Term Sheet
To
prospectus dated November 21, 2008,
prospectus supplement dated November
21, 2008 and
product supplement no. 60-A-II dated February
5, 2009
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Term Sheet to
Product Supplement No. 60-A-II
Registration Statement
No. 333-155535
Dated June 18, 2010; Rule 433
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Structured
Investments
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$
Buffered
Notes Linked to the S&P GSCI Precious Metals Index Excess Return
due July 13, 2012 |
General
- The notes are
designed for investors who seek an unleveraged return equal to the appreciation
of the S&P GSCI Precious Metals Index Excess Return without
upside return enhancement, up to a maximum total return on the notes that
will not be less than 22.25%* or greater than 27.25%* at maturity. Investors
should be willing to forgo interest payments and, if the Index declines by more
than 15%, be willing to lose up to 85% of their principal. Any payment on
the notes is subject to the credit risk of JPMorgan Chase & Co.
- Senior unsecured
obligations of JPMorgan Chase & Co. maturing July 13, 2012
- Minimum
denominations of $1,000 and integral multiples thereof
- The notes are
expected to price on or about July 9, 2010 and are expected to settle on or about July 14, 2010.
Key Terms
Index:
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S&P GSCI Precious Metals Index Excess
Return (Bloomberg ticker: SPGCPMP) (the Index). For more information on the Index,
please see Selected Purchase Considerations Return Linked to the S&P
GSCI Precious Metals Index Excess Return in this term sheet.
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Upside Leverage Factor:
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One (1). There is no upside return enhancement.
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Payment at Maturity:
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If the Ending Index Level is greater than the Initial
Index Level, at maturity you will receive a cash payment that provides you
with a return per $1,000 principal amount note equal to the Index Return,
subject to a Maximum Total Return on the notes that will not be less than
22.25%* or greater than 27.25%*. For example, assuming the Maximum Total
Return is 22.25%, if the Index Return is equal to or greater than approximately
22.25%, you will receive the Maximum Total Return on the notes of 22.25%*,
which entitles you to a maximum payment at maturity of $1,222.50* for every
$1,000 principal amount note that you hold. Accordingly, if the Index Return
is positive, your payment at maturity per $1,000 principal amount note will
be calculated as follows, subject to the Maximum Total Return:
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$1,000 + ($1,000 x
Index Return)
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* The actual Maximum Total Return on the notes and the
actual maximum payment at maturity will be set on the pricing date and will
not be less than 22.25% or greater than 27.25% and accordingly, the actual maximum
payment at maturity will not be less than $1,222.50 or greater than $1,272.50
per $1,000 principal amount note.
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If the Ending Index Level is less than or
equal to the Initial Index Level by up to 15%, you will receive the principal
amount of your notes at maturity.
If the Ending Index Level is less than the
Initial Index Level by more than 15%, you will lose 1% of the principal
amount of your notes for every 1% that the Index declines beyond 15% and your
payment at maturity per $1,000 principal amount note will be calculated as
follows:
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$1,000 + [$1,000 x
(Index Return + 15%)]
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You will lose up to $850 per $1,000 principal amount note
at maturity if the Ending Index Level is less than the Initial Index Level by
more than 15%.
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Buffer Amount:
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15%
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Index Return:
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Ending Index Level
Initial Index Level
Initial
Index Level
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Initial Index Level:
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The Index closing level on the pricing date, which is
expected to be on or about July 9, 2010
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Ending Index Level:
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The Index closing level on the Observation Date
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Observation Date:
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July 10, 2012
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Maturity Date:
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July 13, 2012
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CUSIP:
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48124AUY1
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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. 60-A-II or early
acceleration in the event of a commodity hedging disruption event as
described under General Terms of Notes Consequences of a Commodity Hedging
Disruption Event in the accompanying product supplement no. 60-A-II and in
Supplemental Terms of the Notes and Selected Risk Considerations
Commodity Futures Contracts Are Subject to Uncertain Legal and Regulatory
Regimes in this term sheet
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Investing in the Buffered Notes
involves a number of risks. See Risk Factors beginning on page PS-8 of the
accompanying product supplement no. 60-A-II and Selected Risk Considerations
beginning on page TS-2 of this term sheet.
