Term sheet
To prospectus dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 186-A-I dated March 22, 2010
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Term Sheet to
Product Supplement 186-A-I
Registration Statement No. 333-155535
Dated May 3, 2010; Rule 433
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Structured
Investments
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$
1.80% per annum Principal Protected
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD) due May 12, 2015
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General
- Senior unsecured obligations of
JPMorgan Chase & Co. maturing May 12, 2015*
- Cash payment at maturity of principal
plus the Additional Amount, as described below
- The notes are designed for investors
who seek annual interest payments at a rate of 1.80% per annum and leveraged exposure
to any appreciation of the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)
in excess of a percentage that will be determined on the pricing date and that
will not be greater than 6.67% over the term of the notes. Investors should be
willing to forgo interest and dividend payments while seeking full principal
protection at maturity. Any payment on the notes is subject to the credit
risk of JPMorgan Chase & Co.
- Investing in the notes is not
equivalent to investing in the J.P. Morgan Alternative Index Multi-Strategy 5
(USD), any of the Strategies or any of the assets underlying the Strategies.
- Minimum denominations of $1,000 and
integral multiples thereof
- The notes are expected to price on or about May 6, 2010 and
are expected to settle on or about May 11, 2010.
Key Terms
Index:
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J.P. Morgan Alternative Index
Multi-Strategy 5 (USD) (the Multi-Strategy Index or the Index)
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Interest Rate:
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1.80% per annum
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Interest Payment Dates:
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Interest on the notes will be
payable annually in arrears on May 11 of each year, except for the final
interest payment, which will be payable on the Maturity Date (each such date,
an Interest Payment Date), commencing May 11, 2011, to and including the
Maturity Date. See Selected Purchase Considerations Annual Interest
Payments in this term sheet for more information.
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Payment at Maturity:
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At maturity, you will receive a
cash payment, for each $1,000 principal amount note, of $1,000 plus the
Additional Amount, which may be zero.
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Additional Amount:
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The Additional Amount
per $1,000 principal amount note paid at maturity will equal $1,000 x [(the
Index Return x the Participation Rate) Threshold Percentage]; provided
that the Additional Amount will not be less than zero.
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Participation Rate:
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At least 150%. The actual
Participation Rate will be determined on the pricing date and will not be
less than 150%.
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Threshold Percentage:
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10%. Assuming the Participation
Rate is 150%, the Additional Amount will be zero unless the Index has
appreciated by more than approximately 6.67%.
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Index Return:
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Ending Index Value Initial Index Value
Initial Index Value
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Initial Index Value:
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The Index closing value on the
pricing date, which is expected to be on or about May 6, 2010
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Ending Index Value:
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The Index closing value on the
Observation Date
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Observation Date:
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May 7, 2015*
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Maturity Date:
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May 12, 2015*
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CUSIP:
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48124ANY9
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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 in the accompanying product
supplement no. 186-A-I.
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Subject to the
impact of a commodity hedging disruption event as described under General
Terms of Notes Market Disruption Events and General Terms of Notes
Consequences of a Commodity Hedging Disruption Event in the accompanying product
supplement no. 186-A-I. In the event of a commodity hedging disruption
event, we have the right, but not the obligation, to cause the note
calculation agent to determine on the commodity hedging disruption date the
value of the Additional Amount payable at maturity. Under these
circumstances, the value of the Additional Amount payable at maturity will be
determined prior to, and without regard to the level of the Index on, the
Observation Date.
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Investing in the Principal
Protected Notes involves a number of risks. See Risk Factors beginning on
page PS-8 of the accompanying product supplement no. 186-A-I and Selected Risk
Considerations beginning on page TS-4 of this term sheet.
JPMorgan Chase & Co. has filed a
registration statement (including a prospectus) with the Securities and
Exchange Commission, or SEC, for the offering to which this 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. 186-A-I and this term sheet if you so
request by calling toll-free 866-535-9248.
You may revoke your offer to purchase
the notes at any time prior to the time at which we accept such offer by
notifying the applicable agent. We reserve the right to change the terms of,
or reject any offer to purchase, the notes prior to their issuance. In the
event of any changes to the terms of the notes, we will notify you and you will
be asked to accept such changes in connection with your purchase. You may also
choose to reject such changes in which case we may reject your offer to
purchase.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or passed upon the accuracy
or the adequacy of this term sheet 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 $20.00 per $1,000 principal amount note and would use a portion
of that commission to allow selling concessions to other dealers of
approximately $1.00 per $1,000 principal amount note. This commission
includes the projected profits that our affiliates expect to realize in
consideration for assuming risks inherent in hedging our obligations under
the notes. The actual commission received by JPMSI may be more or less than
$20.00 and will depend on market conditions on the pricing date. In no event
will the commission received by JPMSI, which includes concessions to be
allowed to other dealers, exceed $25.00 per $1,000 principal amount note. See
Plan of Distribution (Conflicts of Interest) beginning on page PS-153 of
the accompanying product supplement no. 186-A-I.
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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.
May 3, 2010
Additional Terms Specific to the
Notes
You should read this term sheet
together with the prospectus dated November 21, 2008, as supplemented by the
prospectus supplement dated November 21, 2008 relating to our Series E
medium-term notes of which these notes are a part, and the more detailed
information contained in product supplement no. 186-A-I dated March 22, 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. 186-A-I, as the notes involve risks not associated with
conventional debt securities. We urge you to consult your investment, legal,
tax, accounting and other advisers before you invest in the notes.
You may access these documents on the
SEC website at www.sec.gov as follows (or if such address has
changed, by reviewing our filings for the relevant date on the SEC website):
You may access additional information
regarding The J.P. Morgan Alternative Index Multi-Strategy 5 (USD) in the
Strategy Guide at the following URL:
http://www.sec.gov/Archives/edgar/data/19617/000095010310000682/crt_fwp.pdf
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.
