Term Sheet
To
prospectus dated November 21, 2008,
prospectus supplement dated November
21, 2008 and
product supplement no. 187-A-I dated April 12. 2010
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Term Sheet to
Product Supplement No. 187-A-I
Registration Statement No.
333-155535
Dated April 13, 2010; Rule 433
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Structured
Investments
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$
Return Enhanced Notes Linked to the J.P. Morgan Contag Beta
Full Energy Class A Excess Return Index due May 12, 2011 |
General
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The notes are designed for investors
who seek a return of three times the appreciation of the J.P. Morgan Contag Beta
Full Energy Class A Excess Return Index up to a maximum total return on the
notes of between 15.00% and 25.00%* at maturity. Investors should be willing
to forgo interest payments and, if the Underlying declines, be willing to lose some
or all of their principal. Any payment on the notes is subject to the
credit risk of JPMorgan Chase & Co.
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Senior unsecured obligations of
JPMorgan Chase & Co. maturing May 12, 2011.
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Minimum denominations of $10,000 and
integral multiples of $1,000 in excess thereof.
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The notes are expected to price on
or about April 30, 2010 and are expected to settle on or
about May 5, 2010.
Key Terms
Index:
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The J.P. Morgan Contag Beta Full Energy Class A Excess
Return Index (the Contag Beta FE ER Index or the Underlying).
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Upside Leverage Factor:
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3
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Payment at Maturity:
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If the Ending Underlying Value is greater
than the Initial Underlying Value, you will receive a cash payment that
provides you with a return per $1,000 principal amount note equal to the Underlying
Return multiplied by three, subject to the Maximum Total Return on the notes
of between 15.00% and 25.00%*. For example, assuming the Maximum Total
Return is 15.00%*, if the Underlying Return is greater than or equal to 5.00%,
you will receive the Maximum Total Return on the notes of 15.00%*, which
entitles you to a maximum payment at maturity of $1,150 for every $1,000 principal amount note that you
hold. Accordingly, if the Underlying 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
(Underlying Return x 3)]
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* The Maximum Total Return on the notes
will be set on the pricing date and will not be less than 15.00% or greater
than 25.00%, and accordingly, the actual maximum payment at maturity will not
be less than $1,150 or greater than $1,250 per $1,000 principal amount note.
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Your investment
will be fully exposed to any decline in the Underlying. If the Ending
Underlying Value is less than the Initial Underlying Value, you will lose 1%
of the principal amount of your notes for every 1% that the value of the
Underlying declines below the Initial Underlying Value. Accordingly, if the Underlying
Return is negative, your payment at maturity per $1,000 principal amount note
will be calculated as follows:
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$1,000 + ($1,000 x
Underlying Return)
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You will lose some or all of your
investment at maturity if the Ending Underlying Value is less than the Initial
Underlying Value.
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Underlying Return:
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Ending
Underlying Value Initial Underlying Value
Initial
Underlying Value
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Initial Underlying Value:
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The Underlying closing value on the pricing date, which is
expected to be on or about April 30, 2010
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Ending Underlying Value:
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The Underlying closing value on the Observation Date
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Observation Date:
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May 9, 2011
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Maturity Date:
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May 12, 2011
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CUSIP:
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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. 187-A-I
or early acceleration in the event of a hedging disruption event as described
under "General Terms of NotesConsequences of a Commodity Hedging
Disruption Event" in the accompanying product supplement no. 187-A-I and
in "Selected Risk ConsiderationsCommodity Futures Contracts Are Subject
to Uncertain Legal and Regulatory Regimes" in this term sheet.
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Investing in the Return Enhanced Notes involves a number of
risks. See Risk Factors beginning on page PS-6 of the accompanying product
supplement no. 187-A-I and Selected Risk Considerations beginning on page TS-3
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 and fees
and commissions include the expected cost of hedging our obligations under
the notes through one or more of our affiliates. This hedging cost includes
the profit our affiliates expect to realize in consideration for assuming the
risks inherent in providing such hedge. J.P. Morgan Securities Inc., which
we refer to as JPMSI, acting as agent for JPMorgan Chase & Co., will
receive a commission of approximately 0.15% of the Principal Amount per
note. For additional related information, please see Use of Proceeds
beginning on page PS-19 of product supplement no. 187-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.
April 13, 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. 187-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.
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. 187-A-I dated April 12, 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. 187-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):
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.
J.P. Morgan Contag Beta Full Energy Class A
Excess Return Index
The J.P. Morgan Contag Beta Full Energy Class A Excess Return Index, is a notional
rules-based proprietary index developed by J.P. Morgan Securities Ltd.
