JPMorgan Chase & Co.
J P MORGAN CHASE & CO (Form: FWP, Received: 11/01/2010 06:01:30)

Term sheet
To prospectus dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 186-A-I dated March 22, 2010

Term Sheet to
Product Supplement 186-A-I
Registration Statement No. 333-155535
Dated October 29, 2010; Rule 433

Structured 
Investments 

      $
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD) due November 28, 2014

General

Key Terms

Index:

J.P. Morgan Alternative Index Multi-Strategy 5 (USD) (the “Multi-Strategy Index” or the “Index”)

Payment at Maturity:

At maturity, you will receive a cash payment, for each $1,000 principal amount note, of $1,000 plus the Additional Amount , which may be zero.

You are entitled to repayment of principal in full at maturity, subject to the credit risk of JPMorgan Chase & Co.

Additional Amount :

The Additional Amount per $1,000 principal amount note paid at maturity will equal $1,000 × the Index Return × the Participation Rate, provided that the Additional Amount will not be less than zero.

Participation Rate:

At least 100%. The actual Participation Rate will be determined on the pricing date and will not be less than 100%.

Index Return:

Ending Index Value – Initial Index Value
                 Initial Index Value

Initial Index Value:

The Index closing value on the pricing date, which is expected to be on or about November 23, 2010

Ending Index Value:

The Index closing value on the Observation Date

Observation Date:

November 24, 2014*

Maturity Date:

November 28, 2014*

CUSIP:

48124AV46

*

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. 186-A-I

Subject to the impact of a commodity hedging disruption event as described under “General Terms of Notes — Market Disruption Events” and “General Terms of Notes — Consequences of a Commodity Hedging Disruption Event” in the accompanying product supplement no. 186-A-I. In the event of a commodity hedging disruption event, we have the right, but not the obligation, to cause the note calculation agent to determine on the commodity hedging disruption date the value of the Additional Amount payable at maturity. Under these circumstances, the value of the Additional Amount payable at maturity will be determined prior to, and without regard to the level of the Index on, the Observation Date.

I nvesting in the notes involves a number of risks. See “Risk Factors” beginning on page PS-8 of the accompanying product supplement no. 186-A-I and “Selected Risk Considerations” beginning on page TS-4 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. 186-A-I and this term sheet if you so request by calling toll-free 866-535-9248.

You may revoke your offer to purchase the notes at any time prior to the time at which we accept such offer by notifying the applicable agent. We reserve the right to change the terms of, or reject any offer to purchase, the notes prior to their issuance. In the event of any changes to the terms of the notes, we will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject such changes in which case we may reject your offer to purchase.

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.


 

Price to Public (1)

Fees and Commissions (2)

Proceeds to Us


Per note

$

$

$


Total

$

$

$


(1)

The price to the public includes the estimated cost of hedging our obligations under the notes through one or more of our affiliates.

(2)

If the notes priced today, J.P. Morgan Securities LLC, which we refer to as JPMS, acting as agent for JPMorgan Chase & Co., would receive a commission of approximately $29.00 per $1,000 principal amount note and may use a portion of that commission to allow selling concessions to other affiliated or unaffiliated dealers of approximately $2.00 per $1,000 principal amount note. This commission includes the projected profits that our affiliates expect to realize, some of which may be allowed to other unaffiliated dealers, for assuming risks inherent in hedging our obligations under the notes. The other dealers, in their sole discretion, may forgo some or all of their selling concessions. The actual commission received by JPMS may be more or less than $29.00 and will depend on market conditions on the pricing date. In no event will the commission received by JPMS, which includes concessions and other amounts that may be allowed to other dealers, exceed $60.00 per $1,000 principal amount note. See “Plan of Distribution (Conflicts of Interest)” beginning on page PS-153 of the accompanying product supplement no. 186-A-I.

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.

October 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. 186-A-I dated March 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. 186-A-I, as the notes involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the notes.

You may access these documents on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):

You may access additional information regarding The J.P. Morgan Alternative Index Multi-Strategy 5 (USD) in the Strategy Guide at the following URL:
http://www.sec.gov/Archives/edgar/data/19617/000095010310000682/crt_fwp.pdf

Our Central Index Key, or CIK, on the SEC website is 19617. As used in this term sheet, the “Company,” “we,” “us” and “our” refer to JPMorgan Chase & Co.

