Term Sheet
To prospectus dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 187-A-II dated April 29, 2010
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Term Sheet to
Product Supplement No. 187-A-II
Registration Statement No. 333-155535
Dated April 29, 2010; Rule 433
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Structured
Investments
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$
Return Notes Linked to the
J.P. Morgan Contag Beta Alternate Benchmark Class A Excess Return Index due May 12, 2011 |
General
- The notes are
designed for investors who seek unleveraged exposure to the J.P. Morgan Contag Beta
Alternate Benchmark Class A Excess Return Index as described below. Investors
should be willing to forgo periodic interest payments and, if the Underlying
declines from the Initial Underlying Value, 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.
- Senior unsecured
obligations of JPMorgan Chase & Co. maturing May 12, 2011
- Minimum
denominations of $10,000 and integral multiples of $1,000 in excess thereof
- The terms of the
notes set forth below, to the extent they differ from or conflict with those
set forth in the accompanying product supplement no. 187-A-II, will supersede
the terms set forth in product supplement no. 187-A-II. In particular, your
payment at maturity will be determined in part by reference to both a Deduction
Amount and an Additional Amount, as described below under Key Terms Payment
at Maturity.
- 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 Alternate Benchmark Class A
Excess Return Index
(the Contag Beta AB ER Index or the Underlying).
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Payment at Maturity:
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Payment at maturity will reflect the
performance of the Underlying, minus the Deduction Amount plus the
Additional Amount. Your payment at maturity per $1,000 principal amount note
will be calculated as follows:
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$1,000 x (1 +
Underlying Return) Deduction Amount + Additional Amount
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You may 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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Deduction Amount:
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$5.50 for each $1,000 principal amount
note, which is equal to 0.55% of the principal amount of the note and reflects
an index fee. See footnote 1 to Fees and Commissions on the cover of this
term sheet.
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Additional Amount:
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An amount not less than $5.50 and not
greater than $6.50 for each $1,000 principal amount note, which will be
determined on the pricing date. The Additional Amount payable at maturity is
intended to approximate interest that would have been payable on each $1,000
principal amount note over the term of the notes based on current interest
rates as determined by the calculation agent if the notes were
interest-bearing. Accordingly, because the Deduction Amount is $5.50 for
each $1,000 principal amount note, your payment at maturity will reflect, in
addition to the performance of the Underlying, a net additional amount of
between $0 and $1.00 for each $1,000 principal amount note (the Net
Additional Amount).
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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-II 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-II 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
Notes involves a number of risks. See Risk Factors beginning on page PS-6 of
the accompanying product supplement no. 187-A-II and Selected Risk
Considerations beginning on page TS-2 of this term sheet.
JPMorgan Chase & Co.
has filed a registration statement (including a prospectus) with the Securities
and Exchange Commission, or SEC, for the offering to which this term sheet
relates. Before you invest, you should read the prospectus in that
registration statement and the other documents relating to this offering that
JPMorgan Chase & Co. has filed with the SEC for more complete information
about JPMorgan Chase & Co. and this offering. You may get these documents
without cost by visiting EDGAR on the SEC website at www.sec.gov.
Alternatively, JPMorgan Chase & Co., any agent or any dealer participating
in this offering will arrange to send you the prospectus, the prospectus
supplement, product supplement no. 187-A-II and this term sheet if you so
request by calling toll-free 866-535-9248.
You may revoke your offer
to purchase the notes at any time prior to the time at which we accept such
offer by notifying the applicable agent. We reserve the right to change the
terms of, or reject any offer to purchase, the notes prior to their issuance.
In the event of any changes to the terms of the notes, we will notify you and you
will be asked to accept such changes in connection with your purchase. You may
also choose to reject such changes in which case we may reject your offer to
purchase.
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
(1)
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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 0.55% 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-II.
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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.
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April 29, 2010
ADDITIONAL TERMS
SPECIFIC TO THE NOTES
You
should read this term sheet together with the prospectus dated November 21,
2008, as supplemented by the prospectus supplement dated November 21, 2008 relating
to our Series E medium-term notes of which these notes are a part, and the more
detailed information contained in product supplement no. 187-A-II dated April
29, 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-II, as the notes involve risks not associated with
conventional debt securities. We urge you to consult your investment, legal,
tax, accounting and other advisers before you invest in the notes.
