Term sheet
To prospectus
dated November
21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 39-A-VI dated February 22, 2010
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Term Sheet to
Product Supplement No. 39-A-VI
Registration Statement No. 333-155535
Dated May 12, 2010; Rule 433
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Structured
Investments
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$
Upside Knock-Out Buffered Return Enhanced Notes Linked to the iShares®
MSCI Emerging Markets Index Fund due May 18, 2012 |
General
- The notes are designed for investors who seek a
return of 1.35 times the appreciation of the iShares® MSCI Emerging
Markets Index Fund, up to a maximum return on the notes of at least 94.50%* at
maturity. Investors should be willing to forgo interest and dividend payments
and, under certain circumstances, be willing to lose up to 100% of their
principal. If a Knock-Out Event occurs, investors should be willing to forgo
any return above a fixed return of at least 30%** at maturity. Any payment
on the notes is subject to the credit risk of JPMorgan Chase & Co.
- Senior unsecured obligations of JPMorgan Chase &
Co. maturing May 18, 2012
- Minimum denominations of $1,000 and integral
multiples thereof
- The notes are expected to price on or about May 13, 2010 and
are expected to settle on or about May 18, 2010. The pricing date, for purposes of the notes, is the day we determine the
Knock-Out Price and Knock-Out Rate and, accordingly, reflects the day that the
terms of the notes become final.
- The terms of the notes as set forth in Key Terms
below, to the extent they differ from or conflict with those set forth in the
accompanying product supplement no. 39-A-VI, supersede the terms set forth in
product supplement no. 39-A-VI. For example, your return on the notes will be
limited to the Knock-Out Rate of at least 30%** if, on any trading day during
the Monitoring Period, the closing price of one share of the Index Fund exceeds
the Knock-Out Price. You will be subject to this capped return even though the
Knock-Out Price, Knock-Out Rate and the associated Monitoring Period are not
described in the accompanying product supplement no. 39-A-VI. Please also
refer to Supplemental Terms of the Notes in this term sheet for additional
information.
Key Terms
Index
Fund:
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The iShares®
MSCI Emerging Markets Index Fund (EEM) (the Index Fund)
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Upside
Leverage Factor:
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1.35
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Payment
at Maturity:
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If
a Knock-Out Event has not occurred and the Final Share Price is greater than
the Initial Share Price, you
will receive a cash payment at maturity that provides you with a return per
$1,000 principal amount note equal to the Fund Return multiplied by 1.35.
Under these circumstances, your payment at maturity per $1,000 principal
amount note will be calculated as follows:
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$1,000 + ($1,000 x Fund Return x 1.35)
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Assuming
a Knock-Out Price equal to 170% of the Initial Share Price, the maximum
return on the notes will be 94.50%.
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If
a Knock-Out Event has not occurred and the Final Share Price is equal to or less
than the Initial Share Price by up to 10%, you will receive the principal amount of your
notes at maturity.
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If
a Knock-Out Event has not occurred and the Final Share Price is less than the
Initial Share Price by more than 10%, you will lose 1.1111% of the principal amount of your notes for
every 1% that the Index Fund declines beyond 10% 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 ((Fund Return + 10%) x 1.1111)]
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You
will lose some or all of your initial investment at maturity if a Knock-Out
Event has not occurred and the Final Share Price is less than the Initial
Share Price.
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If
a Knock-Out Event has occurred,
your payment at maturity will be based on the Knock-Out Rate. Under these
circumstances, your payment at maturity per $1,000 principal amount note will
be calculated as follows:
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$1,000 + ($1,000 x Knock-Out Rate)
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Knock-Out
Event:
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A
Knock-Out Event occurs if, on any trading day during the Monitoring Period,
the closing price of one share of the Index Fund is greater than the Knock-Out
Price.
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Knock-Out
Price:
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An Index
Fund closing price equal to at least 170%* of the Initial Share Price, which
is subject to adjustment. See Initial Share Price and Share
Adjustment Factor below.
* The
actual Knock-Out Price will be set on the pricing date and will not be less
than 170% of the Initial Share Price. Accordingly the maximum return on the
notes is equal to at least 70% x the Upside Leverage Factor of 1.35 and will
be at least 94.50%.
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Knock-Out
Rate:
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At
least 30%**.
