-II.
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The agent for this
offering, JPMSI, is an affiliate of ours. See Supplemental Plan of
Distribution (Conflicts of Interest) on the last page of this term sheet.
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.
July 16, 2010
Additional Terms
Specific to the Notes
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. 129-A-II dated February 5, 2009. 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. 129-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, or our refers to
JPMorgan Chase & Co.
Additional
Key Terms
Interest Period:
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The period beginning on and including the
issue date and ending on but excluding the first Interest Payment Date, and
each successive period beginning on and including an Interest Payment Date
and ending on but excluding the next succeeding Interest Payment Date or, if
the notes have been redeemed prior to such next succeeding Interest Payment
Date, ending on but excluding the applicable Redemption Date.
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Initial Interest Periods:
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The period beginning on and including the
issue date of the notes and ending on but excluding the first Initial
Interest Payment Date and each successive Interest Period beginning on and
including an Initial Interest Payment Date and ending on but excluding the
next successive Initial Interest Payment Date until August 18, 2011.
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Initial Interest Payment Dates:
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November 18, 2010, February 18, 2011, May 18, 2011 and August 18, 2011 (each such date,
an Initial Interest Payment Date). If an Initial Interest Payment Date is
not a business day, payment will be made on the next business day immediately
following such day, provided that any interest payment on such Initial
Interest Payment Date, as postponed, will accrue to but excluding such
Initial Interest Payment Date, as postponed.
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Determination Date:
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For each Interest Period (other than the
Initial Interest Periods), two U.S. Government Securities Business Day
immediately prior to the beginning of the applicable Interest Period.
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Interest Payment Dates:
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Interest on the notes will be payable
quarterly in arrears on the 18th calendar day of February, May,
August and November of each year (each such date, an Interest Payment
Date), commencing November 18, 2010, to and including the Interest Payment
Date corresponding to the Maturity Date, or, if the notes have been redeemed,
the applicable Redemption Date. If an Interest Payment Date is not a business
day, payment will be made on the next business day immediately following such
day, provided that any interest payment on such Interest Payment Date, as
postponed, will accrue to but excluding such Interest Payment Date, as
postponed. See Selected Purchase Considerations Quarterly Interest
Payments in this term sheet for more information.
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U.S. Government Securities Business Day:
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Any day, other than a Saturday, Sunday or
a day on which the Securities Industry and Financial Markets Association
recommends that the fixed income departments of its members be closed for the
entire day for purposes of trading in U.S. government securities.
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Designated Maturity:
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For Reference Rate 1, 10 years; for
Reference Rate 2 , 2 years
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CUSIP:
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48124AXA0
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Supplemental
Information Relating to the Terms of the Notes
- The
following sentence will be added to the first paragraph of the "Use of
Proceeds" section in the accompanying product supplement no. 129-A-II:
An unaffiliated
hedging agent may earn additional income as a result of arrangements to hedge
our obligations under the notes.
- For
purposes of the notes, the following sentence will replace the last sentence of
the first paragraph under General Terms of Notes Payment Upon an Event of
Default in the accompanying product supplement no. 129-A-II:
In such case,
interest will be calculated on the basis of a 360-day year of twelve 30-day
months, the actual number of days in such adjusted Interest Period and will be
based on (1) the Interest Rate on the Determination Date immediately preceding
such adjusted Interest Period or (2) if such adjusted Interest Period falls
within an Initial Interest Period, the Initial Interest Rate.