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 $12.50
per $1,000 principal amount note. This commission includes the projected
profits that our affiliates expect to realize, some of which may be allowed
to other unaffiliated dealers, for assuming risks inherent in hedging our
obligations under the notes. The actual commission received by JPMSI may be
more or less than $12.50 and will depend on market conditions on the pricing
date. In no event will the commission received by JPMSI, which includes
amounts that may be allowed to other dealers, exceed $20.00 per $1,000
principal amount note. See Plan of Distribution beginning on page PS-55 of
the accompanying product supplement no. 60-A-II.
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The agent
for this offering, J.P. Morgan Securities Inc., which we refer to as JPMSI, is an affiliate of ours. See Supplemental Plan of
Distribution (Conflicts of Interest) on the last page of this term sheet.
The notes
are not bank deposits and are not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency, nor are they
obligations of, or guaranteed by, a bank.
June 18, 2010
ADDITIONAL TERMS
SPECIFIC TO THE NOTES
JPMorgan
Chase & Co. has filed a registration statement (including a prospectus)
with the Securities and Exchange Commission, or SEC, for the offering to which
this term sheet relates. Before you invest, you should read the prospectus in
that registration statement and the other documents relating to this offering
that JPMorgan Chase & Co. has filed with the SEC for more complete
information about JPMorgan Chase & Co. and this offering. You may get
these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, JPMorgan Chase & Co., any agent or
any dealer participating in this offering will arrange to send you the
prospectus, the prospectus supplement, product supplement no. 60-A-II and this
term sheet if you so request by calling toll-free 866-535-9248.
You may revoke your offer to purchase the notes at any time
prior to the time at which we accept such offer by notifying the applicable
agent. We reserve the right to change the terms of, or reject any offer to
purchase, the notes prior to their issuance. In the event of any changes to
the terms of the notes, we will notify you and you will be asked to accept such
changes in connection with your purchase. You may also choose to reject such
changes in which case we may reject your offer to purchase.
You should read this term sheet together with the
prospectus dated November 21, 2008, as supplemented by the prospectus supplement dated November 21, 2008 relating to our Series E
medium-term notes of which these notes are a part, and the more detailed
information contained in product supplement no. 60-A-II dated February 5, 2009. This term sheet,
together with the documents listed below, contains the terms of the notes and
supersedes all other prior or contemporaneous oral statements as well as any
other written materials including preliminary or indicative pricing terms,
correspondence, trade ideas, structures for implementation, sample structures,
fact sheets, brochures or other educational materials of ours. You should
carefully consider, among other things, the matters set forth in Risk Factors
in the accompanying product supplement no. 60-A-II, as the notes involve risks
not associated with conventional debt securities. We urge you to consult your
investment, legal, tax, accounting and other advisers before you invest in the
notes.
You may access these documents on the SEC website
at www.sec.gov as follows (or
if such address has changed, by reviewing our filings for the relevant date on
the SEC website):
Our Central Index Key, or CIK, on the
SEC website is 19617. As used in this term sheet, the Company, we, us or
our refers to JPMorgan Chase & Co.
Supplemental
Terms of the Notes
Notwithstanding
anything to the contrary in the accompanying product supplement no. 60-A-II,
for purposes of these notes, the definition of commodity hedging disruption
event shall mean:
(a)
due to (i) the adoption of, or any change in, any applicable law, regulation,
rule or order (including, without limitation, any tax law); or (ii) the
promulgation of, or any change in, the interpretation, application, exercise or
operation by any court, tribunal, regulatory authority, exchange or trading
facility or any other relevant entity with competent jurisdiction of any
applicable law, rule, regulation, order, decision or determination (including,
without limitation, as implemented by the U.S. Commodities Futures Trading
Commission or any exchange or trading facility), in each case occurring on or
after the pricing date, the calculation agent determines in good faith that it
is contrary (or upon adoption, it will be contrary) to such law, rule,
regulation, order, decision or determination for us to purchase, sell, enter
into, maintain, hold, acquire or dispose of our or our affiliates (A)
positions or contracts in securities, options, futures, derivatives or foreign
exchange or (B) other instruments or arrangements, in each case, in order to
hedge our obligations under the notes (in the aggregate on a portfolio basis or
incrementally on a trade by trade basis) (hedge positions), including
(without limitation) if such hedge positions (in whole or in part) are (or, but
for the consequent disposal thereof, would otherwise be) in excess of any
allowable position limit(s) in relation to any commodity traded on any
exchange(s) or other trading facility (it being within the sole and absolute
discretion of the calculation agent to determine which of the hedge positions
are counted towards such limit); or
(b)
for any reason, we or our affiliates are unable, after using commercially
reasonable efforts, to (i) acquire, establish, re-establish, substitute,
maintain, unwind or dispose of any transaction(s) or asset(s) the calculation
agent deems necessary to hedge the risk of entering into and performing our
commodity-related obligations with respect to the notes, or (ii) realize,
recover or remit the proceeds of any such transaction(s) or asset(s).