The J.P. Morgan Alternative Index
Multi-Strategy 5 (USD)
The J.P. Morgan Alternative Index Multi-Strategy 5
(USD), which we refer to as Multi-Strategy Index or the Index, was
developed and is maintained and calculated by J.P. Morgan Securities Ltd.
(which we refer to as JPMSL or the index calculation agent), one of our
affiliates. The Index is a notional rules-based proprietary index that tracks
the return of twenty-six alternative investment strategies (each of which we
refer to as a Strategy). The Index is based on the theory that returns may
be generated from capturing inefficiencies or trends in market prices of
multiple asset classes. The Index is not intended to track a single asset
class or outperform any particular asset class, benchmark or investment
strategy. Instead, the Index employs several alternative investment strategies
covering different styles and asset classes, in order to seek to generate
positive performance with a low correlation to traditional asset classes. The
Index also seeks to cap its volatility to a target volatility of 5% or less.
The Investment Strategies and Asset Classes
Represented in the Index
Each of the Strategies can be categorized based on
the underlying investment strategy employed and the asset class covered, as
follows:
- Underlying investment strategy employed:
- Momentum strategy: which seeks to capitalize on the
observed tendency of many markets to trend either up or down for sustained time
periods;
- Carry strategy: which seeks to capitalize on the
value differential between certain assets and is typically implemented by
notionally investing in an asset that is on a relative basis lower priced or
higher yielding and selling an asset that on a relative basis is higher priced
or lower yielding; or
- Satellite strategy: which consists of one of two
types of strategies that fall outside of the momentum and carry styles, namely,
mean reversion and short volatility strategies.
- The mean reversion strategies seek to capitalize on
the view that over certain periods of time, markets are cyclical meaning that
an upward trend in the level of certain assets is usually followed by a
downward trend and vice versa.
- The short volatility strategy aims to exploit the
observed tendency of the implied volatility of an equity index to be higher
than the volatility experienced by the index.
- Asset class: equity, interest rates,
currencies or commodities.
Each Strategy is a notional
rules-based proprietary index developed and maintained by JPMSL, and is based,
in turn, on a number of underlying indices or assets, each of we refer to as an
Underlying Constituent.
Index Rebalancings and Weightings
The Index rebalances monthly a synthetic portfolio composed of the
Strategies. The Index rebalancing is based on a risk-budgeting approach to
asset allocation in which each Strategy is assigned a fixed percentage of the
target volatility of 5%. The Index assigns a preliminary weight to each
Strategy based upon the constituents daily maximum one-year volatility
measured over the previous five years. The higher the volatility has been for
a Strategy, the lower the preliminary weight assigned; conversely, the lower
the volatility has been, the higher the preliminary weight. If the maximum
one-year volatility of the synthetic portfolio (based on these preliminary
weights) measured over the previous five years is greater than the target
volatility of 5%, all the preliminary weights are scaled down accordingly.
However, if the portfolio volatility is lower than the target volatility, all
the preliminary weights are scaled up, subject to a maximum total weight of
200%. As the maximum total weight is 200%, no individual weight can exceed
200%.
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JPMorgan
Structured Investments
Principal Protected Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)
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TS-1 |
Calculation of the level of the Multi-Strategy Index
The level of the Index on any day reflects the sum of
the weighted returns of the Strategies since the immediately preceding
rebalancing date, adjusted for the change in the applicable currency exchange
rate for each Strategy and the deduction of an adjustment factor of 0.80% per
annum. The deduction of the adjustment factor of 0.80% per annum may have a
considerable impact on the level of the Index. In addition, adjustments are
made to the levels of the Strategies to reflect notional trading costs related
to the Underlying Constituents of the relevant Strategy. The adjustment factor
of 0.80% per annum from the level of the Index does not reflect any notional
trading costs relating to the Strategies or any Underlying Constituents.
Strategies
The
twenty-six Strategies categorized under momentum, carry and satellite are
listed in Tables 1, 2 and 3 below, respectively.
Table 1
Investment
Strategy
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Asset Class
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Strategy*
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Momentum
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Equities
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US Equity Momentum
Strategy
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European Equity Momentum
Strategy
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Japan Equity Momentum Strategy
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Interest Rates
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Money Market Momentum US Strategy
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Money Market Momentum Europe Strategy
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Money Market Momentum Japan Strategy
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FX
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EURUSD FX Momentum
Strategy
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USDJPY FX Momentum
Strategy
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EURJPY FX Momentum
Strategy
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USDCAD FX Momentum
Strategy
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AUDUSD FX Momentum
Strategy
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EURGBP FX Momentum
Strategy
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Commodities
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Commodity Momentum Energy
Strategy
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Commodity Momentum
Non-Energy Strategy
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Table 2
Investment
Strategy
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Asset Class
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Strategy*
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Carry
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Equities
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Equity Value Carry
Strategy
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Equity Small Cap Carry
Strategy
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Interest Rates
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Bond 2Y Carry Long
Strategy
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Bond 10Y Carry Long
Strategy
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Bond 2Y Carry Long-Short
Strategy
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Bond 10Y Carry Long-Short
Strategy
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FX
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G10 FX Carry Strategy
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Commodities
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Commodity Carry
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JPMorgan
Structured Investments
Principal Protected Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)
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TS-2 |
Table 3
Investment
Strategy
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Asset Class
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Strategy*
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Satellite
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Equities
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Mean Reversion US Strategy
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Mean Reversion Europe Strategy
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Mean Reversion Japan Strategy
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Short Volatility Strategy
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* The words J.P. Morgan Alternative
Index precede the name of each Strategy but for the ease of display in the
above table, those words are not shown in the name of the Strategy.
See The J.P. Morgan
Alternative Index Multi-Strategy 5 (USD) and The J.P. Morgan Alternative
Index Multi-Strategy 5 (USD) The Strategies in the accompanying product supplement
no. 186-A-I for more information on the Index and the Strategies.
The Index is described as a
notional or synthetic portfolio or basket of assets because there is no
actual portfolio of assets to which any person is entitled or in which any
person has any ownership interest. The Index merely references certain assets,
the performance of which will be used as a reference point for calculating the
level of the Index.