- If
on the relevant Determination Date, either CMS Rate cannot be determined by
reference to the applicable Reuters page (or any successor page), then the
calculation agent will request from five leading swap dealers in the New York
City interbank market, selected by the calculation agent, mid-market
semi-annual swap rate quotations in an amount equal to the outstanding
principal amount of the notes and with terms equal to either 2 or 10 years, as
applicable, at approximately 11:00 a.m., New York City time, on the
Determination Date. The semi-annual swap rate means the mean of the bid and
offered rates for the semi-annual fixed leg, calculated on a 30/360 day count
basis, of a fixed-for-floating U.S. Dollar interest rate swap transaction with
a term equal to either 2 or 10 years, as applicable, commencing on the
Determination Date and in an amount equal to the outstanding principal amount
of the notes with an acknowledged dealer of good credit in the swap market, where
the floating leg, calculated on an actual/360 day count basis, is equivalent to
3-month LIBOR. LIBOR means the London interbank offered rate. If five quotations
are provided as requested, the calculation agent will calculate the applicable CMS Rate by eliminating
the highest and lowest rates and taking the arithmetic
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JPMorgan
Structured Investments
Callable Leveraged Capped
Floating Rate Notes Linked to the Spread Between the 10-Year U.S. Dollar
Constant Maturity Swap Rate and the 2-Year U.S. Dollar Constant Maturity Swap
Rate
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TS-1 |
mean of the remaining
rates. If at least three, but fewer than five, quotations are provided, the
applicable CMS Rate will be the arithmetic mean of the quotations. If fewer than
three quotations are provided, the applicable CMS Rate will be determined by the
calculation agent, acting in a commercially reasonable manner.
Selected
Purchase Considerations
- PRESERVATION OF
CAPITAL AT MATURITY At maturity, you will receive your initial investment in
the notes back if the notes are held to maturity, regardless of the CMS Rates or the
Spread. Because the notes are our senior unsecured obligations, payment of any
amount at maturity is subject to our ability to pay our obligations as they
become due.
- QUARTERLY INTEREST
PAYMENTS With respect to the Initial Interest Periods (expected to begin on August 18, 2010 through but
excluding August 18, 2011), a rate per annum equal to 9.00%. With respect to each
Interest Period thereafter, a rate per annum equal to the product of (i) the
Leverage Factor of 4 and (ii) the Spread, provided that such rate will not be
greater than the Maximum Interest Rate of 9.00% per annum or less than the
Minimum Interest Rate of 0.00% per annum. Interest will be payable quarterly
in arrears on the 18th calendar day of February, May, August and November of
each year, commencing November 18, 2010, to and including the Maturity Date,
or, if the notes have been redeemed, the applicable Redemption Date. Interest
will be payable to the holders of record at the close of business on the date
15 calendar days prior to the applicable Interest Payment Date. If an Interest
Payment Date is not a business day, payment will be made on the next business
day immediately following such day, provided that any interest payment on such
Interest Payment Date, as postponed, will accrue to but excluding such Interest
Payment Date as postponed. The quarterly interest payments after the Initial
Interest Periods are affected by, and contingent upon, the Spread, subject to
the Maximum Interest Rate and the Minimum Interest Rate. The yield on the
notes may be less than the overall return you would receive from a conventional
debt security that you could purchase today with the same maturity as the
notes.
- POTENTIAL QUARTERLY
REDEMPTION BY US AT OUR OPTION At our option, we may redeem the notes,
in whole or in part, on the 18th calendar day of February, May, August and
November of each year, commencing August 18, 2015, for a cash payment equal to
$1,000 for each $1,000 principal amount note redeemed. Any accrued and unpaid
interest on notes redeemed will be paid to the person who is the holder of
record of such notes at the close of business on the 15th calendar day prior to
the applicable Redemption Date.
- TAXED AS CONTINGENT
PAYMENT DEBT INSTRUMENTS You should review
carefully the section entitled Certain U.S. Federal Income Tax Consequences
in the accompanying product supplement no. 129-A-II. Subject to the
limitations described therein, in the opinion of our special tax counsel,
Sidley Austin LLP, the notes will
be treated for U.S. federal income tax purposes as contingent payment debt instruments.
You will generally be required to recognize interest income in each year at the
comparable yield, as determined by us, although we will not make any payments
with respect to the notes until maturity. Interest included in income will
increase your tax basis in the notes and the projected amount of stated
interest payments made to you will reduce your tax basis in the notes.