You may access these documents on the SEC website
at www.sec.gov as follows (or if such
address has changed, by reviewing our filings for the relevant date on the SEC
website):
Our Central Index Key, or CIK, on the SEC website is 19617.
As used in this term sheet, the Company, we, us or our refers to
JPMorgan Chase & Co.
J.P. Morgan Contag Beta Alternate Benchmark
Class A Excess Return Index
The J.P. Morgan Contag Beta Alternate Benchmark 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 19 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 Alternate Benchmark 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 Alternate Benchmark Class A Excess Return Index are based on the Commodity
Index Percentages of the Dow Jones
UBS Commodity IndexSM. For more information on how the
commodity weights of the J.P. Morgan Contag Beta Alternate Benchmark 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 Dow Jones UBS Commodity IndexSM in the
accompanying product supplement.
The value of the J.P. Morgan Contag Beta Alternate Benchmark
Class A Excess Return Index is published each trading day under the Bloomberg
ticker symbol JCTABDJE. For more information about the J.P. Morgan Contag
Beta Alternate Benchmark Class A Excess Return Index, see The J.P. Morgan
Contag Beta Indices in the accompanying product supplement.
Selected Purchase
Considerations
- INVESTMENT EXPOSURE
TO THE CONTAG BETA ALTERNATE BENCHMARK CLASS A EXCESS RETURN INDEX The notes provide
unleveraged exposure to the Contag Beta Alternate Benchmark Class A Excess
Return Index, plus an additional payment of between $0 and 1.00 per $1,000
principal amount note, which we refer to as the Net Additional Amount. The Net
Additional Amount will be determined on the pricing date and will not be less
than $0 or greater than $1.00 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 ALTERNATE BENCHMARK CLASS A EXCESS RETURN INDEX The return on the
notes is linked to the performance of the Contag Beta Alternate Benchmark 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 Alternate
Benchmark Class A Excess Return Index above and The J.P. Morgan Contag Beta
Indices in the accompanying product supplement no. 187-A-II.
- NO FIDUCIARY DUTY By purchasing the
notes, you are deemed to have represented that your purchase and holding of the
notes are not in violation of applicable law and that neither JPMorgan Chase
& Co. nor any of its affiliates, officers, agents or employees (1) has
rendered legal, regulatory, investment, tax, accounting or other advice to you
in connection with the purchase and holding of the notes and (2) is otherwise a
fiduciary under applicable law with respect to you in connection with the
purchase and holding of the notes. You should make your own investment decision
based on your own judgment and on your own examination of us and the notes, and
should consult your own legal, regulatory, investment, tax, accounting and
other professional advisers as you deem necessary in connection with the
purchase and holding of the notes.
- 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-II. 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
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JPMorgan
Structured Investments
Return Notes Linked to the J.P. Morgan Contag Beta Alternate Benchmark Class A Excess Return Index due May 12, 2011
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TS-1 |
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 and impose an interest charge. While the notice requests
comments on appropriate transition rules and effective dates, any Treasury
regulations or other guidance promulgated after consideration of these issues
could materially and adversely affect the tax consequences of an investment in
the notes, possibly with retroactive effect. Both U.S. and Non-U.S. Holders
should consult their tax advisers regarding the U.S. federal income tax
consequences of an investment in the notes, including possible alternative
treatments and the issues presented by this notice. Non-U.S. Holders should
also note that they may be withheld upon at a rate of up to 30% unless they
have submitted a properly completed IRS Form W-8BEN or otherwise satisfied the
applicable documentation requirements.
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-II dated April 29, 2010.
- YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS The notes do not guarantee any return
of principal at maturity. The return on the notes is linked to the performance
of the Contag Beta AB ER Index plus the Net Additional Amount and will depend
on whether, and the extent to which, the Underlying Return is positive or
negative. The Net Additional Amount will be determined on the pricing date and
will not be less than $0 or greater than $1.00 per $1,000 principal amount
note. Your investment will be fully exposed to any decline in the Ending
Underlying Value, as compared to the Initial Underlying Value, subject to the
Net Additional Amount. Depending on the Net Additional Amount as determined on
the pricing date, you may lose between 99.9% and 100% of your investment at maturity.