**The
actual Knock-Out Rate will be set on the pricing date and will not be less
than 30%.
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Monitoring
Period:
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The
period from the pricing date to and including the Observation Date.
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Buffer
Amount:
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10%
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Downside
Leverage Factor:
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1.1111
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Fund
Return:
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Final
Share Price Initial Share Price
Initial Share Price
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Initial
Share Price:
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The closing
price of one share of the Index Fund on May 12, 2010, which was $40.70 divided by the Share Adjustment Factor
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Final
Share Price:
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The closing
price of one share of the Index Fund on the Observation Date
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Share
Adjustment Factor:
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Set
initially at 1.0 on May 12, 2010 and subject to adjustment under certain
circumstances. See Description of Notes Payment at Maturity.
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Observation
Date:
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May 15, 2012
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Maturity
Date:
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May 18, 2012
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CUSIP:
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48124AQT7
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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. 39-A-VI.
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Investing in the Upside Knock-Out Buffered Return
Enhanced Notes involves a number of risks. See Risk Factors beginning on
page PS-10 of the accompanying product supplement no. 39-A-VI 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 and assuming a Knock-Out
Price of 170% of the Initial Share Price, J.P. Morgan Securities Inc., which
we refer to as JPMSI, acting as agent for JPMorgan Chase & Co., would
receive a commission of approximately $10.50 per $1,000 principal amount note
and would use a portion of that commission to allow selling concessions to other
affiliated or non-affiliated dealers of approximately $0.50 per $1,000
principal amount note. This commission includes the projected profits that
our affiliates expect to realize, some of which have been 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 $10.50 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 $20.00 per $1,000 principal amount note.
See "Plan of Distribution" beginning on page PS-184 of the
accompanying product supplement no. 39-A-VI.
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The
notes are not bank deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency, nor are they
obligations of, or guaranteed by, a bank.
May 12, 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. 39-A-VI 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. 39-A-VI dated February 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. 39-A-VI,
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
The information set forth below supplements the
information contained in the accompanying product supplement no. 39-A-VI.
- CALCULATION AGENT In addition to the determinations that will be made by the
calculation agent described under General Terms of Notes Calculation Agent
in the accompanying product supplement no. 39-A-VI, the calculation agent will
also determine the closing price of one share of the Index Fund on each trading
day during the Monitoring Period for purposes of determining whether a
Knock-Out Event has occurred.
- MARKET DISRUPTION EVENTS The market disruption events described under
General Terms of Notes Market Disruption Events may, among other things,
prevent the calculation agent from determining the closing price of one share of
the Index Fund on any trading day during the Monitoring Period for purposes of
determining whether a Knock-Out Event has occurred.
- DISCONTINUATION OF THE iSHARES® MSCI
EMERGING MARKETS INDEX FUND In
addition to the determinations that will be made by the calculation agent in
the event of a discontinuation of the Index Fund or a successor index fund described
under General Terms of Notes Discontinuation of a Basket Fund; Alternate
Calculation of Closing Price in the accompanying product supplement no. 39-A-VI,
if the Index Fund or successor index fund is de-listed, liquidated or otherwise
terminated and the calculation agent determines that no successor index fund is
available, then the calculation agent will, in its sole discretion, calculate
the closing price of one share of the Index Fund for such trading day in the
manner described under General Terms of Notes Discontinuation of a Basket Fund;
Alternate Calculation of Closing Price in the accompanying product supplement
no. 39-A-VI. In addition, if at any time, the Underlying Index related to the
Index Fund or a successor index fund is changed in a material respect, or the
Index Fund or a successor index fund in any other way is modified so that it
does not, in the opinion of the calculation agent, fairly represent the price
of the share of the Index Fund or such successor index fund had those changes
or modifications not been made, then the calculation agent will, at the close
of business in New York City on each date on which the closing price of one
share of the Index Fund is to be determined, make such calculations and
adjustment as, in the good faith judgment of the calculation agent, may be
necessary in order to arrive at a closing price of an exchange traded fund
comparable to the Index Fund (or such successor index fund) as if those changes
or modifications had not been made, and calculate the closing price with
reference to the Index Fund (or such successor index fund), as adjusted. The
calculation agent may also determine that no adjustment is required by the
modification of the method of calculation.