Generally, amounts received at maturity or earlier sale or disposition in
excess of your tax basis will be treated as additional interest income while
any loss will be treated as an ordinary loss to the extent of all previous
interest inclusions with respect to the notes, which will be deductible against
other income (e.g., employment and interest income), with the balance
treated as capital loss, the deductibility of which may be subject to
limitations. Purchasers who are not initial purchasers of notes at the issue
price should consult their tax advisers with respect to the tax consequences of
an investment in the notes, including the treatment of the difference, if any,
between their basis in the notes and the notes adjusted issue price.
Subject
to certain assumptions and representations received from us, the discussion in
this section entitled Taxed as Contingent Payment Debt Instruments, when read
in combination with the section entitled Certain U.S. Federal Income Tax
Consequences in the accompanying product supplement, constitutes the full
opinion of Sidley Austin LLP
regarding the material U.S. federal income tax treatment of owning and
disposing of the notes.
- COMPARABLE YIELD AND PROJECTED PAYMENT
SCHEDULE We will determine the comparable yield for the notes and will provide
that comparable yield in the pricing supplement for the notes, which we will
file with the SEC. If the notes had priced on July 16, 2010 and we had
determined the comparable yield on that date, it would have been an annual rate
of 3.88%, compounded quarterly. To obtain the projected payment schedule,
contact a Certified Financial Analyst at the Global Securities Group Desk at
800-576-3529. Neither the comparable yield nor the projected payment
schedule constitutes a representation by us regarding the actual amount that we
will pay on the notes.
Selected
Risk Considerations
An investment in the
notes involves significant risks. These risks are explained in more detail in
the Risk Factors section of the accompanying product supplement no. 129-A-II
dated February
5, 2009.
- THE
NOTES ARE NOT ORDINARY DEBT
SECURITIES; THE INTEREST RATE
ON THE NOTES (AFTER THE INITIAL INTEREST PERIODS) IS NOT FIXED, IS VARIABLE AND
MAY BE THE MINIMUM
INTEREST RATE
OF ZERO PERCENT The rate of interest paid by us on the
notes for each Interest Period (other than the Initial Interest Periods) is not
fixed, but will vary depending on the Spread, which may be less than returns
otherwise payable on debt securities issued by us with similar maturities. The
variable interest rate on the notes, while determined, in part, by reference to
the CMS Rates, does not
actually pay at such rates, and is subject to the Minimum Interest Rate of
0.00% per annum and the Maximum Interest Rate of 9.00% per annum. You should
consider, among other things, the overall annual percentage rate of interest to
maturity as compared to other equivalent investment alternatives. We have no
control over any fluctuations in the CMS Rates and the Spread.
- THE
INTEREST RATE
ON THE NOTES IS BASED ON THE SPREAD, WHICH MAY
RESULT IN THE APPLICATION OF THE MINIMUM INTEREST RATE
OF ZERO PERCENT The Spread is calculated as the 10-Year U.S. Dollar
Constant Maturity Swap Rate minus the 2-Year U.S. Dollar Constant Maturity Swap
Rate. The CMS Rates may be influenced by a number of factors, including (but not
limited to) monetary policies, fiscal policies, inflation, general economic
conditions and public expectations with respect to such factors.
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JPMorgan
Structured Investments
Callable Leveraged Capped
Floating Rate Notes Linked to the Spread Between the 10-Year U.S. Dollar
Constant Maturity Swap Rate and the 2-Year U.S. Dollar Constant Maturity Swap
Rate
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TS-2 |
The effect
that any single factor may have on the CMS Rates may be partially offset by other
factors. We cannot predict the factors that may cause the CMS Rates, and
consequently the Spread, to increase or decrease. A decrease in a positive
Spread will result in a reduction of the Interest Rate payable for the
corresponding Interest Period (other than the Initial Interest Periods). A
negative Spread will cause the Interest Rate for the corresponding Interest
Period to be equal to the Minimum Interest Rate of zero. The amount of interest
you accrue on the notes in any Interest Period (other than the Initial Interest
Periods) may decrease even if either or both of the CMS Rates increases.