The value of the Index is published
each trading day under the Bloomberg ticker symbol AIJPM5UE.
Selected Purchase Considerations
- PRESERVATION OF CAPITAL AT MATURITY You will receive at least 100% of
the principal amount of your notes if you hold the notes to maturity,
regardless of the performance of the Index. Because the notes are our senior
unsecured obligations, payment of any amount at maturity is subject to our
ability to pay our obligations as they become due.
- APPRECIATION POTENTIAL At maturity, in addition to your
principal, for each $1,000 principal amount note you will receive a payment
equal to $1,000 x [(the Index Return x the Participation Rate**) Threshold
Percentage], provided that this payment (the Additional Amount) will not
be less than zero. Assuming the Participation Rate is 150% and because the
Threshold Percentage is 10%, the Additional Amount will be zero unless the
Index has appreciated by more than approximately 6.67%.
** The Participation Rate will be determined on the pricing date and will not be
less than 150%.
- ANNUAL INTEREST PAYMENTS The notes offer annual interest
payments at a rate of 1.80% per annum over the term of the notes. Interest
will be payable annually in arrears on May 11 of each year, except for the
final interest payment, which will be payable on the Maturity Date (each such
date, an Interest Payment Date), commencing May 11, 2011, to and including
the Maturity Date, to the holders of record at the close of business on the
date 15 calendar days prior to the applicable Interest Payment Date. If an
Interest Payment Date is not a business day, payment will be made on the next
business day immediately following such day, but no additional interest will
accrue as a result of the delayed payment.
- RETURN LINKED TO A NOTIONAL DYNAMIC
BASKET THAT TRACKS THE RETURNS OF A PORTFOLIO OF A DIVERSE RANGE OF INVESTMENT
STRATEGIES AND ASSETS
The return on the notes is linked to the performance of the Multi-Strategy
Index. The Multi-Strategy Index references the value of a synthetic portfolio
of Strategies using three main underlying strategies and covering four asset
classes. The three main underlying strategies employed by the Multi-Strategy
Index are the momentum, carry and satellite investing strategies (the satellite
strategies consist of mean reversion strategies and a short volatility strategy).
The four asset classes covered by the Multi-Strategy Index are equity, interest
rates, currencies and commodities. For more information, please see The J.P.
Morgan Alternative Index Multi-Strategy 5 (USD) in this term sheet and the
accompanying product supplement no. 186-A-I.
- TAXED AS CONTINGENT PAYMENT DEBT
INSTRUMENTS You
should review carefully the section entitled Certain U.S. Federal Income Tax
Consequences in the accompanying product supplement no. 186-A-I. Subject to
the limitations described therein, in the opinion of our special tax counsel,
Davis Polk & Wardwell LLP, the notes will be treated for U.S. federal income tax purposes as contingent payment debt instruments. You generally
will be required to accrue taxable interest income in each year at a rate equal
to our comparable yield, and annual interest payments will not be subject to
additional tax upon receipt but will reduce the tax basis of your notes, as
described in the product supplement. Generally, amounts received at maturity
or earlier sale or exchange in excess of your adjusted basis will be treated as
additional interest income, while any loss will be treated as an ordinary loss
to the extent of all previous inclusions with respect to your notes, which to
that extent will be deductible against other income (e.g., employment
and interest income), with the balance treated as capital loss, which may be
subject to limitations. Special rules might apply if the Additional Amount is
determined prior to the Observation Date as a result of a commodity hedging
disruption event. You should consult your tax adviser concerning the
application of these rules. Purchasers who are not initial purchasers of notes
at their issue price should consult their tax advisers with respect to the tax
consequences of an investment in notes, including the treatment of the
difference, if any, between the basis in their notes and the notes adjusted
issue price.
The discussion in the preceding
paragraph, when read in combination with the section entitled Certain U.S.
Federal Income Tax Consequences in the accompanying product supplement,
constitutes the full opinion of Davis Polk & Wardwell LLP regarding the
material U.S. federal income tax consequences of owning and disposing of notes.
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JPMorgan
Structured Investments
Principal Protected Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)
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TS-3 |
- COMPARABLE YIELD AND PROJECTED
PAYMENT SCHEDULE We
will determine the comparable yield for the notes and will provide that
comparable yield, and the related projected payment schedule, in the pricing
supplement for the notes, which we will file with the SEC. If the notes had
priced on April 30, 2010 and we had determined the comparable yield on that
date, it would have been an annual rate of 3.52%, compounded annually. The
actual comparable yield that we will determine for the notes may be more or
less than 3.52%, and will depend upon a variety of factors, including actual
market conditions and our borrowing costs for debt instruments of comparable
maturities. Neither the comparable yield nor the projected payment schedule
constitutes a representation by us regarding the actual Additional Amount, if
any, that we will pay on the notes.
Selected Risk Considerations
An investment in the notes involves significant risks. Investing in the
notes is not equivalent to investing directly in the Strategies, the Underlying
Constituents, the securities, futures contracts or currencies underlying the
Strategies or the Underlying Constituents. These risks are explained in more
detail in the Risk Factors section of the accompanying product supplement no.
186-A-I dated March 22, 2010.
- MARKET RISK The return on the notes at
maturity is linked to the performance of the Index, and will depend on whether,
and the extent to which, the Index Return is positive. YOU WILL RECEIVE NO
MORE THAN THE FULL PRINCIPAL AMOUNT OF YOUR NOTES AT MATURITY IF THE INDEX
RETURN IS LESS THAN A PERCENTAGE THAT WILL BE DETERMINED ON THE PRICING DATE
AND THAT WILL NOT BE GREATER THAN 6.67%.
