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 June 4, 2010; Rule 433
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Structured
Investments
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$
4.50%*-5.00%* (equivalent to 9.00%-10.00% per annum) Callable Yield Notes due December 16, 2010 Linked to the Lesser Performing of the S&P 500® Index
and the United States Oil Fund, LP
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General
- The notes are designed for investors
who seek a higher interest rate than the current yield on a conventional debt
security with the same maturity issued by us or an issuer with a comparable
credit rating. Investors should be willing to forgo the potential to
participate in the appreciation of either the S&P 500® Index or
the United States Oil Fund, LP and to forgo dividend payments. Investors
should be willing to assume the risk that the notes may be called and the
investors will receive less interest than if the notes were not called and the
risk that, if the notes are not called, the investors may lose some or all of
their principal at maturity.
- The notes will pay between 4.50%* and 5.00%*
(equivalent to between 9.00% and 10.00% 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 during the Monitoring Period, as described
below. Any payment on the notes is subject to the credit risk of JPMorgan
Chase & Co.
- The notes may be called, in whole but
not in part, at our option (such an event, an Optional Call) on the Optional
Call Date set forth below. If the notes are called pursuant to an Optional
Call, payment on the Optional Call Date for each $1,000 principal amount note
will be a cash payment of $1,000, plus any accrued and unpaid interest, as
described below.
- Senior unsecured obligations of
JPMorgan Chase & Co. maturing December 16, 2010*
- The payment at maturity is not
linked to a basket composed of the Underlyings. The payment at maturity is
linked to the performance of each of the Underlyings individually, as described
below.
- Minimum denominations of $1,000 and
integral multiples thereof
Key Terms
Underlyings:
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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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Between 4.50%* and 5.00%*
(equivalent to between 9.00% and 10.00% per annum) over the term of the notes,
paid monthly and calculated on a 30/360 basis
*The actual interest rate will be determined on the pricing
date and will not be less than 4.50% or greater than 5.00% over the term of
the notes.
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.
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Protection Amount:
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With respect to each underlying, an amount that represents
at least 30.00% 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 June 11, 2010
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Settlement Date:
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On or about June 16, 2010
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Observation Date**:
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December 13, 2010
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Maturity Date**:
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December 16, 2010
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CUSIP:
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48124ATE7
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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 16th calendar day of each month (each such date, an
Interest Payment Date), commencing July 16, 2010, 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;
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and |
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(b) |
a Trigger Event has occurred. |
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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.
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Trigger Event:
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A Trigger Event occurs if, on any
trading day during the Monitoring Period, the closing level or closing price,
as applicable, of any Underlying falls below 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:
Ending
Underlying Level Starting Underlying Level
Starting Underlying Level
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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 $1,000 plus any accrued and unpaid
interest to but excluding the Optional Call Date. If we intend to call your
notes, we will deliver notice to DTC at least five business days before the
Optional Call Date.
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Optional Call Date**:
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September 16, 2010
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Additional Key Terms:
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See Additional Key Terms on the next page.
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Subject to postponement in the
event of a market disruption event and as described under Description of Notes
Payment at Maturity and Description of Notes Payment upon Optional Call,
as applicable, in the accompanying product supplement no. 192-A-II |
Investing in the Callable Yield Notes
involves a number of risks. See Risk Factors beginning on page PS-10 of the
accompanying product supplement no. 192-A-II and Selected Risk Considerations
beginning on page TS-3 of this term sheet.
Neither the SEC nor any state
securities commission has approved or disapproved of the notes or passed upon
the accuracy or the adequacy of this term sheet or the accompanying prospectus
supplement and prospectus. Any representation to the contrary is a criminal offense.
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Price to Public (1)
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Fees and Commissions (2)
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Proceeds to Us
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Per note
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$
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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 Inc., which we refer to as
JPMSI, acting as agent for JPMorgan Chase & Co., would receive a
commission of approximately $32.50 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. 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 $32.50
and will depend on market conditions on the pricing date. In no event will
the commission received by JPMSI, which includes concessions and other
amounts that may be allowed to other dealers, exceed $37.50 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.
June 4, 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 or our refers
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 between
4.50% and 5.00% (equivalent to between 9.00% and 10.00% 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. The actual interest rate will be determined on the pricing date
and will be between 4.50% and 5.00% (equivalent to between 9.00% and 10.00% per
annum). 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.
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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 |
- MONTHLY INTEREST PAYMENTS The notes offer monthly
interest payments at a rate of between 4.50% and 5.00% (equivalent to between 9.00% and 10.00% per annum) over the term of the
notes. Interest will be payable monthly in arrears on the 16th calendar day of
each month (each such date, an Interest Payment Date), commencing July 16,
2010, 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
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 due in October 2010 will be payable on October 18, 2010.
- 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 trading day during the
Monitoring Period, the closing level or closing price, as applicable, of any
Underlying falls below the Starting Underlying Level of such Underlying by more
than the applicable Protection Amount. However, if the notes are not called
and if a Trigger Event has occurred, you could lose the entire principal amount
of your notes.
- DIVERSIFICATION 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
June 2, 2010, and assuming an Interest Rate of 9% per annum, we would have
treated approximately 7.22% 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 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 at a rate of up to 30%
unless they have submitted a properly completed IRS Form W-8BEN or otherwise
satisfied the applicable documentation requirements. 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 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 Underlyings. 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
TRADING DAY DURING THE TERM OF THE NOTES If, on
any trading day during the Monitoring Period, the closing level or closing
price, as applicable, of either Underlying falls below 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.
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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 |
- 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 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 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
trading day during the Monitoring Period and the notes are held to maturity.