(JPMSL), which is intended to capture the return of the synthetic exposure to
a notional basket consisting of 24 commodities, each of which is represented by
a commodity futures contract selected by a methodology developed by JPMSL,
which we refer to as the Selection Methodology. The Selection Methodology
uses, along with other criteria, the slope of the futures curve for each
eligible commodity to select the futures contract for each eligible commodity
with the highest level of backwardation (or in the absence of backwardation,
the least amount of contango). Backwardation refers to the situation where
the futures contracts for a commodity with a delivery month further in time
have lower contract prices than futures contracts for the same commodity 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.
The J.P. Morgan Contag Beta Full Energy Class A Excess Return Index is an
excess return index. An excess return index reflects synthetic exposure to
uncollateralized positions in the futures contracts underlying such index,
including the appreciation (or depreciation) of the applicable futures
contract(s) and profit or loss realized when rolling such contracts.
The weights assigned to the commodities represented in the J.P. Morgan
Contag Beta Full Energy Class A Excess Return Index are based on the Contract
Production Weights of the S&P GSCI Excess Return Index. For
more information on how the commodity weights of the J.P. Morgan Contag Beta Full
Energy Class A Excess Return Index are defined, please see The J.P. Morgan
Contag Beta Indices Calculation and Publication of the Index Level
Commodity Weights and Background on the S&P GSCI Excess
Return, the S&P GSCI Light Energy Index Excess Return and the
S&P GSCI Sub-Indices in the accompanying product supplement.
The value of the J.P. Morgan Contag Beta Full Energy Class A
Excess Return Index is published each trading day under the Bloomberg ticker
symbol JCTABFEE. For more information about the J.P. Morgan Contag Beta Full
Energy Class A Excess Return Index, see The J.P. Morgan Contag Beta Indices
in the accompanying product supplement.
Selected Purchase
Considerations
- APPRECIATION
POTENTIAL The notes provide the opportunity to enhance returns by multiplying a
positive Underlying Return by three, up to the Maximum Total Return on the
notes. The Maximum Total Return on the notes will be set on the pricing date
and will not be less than 15.00% or greater than 25.00%, and accordingly, the actual
maximum payment at maturity will not be less than $1,150 or greater than $1,250
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.
- RETURN LINKED TO THE
CONTAG BETA FULL ENERGY CLASS A EXCESS RETURN INDEX The return on the
notes is linked to the performance of the Contag Beta Full Energy Class A
Excess Return Index, which seeks to capture the return of the synthetic
exposure to a notional basket of commodities, each represented by a commodity
futures contract that display the highest degree of backwardation (or in some
cases, the lowest degree of contango). See J.P Morgan Contag Beta Full Energy
Class A Excess Return Index above and The J.P. Morgan Contag Beta Indices in
the accompanying product supplement no. 187-A-I.
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JPMorgan
Structured Investments
Return Enhanced Notes Linked to the J.P. Morgan Contag Beta Full Energy
Class A Excess Return Index due May 12, 2011
|
TS-1 |
- CAPITAL
GAINS TAX TREATMENT You should review carefully the section
entitled Certain U.S. Federal Income Tax Consequences in the accompanying
product supplement no. 187-A-I. Subject to the limitations described therein,
and based on certain factual representations received from us, in the opinion
of our special tax counsel, Davis Polk & Wardwell LLP, it is reasonable 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,
which might include 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 that is
subject to 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.
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.
Selected Risk
Considerations
An
investment in the notes involves significant risks. Investing in the notes is
not equivalent to investing directly in the Underlying, any futures contracts
underlying the Underlying, or any futures contracts or exchange-traded or
over-the-counter instruments based on, or other instruments linked to, the Underlying.
These risks are explained in more detail in the Risk Factors section of the
accompanying product supplement no. 187-A-I dated April 12, 2010.
- YOUR
INVESTMENT IN THE NOTES MAY RESULT IN A LOSS The notes do not guarantee any return of principal.
The return on the notes at maturity is linked to the performance of the
Underlying and will depend on whether, and the extent to which, the Underlying
Return is positive or negative. Your investment will be exposed to any decline
in the Ending Underlying Value, as compared to the Initial Underlying Value.
- YOUR
MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM TOTAL RETURN If the Ending Underlying Value is greater than the Initial
Underlying Value, 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
Underlying, 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 15.00% or greater than 25.00%.
- 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 adversely affect the value of
the notes.