- THE NOTES MIGHT NOT PAY MORE THAN THE
PRINCIPAL AMOUNT AT MATURITY You may receive a lower payment at maturity than you would
have received if you had invested directly in the Strategies, the Underlying
Constituents, in any of the commodities whose futures contracts determine the
levels of the Underlying Constituents, or in any contracts relating to such
commodities for which there is an active secondary market. Assuming a
Participation Rate of 150%, if the Ending Index Value does not exceed the
Initial Index Value by more than approximately 6.67%, the Additional Amount
will be zero. This will be true even if the value of the Index was higher than
the Initial Index Value at some time during the life of the notes but falls
below the Initial Index Value on the Observation Date.
- THE THRESHOLD PERCENTAGE MAY REDUCE
YOUR PAYMENT AT MATURITY The Threshold Percentage of 10% will be deducted in the calculation
of the Additional Amount that you will receive at maturity. Assuming a
Participation Rate of 150%, even if the Index Return is positive, the
Additional Amount will be zero if the Index has not appreciated by more than
6.67%. In addition, even if you receive a positive Additional Amount at
maturity, the Additional Amount will be less than the amount you would have
received if the Threshold Percentage were not applicable.
- 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, 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 affect adversely the value of the notes.
- CERTAIN BUILT-IN COSTS ARE LIKELY TO
AFFECT ADVERSELY THE VALUE OF THE NOTES PRIOR TO MATURITY While the payment at maturity described in this term
sheet is based on the full principal amount of your notes, the original issue
price of the notes includes the agents commission and the estimated cost of
hedging our obligations under the notes. As a result, and as a general matter,
the price, if any, at which JPMSI will be willing to purchase notes from you in
secondary market transactions, if at all, will likely be lower than the
original issue price and any sale prior to the maturity date could result in a
substantial loss to you. This secondary market price will also be affected by
a number of factors aside from the agents commission and hedging costs,
including those set forth under Many Economic and Market Factors Will Affect
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.
- POTENTIAL CONFLICTS We and our affiliates play a
variety of roles in connection with the issuance of the notes, including acting
as note calculation agent the entity that, among other things, determines the
Index closing values to be used to determine your payment at maturity and
acting as index calculation agent and sponsor of the Index, the Strategies and
most of the Underlying Constituents and hedging our obligations under the
notes. In performing these duties, the economic interests of the note
calculation agent, index calculation agent, sponsor of the Multi-Strategy
Index, sponsor of the Strategies and other affiliates of ours are potentially
adverse to your interests as an investor in the notes.
- OUR AFFILIATE, J.P. MORGAN SECURITIES
LTD., OR JPMSL, IS THE INDEX CALCULATION AGENT AND MAY ADJUST THE INDEX IN A
WAY THAT AFFECTS ITS LEVEL JPMSL, one of our affiliates, acts as the index calculation agent and
sponsor of the Index, the Strategies and most of the Underlying Constituents
and is responsible for calculating and maintaining the Index, the Strategies
and these Underlying Constituents and developing the
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JPMorgan
Structured Investments
Principal Protected Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)
|
TS-4 |
guidelines and policies
governing their composition and calculation. The rules governing the Index,
the Strategies and these Underlying Constituents may be amended at any time by
JPMSL, in its sole discretion, and the rules also permit the use of discretion
by JPMSL in specific instances, such as the right to substitute another index
or asset as an Underlying Constituent or the right to remove a Strategy or an
Underlying Constituent. Unlike other indices, the maintenance of the Index,
the Strategies and these Underlying Constituents is not governed by an
independent committee. Although judgments, policies and determinations
concerning the Index, the Strategies and these Underlying Constituents are made
by JPMSL, JPMorgan Chase & Co., as the parent company of JPMSL, ultimately
controls JPMSL.
In addition, the policies and
judgments for which JPMSL is responsible could have an impact, positive or
negative, on the level of the Index and the value of your notes. JPMSL is
under no obligation to consider your interests as an investor in the notes.
Furthermore, the inclusion of the Strategies (and indirectly, these Underlying
Constituents) in the Index is not an investment recommendation by us or JPMSL
of the Strategies or these Underlying Constituents, or any of the securities,
futures contracts or other assets underlying the Strategies or these Underlying
Constituents.
- JPMSI AND ITS AFFILIATES MAY HAVE
PUBLISHED RESEARCH, EXPRESSED OPINIONS OR PROVIDED RECOMMENDATIONS THAT ARE
INCONSISTENT WITH INVESTING IN OR HOLDING THE NOTES. ANY SUCH RESEARCH,
OPINIONS, OR RECOMMENDATIONS COULD AFFECT THE MARKET VALUE OF THE NOTES JPMSI and its affiliates publish
research from time to time on financial markets and other matters that may
influence the value of the notes, or express opinions or provide
recommendations that are inconsistent with purchasing or holding the notes.
JPMSI and its affiliates may have published research or other opinions that
call into question the investment view implicit in an investment in the notes.
Any research, opinions or recommendations expressed by JPMSI or its affiliates
may not be consistent with each other and may be modified from time to time
without notice. Investors should make their own independent investigation of
the merits of investing in the notes and the Strategies and the securities, futures
contracts and currencies underlying the Strategies to which the notes are
linked.
- NO INTEREST OR DIVIDEND PAYMENTS OR
VOTING RIGHTS As a
holder of the notes, you will not receive any interest payments, and you will
not have voting rights or rights to receive cash dividends or other
distributions or other rights that holders of securities or futures contracts
underlying the Strategies would have.
- THE INDEX MAY NOT BE SUCCESSFUL AND
MAY NOT OUTPERFORM ANY ALTERNATIVE STRATEGY THAT MIGHT BE EMPLOYED The Index follows and is
constructed on twenty-six notional rules-based proprietary strategies that
operate on the basis of pre-determined rules. No assurance can be given that
any investment strategy or combination of investment strategies on which the
Index is based will be successful or that the Index will outperform any
alternative strategy that might be employed.