Selected Purchase
Considerations
- UNLEVERAGED APPRECIATION
POTENTIAL The notes provide the opportunity to earn an unleveraged return at
maturity equal to the appreciation of the Index Return, without upside return
enhancement, up to the Maximum Total Return on the notes. The Maximum Total
Return on the notes and the maximum payment at maturity will be set on the
pricing date. The Maximum Total Return will not be less than 22.25% or greater
than 27.25%, and accordingly, the maximum payment at maturity will not be less
than $1,222.50 or greater than $1,272.50 per $1,000 principal amount note. 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.
- LIMITED PROTECTION
AGAINST LOSS We will pay you your principal back at maturity if the
Ending Index Level is less than the Initial Index Level by up to 15%. If the
Ending Index Level is less than the Initial Index Level by more than 15%, for
every 1% decline of the Index beyond 15%, you will lose an amount equal to 1%
of the principal amount of your notes. Accordingly, at maturity you will
receive a payment equal to at least $150 per $1,000 principal amount note.
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JPMorgan
Structured Investments
Buffered Notes Linked to
the S&P GSCI Precious Metals Index Excess Return
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TS-1 |
- RETURN
LINKED TO THE S&P GSCI PRECIOUS METALS INDEX EXCESS RETURN The
return on the notes is linked solely to S&P GSCI Precious
Metals Index Excess Return, a sub-index of the S&P GSCI, a
composite index of commodity sector returns, calculated, maintained and
published daily by Standard & Poors, a division of the McGraw-Hill
Companies. The S&P GSCI is a world production-weighted index that is
designed to reflect the relative significance of principal non-financial commodities
(i.e., physical commodities) in the world economy. The S&P GSCI
represents the return of a portfolio of the futures contracts for the
underlying commodities. The S&P GSCI Precious Metals Index Excess Return
represents the precious metals commodity components of the S&P GSCI, which
are Gold and Silver. The S&P GSCI Precious Metals Index Excess Return is
an excess return index and not a total return index. An excess return index
reflects the returns that are potentially available through an unleveraged
investment in the contracts composing the index. By contrast, a total return
index, in addition to reflecting those returns, also reflects interest that
could be earned on funds committed to the trading of the underlying futures
contracts. See The GSCI Indices in the accompanying product supplement no. 60-A-II.
- CAPITAL
GAINS TAX TREATMENT You should review carefully the
section entitled Certain U.S. Federal Income Tax Consequences in the
accompanying product supplement no. 60-A-II. Based on the opinion of our
special tax counsel, Davis Polk & Wardwell LLP, provided in the accompanying product supplement, we
believe that it is reasonable to treat, and we and you agree to treat, the
notes as open transactions for U.S.
federal income tax purposes. Assuming this characterization is respected, the
gain or loss on your notes should be treated as long-term capital gain or loss
if you hold your notes for more than a year, whether or not you are an initial
purchaser of notes at the issue price. However, the Internal Revenue Service
(the IRS) or a court may not respect this characterization or treatment of
the notes, in which case the timing and character of any income or loss on the
notes could be significantly and adversely affected. In addition, in 2007
Treasury and the IRS released a notice requesting comments on the U.S.
federal income tax treatment of prepaid forward contracts and similar
instruments, such as the notes. The notice focuses in particular on whether to
require holders of these instruments to accrue income over the term of their
investment. It also asks for comments on a number of related topics, including
the character of income or loss with respect to these instruments; the
relevance of factors such as the nature of the underlying property to which the
instruments are linked; the degree, if any, to which income (including any
mandated accruals) realized by Non-U.S. Holders should be subject to
withholding tax; and whether these instruments are or should be subject to the constructive
ownership regime, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose an interest charge. While
the notice requests comments on appropriate transition rules and effective
dates, any Treasury regulations or other guidance promulgated after
consideration of these issues could materially and adversely affect the tax
consequences of an investment in the notes, possibly with retroactive effect.