We may create and issue additional notes with the same terms as these notes, so that any additional notes will be considered part of the same tranche as these notes.

Supplemental Terms of the Notes

For purposes of this offering, all references to “Principal Protected Notes” or “Principal Protected Notes linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)” in the accompanying product supplement no. 186-A-I are deemed to refer to “Notes linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD).”

For the avoidance of doubt, the concept of a Threshold Percentage is not applicable to the notes offered by this term sheet.

The J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

The J.P. Morgan Alternative Index Multi-Strategy 5 (USD), which we refer to as the “Multi-Strategy Index” or the “Index,” was developed and is maintained and calculated by J.P. Morgan Securities Ltd. (which we refer to as “JPMSL” or the “index calculation agent”), one of our affiliates. The Index is a notional rules-based proprietary index that tracks the return of twenty-six alternative investment strategies (each of which we refer to as a “Strategy”). The Index is based on the theory that returns may be generated from capturing inefficiencies or trends in market prices of multiple asset classes. The Index is not intended to track a single asset class or outperform any particular asset class, benchmark or investment strategy. Instead, the Index employs several alternative investment strategies covering different styles and asset classes, in order to seek to generate positive performance with a low correlation to traditional asset classes. The Index also seeks to cap its volatility at a target volatility of 5% or less.

The Investment Strategies and Asset Classes Represented in the Index

Each of the Strategies can be categorized based on the underlying investment strategy employed and the asset class covered, as follows:

Each Strategy is a notional rules-based proprietary index developed and maintained by JPMSL, and is based, in turn, on a number of underlying indices or assets, each of we refer to as an “Underlying Constituent.”

Index Rebalancings and Weightings

The Index rebalances monthly a synthetic portfolio composed of the Strategies. The Index rebalancing is based on a “risk-budgeting” approach to asset allocation in which each Strategy is assigned a fixed percentage of the target volatility of 5%. The Index assigns a preliminary weight to each Strategy based upon the constituent’s daily maximum one-year volatility measured over the previous five years. The higher the volatility has been for a Strategy, the lower the preliminary weight assigned; conversely, the lower the volatility has been, the higher the preliminary weight. If the maximum one-year volatility of the synthetic portfolio (based on these preliminary weights) measured over the previous five years is greater than the target volatility of 5%, all the preliminary weights are scaled down accordingly. However, if the portfolio volatility is lower than the target volatility, all the preliminary weights are scaled up, subject to a maximum total weight of 200%. As the maximum total weight is 200%, no individual weight can exceed 200%.


JPMorgan Structured Investments —
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

 TS-1

Calculation of the level of the Multi-Strategy Index

The level of the Index on any day reflects the sum of the weighted returns of the Strategies since the immediately preceding rebalancing date, adjusted for the change in the applicable currency exchange rate for each Strategy and the deduction of an adjustment factor of 0.80% per annum. The deduction of the adjustment factor of 0.80% per annum may have a considerable impact on the level of the Index. In addition, adjustments are made to the levels of the Strategies to reflect notional trading costs related to the Underlying Constituents of the relevant Strategy. The adjustment factor of 0.80% per annum from the level of the Index does not reflect any notional trading costs relating to the Strategies or any Underlying Constituents .

Strategies

The twenty-six Strategies categorized under momentum, carry and satellite are listed in Tables 1, 2 and 3 below, respectively.  

Table 1

Investment
Strategy

Asset Class

Strategy*

Momentum

Equities

US Equity Momentum Strategy

European Equity Momentum Strategy

Japan Equity Momentum Strategy

Interest Rates

Money Market Momentum US Strategy

Money Market Momentum Europe Strategy

Money Market Momentum Japan Strategy

FX

EURUSD FX Momentum Strategy

USDJPY FX Momentum Strategy

EURJPY FX Momentum Strategy

USDCAD FX Momentum Strategy

AUDUSD FX Momentum Strategy

EURGBP FX Momentum Strategy

Commodities

Commodity Momentum Energy Strategy

Commodity Momentum Non-Energy Strategy

Table 2

Investment
Strategy

Asset Class

Strategy*

Carry

Equities

Equity Value Carry Strategy

Equity Small Cap Carry Strategy

Interest Rates

Bond 2Y Carry Long Strategy

Bond 10Y Carry Long Strategy

Bond 2Y Carry Long-Short Strategy

Bond 10Y Carry Long-Short Strategy

FX

G10 FX Carry Strategy

Commodities

Commodity Carry



JPMorgan Structured Investments —
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