- THE TARGET VOLATILITY OF THE
MULTI-STRATEGY INDEX MAY NOT BE ACHIEVED The Multi-Strategy Index rebalances monthly by
assigning weights to the Strategies that are intended to achieve a target
volatility of up to 5%. However, because these weights are assigned based on
historical volatility of the Strategies and are subject to a maximum aggregate
and individual weight of 200%, the actual realized volatility of the
Multi-Strategy Index may be greater than or less than 5%, which may adversely
affect the level of the Multi-Strategy Index and the notes.
- THE REPORTED LEVELS OF THE
MULTI-STRATEGY INDEX AND MOST OF THE STRATEGIES WILL INCLUDE THE DEDUCTION OF
AN ADJUSTMENT FACTOR
One way in which the Multi-Strategy Index and most of the Strategies differ
from a typical index is that their daily reported levels include a deduction
from the aggregate values of their respective constituents of an adjustment
factor assessed at varying annual rates (0.80% per annum for the Multi-Strategy
Index and a range of adjustment factors depending on the Strategy). Each
adjustment factor is deducted daily. As a result of the deduction of these
multiple adjustment factors, the value of the Multi-Strategy Index will trail
the value of a hypothetical identically constituted synthetic portfolio from
which no such amounts are deducted.
- THE INDEX MAY NOT BE A FULLY
DIVERSIFIED PORTFOLIO
Diversification is generally considered to reduce the amount of risk associated
with generating returns. There can be no assurance that the Index, a synthetic
portfolio of Strategies, will be sufficiently diversified at any time.
- THE INDEX COMPRISES NOTIONAL ASSETS
AND LIABILITIES
The exposures to the Strategies and any of their Underlying Constituents are
purely notional and will exist solely in the records maintained by or on behalf
of the index calculation agent. There is no actual portfolio of assets to
which any person is entitled or in which any person has any ownership interest.
Consequently, you will not have any claim against any of the Strategies
composing the Index or any of their Underlying Constituents.
- THE INVESTMENT STRATEGY USED TO
CONSTRUCT THE INDEX INVOLVES MONTHLY REBALANCING The Strategies are subject to
monthly rebalancing. A synthetic portfolio that does not rebalance monthly and
is not subject to any weighting caps could see greater compounded gains over
time through exposure to a consistently and rapidly appreciating portfolio
consisting of the Strategies.
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- THE NOTES MAY BE SUBJECT TO INCREASED
VOLATILITY DUE TO THE USE OF LEVERAGE The Index and some of the Strategies (including the
momentum strategies and some of the bond carry strategies) may use leverage to
increase the return from any Strategy or Underlying Constituent, as
applicable. It is possible, though unlikely, that the maximum total weight of
the Index and the Strategies will be 200%. Where the synthetic portfolio is
leveraged, any price movements in the Strategies or Underlying Constituents, as
applicable, may result in greater changes in the value of Strategies or
Underlying Constituents, as applicable, than if leverage was not used. In
particular, the use of leverage will magnify any negative performance of the
Strategies or Underlying Constituents, as applicable, which in turn could cause
you to receive a lower payment at maturity than you otherwise would have
received. In addition, some of the Underlying Constituents are composed of
highly leveraged instruments, such as futures contracts. The use of these
futures contracts as components of these Underlying Constituents may
potentially result in higher volatility than would occur in the absence of
their usage.
- BECAUSE THE MOMENTUM STRATEGIES, THE
CARRY STRATEGIES AND THE MEAN REVERSION STRATEGIES INCLUDE OR PERMIT NOTIONAL
SHORT POSITIONS, THE INDEX MAY BE SUBJECT TO ADDITIONAL RISKS Each Strategy that is a momentum
strategy, a carry strategy or a mean reversion strategy includes or permits
notional short positions in its Underlying Constituents. Unlike long
positions, short positions are subject to unlimited risk of loss because there
is no limit on the amount by which the price that the relevant asset may
appreciate before the short position is closed. It is possible that any
notional short position included in any such Strategy may appreciate
substantially with an adverse impact on the value of such Strategy and the
Index, and, consequently, on the amount you will receive at maturity for your
notes.
- CHANGES IN THE VALUE OF THE
STRATEGIES MAY OFFSET EACH OTHER AND CORRELATION OF PERFORMANCES AMONG THE
STRATEGIES MAY REDUCE PERFORMANCE OF THE NOTES Because the notes are linked to the
Index, which is linked to the performance of the Strategies, which collectively
represent a diverse range of asset classes and geographic regions, price
movements among the Strategies representing different asset classes or
geographic regions may not correlate with each other. At a time when the value
of a Strategy representing a particular asset class or geographic region
increases, the value of other Strategies representing a different asset class
or geographic region may not increase as much or may decline. Therefore, in
calculating the level of the Index, increases in the level of some of the
Strategies may be moderated, or more than offset, by lesser increases or
declines in the level of other Strategies. However, high correlation during
periods of negative returns among Strategies representing any one sector or
asset type and which Strategies have a substantial percentage weighting in the
Index could have an adverse effect on your return on your investment at
maturity.
- THE MULTI-STRATEGY INDEX AND THE
STRATEGIES HAVE A LIMITED OPERATING HISTORY The Multi-Strategy Index was established in November 2009.
The Strategies were established in
or prior to November 2009. Therefore, the Multi-Strategy Index and the
Strategies have limited historical performance. Back-testing or similar
analysis in respect of the Multi-Strategy Index and the Strategies must be considered
illustrative only and may be based on estimates or assumptions not used by the note
calculation agent when determining the Multi-Strategy Index values.
- THE INDEX AND THE STRATEGIES ARE
EXCESS RETURN INDICES AND NOT TOTAL RETURN INDICES The Index is linked to 26
Strategies, each of which is an excess return index. An excess return index
reflects the returns that are potentially available through an uncollateralized
or unfunded investment in the assets underlying such index. By contrast, a
total return index also reflects interest that could be earned on funds
committed to the trading of the underlying assets. Investing in the notes will
therefore not generate the same return as one would obtain from investing
directly in the relevant underlying assets or in a total return index related
to such underlying assets.
