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 June 9, 2010; Rule 433
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Structured
Investments
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$
1.65% per annum Principal Protected Notes Linked to the
J.P. Morgan Alternative Index Multi-Strategy 5 (USD) due June 15, 2015 |
General
- Senior unsecured obligations of JPMorgan
Chase & Co. maturing June 15, 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 1.65% 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 5.8% 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 June 10, 2010 and
are expected to settle on or about June 15, 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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1.65% per annum
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Interest Payment Dates:
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Interest on the notes will be payable
annually in arrears on June 15 of each year (each such date, an Interest Payment
Date), commencing June 15, 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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8.7%. Assuming the Participation
Rate is 150%, the Additional Amount will be zero unless the Index has
appreciated by more than approximately 5.8%.
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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 June 10, 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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June 10, 2015*
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Maturity Date:
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June 15, 2015*
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CUSIP:
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48124AUK1
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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 affiliated
or unaffiliated 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.
June 9, 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.
We
may create and issue additional notes with the same terms as these notes, so
that any additional notes will be considered part of the same tranche as these
notes.
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:
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Underlying investment strategy employed:
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Momentum strategy: which seeks to capitalize
on the observed tendency of many markets to trend either up or down for sustained
time periods;
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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
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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.
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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.
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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
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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 |
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%.
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
European Equity Momentum
Strategy
Japan Equity Momentum Strategy
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Interest Rates
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Money Market Momentum US Strategy
Money Market Momentum Europe Strategy
Money Market Momentum Japan Strategy
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FX
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EURUSD FX Momentum Strategy
USDJPY FX Momentum Strategy
EURJPY FX Momentum Strategy
USDCAD FX Momentum Strategy
AUDUSD FX Momentum Strategy
EURGBP FX Momentum Strategy
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Commodities
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Commodity Momentum Energy
Strategy
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
Equity Small Cap Carry
Strategy
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Interest Rates
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Bond 2Y Carry Long Strategy
Bond 10Y Carry Long Strategy
Bond 2Y Carry Long-Short
Strategy
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
Mean Reversion Europe Strategy
Mean Reversion Japan Strategy
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**) the 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 8.7%,
the Additional Amount will be zero unless the Index has appreciated by more
than approximately 5.8%.
** 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 1.65% per annum over the term of the notes. Interest will be payable annually
in arrears on June 15 of each year (each such date, an Interest Payment
Date), commencing June 15, 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.
- COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE We will determine the comparable yield for the
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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 |
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 June 8, 2010 and we had determined the
comparable yield on that date, it would have been an annual rate of 3.61%,
compounded annually. The actual comparable yield that we will determine for the
notes may be more or less than 3.61%, 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 or 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 5.8%.
- 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 or the securities, futures
contracts or currencies underlying the Strategies or the Underlying
Constituents 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 5.8%, 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
8.7% 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 5.8%. 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 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,
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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-4 |
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.
- 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
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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 strategyseeks 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
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
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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 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,
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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 and 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 8.7%. 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 (8.7%)
|
Additional
Amount
|
|
Principal
|
|
Payment at Maturity*
|
|
180.00
|
80.00%
|
111.30%
|
$1,113.00
|
+
|
$1,000.00
|
=
|
$2,113.00
|
170.00
|
70.00%
|
96.30%
|
$963.00
|
+
|
$1,000.00
|
=
|
$1,963.00
|
160.00
|
60.00%
|
81.30%
|
$813.00
|
+
|
$1,000.00
|
=
|
$1,813.00
|
150.00
|
50.00%
|
66.30%
|
$663.00
|
+
|
$1,000.00
|
=
|
$1,663.00
|
140.00
|
40.00%
|
51.30%
|
$513.00
|
+
|
$1,000.00
|
=
|
$1,513.00
|
130.00
|
30.00%
|
36.30%
|
$363.00
|
+
|
$1,000.00
|
=
|
$1,363.00
|
120.00
|
20.00%
|
21.30%
|
$213.00
|
+
|
$1,000.00
|
=
|
$1,213.00
|
115.00
|
15.00%
|
13.80%
|
$138.00
|
+
|
$1,000.00
|
=
|
$1,138.00
|
110.00
|
10.00%
|
6.30%
|
$63.00
|
+
|
$1,000.00
|
=
|
$1,063.00
|
105.80
|
5.80%
|
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 8.7%,
the Additional Amount is equal to $63 and the final payment at maturity is
equal to $1,063 per $1,000 principal amount note, calculated as follows:
$1,000
+ ($1,000 x [(10% x 150%) 8.7%] = $1,063
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 8.7%, the Additional Amount is equal to $363 and the final
payment at maturity is equal to $1,363 per $1,000 principal amount note,
calculated as follows:
$1,000 + ($1,000 x [(30% x 150%)
8.7%] = $1,363
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 8.7%, 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 June 4, 2010. The Index was established on November 30, 2009. The
Index closing value on June 8, 2010 was 104.04. 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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