Both U.S.
and Non-U.S. Holders should consult their tax advisers regarding the U.S.
federal income tax consequences of an investment in the notes, including
possible alternative treatments and the issues presented by this notice.
Non-U.S. Holders should also note that they may be withheld upon at a rate of
up to 30% unless they have submitted a properly completed IRS Form W-8BEN or
otherwise satisfied the applicable documentation requirements.
Selected Risk
Considerations
An
investment in the notes involves significant risks. Investing in the notes is
not equivalent to investing directly in the Index or in any futures contracts
or exchange-traded or over-the-counter instruments based on, or other
instruments linked to, the Index. These risks are explained in more detail in
the Risk Factors section of the accompanying product supplement no. 60-A-II.
- YOUR
INVESTMENT IN THE NOTES MAY RESULT IN A LOSS The notes do not guarantee any return of principal in excess of $150
per $1,000 principal amount note, which is subject to the credit risk of JPMorgan
Chase & Co. 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 or negative. If the Ending Index Level is less than
the Initial Index Level by more than 15%, your investment will be fully exposed
to any decline of the Index beyond the 15% buffer. Accordingly, you could lose
up to $850 for each $1,000 principal amount note that you invest in.
- YOUR
MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM TOTAL RETURN If the Ending Index Level is greater than the Initial
Index Level, for each $1,000 principal amount note, you will receive at
maturity $1,000 plus an additional amount that will not exceed a predetermined
percentage of the principal amount, regardless of the appreciation in the Index,
which may be significant. We refer to this percentage as the Maximum Total
Return, which will be set on the pricing date and will not be less than 22.25%
or greater than 27.25%.
- 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.
- POTENTIAL
CONFLICTS We and our affiliates
play a variety of roles in connection with the issuance of the notes, including
acting as calculation agent and hedging our obligations under the notes. In
performing these duties, the economic interests of the calculation agent and
other affiliates of ours are potentially adverse to your interests as an
investor in the notes.
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JPMorgan
Structured Investments
Buffered Notes Linked to
the S&P GSCI Precious Metals Index Excess Return
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TS-2 |
- 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.
- COMMODITY PRICES ARE
CHARACTERIZED BY HIGH AND UNPREDICTABLE VOLATILITY, WHICH COULD LEAD TO A HIGH
AND UNPREDICTABLE VOLATILITY IN THE INDEX The value of the Index is subject
to variables that may be less significant to the values of traditional
securities such as stocks and bonds, and where the return on the securities is
not related to commodities or commodities futures contracts. Market prices of
the commodity futures contracts underlying the Index tend to be highly volatile
and may fluctuate rapidly based on numerous factors, including changes in
supply and demand relationships, governmental programs and policies, national
and international monetary, trade, political and economic events, changes in
interest and exchange rates, speculation and trading activities in commodities
and related contracts, trade, fiscal and exchange control policies. Many
commodities are also highly cyclical. These factors may affect the level of
the Index in varying ways, and different factors may cause the value of
different commodities included in the Index, and the commodity futures
contracts of their prices, to move in inconsistent directions at inconsistent
rates. This, in turn, will affect the value of the notes linked to the Index.
The high volatility and cyclical nature of commodity markets may render such an
investment inappropriate as the focus of an investment portfolio. These
factors may also have a larger impact on commodity prices and commodity-linked
indices than on traditional securities. These factors may create additional
investment risks that cause the value of the notes to be more volatile than the
values of traditional securities and may cause the levels of the Index to move
in unpredictable and unanticipated directions and at unpredictable or
unanticipated rates.