- 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, and is responsible for calculating and maintaining the Underlying
and developing the guidelines and 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 to calculate 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.
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JPMorgan
Structured Investments
Return Notes Linked to the J.P. Morgan Contag Beta Alternate Benchmark Class A Excess Return Index due May 12, 2011
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TS-2 |
- COMMODITY PRICES ARE CHARACTERIZED BY HIGH
AND UNPREDICTABLE VOLATILITY, WHICH COULD LEAD TO HIGH AND UNPREDICTABLE
VOLATILITY IN THE UNDERLYING Market prices of the commodity options
futures contracts underlying the Contag Beta AB 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 AB 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 AB 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 AB 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-II for more
information.
- HIGHER FUTURES
PRICES OF THE COMMODITY FUTURES CONTRACTS UNDERLYING THE CONTAG BETA AB ER
INDEX RELATIVE TO THE CURRENT PRICES OF SUCH CONTRACTS MAY AFFECT THE VALUE OF
THE CONTAG BETA AB 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 AB ER INDEX The Contag Beta AB 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 AB 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 AB 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 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 AB 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.
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JPMorgan
Structured Investments
Return Notes Linked to the J.P. Morgan Contag Beta Alternate Benchmark Class A Excess Return Index due May 12, 2011
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TS-3 |
- COMMODITIES PRICES
ARE VOLATILE AND THE ROLL RETURN GENERATED BY ROLLING COMMODITY FUTURES
INCLUDED IN THE CONTAG BETA AB ER INDEX WILL HAVE AN EFFECT ON THE VALUE OF THE
UNDERLYING AND THE VALUE OF THE NOTES The Contag Beta AB 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 AB
ER Index is weighted by open-interest, all contracts included in the Contag
Beta AB 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 AB 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 AB ER Index will have
an effect, positive or negative, on the Contag Beta AB ER Index, and therefore
the value of the notes.
- THE CONTAG BETA AB 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 AB
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 AB ER Index is based will be successful or that the Contag
Beta AB ER Index will outperform any alternative strategy that might be
employed with respect to the futures contracts underlying the Underlying.
- THE CONTAG BETA AB 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 AB 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 AB ER Index. Past performance should not be considered indicative of future
performance.
- DOW JONES AND UBS MAY CHANGE
THE METHOD OF DETERMINING THE COMMODITY INDEX PERCENTAGES OF THE DOW JONES
UBS COMMODITY INDEXSM Dow Jones & Company, Inc. (Dow
Jones) and UBS Securities LLC (UBS) are responsible for calculating and
maintaining the Dow Jones UBS Commodity IndexSM, including the
Commodity Index Percentages of the Dow Jones UBS Commodity IndexSM.
The weights assigned to the commodities included in the Contag Beta AB ER Index
are based on such Commodity Index Percentages. Dow Jones and UBS can make
methodological changes relating to the Commodity Index Percentages at any time
and they have no obligation to consider your interests. Dow Jones and UBS may
also discontinue or suspend calculation or dissemination of the Dow Jones UBS
Commodity IndexSM, including the determination of the Commodity
Index Percentages. Any of these actions could adversely affect the market
value of and/or the payment at maturity on the notes. See The J.P. Morgan
Contag Beta Indices Modifications to, or Cancellation of, the S&P GSCI
Family-Index or the Dow Jones-UBS Commodity IndexSM and Background
on the Dow Jones UBS Commodity IndexSM in the accompanying
product supplement. Dow Jones and UBS have no obligation to consider your
interests in calculating or revising the methodology of the Dow Jones UBS
Commodity IndexSM.
- NO PERIODIC INTEREST
PAYMENTS As a holder of the notes, you will not receive any periodic 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 Notes Linked to the J.P. Morgan Contag Beta Alternate Benchmark Class A Excess Return Index due May 12, 2011
|
TS-4 |
What Is the Payment
at Maturity on the Notes, Assuming a Range of Performances for the J.P. Morgan
Contag Beta Alternate Benchmark Class A Excess Return Index?
