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 1.30 times the appreciation of the iShares®
MSCI Emerging Markets Index Fund, up to a maximum return on the notes of at
least 91%* 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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1.30
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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 1.30. 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 1.30)
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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 91%.
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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 1.30 and will be at least 91%.
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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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48124AQU4
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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 $14.00 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 $4.00 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 $14.00 and will depend on market
conditions on the pricing date. In no event will the commission received by
JPMSI, which includes concessions to be allowed to other dealers, exceed
$24.00 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
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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 1.30, up to a maximum return of at least
91%* at maturity. The actual maximum return on the notes will be based on the
Upside Leverage Factor of 1.30 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
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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 1.30 (subject to the embedded
maximum return of at least 91%), 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 91% 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 1.30, the maximum return on
the notes will be 91% and the maximum payment at maturity will be $1,910 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.
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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%
|
91.00%
|
30.00%
|
$64.00
|
60.00%
|
78.00%
|
30.00%
|
$60.00
|
50.00%
|
65.00%
|
30.00%
|
$56.00
|
40.00%
|
52.00%
|
30.00%
|
$52.00
|
30.00%
|
39.00%
|
30.00%
|
$48.00
|
20.00%
|
26.00%
|
30.00%
|
$46.00
|
15.00%
|
19.50%
|
30.00%
|
$44.00
|
10.00%
|
13.00%
|
30.00%
|
$42.00
|
5.00%
|
6.50%
|
30.00%
|
$41.00
|
2.50%
|
3.25%
|
30.00%
|
$40.40
|
1.00%
|
1.30%
|
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 $1,260 per $1,000 principal amount
note, calculated as follows:
$1,000 + ($1,000 x 20% x 1.30) = $1,260
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 |