Interest during any Interest Period (other than the Initial Interest Periods)
may be equal to zero, and you will not be compensated for any loss in value due
to inflation and other factors relating to the value of money over time during
such period.
- 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. Payment on the notes is dependent
on JPMorgan Chase & Co.s ability to pay the amount due on the notes at
maturity, and therefore your payment on the notes is subject to our credit risk
and to changes in the markets view of our creditworthiness. Any decline
in our credit ratings or increase in the credit spreads charged by the market
for taking our credit risk is likely to adversely affect the value of the
notes.
- POTENTIAL
CONFLICTS We and our affiliates play a variety of roles in connection with the
issuance of the notes, including acting as calculation agent and hedging our
obligations under the notes. In performing these duties, the economic
interests of the calculation agent and other affiliates of ours are potentially
adverse to your interests as an investor in the notes.
- YOUR MAXIMUM GAIN ON THE
NOTES IS LIMITED BY THE MAXIMUM INTEREST RATE With respect to
any Determination Date after the Initial Interest Periods, if the Spread
multiplied by the Leverage Factor of 4 is greater than the Maximum Interest
Rate of 9.00% per annum, for each $1,000 principal amount note, you will
receive on the corresponding Interest Payment Date an interest payment that
will not exceed $90.00 per $1,000 principal amount note per annum prorated on a
360 day basis, regardless of the performance of the Spread. In other words, if
the Spread is greater than or equal to 2.25%, your Interest Rate will be capped
at 9.00% per annum.
- THESE
NOTES MAY BE MORE RISKY THAN NOTES WITH A SHORTER TERM By purchasing a
note with a longer term, you are more exposed to fluctuations in interest rates
than you would be if you purchased a note with a shorter term. Specifically,
you may be negatively affected under certain circumstances in which interest
rates are affected. For example, if interest rates begin to rise, the market
value of your notes will decline because the Interest Rate applicable to a
specific Interest Period may be less than that applicable to a note issued at
such time. For example, if the Interest Rate applicable to your notes at such
time was 3.50% per annum, but a debt security issued in the then current market
could yield an interest rate of 5.50% per annum, your note would be less
valuable if you tried to sell that note in the secondary market.
- IF
THE NOTES ARE
REDEEMED BY US, THE AGGREGATE AMOUNT OF INTEREST PAID TO YOU WILL MOST LIKELY
BE LESS THAN THE AGGREGATE AMOUNT OF INTEREST PAYABLE OVER THE TERM OF THE
NOTES IF HELD TO MATURITY Commencing on August 18, 2015, and on any other
Redemption Date thereafter, the notes are subject to redemption by us, in whole
or in part, as we may elect. If we redeem all or part of your notes, for the
notes that are redeemed, you will receive the principal amount of such notes
and, assuming you are the record holder of the notes at the close of business on
the 15th calendar date prior to the applicable Redemption Date, accrued and
unpaid interest to but excluding such Redemption Date. The aggregate amount of
interest paid to you will be less than the aggregate amount of interest payable
at maturity. We may choose to redeem the notes early or choose not to redeem
the notes early on any Redemption Date, in our sole discretion. We may choose
to redeem the notes early, for example, if U.S. interest rates decrease significantly or if
the volatility of U.S. interest rates decreases significantly. If we redeem the
notes early, your return may be less than the yield that the notes would have
earned if they had been held to maturity and you may not be able to reinvest
your funds at the same rate as provided by the notes.
- THE
SPREAD WILL BE AFFECTED BY A NUMBER OF FACTORS The amount of
interest, if any, payable on notes will depend primarily on the CMS Rates and the
Spread on the applicable Determination Dates. A number of factors can affect
the Spread by causing changes in the relative values of the CMS Rates including,
but not limited to:
- changes in, or
perceptions, about future CMS Rates;
- general economic
conditions;
- prevailing interest
rates; and
- policies of the
Federal Reserve Board regarding interest rates.