The
following table illustrates the hypothetical payments at maturity for each
$1,000 principal amount note. The hypothetical payments at maturity set forth
below assume an Initial Underlying Value of 300 and an Additional Amount of
$6.00 for each $1,000 principal amount note (the midpoint of the range of $5.50
and $6.50) and reflect the Deduction Amount of $5.50 for each $1,000 principal
amount note. The Additional Amount will be determined on the pricing date
and will not be less than $5.50 or greater than $6.50 per $1,000 principal
amount note. If the actual Additional Amount as determined on the pricing date
is less than $6.00, your payment at maturity will be lower than the
hypothetical payments at maturity shown below. The hypothetical payments
at maturity set forth below are for illustrative purposes only and may not be
the actual payment at maturity applicable to a purchaser of the notes. The
numbers appearing in the following table and examples have been rounded for
ease of analysis.
|
Ending
Underlying
Value
|
Underlying
Return
|
$1,000 x
(1 + Index
Return)
|
|
Deduction
Amount
|
|
Additional
Amount
|
|
Payment at
Maturity
|
|
540.00
|
80.00%
|
$1,800.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,800.50
|
510.00
|
70.00%
|
$1,700.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,700.50
|
480.00
|
60.00%
|
$1,600.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,600.50
|
450.00
|
50.00%
|
$1,500.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,500.50
|
420.00
|
40.00%
|
$1,400.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,400.50
|
390.00
|
30.00%
|
$1,300.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,300.50
|
360.00
|
20.00%
|
$1,200.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,200.50
|
330.00
|
10.00%
|
$1,100.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,100.50
|
315.00
|
5.00%
|
$1,050.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,050.50
|
301.50
|
0.50%
|
$1,005.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,005.50
|
300.00
|
0.00%
|
$1,000.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$1,000.50
|
270.00
|
-10.00%
|
$900.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$900.50
|
240.00
|
-20.00%
|
$800.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$800.50
|
210.00
|
-30.00%
|
$700.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$700.50
|
180.00
|
-40.00%
|
$600.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$600.50
|
150.00
|
-50.00%
|
$500.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$500.50
|
120.00
|
-60.00%
|
$400.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$400.50
|
90.00
|
-70.00%
|
$300.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$300.50
|
60.00
|
-80.00%
|
$200.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$200.50
|
30.00
|
-90.00%
|
$100.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$100.50
|
0.00
|
-100.00%
|
$0.00
|
-
|
$5.50
|
+
|
$6.00
|
=
|
$0.50
|
|
Hypothetical
Examples of Amounts Payable at Maturity
The following examples illustrate how the payments at
maturity set forth in the table above are calculated.
Example 1: The value of the Underlying increases from the Initial
Underlying Value of 300 to an Ending Underlying Value of 315. Because the Ending Underlying Value of 315 is greater
than the Initial Underlying Value of 300, the investor receives a payment at
maturity of $1,050.50 per $1,000 principal amount note, calculated as follows:
$1,000 x (1 + 5%) $5.50 + $6.00 = $1,050.50
Example 2: The value of the Underlying decreases from
the Initial Underlying Value of 300 to an Ending Underlying Value of 240. Because the Ending Underlying Value of 240 is less
than the Initial Underlying Value of 300, the investor receives a payment at
maturity of $800.50 per $1,000 principal amount note, calculated as follows:
$1,000 x (1 +
- -20% ) $5.50 + $6.00 = $800.50
Example 3: The value of the Underlying decreases from
the Initial Underlying Value of 300 to an Ending Underlying Value of 0. Because the Ending Underlying Value of 0 is less than
the Initial Underlying Value of 300, the investor receives a payment at
maturity of $0.50 per $1,000 principal amount note, which reflects the Net
Additional Amount of $0.50 (the difference between the Additional Amount and the
Deduction Amount), calculated as follows:
$1,000 x (1 + -100%) $5.50
+ $6.50 = $0.50
|
JPMorgan
Structured Investments
Return Notes Linked to the J.P. Morgan Contag Beta Alternate Benchmark 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 October 23, 2009, and the historical performance of the Underlying
based on the weekly Underlying closing values from October 30, 2009 through April
23, 2010. The Underlying was established on October 30, 2009. The
Underlying closing value on April 28, 2010 was 296.6923. 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 Notes Linked to the J.P. Morgan Contag Beta Alternate Benchmark Class A Excess Return Index due May 12, 2011
|
TS-6 |