If the notes are not called and a Trigger Event has occurred, the protection
provided by the Protection Amount of each Underlying will be eliminated and you
will be fully exposed at maturity to any decline in the value of the Lesser
Performing Underlying.
- VOLATILITY RISK Greater expected volatility with
respect to an Underlying indicates a greater likelihood as of the pricing date
that such Underlying could close below its Starting Underlying Value by more
than the applicable Protection Amount on any trading 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 trading 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 commodities and related
contracts, weather, and agricultural, trade, fiscal and exchange control
policies. Many commodities are also highly cyclical. 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 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 linked closely to 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 the Organization of Oil and Petroleum Exporting Countries 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. 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.
- 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 or
held by 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 or 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 IMPACT THE VALUE OF THE NOTES In
addition to the level and price of the Underlyings on any trading 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 May 28, 2010 and the
United States Oil Fund, LP from April 14, 2006 through May 28, 2010. The Index
closing level of the S&P 500® Index on June 3, 2010 was 1102.83.
The closing price of one share of the United States Oil Fund, LP on June 3,
2010 was $34.26.
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 trading 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
note 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 1100 and an Interest Rate of 4.75%
(the midpoint of the range of 4.50% and 5.00%
and equivalent to 9.50% per annum) over the term of the notes. If the actual Interest Rate as determined on the pricing
date is less than 4.75% (equivalent to 9.50% per annum), your total return and
total payment over the term of the notes will be less than the amounts
indicated below. In addition, 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 Note
|
Note Total Return
|
Total Payments over the
Term of the Note
|
|
1980.00
|
80.00%
|
4.75%
|
$1,047.50
|
4.75%
|
$1,047.50
|
1815.00
|
65.00%
|
4.75%
|
$1,047.50
|
4.75%
|
$1,047.50
|
1650.00
|
50.00%
|
4.75%
|
$1,047.50
|
4.75%
|
$1,047.50
|
1540.00
|
40.00%
|
4.75%
|
$1,047.50
|
4.75%
|
$1,047.50
|
1430.00
|
30.00%
|
4.75%
|
$1,047.50
|
4.75%
|
$1,047.50
|
1320.00
|
20.00%
|
4.75%
|
$1,047.50
|
4.75%
|
$1,047.50
|
1210.00
|
10.00%
|
4.75%
|
$1,047.50
|
4.75%
|
$1,047.50
|
1155.00
|
5.00%
|
4.75%
|
$1,047.50
|
4.75%
|
$1,047.50
|
1100.00
|
0.00%
|
4.75%
|
$1,047.50
|
4.75%
|
$1,047.50
|
1045.00
|
-5.00%
|
4.75%
|
$1,047.50
|
-0.25%
|
$997.50
|
990.00
|
-10.00%
|
4.75%
|
$1,047.50
|
-5.25%
|
$947.50
|
880.00
|
-20.00%
|
4.75%
|
$1,047.50
|
-15.25%
|
$847.50
|
770.00
|
-30.00%
|
4.75%
|
$1,047.50
|
-25.25%
|
$747.50
|
660.00
|
-40.00%
|
N/A
|
N/A
|
-35.25%
|
$647.50
|
550.00
|
-50.00%
|
N/A
|
N/A
|
-45.25%
|
$547.50
|
440.00
|
-60.00%
|
N/A
|
N/A
|
-55.25%
|
$447.50
|
330.00
|
-70.00%
|
N/A
|
N/A
|
-65.25%
|
$347.50
|
220.00
|
-80.00%
|
N/A
|
N/A
|
-75.25%
|
$247.50
|
110.00
|
-90.00%
|
N/A
|
N/A
|
-85.25%
|
$147.50
|
0.00
|
-100.00%
|
N/A
|
N/A
|
-95.25%
|
$47.50
|
|
(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 30% on any trading 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 1100 to an Ending Underlying
Level of 1155. Because the Ending
Underlying Level of the Lesser Performing Underlying of 1155 is greater than
its Starting Underlying Level of 1100, regardless of whether a Trigger Event
has occurred, the investor receives total payments of $1,047.50 per $1,000
principal amount note over the term of the note, consisting of interest
payments of $47.50 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 1100 to an Ending Underlying Level of 880. Even though the Ending Underlying Level of the Lesser
Performing Underlying of 880 is less than its Starting Underlying Level of
1100, because a Trigger Event has not occurred, the investor receives total payments of $1,047.50 per $1,000 principal
amount note over the term of the note, consisting of interest payments of $47.50
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 1100 to an Ending Underlying Level of 880. Because a Trigger Event has occurred and the Ending
Underlying Level of the Lesser Performing Underlying of 880 is less than its
Starting Underlying Level of 1100, the
investor receives total payments of $847.50 per $1,000 principal amount note
over the term of the note, consisting of interest payments of $47.50 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 x -20%)] +
$47.50 = $847.50
Example 4: A Trigger Event has occurred and the level
of the Lesser Performing Underlying decreases from the Starting Underlying
Level of 1100 to an Ending Underlying Level of 660. Because a Trigger Event has occurred and the Ending
Underlying Level of the Lesser Performing Underlying of 660 is less than its
Starting Underlying Level of 1100, the
investor receives total payments of $647.50 per $1,000 principal amount note
over the term of the note, consisting of interest payments of $47.50 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 x -40%)] +
$47.50 = $647.50
Example 5: A Trigger Event has occurred and the level
of the Lesser Performing Underlying decreases from the Starting Underlying
Level of 1100 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 1100, the
investor receives total payments of $47.50 per $1,000 principal amount note
over the term of the note, consisting solely of interest payments of $47.50 per
$1,000 principal amount note over the term of the notes, calculated as follows:
[$1,000 + ($1,000 x -100%)] + $47.50= $47.50
|
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 |