- CERTAIN BUILT-IN COSTS ARE LIKELY TO ADVERSELY AFFECT
THE VALUE OF THE NOTES PRIOR TO MATURITY While the payment at maturity, if any, 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 Impact 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 Underlying closing values to be used to determine your payment
at maturity and acting as the Contag Calculation Agent and sponsor of the
Underlying and hedging our obligations under the notes. In performing these
duties, the economic interests of the Note Calculation Agent, Contag Calculation
Agent, sponsor of the Underlying 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
CONTAG CALCULATION AGENT AND MAY ADJUST THE UNDERLYING IN A WAY THAT AFFECTS
ITS VALUE JPMSL,
one of our affiliates, acts as the Contag Calculation Agent and sponsor of the
Underlying, is responsible for calculating and maintaining the Underlying and
developing the guidelines and
|
JPMorgan
Structured Investments
Return Enhanced Notes Linked to the J.P. Morgan Contag Beta Full Energy
Class A Excess Return Index due May 12, 2011
|
TS-2 |
policies governing its composition and
calculation. The rules governing the Underlying may be amended at any time by
JPMSL, in its sole discretion, and the rules also permit the use of discretion
by JPMSL in specific instances, such as the right to substitute or exclude a
futures contract included in the Underlying due to a change in law or otherwise
and calculating substitute closing levels of the Underlying. Unlike other
indices, the maintenance of the Underlying is not governed by an independent
committee. Although judgments, policies and determinations concerning the
Underlying 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 value of the Underlying and
the value of your notes. JPMSL is under no obligation to consider your
interests as an investor in the notes.
- 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 Underlying and the futures contracts underlying the Underlying.
- COMMODITY PRICES ARE
CHARACTERIZED BY HIGH AND UNPREDICTABLE VOLATILITY, WHICH COULD LEAD TO A HIGH
AND UNPREDICTABLE VOLATILITY IN THE UNDERLYING Market prices of
the commodity options futures contracts underlying the Contag Beta FE ER 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; weather; and agricultural,
trade, fiscal and exchange control policies. Many commodities are also highly
cyclical. These factors may affect the value of the Underlying in varying
ways, and different factors may cause the value of different commodities
included in the Underlying, 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 Underlying. The high
volatility and cyclical nature of commodity markets may render such an
investment inappropriate as the focus of an investment portfolio.
- COMMODITY FUTURES
CONTRACTS ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES The commodity
futures contracts that underlie the Contag Beta FE ER 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 Contag Beta FE ER 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
result in a modification of the rules, which may, in turn, have a negative
effect on the value of the Contag Beta FE ER 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. 187-A-I for more
information.
- HIGHER FUTURES
PRICES OF THE COMMODITY FUTURES CONTRACTS UNDERLYING THE CONTAG BETA FE ER
INDEX RELATIVE TO THE CURRENT PRICES OF SUCH CONTRACTS MAY AFFECT THE VALUE OF
THE CONTAG BETA FE ER INDEX AND THE VALUE OF THE NOTES The Underlying 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 Underlying 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 Underlying 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 Underlying. The presence of contango in the
commodity markets, (i.e., where the prices for the relevant futures
contract are higher in the distant delivery months than in nearby delivery
months) could result in negative roll yields, which could adversely affect
the value of the Underlying and thus the value of notes linked to
the Underlying.
- AN INVESTMENT IN THE
NOTES CARRIES THE RISKS ASSOCIATED WITH THE METHODOLOGY USED TO CALCULATE THE CONTAG
BETA FE ER INDEX The Contag Beta FE ER Index is constructed, in part, using a
rules-based 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 the highest level of backwardation is
selected for each eligible commodity (each, a Contag Contract), subject to
certain limitations. 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.
In addition, the Contag
Beta FE ER Index is synthetically exposed to the futures contracts selected as
the Contag Contracts by the Selection Methodology and such futures contracts
may, in general, be deferred futures contracts (i.e., those contracts having a
delivery month further dated than the futures contract with the nearest
delivery month). It is generally expected that such deferred futures contracts
may have less liquidity than the near-month futures contracts (those being the
nearest-to-deliver) with respect to the same commodities. Deferred futures
contracts may also be less well correlated with the spot market (physical)
prices of the relevant commodities and exhibit different levels of volatility.
Accordingly, the Contag Beta FE ER Index may not perform as well as an index
linked to the spot prices of the relevant commodities.
- OWNING THE NOTES IS
NOT THE SAME AS OWNING ANY COMMODITY FUTURES CONTRACTS OR ANY RELATED
COMMODITIES The return on your notes will not reflect the return you would realize
if you actually held the commodity contracts composing the Underlying or any
related commodities. The Underlyings synthetic portfolio is a hypothetical
construct that does not hold
|
JPMorgan
Structured Investments
Return Enhanced Notes Linked to the J.P. Morgan Contag Beta Full Energy
Class A Excess Return Index due May 12, 2011
|
TS-3 |
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 or related commodities.