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JPMorgan
Structured Investments
Upside Knock-Out Buffered Return
Enhanced Notes Linked to the iShares® MSCI Emerging Markets Index
Fund
|
TS-1 |
Selected Purchase Considerations
- APPRECIATION POTENTIAL IF A KNOCK-OUT EVENT HAS
NOT OCCURRED If a Knock-Out Event
has not occurred, the notes provide the opportunity to enhance
equity returns by multiplying a positive Fund Return by 1.35, up to a maximum
return of at least 94.50%* at maturity. The actual maximum return on the notes
will be based on the Upside Leverage Factor of 1.35 and the Knock-Out Price,
which will be determined on the pricing date and will not be less than 170% of
the Initial Share Price. 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.
- POTENTIAL POSITIVE RETURN EVEN IF THE FUND RETURN IS
NEGATIVE If the closing price of
one share of the Index Fund on any trading day during the Monitoring Period is
greater than the Knock-Out Price of at least 170%* of the Initial Share Price,
a Knock-Out Event will occur and, even if the Final Share Price is less than
the Initial Share Price, you will receive a fixed return at maturity equal to
the Knock-Out Rate of at least 30%**.
* The Knock-Out Price will be set on the pricing date
and will not be less than 170% of the Initial Share Price.
**The Knock-Out Rate will be set on the pricing date
and will not be less than 30%.
- LIMITED PROTECTION AGAINST LOSS Payment at maturity of the principal amount of the
notes is protected where the Final Share Price is less than the Initial Share
Price by up to 10%. If a Knock-Out Event has not occurred and the Final
Share Price is less than the Initial Share Price by more than 10%, for every 1%
decline of the closing price of one share of the Index Fund beyond 10%, you
will lose an amount equal to 1.1111% of
the principal amount of your notes.
- DIVERSIFICATION OF THE iSHARES®
MSCI EMERGING MARKETS INDEX FUND The iShares® MSCI Emerging Markets Index Fund is an
exchange-traded fund of iShares, Inc., which is a registered investment company
that consists of numerous separate investment portfolios. The iShares®
MSCI Emerging Markets Index Fund seeks to provide investment results that
correspond generally to the price and yield performance, before fees and
expenses, of publicly traded securities in emerging markets as measured by the
MSCI Emerging Markets Index, which we refer to as the Underlying Index. The
Underlying Index is a free-float adjusted average of the U.S. dollar values of
all of the equity securities constituting the MSCI indices for selected
emerging markets countries. For additional information about the Index Fund,
see the information set forth under The iShares® MSCI Emerging
Markets Index Fund in the accompanying product supplement no. 39-A-VI.
- TAX TREATMENT You should review carefully the section entitled Certain U.S.
Federal Income Tax Consequences in the accompanying product supplement no. 39-A-VI.
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, subject to the occurrence of a Knock-Out Event
(as described below), it is reasonable to treat the notes as open
transactions for U.S. federal income tax purposes that, subject to the
discussion of the constructive ownership rules in the following sentence,
generate long-term capital gain or loss if held for more than one year. The
notes may be treated as subject to the constructive ownership rules of Section
1260 of the Internal Revenue Code of 1986, as amended (the Code), in which
case any gain recognized in respect of the notes that would otherwise be long-term
capital gain and that is in excess of the net underlying long-term capital
gain (as defined in Section 1260) would be treated as ordinary income, and an
interest charge would apply as if that income had accrued for tax purposes at a
constant yield over the notes term. Our special tax counsel has not expressed
an opinion with respect to whether the constructive ownership rules apply to
the notes. Accordingly, U.S. Holders should consult their tax advisers
regarding the potential application of the constructive ownership rules. In
addition, 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. For example, the IRS could assert that a deemed taxable exchange has
occurred on the date on which a Knock-Out Event occurs, if any. If the IRS were
successful in asserting that a taxable exchange has occurred, any gain on the
deemed exchange would likely be capital gain, subject to the application of the
constructive ownership rules discussed above. In this event, aspects of the
tax treatment of the notes following the Knock-Out Event would be uncertain.
You should consult your tax adviser regarding the tax treatment of the notes
following a Knock-Out Event.