- OWNING THE NOTES INVOLVES THE RISKS
ASSOCIATED WITH THE MULTI-STRATEGY INDEXS MOMENTUM INVESTMENT STRATEGY Each Strategy that is a momentum
strategy employs
a mathematical model that seeks to capitalize on positive and negative trends
in the price of assets on the assumption that if an asset performs well or
poorly, it will continue to perform well or poorly in the future. Consequently, a momentum investing
strategy may perform poorly in non-trending markets characterized by short term
volatility. No
assurance can be given that a momentum investment strategy will be successful
or that it will outperform any alternative strategy.
- OWNING THE NOTES INVOLVES THE RISKS ASSOCIATED WITH
THE MULTI-STRATEGY INDEXS CARRY INVESTMENT STRATEGY Each Strategy that is a carry
strategy
employs an investment strategy that broadly seeks to capitalize on the observed value
differential between an asset that is on a relative basis lower priced or
higher yielding and an asset that on a relative basis is higher priced or lower
yielding.
However, if the underlying assets move against the direction expected by the
strategy, the strategy may perform poorly. No assurance can be given that a carry strategy will be successful
or that it will outperform any alternative strategy.
- OWNING THE NOTES INVOLVES
THE RISKS ASSOCIATED WITH THE MULTI-STRATEGY INDEXS MEAN REVERSION INVESTMENT
STRATEGY
Each Strategy that is a
mean reversion strategy seeks to
capitalize on the view that over short periods of time, markets are cyclical
meaning that an upward trend in the level of an Underlying Constituent is
usually followed by a downward trend or vice versa. However, any sustained
decline or increase in the level of the relevant index at a time when the mean
reversion theory would suggest that the index level should increase or decline
may result in unexpected losses, which could be significant. No assurance can
be given that a mean reversion strategy will be successful or that it will
outperform any alternative strategy.
- OWNING THE NOTES INVOLVES
THE RISKS ASSOCIATED WITH THE MULTI-STRATEGY INDEXS SHORT VOLATILITY STRATEGY The short volatility
strategy seeks to
capitalize from the long-term trend of the observed volatility of a broad
market equity index, such as the S&P 500® Index, tending to be
less than the implied volatility by prices in the equity options market, as
represented by the CBOE Volatility Index®. However, we cannot
guarantee that the
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implied volatility will always be greater than the realized
volatility, and the value of the short volatility strategy will decrease if the
implied volatility is less than the realized volatility. No assurance can be
given that a short volatility strategy will be successful or that it will
outperform any alternative strategy.
- THE BOND CARRY STRATEGIES ARE BASED
ON SYNTHETIC ZERO COUPON BONDS, WHICH MAY DIFFER FROM ACTUAL BONDS THAT ARE
PUBLICLY TRADED
Each Strategy that is a bond carry strategy tracks the performance of a
notional portfolio of synthetic zero coupon bonds (which could be long only or
long-short, depending on the particular bond carry strategy) denominated in
different currencies. These synthetic zero coupon bonds are purely
hypothetical and are not tradeable, and there is no publicly available source
for the prices of these bonds. The prices of these synthetic bonds, which are
used in the calculation of the value of the relevant Strategy, are
synthetically constructed to equal the present value of the principal amount to
be paid at maturity. These synthetic bonds may perform differently from actual
bonds that are publicly traded, and these Strategies may not perform as well as
another index or strategy that tracks actual, publicly traded bonds or other measures
of interest rates.
- AN INVESTMENT IN THE NOTES CARRIES
THE RISKS ASSOCIATED WITH THE SELECTION METHODOLOGY USED FOR THE LONG
CONSTITUENT IN THE COMMODITY CARRY STRATEGY The
long constituent for the commodity carry strategy is constructed, in part, using
an algorithmic methodology which uses, along with other criteria, the slope of
the commodities futures curve in order to select a particular futures contract
for each eligible commodity in which to synthetically gain exposure (the
Selection Methodology). The futures contract with respect to each eligible
commodity with the highest level of backwardation is selected, subject to
certain limitations. Backwardation refers to the situation where commodities
futures contracts with a delivery month further away in time have lower
settlement prices than futures contracts with a delivery month closer in
time. If there is no futures contract for one or more eligible
commodities with backwardation, the Selection Methodology will select the
futures contract with the lowest level of contango for any such
commodities. Contango refers to the situation where the futures
contracts for a commodity with a delivery month further in time have higher
contract prices than futures contracts for the same commodity with a delivery
month closer in time. There is no guarantee that the commodities futures
market will be, and continue to be, in backwardation throughout the term of the
notes. The presence of contango in the commodity markets could result
in negative roll yields. The long constituent may perform poorly in
such markets and accordingly, the level of the commodity carry strategy and
your payment at maturity may be adversely affected.
- THE VOLATILITY MATCHING USED IN THE
COMMODITY CARRY STRATEGY MAY NOT ACHIEVE ITS INTENDED RESULT The commodity carry strategy uses
a long-short strategy. In order to limit realized volatility, the commodity
carry strategy uses volatility matching by attempting to match the volatility
of the short constituent to the volatility of the long constituent. However,
there can be no guarantee that the volatility matching mechanism will
effectively lead to a reduced volatility of the commodity carry strategy.
- THE SHORT VOLATILITY STRATEGY MAY
LEAD TO LARGE NEGATIVE RETURNS IN PERIODS OF HIGH VOLATILITY The strategy of synthetically
selling volatility can lead to large negative returns in periods of high
volatility in the underlying equity index. Therefore, increased returns (or
volatility) of the underlying equity index will result in proportionally higher
negative returns in the short volatility strategy, which may adversely affect
the value of the notes and the amount you receive at maturity.