These and other
factors may have a negative impact on the payment of interest on the notes and
on the value of the notes in the secondary market.
- THE METHOD OF
DETERMINING THE VARIABLE INTEREST RATE FOR ANY INTEREST PERIOD MAY NOT DIRECTLY
CORRELATE WITH THE ACTUAL CMS RATES The determination
of the Interest Rate payable for any Interest Period (other than the Initial
Interest Periods) will be based on the Spread, but it will not directly
correlate with actual CMS Rates. In addition, the Interest Rate applicable to the
notes during any Interest Period will not be greater than the Maximum Interest
Rate of 9.00% per annum or less than the Minimum Interest Rate of 0.00% per
annum. We will use the CMS Rates on each Determination Date to determine the Spread on
such Determination Date, which in turn will be used to determine the Interest
Rate for the Interest Period corresponding to such Determination Date,
regardless of what the actual CMS Rates and differences between the CMS Rates are for the
calendar days during such Interest Period that are not Determination Dates.
- THE
CMS RATES MAY
BE VOLATILE The CMS Rates are subject to volatility due to a variety of factors
affecting interest rates generally, including but not limited to:
- sentiment regarding
underlying strength in the U.S. and global economies;
- expectation
regarding the level of price inflation;
- sentiment regarding
credit quality in U.S. and global credit markets;
- central bank policy
regarding interest rates; and
- performance of
capital markets.
Increases or
decreases in the CMS Rates could result in the corresponding Spread decreasing
or being negative and thus in the reduction of interest payable, if any, on the
notes.
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JPMorgan
Structured Investments
Callable Leveraged Capped
Floating Rate Notes Linked to the Spread Between the 10-Year U.S. Dollar
Constant Maturity Swap Rate and the 2-Year U.S. Dollar Constant Maturity Swap
Rate
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TS-3 |
- CERTAIN BUILT-IN
COSTS ARE LIKELY TO ADVERSELY AFFECT THE VALUE OF THE NOTES PRIOR TO
MATURITY While the payment
at maturity described in this term sheet is based on the full principal amount
of your notes, the original issue price of the notes includes the agents
commission and the estimated cost of hedging our obligations under the notes.
As a result, and as a general matter, the price, if any, at which JPMSI 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 secondary market
price will also be affected by a number of factors aside from the agents
commission and hedging costs, including those set forth under Many Economic
and Market Factors Will Impact 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.
- LACK OF LIQUIDITY The notes will not be listed on
any securities exchange. JPMSI 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 JPMSI is willing to buy the notes.
- MANY ECONOMIC AND MARKET FACTORS WILL
IMPACT THE VALUE OF THE NOTES In addition to the
CMS Rates 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 but not limited
to:
- the expected
volatility of the CMS Rates;
- the Spread;
- the time to maturity
of the notes;
- interest and yield
rates in the market generally, as well as the volatility of those rates;
- the likelihood, or
expectation, that the notes will be redeemed by us, based on prevailing market
interest rates or otherwise;
- a variety of
economic, financial, political, regulatory and judicial events; and
- our
creditworthiness, including actual or anticipated downgrades in our credit
ratings.
|
JPMorgan
Structured Investments
Callable Leveraged Capped
Floating Rate Notes Linked to the Spread Between the 10-Year U.S. Dollar
Constant Maturity Swap Rate and the 2-Year U.S. Dollar Constant Maturity Swap
Rate
|
TS-4 |
Hypothetical Examples of Calculation of the Interest
Rate for an Interest Period
The following
examples illustrate how to calculate the Interest Payment for an Interest
Period (other than the Initial Interest Periods). The hypothetical Reference
Rates, Spreads and Interest Rates set forth in the following examples are for
illustrative purposes only and may not be the actual Reference Rates, Spreads
or Interest Rates for any Interest Period applicable to a purchaser of the
notes. The numbers appearing in the following examples have been rounded for
ease of analysis.