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 described above. 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 the potential
application of the constructive ownership rules, the possibility of a deemed
taxable exchange, 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 paragraphs, when read
in combination with the section entitled Certain U.S. Federal Income Tax
Consequences in the accompanying product supplement, constitutes the full
opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal
income tax consequences of owning and disposing of notes.
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JPMorgan
Structured Investments
Upside Knock-Out Buffered Return
Enhanced Notes Linked to the iShares® MSCI Emerging Markets Index
Fund
|
TS-2 |
Selected Risk
Considerations
An
investment in the notes involves significant risks. Investing in the notes is
not equivalent to investing directly in the Index Fund, the Underlying Index or
in any of the component securities of the Index Fund or the Underlying Index.
These risks are explained in more detail in the Risk Factors section of the
accompanying product supplement no. 39-A-VI dated February 22, 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 Index Fund and will depend on whether a
Knock-Out Event has occurred, the Knock-Out Rate if a Knock-Out Event has
occurred and, if a Knock-Out Event has not occurred, whether, and the extent to
which, the Fund Return is positive or negative. If a Knock-Out Event has not occurred, your investment will be
exposed to loss on a leveraged basis if the Final Share Price is less than the Initial
Share Price, by more than 10%. Accordingly,
you could lose some or all of your initial investment at maturity.
- THE KNOCK-OUT FEATURE WILL LIMIT YOUR RETURN
ON THE NOTES
Your investment in the notes may not perform as well as an investment in a
security with a return based solely on the performance of the Index Fund. Your
ability to participate in the appreciation of the Index Fund may be limited by
the Knock-Out Rate of the notes. The closing price of one share of the Index
Fund will be measured on each trading day during the Monitoring Period in order
to determine whether a Knock-Out Event has occurred. If a Knock-Out Event has
occurred, the return on each $1,000 principal amount note will not be greater
than $1,000 x the Knock-Out Rate of at least 30%**, regardless of the
appreciation in the Index Fund, which may be significant. Once a Knock-Out
Event has occurred, your return on the notes will not exceed the
Knock-Out Rate, even if the closing price of one share of the Index Fund on any
trading day during the Monitoring Period subsequently decreases below the Knock-Out
Price. In addition, if a Knock-Out Event has occurred, your return on
the notes at maturity may be less than the return you would have received at
maturity if a Knock-Out Event had not occurred. If a Knock-Out Event has not
occurred and the Final Share Price is greater than the Initial Share Price,
your return on the notes would equal the Fund Return times the Upside Leverage
Factor of 1.35 (subject to the embedded maximum return of at least 94.50%),
which may yield a greater return on your investment than the Knock-Out Rate.
** The Knock-Out Rate will be set on the pricing date and will not be less than
30%.
- YOUR NOTES ARE SUBJECT TO AN
EMBEDDED MAXIMUM RETURN OF 94.50% AT MATURITY Because a Knock-Out Event will occur if the Final Share Price is
greater than the Knock-Out Price of at least 170%* of the Initial Share Price,
for each $1,000 principal amount note, your payment at maturity is subject to
an embedded maximum return at maturity. Assuming a Knock-Out Price of 170% of
the Initial Share Price and because of the Upside Leverage Factor of 1.35, the
maximum return on the notes will be 94.50% and the maximum payment at maturity will
be $1,945 per $1,000 principal amount note.
* The Knock-Out Price will be set on the pricing date and will not be less than
170% of the Initial Share Price.
- 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.
Payment on the notes is dependent on JPMorgan Chase & Co.s ability to pay
the amount due on the notes at maturity, and therefore your payment on the
notes is 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.
- RISK OF KNOCK-OUT EVENT OCCURRING IS GREATER IF THE
INDEX FUND IS VOLATILE The
likelihood of the closing price of one share of the Index Fund on any trading
day during the Monitoring Period being greater than the Knock-Out Price and
thereby triggering a Knock-Out Event, will depend in large part on the
volatility of the Index Fund the frequency and magnitude of changes in the closing
price of one share of the Index Fund. Over the past twelve months, the Index Fund
has experienced significant volatility.
- CERTAIN BUILT-IN COSTS ARE
LIKELY TO ADVERSELY AFFECT 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
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.