- AN INVESTMENT IN THE NOTES IS SUBJECT
TO RISKS ASSOCIATED WITH NON-U.S. SECURITIES MARKETS Some or all of the securities of
certain Underlying Constituents (the MSCI Daily Value Total Return Gross World
Index and the MSCI Daily Total Return Gross World Index (together, the MSCI Indices)) and the indices (the Dow Jones EURO
STOXX 50® Index and the Nikkei 225 Index) underlying some of the
Underlying Constituents have been issued by non-U.S. issuers. Investments in
securities linked to the value of such non-U.S. equity securities involve risks
associated with the securities markets in those countries, including risks of
volatility in those markets, government intervention in those markets and cross
shareholdings in companies in certain countries. Also, there is generally less
publicly available information about companies in some of these jurisdictions
than about U.S. companies that are subject to the reporting requirements of the
SEC, and generally non-U.S. companies are subject to accounting, auditing and
financial reporting standards and requirements and securities trading rules
different from those applicable to U.S. reporting companies. The prices of
securities in foreign markets may be affected by political, economic, financial
and social factors in those countries, or global regions, including changes in
government, economic and fiscal policies and currency exchange laws.
- THE COMMODITY FUTURES CONTRACTS
UNDERLYING THE RELEVANT STRATEGIES ARE SUBJECT TO UNCERTAIN LEGAL AND
REGULATORY REGIMES
The commodity futures
contracts that underlie the relevant Strategies
are subject to legal and regulatory regimes in the United States and, in some
cases, in other countries that may change in ways that could adversely affect our ability to hedge our obligations under the notes and affect
the value of the Multi-Strategy Index. The Commodity Futures Trading Commission
has recently announced that it is considering imposing position limits on
certain commodities (such as energy commodities) and the manner in which
current exemptions for bona fide hedging transactions or positions are
implemented in order to protect against excessive speculation. Such
restrictions may result in the index calculation agent exercising its
discretionary right to exclude or substitute constituents of the Index, which
may, in turn, have a negative effect on the level of the Index and your payment
at maturity. Please see The J.P. Morgan Alternative Index Multi-Strategy 5
(USD) Extraordinary Events Affecting the Index and the Underlying
Constituents in the accompanying product supplement no. 186-A-I for more
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information. In addition, we or our affiliates may be unable as a result of
such restrictions to effect transactions necessary to hedge our obligations
under the notes, in which case we may, in our sole and absolute discretion,
cause the note calculation agent to determine the value of the Additional
Amount for your notes early. If the Additional Amount for your notes is
determined early as the result of a commodity hedging disruption event, the
amount due and payable on your notes will be due and payable only at maturity
and the amount you receive at maturity will not reflect any further
appreciation of the Index after such early determination. Please see General
Terms of Notes Market Disruption Events and General Terms of Notes
Consequences of a Commodity Hedging Disruption Event in the accompanying
product supplement no. 186-A-I for more information.
- INVESTMENTS RELATED TO THE VALUE OF
COMMODITIES TEND TO BE MORE VOLATILE THAN TRADITIONAL SECURITIES INVESTMENTS The market values of commodities
tend to be highly volatile. Commodity market values are not related to the
value of a future income or earnings stream, as tends to be the case with
fixed-income and equity investments, but are subject to variables of specific
application to commodities markets. These variables include 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. These variables may create additional investment risks that
cause the value of the notes to be more volatile than the values of traditional
securities.
- THE NOTES ARE SUBJECT TO CURRENCY
EXCHANGE RISK
Because some of the Strategies are based on foreign currency exchange rates and
the prices of the securities or futures contracts included in the Underlying
Constituents of some of the other Strategies are converted into U.S. dollars
for purposes of calculating the value of the relevant Strategy, your notes will
be exposed to currency exchange rate risk. The currency foreign currency
exchange rate between two currencies is at any moment a result of the supply
and demand for that currency. Of particular importance to potential currency
exchange risk are:
- existing and expected
rates of inflation;
- existing and expected
interest rate levels;
- the balance of payments in
the countries issuing the relevant currencies; and
- the extent of governmental
surplus or deficit in the countries issuing the relevant currencies.
All of these factors are, in turn,
sensitive to the monetary, fiscal and trade policies pursued by the countries
issuing the relevant currencies and those of other countries important to
international trade and finance.
- THE NOTES ARE SUBJECT TO INTEREST
RATE RISK Some of
the Strategies are based on changes in, or differences between, interest
rates. Interest rates are subject to volatility due to a variety of factors,
including:
- sentiment regarding
underlying strength in the relevant economy and global economies;
- expectation regarding the
level of price inflation;
- sentiment regarding credit
quality in the relevant economy and global credit markets;
- central bank policy
regarding interest rates; and
- performance of capital
markets.
Fluctuations in interest rates could
affect the value of these Strategies, the Index and 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.
- MANY ECONOMIC AND MARKET FACTORS WILL
AFFECT THE VALUE OF THE NOTES In addition to the Index closing value 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:
- the volatility in the Index, the
Strategies, and the Underlying Constituents;
- the time to maturity of the notes;
- the dividend rate on the equity
securities underlying some of the Underlying Constituents;
- the market price of the physical
commodities upon which the futures contracts that compose the Underlying Constituents
are based;
- interest and yield rates in the
market generally;
- foreign currency exchange rates;
- economic, financial, political,
regulatory, geographical, agricultural, meteorological or judicial events that
affect the commodities underlying the Underlying Constituents or markets
generally and which may affect the value of the commodity futures contracts,
and thus the closing levels of the Underlying Constituents; and
- our creditworthiness, including
actual or anticipated downgrades in our credit ratings.
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What Is the Total Return on the Notes at Maturity,
Assuming a Range of Performances for the Multi-Strategy Index?