- THERE ARE RISKS
ASSOCIATED WITH AN INVESTMENT LINKED TO THE PRICES OF GOLD AND SILVER The price of gold
is primarily affected by the global demand for and supply of gold. The market
for gold bullion is global, and gold prices are subject to volatile price
movements over short periods of time and are affected by numerous factors,
including macroeconomic factors such as the structure of and confidence in the
global monetary system, expectations regarding the future rate of inflation,
the relative strength of, and confidence in, the U.S. dollar (the currency in
which the price of gold is usually quoted), interest rates, gold borrowing and
lending rates, and global or regional economic, financial, political,
regulatory, judicial or other events. Gold prices may be affected by industry
factors such as industrial and jewelry demand as well as lending, sales and
purchases of gold by the official sector, including central banks and other
governmental agencies and multilateral institutions which hold gold.
Additionally, gold prices may be affected by levels of gold production,
production costs and short-term changes in supply and demand due to trading
activities in the gold market. It is not possible to predict the aggregate
effect of all or any combination of these factors.
The price of silver
is primarily affected by global demand for and supply of silver. Silver prices
can fluctuate widely and may be affected by numerous factors. These include
general economic trends, technical developments, substitution issues and
regulation, as well as specific factors including industrial and jewelry
demand, expectations with respect to the rate of inflation, the relative
strength of the U.S. dollar (the currency in which the price of silver is
generally quoted) and other currencies, interest rates, central bank sales,
forward sales by producers, global or regional political or economic events,
and production costs and disruptions in major silver producing countries such
as the United Mexican States, the Republic of Peru and the Peoples Republic of
China. The demand for and supply of silver affect silver prices, but not
necessarily in the same manner as supply and demand affect the prices of other
commodities. The supply of silver consists of a combination of new mine
production and existing stocks of bullion and fabricated silver held by governments,
public and private financial institutions, industrial organizations and private
individuals. In addition, the price of silver has on occasion been subject to
very rapid short-term changes due to speculative activities. From
time-to-time, above-ground inventories of silver may also influence the
market. The major end uses for silver include industrial applications,
photography and jewelry and silverware.
It is not possible
to predict the aggregate effect of all or any combination of these factors.
- COMMODITY FUTURES
CONTRACTS ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES The commodity
futures contracts that underlie the Index 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 Index. The United States
Congress has considered legislation that might, if enacted, subject us to position
limits on positions in commodity futures contracts. Such restrictions may have a negative
effect on the level of the Index and your payment, if any, at maturity. 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, accelerate the payment on your
notes. If the payment on your notes is
accelerated, your investment may result in a loss and you may not be able to
reinvest your money in a comparable investment. Please see General
Terms of Notes Consequences of a Commodity Hedging Disruption Event in the
accompanying product supplement no. 60-A-II for more information.
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JPMorgan
Structured Investments
Buffered Notes Linked to
the S&P GSCI Precious Metals Index Excess Return
|
TS-3 |
- OWNING THE NOTES IS
NOT THE SAME AS OWNING ANY COMMODITY FUTURES CONTRACTS The return on
your notes will not reflect the return you would realize if you actually held
the commodity contracts replicating the Index. The Index synthetic portfolio
is a hypothetical construct that does not hold any underlying assets of any
kind. As a result, a holder of the notes will not have any direct or indirect
rights to any commodity contracts.
- SUSPENSION OR
DISRUPTIONS OF MARKET TRADING IN THE COMMODITY AND RELATED OPTIONS FUTURES
MARKETS MAY ADVERSELY AFFECT THE LEVEL OF THE INDEX, AND THEREFORE THE VALUE OF
THE NOTES The commodity markets are subject to temporary distortions or other
disruptions due to various factors, including the lack of liquidity in the
markets, the participation of speculators and government regulation and
intervention. In addition, U.S. futures exchanges and some foreign exchanges have
regulations that limit the amount of fluctuation in options futures contract
prices that may occur during a single business day. These limits are generally
referred to as daily price fluctuation limits and the maximum or minimum
price of a contract on any given day as a result of these limits is referred to
as a limit price. Once the limit price has been reached in a particular
contract, no trades may be made at a different price. Limit prices have the
effect of precluding trading in a particular contract or forcing the
liquidation of contracts at disadvantageous times or prices. These
circumstances could adversely affect the level of the Index and, therefore, the
value of your notes.