- THE NOTES ARE SUBJECT TO CURRENCY
EXCHANGE RISK Because the prices
of the equity securities held by the Index Fund are converted into U.S. dollars
for the purposes of calculating the net asset value of the Index Fund, holders
of the notes will be exposed to currency exchange rate risk with respect to
each of the currencies in which the equity securities held by the Index Fund
trade. Your net exposure will depend on the extent to which such currencies
strengthen or weaken against the U.S. dollar and the relative weight of equity
securities denominated in such currencies in the Index Fund. If, taking into
account such weighting, the U.S. dollar strengthens against such currencies,
the net asset value of the Index Fund will be adversely affected and the
payment at maturity, if any, may be reduced.
- NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS As a holder of the notes, you will not receive
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 composing the Index Fund or the Underlying Index would have.
|
JPMorgan
Structured Investments
Upside Knock-Out Buffered Return
Enhanced Notes Linked to the iShares® MSCI Emerging Markets Index
Fund
|
TS-3 |
- THERE ARE RISKS ASSOCIATED WITH THE INDEX FUND Although shares of the Index Fund are
listed for trading on NYSE Arca, Inc. (the NYSE Arca) and a number of similar
products have been traded on various national securities exchanges for varying
periods of time, there is no assurance that an active trading market will
continue for the shares of the Index Fund or that there will be liquidity in
the trading market. The Index Fund is subject to management risk, which is the
risk that investment strategy of the Index Funds investment adviser, the
implementation of which is subject to a number of constraints, may not produce
the intended results. Barclays Global Fund Advisors, which we refer to as
BGFA, is the Index Funds investment adviser. For example, BGFA may select up
to 10% of the Index Funds assets in securities not included in the Underlying
Index, futures contracts, options on futures contracts, other types of options
and swaps related to the Underlying Index, as well as cash and cash
equivalents, including shares of money market funds affiliated with BGFA or its
affiliates. Any such action could adversely affect the market price of the
shares of the Index Fund, and consequently, the value of the notes.
- DIFFERENCES BETWEEN THE INDEX FUND AND THE UNDERLYING INDEX The Index Fund does not fully replicate the Underlying
Index, may hold securities not included in the Underlying Index and its
performance will reflect additional transaction costs and fees that are not
included in the calculation of the Underlying Index, all of which may lead to a
lack of correlation between the Index Fund and the Underlying Index. In
addition, corporate actions with respect to the sample of equity securities
(such as mergers and spin-offs) may impact the variance between the Index Fund
and the Underlying Index. Finally, because the shares of the Index Fund are
traded on the NYSE Arca and are subject to market supply and investor demand,
the market value of one share of the Index Fund may differ from the net asset
value per share of the Index Fund. For all of the foregoing reasons, the
performance of the Index Fund may not correlate with the performance of the
Underlying Index.
- NON-U.S. SECURITIES RISK The equity securities that compose the Index Fund
have been issued by non-U.S. companies. 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, governmental 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.
- EMERGING MARKETS RISK The equity securities underlying the Index Fund
have been issued by non-U.S. companies. Countries with emerging markets
may have relatively unstable governments, may present the risks of nationalization
of businesses, restrictions on foreign ownership and prohibitions on the
repatriation of assets, and may have less protection of property rights than
more developed countries. The economies of countries with emerging
markets may be based on only a few industries, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Local securities markets may
trade a small number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of holdings
difficult or impossible at times. Moreover, the economies in such
countries may differ favorably or unfavorably from the economy in the United States
in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources and self-sufficiency. Any of the
foregoing could adversely affect the market value of shares of the Index Fund
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.
- 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.
- THE ANTI-DILUTION PROTECTION FOR THE INDEX FUND IS
LIMITED The calculation agent will
make adjustments to the adjustment factor for certain events affecting the
Index Fund. However, the calculation agent will not make an adjustment in
response to all events that could affect the Index Fund. If an event occurs
that does not require the calculation agent to make an adjustment, the value of
the notes may be materially and adversely affected.