- SUSPENSION OR DISRUPTIONS OF MARKET
TRADING IN THE COMMODITY AND RELATED OPTIONS FUTURES MARKETS MAY ADVERSELY
AFFECT THE VALUE OF THE CONTAG BETA FE ER 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 value of the Underlying and,
therefore, the value of your notes.
- COMMODITIES PRICES ARE VOLATILE AND
THE ROLL RETURN GENERATED BY ROLLING COMMODITY FUTURES INCLUDED IN THE CONTAG
BETA FE ER INDEX WILL HAVE AN EFFECT ON THE VALUE OF THE UNDERLYING AND THE
VALUE OF THE NOTES The Contag Beta FE ER Index is comprised of
commodity futures with different maturities selected on the basis of historical
open interest. Each month, contracts that are about to mature whose weighting
in the Underlying have been decreased or that cease to be available for trading
before the end of the next roll period will be rolled into contracts with
different maturities. In addition, because the Contag Beta FE ER Index is
weighted by open-interest, all contracts included in the Contag Beta FE ER
Index will be re-weighted on a monthly basis, whether they are approaching
maturity or not, to reflect the monthly change in their open interest. The act
of replacing and re-weighting the commodity futures that comprise the Contag
Beta FE ER Index will generate a profit or loss known as the
roll return. This return will be affected by a number of factors including,
whether the prices of the relevant longer dated contracts are more or less than
the prices of the shorter dated contracts. The roll return will generally be
negative if the prices of the relevant longer dated contracts are greater than
the prices of the shorter dated contracts. Conversely, if the prices of the longer
dated contracts are less than the prices of the shorter dated contracts then
the roll return will generally be positive. The prices of commodity futures
can be volatile and the roll return generated by rolling commodity futures
included in the Contag Beta FE ER Index will have
an effect, be positive or negative, on the Contag Beta FE ER Index, and
therefore the value of the notes.
- THE CONTAG BETA FE ER INDEX MAY NOT
BE SUCCESSFUL AND MAY NOT OUTPERFORM ANY ALTERNATIVE STRATEGY THAT MIGHT BE
EMPLOYED WITH RESPECT TO THE FUTURES CONTRACTS UNDERLYING THE UNDERLYING The Contag Beta FE
ER Index follows a proprietary strategy that operates on the basis on
pre-determined rules. No assurance can be given that the investment strategy
on which the Contag Beta FE ER Index is based will be successful or that the Contag
Beta FE ER Index will outperform any alternative strategy that might be
employed with respect to the futures contracts underlying the Underlying.
- THE CONTAG BETA FE ER INDEX HAS A LIMITED OPERATING HISTORY The first Contag Beta Index was
launched on May 29, 2009 and subsequent Contag Beta Indices
were introduced in the period up to and through January 2010, and therefore has
limited historical performance. Any back-testing or similar analysis in
respect of the Contag Beta FE ER Index must be considered illustrative only and
may be based on estimates or assumptions not used by the Contag Calculation Agent
when determining values of the Contag Beta FE ER Index. Past performance
should not be considered indicative of future performance.
- NO INTEREST PAYMENTS
As
a holder of the notes, you will not receive any interest payments.
- THE
NOTES ARE LINKED TO AN EXCESS RETURN AND NOT A TOTAL RETURN INDEX The notes are
linked to an excess return index and not a total return index. The Index is an
excess return index intended to track the performance of up to two excess
return commodity indices. An excess return index, such as the Underlying,
reflects the returns that are potentially available through an uncollateralized
investment in the contracts underlying such index, including any profit or loss
realized when rolling such contracts. 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.
Investing in the notes will therefore not generate the same return as one would
obtain from investing directly in the relevant futures contracts or in a total
return index related to such future contracts.
- 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
Underlying 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 Underlying;
- the time to maturity
of the notes;
- the market price of
the physical commodities upon which the futures contracts that compose the Underlying
are based;
- interest and yield
rates in the market generally, as well as in the markets of the futures
contracts underlying the Underlying;
- 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.
|
JPMorgan
Structured Investments
Return Enhanced Notes Linked to the J.P. Morgan Contag Beta Full Energy
Class A Excess Return Index due May 12, 2011
|
TS-4 |
What Is the Total
Return on the Notes at Maturity Assuming a Range of Performance for the J.P. Morgan
Contag Beta Full Energy Class A Excess Return Index?