The following table and examples illustrate the
payment at maturity (including, where relevant, the payment of the Additional
Amount) for a $1,000 principal amount note for a hypothetical range of
performances for the Index Return from -80% to +80%, assume a
Participation Rate of 150% and an Initial Index Value of 100 and reflect the
Threshold Percentage of 10%. The following table and examples do not reflect
the annual interest payments payable over the term of the notes, including the
final interest payment payable at maturity. The
actual Participation Rate will be determined on the pricing date and will not
be less than 150%. The following
results are based solely on the hypothetical example cited and assume that a
commodity hedging disruption event has not occurred during the term of the
notes. The hypothetical payments at maturity set forth below are for
illustrative purposes only and may not be the actual payments at maturity
applicable to a purchaser of the notes. The numbers appearing in the following
table and examples have been rounded for ease of analysis.
|
Ending Index
Value
|
Index Return
|
(Index Return x
Participation Rate
(150%))
Threshold
Percentage (10%)
|
Additional
Amount
|
|
Principal
|
|
Payment at Maturity*
|
|
180.00
|
80.00%
|
110.00%
|
$1,100.00
|
+
|
$1,000.00
|
=
|
$2,100.00
|
170.00
|
70.00%
|
95.00%
|
$950.00
|
+
|
$1,000.00
|
=
|
$1,950.00
|
160.00
|
60.00%
|
80.00%
|
$800.00
|
+
|
$1,000.00
|
=
|
$1,800.00
|
150.00
|
50.00%
|
65.00%
|
$650.00
|
+
|
$1,000.00
|
=
|
$1,650.00
|
140.00
|
40.00%
|
50.00%
|
$500.00
|
+
|
$1,000.00
|
=
|
$1,500.00
|
130.00
|
30.00%
|
35.00%
|
$350.00
|
+
|
$1,000.00
|
=
|
$1,350.00
|
120.00
|
20.00%
|
20.00%
|
$200.00
|
+
|
$1,000.00
|
=
|
$1,200.00
|
115.00
|
15.00%
|
12.50%
|
$125.00
|
+
|
$1,000.00
|
=
|
$1,125.00
|
110.00
|
10.00%
|
5.00%
|
$50.00
|
+
|
$1,000.00
|
=
|
$1,050.00
|
106.67
|
6.67%
|
0.00%
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
105.00
|
5.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
100.00
|
0.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
95.00
|
-5.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
90.00
|
-10.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
85.00
|
-15.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
80.00
|
-20.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
70.00
|
-30.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
60.00
|
-40.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
50.00
|
-50.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
40.00
|
-60.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
30.00
|
-70.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
20.00
|
-80.00%
|
N/A
|
$0.00
|
+
|
$1,000.00
|
=
|
$1,000.00
|
|
*Does not include the final interest payment.
Hypothetical
Examples of Amounts Payable at Maturity
The following examples illustrate how the total
returns set forth in the table above calculated.
Example 1: The value of the Index increases from the Initial
Index Value of 100 to an Ending Index Value of 110. Because the Ending Index Value of 110 is greater
than the Initial Index Value of 100 and the Index Return of 10% multiplied by
the hypothetical Participation Rate of 150% is greater than the Threshold
Percentage of 10%, the Additional Amount is equal to $50 and the final payment
at maturity is equal to $1,050 per $1,000 principal amount note, calculated as
follows:
$1,000 + ($1,000 x [(10% x 150%) 10%] = $1,050
Example 2: The value of the Index decreases from the Initial
Index Value of 100 to an Ending Index Value of 85. Because the Ending Index Value of 85 is lower than
the Initial Index Value of 100, the final payment per $1,000 principal amount
note at maturity is the principal amount of $1,000.
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Example 3: The value of the Index
increases from the Initial Index Value of 100 to an Ending Index Value of 130. Because the Ending Index Value of 130
is greater than the Initial Index Value of 100, and the Index Return of 30%
multiplied by the hypothetical Participation Rate of 150% is greater than the
Threshold Percentage of 10%, the Additional Amount is equal to $350 and the
final payment at maturity is equal to $1,350 per $1,000 principal amount note,
calculated as follows:
$1,000 +
($1,000 x [(30% x 150%) 10%] = $1,350
Example 4: The value of the Index
increases from the Initial Index Value of 100 to an Ending Index Value of 105. Even though the Ending Index Value
of 105 is greater than the Initial Index Value of 100, because the Index Return
of 5% multiplied by the hypothetical Participation Rate of 150% is less than the
Threshold Percentage of 10%, the Additional Amount is equal to zero and the
final payment per $1,000 principal amount note is the principal amount of
$1,000.
Hypothetical Back-tested Data and Historical Information
The
following graph sets forth the hypothetical back-tested performance of the
Index based on the hypothetical back-tested weekly Index closing values from
January 7, 2005 through November 30, 2009, and the historical performance of
the Index based on the weekly Index closing values from November 30, 2009 through April 30, 2010. The Index was
established on November 30, 2009. The Index closing value on April 30, 2010
was 104.45. We obtained the Index closing values below from Bloomberg
Financial Markets. We make no representation or warranty as to the accuracy or
completeness of the information obtained from Bloomberg Financial Markets.
The hypothetical back-tested and
historical values of the Index should not be taken as an indication of future
performance, and no assurance can be given as to the Index closing value on the
pricing date or the Observation Date. We cannot give you assurance that the
performance of the Index will result in the return of any of your initial
investment at maturity. The data for the hypothetical back-tested performance
of Multi-Strategy Index set forth in the following graph was calculated on
materially the same basis on which the performance of Multi-Strategy Index is
now calculated but does not represent the actual historical performance of the
Index. Hypothetical daily performance data for Multi-Strategy Index is net of
an adjustment factor of 0.80% per annum.
The hypothetical historical values
above have not been verified by an independent third party. The back-tested,
hypothetical historical results above have inherent limitations. These
back-tested results are achieved by means of a retroactive application of a
back-tested model designed with the benefit of hindsight. No representation is made that an investment in the notes will
or is likely to achieve returns similar to those shown.
Alternative modeling techniques or
assumptions would produce different hypothetical historical information that
might prove to be more appropriate and that might differ significantly from the
hypothetical historical information set forth above. Hypothetical back-tested
results are neither an indicator nor guarantee of future returns. Actual
results will vary, perhaps materially, from the analysis implied in the
hypothetical historical information that forms part of the information
contained in the chart above.
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