- MANY ECONOMIC AND MARKET FACTORS WILL
IMPACT THE VALUE OF THE NOTES In
addition to the closing price of one share of the Index Fund 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 expected volatility of the Index Fund;
- whether a Knock-Out Event has occurred;
- the time to maturity of the notes;
- the dividend rates on the equity securities
underlying the Index Fund;
- the occurrence of certain events to the Index Fund
that may or may not require an adjustment to the Share Adjustment Factor;
- interest and yield rates in the market generally;
- a variety of economic, financial, political,
regulatory and judicial events;
- the exchange rate and the volatility of the exchange
rate between the U.S. dollar and the currencies in which the equity securities
held by the Index Fund trade and the correlation between those rates and the
prices of share of the Index Fund; and
- our creditworthiness, including actual or anticipated
downgrades in our credit ratings.
|
JPMorgan
Structured Investments
Upside Knock-Out Buffered Return
Enhanced Notes Linked to the iShares® MSCI Emerging Markets Index
Fund
|
TS-4 |
What Is the Total Return on the Notes at Maturity,
Assuming a Range of Performances for the Index Fund?
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 following table and
examples assume that no anti-dilution adjustment is required throughout the
term of the notes. The hypothetical total returns set forth below assume an Initial
Share Price of $40, a Knock-Out Price of $68 (which is equal to 170% of the
assumed Initial Share Price) and a Knock-Out Rate of 30% and reflects Buffer
Amount of 10%. 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 in
the examples on the following page have been rounded for ease of analysis.
|
Final Share Price
|
Fund Return
|
Total Return if a
Knock-Out Event Has
Not Occurred
(1)
|
Total Return if a
Knock-Out Event Has
Occurred (2)
|
|
$72.00
|
80.00%
|
N/A
|
30.00%
|
$68.40
|
71.00%
|
N/A
|
30.00%
|
$68.00
|
70.00%
|
94.50%
|
30.00%
|
$64.00
|
60.00%
|
81.00%
|
30.00%
|
$60.00
|
50.00%
|
67.50%
|
30.00%
|
$56.00
|
40.00%
|
54.00%
|
30.00%
|
$52.00
|
30.00%
|
40.50%
|
30.00%
|
$48.00
|
20.00%
|
27.00%
|
30.00%
|
$46.00
|
15.00%
|
20.25%
|
30.00%
|
$44.00
|
10.00%
|
13.50%
|
30.00%
|
$42.00
|
5.00%
|
6.75%
|
30.00%
|
$41.00
|
2.50%
|
3.38%
|
30.00%
|
$40.40
|
1.00%
|
1.35%
|
30.00%
|
$40.00
|
0.00%
|
0.00%
|
30.00%
|
$38.00
|
-5.00%
|
0.00%
|
30.00%
|
$36.00
|
-10.00%
|
0.00%
|
30.00%
|
$34.00
|
-15.00%
|
-5.56%
|
30.00%
|
$32.00
|
-20.00%
|
-11.11%
|
30.00%
|
$28.00
|
-30.00%
|
-22.22%
|
30.00%
|
$24.00
|
-40.00%
|
-33.33%
|
30.00%
|
$20.00
|
-50.00%
|
-44.44%
|
30.00%
|
$16.00
|
-60.00%
|
-55.56%
|
30.00%
|
$12.00
|
-70.00%
|
-66.67%
|
30.00%
|
$8.00
|
-80.00%
|
-77.78%
|
30.00%
|
$4.00
|
-90.00%
|
-88.89%
|
30.00%
|
$0.00
|
-100.00%
|
-100.00%
|
30.00%
|
|
(1) The
closing price of one share of the Index Fund is less than or equal to 170% of
the Initial Share Price on each trading day during the Monitoring Period.
(2) The
closing price of one share of the Index Fund is greater than 170% of the Initial
Share Price on at least one trading day during the Monitoring Period.