- HIGHER FUTURES PRICES OF THE
COMMODITY FUTURES CONTRACTS UNDERLYING THE INDEX RELATIVE TO THE CURRENT PRICES
OF SUCH CONTRACTS MAY AFFECT THE VALUE OF THE INDEX AND THE VALUE OF THE NOTES The Index is composed
of futures contracts on physical commodities. Unlike equities, which
typically entitle the holder to a continuing stake in a corporation, commodity
futures contracts normally specify a certain date for delivery of the
underlying physical commodity. As the exchange-traded futures contracts that
compose the Index approach expiration, they are replaced by
contracts that have a later expiration. Thus, for example, a contract
purchased and held in August may specify an October expiration. As time
passes, the contract expiring in October is replaced with a contract for
delivery in November. This process is referred to as rolling. If the market
for these contracts is (putting aside other considerations) in backwardation,
where the prices are lower in the distant delivery months than in the nearer
delivery months, the sale of the October contract would take place at a price
that is higher than the price of the November contract, thereby creating a
positive roll yield. While many of the contracts included in the Index have
historically exhibited consistent periods of backwardation, backwardation will
most likely not exist at all times and there can be no assurance that
backwardation will exist at times that are advantageous, with respect to your
interests as a holder of the notes, to the valuation of the Index. The presence
of contango in the commodity markets could result in negative roll yields,
which could adversely affect the value of the Index and thus the value of notes
linked to the Index.
- THE INDEX MAY BE MORE VOLATILE AND
SUSCEPTIBLE TO PRICE FLUCTUATIONS OF COMMODITIES THAN A BROADER COMMODITIES
INDEX
The Index may be more volatile and susceptible to price fluctuations than a
broader commodities index, such as the S&P GSCI.
In contrast to the S&P GSCI, which
includes contracts on a variety of commodities, the Index is comprised of
contracts on only gold and silver. As a result, price volatility in the
contracts included in the Index will likely have a greater impact on the Index
than it would on the broader S&P GSCI.
In addition, because the Index omits principal market sectors comprising the
S&P GSCI, it will be less representative
of the economy and commodity markets as a whole and will therefore not serve as
a reliable benchmark for commodity market performance generally.
- THE NOTES
ARE LINKED TO AN EXCESS RETURN INDEX, AND NOT A TOTAL RETURN INDEX The notes are
linked to an excess return index and not a total return index. An excess
return index reflects the returns that are potentially available through an unleveraged
investment in the contracts comprising such index. By contrast, a total
return index, in addition to reflecting those returns, also reflect interest
that could be earned on funds committed to the trading of the underlying
futures contracts.
- NO INTEREST PAYMENTS As a holder of the
notes, you will not receive any interest payments.
- 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
level of the Index 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 of the Index and the
underlying futures contracts;
- the time to maturity of the notes;
- the market price of the physical commodities
upon which the futures contracts underlying the Index are based;
- interest and yield rates in the market
generally;
- a variety of economic, financial, political,
regulatory, geographical, agricultural, meteorological and judicial events; and
- our creditworthiness,
including actual or anticipated downgrades in our credit ratings.
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JPMorgan
Structured Investments
Buffered Notes Linked to
the S&P GSCI Precious Metals Index Excess Return
|
TS-4 |
What Is the Total Return on the Notes at
Maturity, Assuming a Range of Performances for the S&P
GSCI Precious Metals Index Excess Return?
The following table and examples illustrate the
hypothetical total return at maturity on the notes. The total return as used
in this term sheet is the number, expressed as a percentage, that results from
comparing the payment at maturity per $1,000 principal amount note to $1,000. The hypothetical total returns set
forth below assume an Initial Index Level of 180 and a Maximum Total Return on
the notes of 22.25% and reflect the Buffer Amount of 15%. The actual Maximum Total Return will be set on the pricing
date and will not be less than 22.25% or greater than 27.25%. The
hypothetical total returns set forth below are for illustrative purposes only
and may not be the actual total return applicable to a purchaser of the notes.
