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
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Term Sheet
Product Supplement No. 192-A-II
Registration Statement No. 333-155535
Dated December 21, 2010; Rule 433
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Structured
Investments
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$
3.50% (equivalent to 7.00% per annum) Callable Yield Notes due June 29, 2011 Linked
to the Lesser Performing of the S&P 500® Index and the United
States Oil Fund, LP
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General
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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.
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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.
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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.
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Senior unsecured obligations of JPMorgan
Chase & Co. maturing June
29, 2011*
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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
Key Terms
Underlyings:
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The S&P 500® Index (the Index) and the United
States Oil Fund, LP (the Fund) (each an Underlying, and collectively, the
Underlyings)
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Interest Rate:
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3.50% (equivalent to 7.00%
per annum) over the term of the notes, paid monthly and calculated on a 30/360
basis.
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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:
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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)
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Pricing Date:
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On or about December 23, 2010
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Settlement Date:
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On or about December 29, 2010
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Observation Date*:
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June 24, 2011
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Maturity Date*:
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June 29, 2011
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CUSIP:
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48124A6C6
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Monitoring Period:
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The period from the Pricing Date to and including the
Observation Date
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Interest Payment Dates:
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Interest on the notes will be payable
monthly in arrears on the 29th calendar day of each month, except for the
monthly interest payment due in February 2011, which will be payable on
February 28, 2011 (each such day, an Interest Payment Date), commencing January
31, 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.
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Payment at Maturity:
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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:
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(a) the Ending Underlying Level of any
Underlying is less than the Starting Underlying Level of such Underlying; and |
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(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:
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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.
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Underlying Return:
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With respect to each Underlying, the Underlying Return is
calculated as follows:
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Ending
Underlying Level Starting Underlying Level
Starting Underlying Level |
Optional Call:
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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 $1,000 plus any accrued and unpaid
interest to but excluding the Optional Call Date. If we intend to call your
notes, we will deliver notice to DTC at
least five business days before the Optional Call Date.
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Optional Call Date*:
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March 29, 2011
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Additional Key Terms:
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See Additional Key Terms on the next page.
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*
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Subject
to postponement in the event of a market disruption event and as described
under Description of Notes Payment at Maturity and Description of Notes
Payment upon Optional Call, as applicable, in the accompanying product
supplement no. 192-A-II
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Investing in the Callable Yield Notes
involves a number of risks. See Risk Factors beginning on page PS-10 of the
accompanying product supplement no. 192-A-II and Selected Risk Considerations
beginning on page TS-3 of this term sheet.
Neither the SEC nor any state
securities commission has approved or disapproved of the notes or passed upon
the accuracy or the adequacy of this term sheet or the accompanying prospectus
supplement and prospectus. Any representation to the contrary is a criminal
offense.
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Price to Public (1)
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Fees and Commissions (2)
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Proceeds to Us
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Per note
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$
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$
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$
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Total
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$
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$
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$
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(1)
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The
price to the public includes the estimated cost of hedging our obligations
under the notes through one or more of our affiliates.
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(2)
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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 $24.50 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 $24.50 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.
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The notes
are not bank deposits and are not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency, nor are they
obligations of, or guaranteed by, a bank.
December 21, 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:
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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.
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Ending Underlying Level:
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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.
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Share Adjustment Factor:
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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.
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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 Return of the S&P 500® Index and the United
States Oil Fund, LP
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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 29th calendar day of each month, except for
the monthly interest payment due in February 2011, which will be payable on
February 28, 2011 (each such day, an Interest Payment Date), commencing January
31, 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 holders
of
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JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P 500® Index and the United States Oil Fund, LP
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TS-1 |
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 29, 2011, but due to January 29, 2011 being a Saturday, payment
of interest with respect to that Interest Payment Date will be made on January 31, 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
December
20, 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.
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JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P 500® Index and the United States Oil Fund, LP
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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
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JPMorgan
Structured Investments
Callable Yield Notes Linked to the Lesser Performing of the S&P 500® Index and the United States Oil Fund, LP
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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. If the notes are not called and a Trigger Event has occurred, 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.
|
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 PRICE OF
CRUDE OIL MAY CHANGE UNPREDICTABLY AND AFFECT THE PRICE OF THE FUND AND THE
VALUE OF 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 December 17, 2010 and the United States Oil Fund, LP from April 14, 2006 through December
17, 2010. The Index closing
level of the S&P 500® Index on December 20, 2010 was 1247.08. The closing price of one share of the United States
Oil Fund, LP on December 20,
2010 was $38.05.
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 1250 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
|
|
2250.00
|
80.00%
|
3.50%
|
$1,035.00
|
3.50%
|
$1,035.00
|
2062.50
|
65.00%
|
3.50%
|
$1,035.00
|
3.50%
|
$1,035.00
|
1875.00
|
50.00%
|
3.50%
|
$1,035.00
|
3.50%
|
$1,035.00
|
1750.00
|
40.00%
|
3.50%
|
$1,035.00
|
3.50%
|
$1,035.00
|
1625.00
|
30.00%
|
3.50%
|
$1,035.00
|
3.50%
|
$1,035.00
|
1500.00
|
20.00%
|
3.50%
|
$1,035.00
|
3.50%
|
$1,035.00
|
1375.00
|
10.00%
|
3.50%
|
$1,035.00
|
3.50%
|
$1,035.00
|
1312.50
|
5.00%
|
3.50%
|
$1,035.00
|
3.50%
|
$1,035.00
|
1250.00
|
0.00%
|
3.50%
|
$1,035.00
|
3.50%
|
$1,035.00
|
1187.50
|
-5.00%
|
3.50%
|
$1,035.00
|
-1.50%
|
$985.00
|
1125.00
|
-10.00%
|
3.50%
|
$1,035.00
|
-6.50%
|
$935.00
|
1000.00
|
-20.00%
|
3.50%
|
$1,035.00
|
-16.50%
|
$835.00
|
937.50
|
-25.00%
|
3.50%
|
$1,035.00
|
-21.50%
|
$785.00
|
875.00
|
-30.00%
|
N/A
|
N/A
|
-26.50%
|
$735.00
|
750.00
|
-40.00%
|
N/A
|
N/A
|
-36.50%
|
$635.00
|
625.00
|
-50.00%
|
N/A
|
N/A
|
-46.50%
|
$535.00
|
500.00
|
-60.00%
|
N/A
|
N/A
|
-56.50%
|
$435.00
|
375.00
|
-70.00%
|
N/A
|
N/A
|
-66.50%
|
$335.00
|
250.00
|
-80.00%
|
N/A
|
N/A
|
-76.50%
|
$235.00
|
125.00
|
-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 1250 to an Ending
Underlying Level of 1312.50. Because
the Ending Underlying Level of the Lesser Performing Underlying of 1312.50 is
greater than its Starting Underlying Level of 1250, 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 1250 to an Ending Underlying Level of 1000. Even though the Ending Underlying Level of the Lesser
Performing Underlying of 1000 is less than its Starting Underlying Level of 1250,
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 1250 to an Ending Underlying Level of 1000. Because a Trigger Event has occurred and the Ending
Underlying Level of the Lesser Performing Underlying of 1000 is less than its
Starting Underlying Level of 1250, 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 1250 to an Ending Underlying Level of 750. Because a Trigger Event has occurred and the Ending
Underlying Level of the Lesser Performing Underlying of 750 is less than its
Starting Underlying Level of 1250, 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 1250 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 1250, 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 |