|
JPMorgan
Structured Investments
Upside Knock-Out Buffered Return
Enhanced Notes Linked to the iShares® MSCI Emerging Markets Index
Fund
|
TS-5 |
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 closing price of one share of the
Index Fund increases from the Initial Share Price of $40 to a Final Share Price
of $48 and the closing price of
one share of the Index Fund did not exceed the Knock-Out Price of $68 on any
trading day during the Monitoring Period. Because the Final Share
Price of $48 is greater than the Initial
Share Price of $40 and a Knock-Out Event has not occurred, the investor
receives a payment at maturity of $1,270 per $1,000 principal amount note,
calculated as follows:
$1,000 + ($1,000 x 20%
x 1.35) = $1,270
Example 2: The closing price of one share of the
Index Fund increases from the Initial Share Price of $40 to a Final Share Price
of $48 and the closing price of
one share of the Index Fund exceeded the Knock-Out Price of $68 on at least one
trading day during the Monitoring Period. Because a Knock-Out Event
has occurred, the investor receives a fixed payment at maturity of $1,300 per
$1,000 principal amount note, regardless of the Fund Return, calculated as
follows:
$1,000 + ($1,000 x 30%)
= $1,300
Example
3: The closing price of one share of the Index Fund decreases from the Initial
Share Price of $40 to a Final Share Price of $36 and the closing price of one share of the Index Fund did
not exceed the Knock-Out Price of $68 on any trading day during the Monitoring
Period. Although the Fund Return is
negative, because the Final Share Price of $36 is less than the Initial Share
Price of $40 by not more than the Buffer Amount of 10% and a Knock-Out Event
has not occurred, the investor receives a payment at maturity of $1,000 per $1,000
principal amount note.
Example 4: The closing price of one share of the
Index Fund decreases from the Initial Share Price of $40 to a Final Share Price
of $36 and the closing price of
one share of the Index Fund exceeded the Knock-Out Price of $68 on at least one
trading day during the Monitoring Period. Because a Knock-Out Event has occurred, the investor receives a fixed payment
at maturity of $1,300 per $1,000 principal amount note, regardless of the Fund
Return, calculated as follows:
$1,000 + ($1,000 x 30%)
= $1,300
Example 5: The closing price of one share of the
Index Fund increases from the Initial Share Price of $40 to a Final Share Price
of $68.40 and the closing price of one share of the Index Fund did not exceed the
Knock-Out Price of $68 on any trading day during the Monitoring Period prior to
the Observation Date. Because a Knock-Out Event has occurred, the
investor receives a fixed payment at maturity of $1,300 per $1,000 principal
amount note, regardless of the Fund Return, calculated as follows:
$1,000 + ($1,000 x 30%) = $1,300
Example
6: The closing price of one share of the Index Fund decreases from the Initial
Share Price of $40 to a Final Share Price of $28 and the closing price of one share of the Index Fund
did not exceed the Knock-Out Price of $68 on any trading day during the
Monitoring Period. Because the Fund Return is negative, the Final
Share Price of $28 is less than the Initial
Share Price of $40 by more than the Buffer Amount of 10% and a Knock-Out Event
has not occurred, the investor receives a payment at maturity of $777.78 per
$1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 x (-30% + 10%) x 1.1111] = $777.78
Example
7: The closing price of one share of the Index Fund decreases from the Initial
Share Price of $40 to a Final Share Price of $28 and the closing price of one share of the Index Fund
exceeded the Knock-Out Price of $68 on at least one trading day during the
Monitoring Period. Although the Fund Return is negative and the Final
Share Price of $28 is less than the Initial
Share Price of $40 by more than the Buffer Amount of 10%, since a Knock-Out
Event has occurred, the investor receives a fixed payment at maturity of $1,300
per $1,000 principal amount note, regardless of the Fund Return, calculated as
follows:
$1,000 + ($1,000 x 30%) = $1,300
|
JPMorgan
Structured Investments
Upside Knock-Out Buffered Return
Enhanced Notes Linked to the iShares® MSCI Emerging Markets Index
Fund
|
TS-6 |
Historical
Information
The following graph sets
forth the historical performance of the iShares® MSCI Emerging
Markets Index Fund based on the weekly closing price of one share of the Index
Fund from January 7, 2005 through May 7, 2010. The closing price of one share
of the Index Fund on May 12, 2010 was $40.70. We obtained the closing prices of one
share of the Index Fund 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 prices set fourth in the graph below have been adjusted for 3-for-1
stock splits that were paid on June 8,
2005 and July 24, 2008. The historical prices
of one share of the Index Fund should not be taken as an indication of future
performance, and no assurance can be given as to the closing price of one share
of the Index Fund on the pricing date, the Observation Date or any other
trading day during the Monitoring Period. We cannot give you assurance that
the performance of the Index Fund will result in the return of any of your
initial investment.
|
JPMorgan
Structured Investments
Upside Knock-Out Buffered Return
Enhanced Notes Linked to the iShares® MSCI Emerging Markets Index
Fund
|
TS-7 |