The numbers appearing in the following table and examples have been rounded for
ease of analysis.
|
Index Closing
Level
|
Index Return
|
Total Return
|
|
324.00
|
80.00%
|
22.25%
|
297.00
|
65.00%
|
22.25%
|
270.00
|
50.00%
|
22.25%
|
252.00
|
40.00%
|
22.25%
|
234.00
|
30.00%
|
22.25%
|
220.05
|
22.25%
|
22.25%
|
216.00
|
20.00%
|
20.00%
|
207.00
|
15.00%
|
15.00%
|
198.00
|
10.00%
|
10.00%
|
189.00
|
5.00%
|
5.00%
|
181.80
|
1.00%
|
1.00%
|
180.00
|
0.00%
|
0.00%
|
171.00
|
-5.00%
|
0.00%
|
162.00
|
-10.00%
|
0.00%
|
153.00
|
-15.00%
|
0.00%
|
144.00
|
-20.00%
|
-5.00%
|
126.00
|
-30.00%
|
-15.00%
|
108.00
|
-40.00%
|
-25.00%
|
90.00
|
-50.00%
|
-35.00%
|
72.00
|
-60.00%
|
-45.00%
|
54.00
|
-70.00%
|
-55.00%
|
36.00
|
-80.00%
|
-65.00%
|
18.00
|
-90.00%
|
-75.00%
|
0.00
|
-100.00%
|
-85.00%
|
|
Hypothetical
Examples of Amounts Payable at Maturity
The following examples illustrate how
the total returns set forth in the table above are calculated.
Example 1: The level of the Index
increases from the Initial Index Level of 180 to an Ending Index Level of 189.
Because the Ending
Index Level of 189 is greater than the Initial Index Level of 180, the investor
receives a payment at maturity of $1,050 per $1,000 principal amount note,
calculated as follows:
$1,000 +
($1,000 x 5%) = $1,050
Example 2: The level of the Index
decreases from the Initial Index Level of 180 to an Ending Index Level of 153.
Although the Index
Return is negative, because the Ending Index Level of 153 is less than the Initial
Index Level of 180 by not more than the Buffer Amount of 15%, the investor
receives a payment at maturity of $1,000 per $1,000 principal amount note.
Example 3: The level of the Index
increases from the Initial Index Level of 180 to an Ending Index Level of 252.
Because the Ending Index Level of 252 is greater than the Initial Index Level
of 180 and the Index Return of 40% exceeds the hypothetical Maximum Total
Return of 22.25%, the investor receives a payment at maturity of $1,222.50 per
$1,000 principal amount note, the maximum payment on the notes.
Example 4: The level of the Index
decreases from the Initial Index Level of 180 to an Ending Index Level of 126.
Because the Index
Return is negative and the Ending Index Level of 126 is less than the Initial
Index Level of 180 by more than the Buffer Amount of 15%, the investor receives
a payment at maturity of $850 per $1,000 principal amount note, calculated as
follows:
$1,000 + [$1,000
x (-30%+15%)] = $850
Example 5: The level of the Index
decreases from the Initial Index Level of 180 to an Ending Index Level of 0.
Because the Index
Return is negative and the Ending Index Level of 0 is less than the Initial
Index Level of 180 by more than the Buffer Amount of 15%, the investor receives
a payment at maturity of $150 per $1,000 principal amount note, which reflects
the protection provided by the Buffer Amount of 15%, calculated as follows:
$1,000 +
[$1,000 x (-100%+15%)] = $150
|
JPMorgan
Structured Investments
Buffered Notes Linked to
the S&P GSCI Precious Metals Index Excess Return
|
TS-5 |
Historical Information
The
following graph sets forth the historical performance of the S&P GSCI
Precious Metals Index Excess Return based on the weekly closing levels of the Index
from January 7, 2005 through June 11, 2010.
The closing level of the Index on June 17, 2010
was 182.4420. We obtained the closing levels of the Index 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
historical levels of the Index should not be taken as an indication of future
performance, and no assurance can be given as to the closing level of the Index
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 in excess of $150 per $1,000
principal amount note, subject to the credit risk of JPMorgan Chase & Co.
Supplemental Plan of Distribution
(Conflicts of Interest)
We own, directly or
indirectly, all of the outstanding equity securities of JPMSI, the agent for
this offering. The net proceeds received from the
sale of the notes will be used,
in part, by JPMSI or one of its affiliates in connection with hedging our obligation under the notes. In accordance with NASD Rule 2720, JPMSI may not make
sales in this offering to any of its discretionary accounts without the prior
written approval of the customer.
|
JPMorgan
Structured Investments
Buffered Notes Linked to
the S&P GSCI Precious Metals Index Excess Return
|
TS-6 |