Example 1: On the
applicable Determination Date, Reference Rate 1 is 4.50% and Reference Rate 2
is 3.70%. Because Reference Rate 1 (4.50%) is greater than Reference Rate 2
(3.70%), the Spread is positive and is equal to 0.80%. Accordingly, the
Interest Rate is calculated as follows:
4
× (4.50% - 3.70%) = 3.20% per annum
The quarterly
interest payment per $1,000 principal amount note is calculated as follows:
$1,000 × 3.20% × (90/360) = $8.00
Example 2: On the
applicable Determination Date, Reference Rate 1 is 12.00% and Reference Rate 2
is 1.50%. Because Reference
Rate 1 (12.00%) is greater than Reference Rate 2 (1.50%), the Spread is
positive and is equal to 10.50%. Because the Spread multiplied by the Leverage
Factor of 4 is greater than the Maximum Interest Rate of 9.00% per annum, the
Interest Rate is equal to the Maximum Interest Rate of 9.00% per annum.
The quarterly
interest payment per $1,000 principal amount note is calculated as follows:
$1,000 × 9.00% × (90/360) = $22.50
Example 3: On the
applicable Determination Date, Reference Rate 1 is 4.00% and Reference Rate 2
is 4.50%. Because Reference Rate 1 (4.00%) is less than Reference Rate 2 (4.50%),
the Spread is negative and equal to -0.50%. Because the Spread multiplied by
the Leverage Factor of 4 is less than the Minimum Interest Rate of 0.00% per
annum, the Interest Rate is equal to the Minimum Interest Rate of 0.00% per
annum, and you will not receive any Interest for such Interest Period.
Historical
Information
The following graphs
set forth the daily historical performance of the CMS Rates and the
Spread from January 3, 1995 through July 16, 2010. We obtained the rates used to construct
the graph below from Bloomberg Financial Markets. We make no representation or
warranty as to the accuracy or completeness of the information obtained from
Bloomberg Financial Markets.
The 10-Year U.S.
Dollar Constant Maturity Swap Rate, as appeared on Reuters page ISDAFIX1 on July 16, 2010 was 2.9280%. The
2-Year U.S. Dollar Constant Maturity Swap Rate, as appeared on Reuters page
ISDAFIX1 on July 16, 2010 was 0.8226%. The Spread on July 16, 2010 was 2.1054%.
The CMS Rates and the
Spread data in the following graphs were obtained from Bloomberg Financial
Markets at approximately 3:30 p.m. on the relevant dates and may not be
indicative of the Spread, which is determined on any date of determination by
reference to the CMS Rates published on Reuters page "ISDAFIX1" at
approximately 11:00 a.m., New York City time. The historical CMS Rates and the
Spread should not be taken as an indication of future performance, and no
assurance can be given as to the CMS Rates or the Spread on any Determination
Date. We cannot give you assurance that the performance of the CMS Rates and the
Spread will result in any positive interest payments in any Interest Period
subsequent to the final Initial Interest Period.
|
JPMorgan
Structured Investments
Callable Leveraged Capped
Floating Rate Notes Linked to the Spread Between the 10-Year U.S. Dollar
Constant Maturity Swap Rate and the 2-Year U.S. Dollar Constant Maturity Swap
Rate
|
TS-5 |
Supplemental
Plan of Distribution (Conflicts of Interest)
We own, directly or indirectly, all of the
outstanding equity securities of JPMSI, the agent for this offering. The net
proceeds received from the sale of notes will be used, in part, by JPMSI or one
of its affiliates in connection with hedging our obligations under the notes.
In accordance with NASD Rule 2720, JPMSI may not make sales in this offering to
any of its discretionary accounts without the prior written approval of the
customer.
|
JPMorgan
Structured Investments
Callable Leveraged Capped
Floating Rate Notes Linked to the Spread Between the 10-Year U.S. Dollar
Constant Maturity Swap Rate and the 2-Year U.S. Dollar Constant Maturity Swap
Rate
|
TS-6 |