The following table illustrates 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 Underlying Value of 370 and a Maximum Total
Return on the notes of 20.00% (which is the midpoint of the range of 15.00% and
25.00%). The Maximum Total Return will be set on
the pricing date and will not be less than 15.00% or greater than 25.00%. If
the actual Maximum Total Return as determined on the pricing date is less than 20.00%,
your maximum payment at maturity will be lower than the hypothetical maximum
payment at maturity shown below. The hypothetical total returns set
forth below are for illustrative purposes only and may not be the actual total
returns applicable to a purchaser of the notes. The numbers appearing in the
following table and examples have been rounded for ease of analysis.
|
Underlying
Closing Value
|
Underlying
Return
|
Total Return
|
|
666.00
|
80.00%
|
20.00%
|
610.50
|
65.00%
|
20.00%
|
555.00
|
50.00%
|
20.00%
|
518.00
|
40.00%
|
20.00%
|
499.50
|
35.00%
|
20.00%
|
481.00
|
30.00%
|
20.00%
|
444.00
|
20.00%
|
20.00%
|
407.00
|
10.00%
|
20.00%
|
394.67
|
6.67%
|
20.00%
|
388.50
|
5.00%
|
15.00%
|
379.25
|
2.50%
|
7.50%
|
373.70
|
1.00%
|
3.00%
|
370.00
|
0.00%
|
0.00%
|
351.50
|
-5.00%
|
-5.00%
|
333.00
|
-10.00%
|
-10.00%
|
296.00
|
-20.00%
|
-20.00%
|
259.00
|
-30.00%
|
-30.00%
|
222.00
|
-40.00%
|
-40.00%
|
185.00
|
-50.00%
|
-50.00%
|
148.00
|
-60.00%
|
-60.00%
|
111.00
|
-70.00%
|
-70.00%
|
74.00
|
-80.00%
|
-80.00%
|
37.00
|
-90.00%
|
-90.00%
|
0.00
|
-100.00%
|
-100.00%
|
|
Hypothetical
Examples of Amounts Payable at Maturity
The following examples illustrate how
the total returns set forth in the table on the previous page are calculated.
Example 1: The value of the Underlying
increases from the Initial Underlying Value of 370 to an Ending Underlying
Value of 379.25. Because
the Ending Underlying Value of 379.25 is greater than the Initial Underlying
Value of 370 and the Underlying Return of 2.50% multiplied by 3 does not exceed
the Maximum Total Return of 20.00%, the investor receives a payment at maturity
of $1,075 per $1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 x (2.5% x 3)] = $1,075
Example 2: The value of the Underlying
increases from the Initial Underlying Value of 370 to an Ending Underlying
Value of 518. Because the Ending Underlying Value of 518 is greater than the Initial
Underlying Value of 370 and the Underlying Return of 40% multiplied by 3 exceeds
the Maximum Total Return of 20.00%, the investor receives a payment at maturity
of $1,200 per $1,000 principal amount note, the maximum payment on the notes.
Example 3: The value of the Underlying
decreases from the Initial Underlying Value of 370 to an Ending Underlying Value
of 296. Because the
Ending Underlying Value of 296 is less than the Initial Underlying Value of 370,
the Underlying Return is negative, and the investor receives a payment at
maturity of $800 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 x
- -20%) = $800
|
JPMorgan
Structured Investments
Return Enhanced Notes Linked to the J.P. Morgan Contag Beta Full Energy
Class A Excess Return Index due May 12, 2011
|
TS-5 |
Hypothetical
Back-tested Data and Historical Information
The following graph sets forth the hypothetical back-tested
performance of the Underlying based on the hypothetical back-tested weekly Underlying
closing values from January
7, 2005 through May 22, 2009, and the historical performance of the Underlying based on the
weekly Underlying closing values from May 29, 2009 through April 9, 2010. The Underlying was established on May 29, 2009. The Underlying closing value on April 12, 2010 was 371.4872. We obtained the Underlying 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 Underlying
should not be taken as an indication of future performance, and no assurance
can be given as to the Underlying closing value on the pricing date or the
Observation Date. We cannot give you assurance that the performance of the Underlying
will result in the return of any of your initial investment at maturity. The
data for the hypothetical back-tested performance of the Underlying set forth
in the following graph was calculated on materially the same basis on which the
performance of the Underlying is now calculated but does not represent the
actual historical performance of the Underlying.
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.
|
JPMorgan
Structured Investments
Return Enhanced Notes Linked to the J.P. Morgan Contag Beta Full Energy
Class A Excess Return Index due May 12, 2011
|
TS-6 |