 TS-2

Table 3

Investment
Strategy

Asset Class

Strategy*

Satellite

Equities

Mean Reversion US Strategy

Mean Reversion Europe Strategy

Mean Reversion Japan Strategy

Short Volatility Strategy

* The words “J.P. Morgan Alternative Index” precede the name of each Strategy but for the ease of display in the above table, those words are not shown in the names of the Strategies.

See “The J.P. Morgan Alternative Index Multi-Strategy 5 (USD)” and “The J.P. Morgan Alternative Index Multi-Strategy 5 (USD) — The Strategies” in the accompanying product supplement no. 186-A-I for more information about the Index and the Strategies.

The Index is described as a “notional” or synthetic portfolio or basket of assets because there is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest. The Index merely references certain assets, the performance of which will be used as a reference point for calculating the level of the Index.

The value of the Index is published each trading day under the Bloomberg ticker symbol “AIJPM5UE.”

Selected Purchase Considerations


JPMorgan Structured Investments —
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

 TS-3

Selected Risk Considerations

An investment in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in the Strategies, the Underlying Constituents or the securities, futures contracts or currencies underlying the Strategies or the Underlying Constituents. These risks are explained in more detail in the “Risk Factors” section of the accompanying product supplement no. 186-A-I dated March 22, 2010.


JPMorgan Structured Investments —
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

 TS-4

JPMorgan Structured Investments —
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

 TS-5

JPMorgan Structured Investments —
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

 TS-6

JPMorgan Structured Investments —
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

 TS-7

JPMorgan Structured Investments —
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

 TS-8

What Is the Total Return on the Notes at Maturity, Assuming a Range of Performances for the Multi-Strategy Index?

The following table and examples illustrate the payment at maturity (including, where relevant, the payment of the Additional Amount) for a $1,000 principal amount note for a hypothetical range of performances for the Index Return from -80% to +80% and assume a Participation Rate of 100% and an Initial Index Value of 100. The actual Participation Rate will be determined on the pricing date and will not be less than 100%. The following results are based solely on the hypothetical example cited and assume that a commodity hedging disruption event has not occurred during the term of the notes. The hypothetical payments at maturity set forth below are for illustrative purposes only and may not be the actual payments 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 Index
Value

Index Return

Index Return ×
Participation Rate (100%)

Additional
Amount

 

Principal

 

Payment at Maturity


180.00

80.00%

80.00%

$800.00

+

$1,000.00

=

$1,800.00

170.00

70.00%

70.00%

$700.00

+

$1,000.00

=

$1,700.00

160.00

60.00%

60.00%

$600.00

+

$1,000.00

=

$1,600.00

150.00

50.00%

50.00%

$500.00

+

$1,000.00

=

$1,500.00

140.00

40.00%

40.00%

$400.00

+

$1,000.00

=

$1,400.00

130.00

30.00%

30.00%

$300.00

+

$1,000.00

=

$1,300.00

120.00

20.00%

20.00%

$200.00

+

$1,000.00

=

$1,200.00

115.00

15.00%

15.00%

$150.00

+

$1,000.00

=

$1,150.00

110.00

10.00%

10.00%

$100.00

+

$1,000.00

=

$1,100.00

105.00

5.00%

5.00%

$50.00

+

$1,000.00

=

$1,050.00

100.00

0.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00

95.00

-5.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00

90.00

-10.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00

85.00

-15.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00

80.00

-20.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00

70.00

-30.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00

60.00

-40.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00

50.00

-50.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00

40.00

-60.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00

30.00

-70.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00

20.00

-80.00%

N/A

$0.00

+

$1,000.00

=

$1,000.00


Hypothetical Examples of Amounts Payable at Maturity

The following examples illustrate how the total returns set forth in the table above are calculated.

Example 1: The value of the Index increases from the Initial Index Value of 100 to an Ending Index Value of 120.  Because the Ending Index Value of 120 is greater than the Initial Index Value of 100, the Additional Amount is equal to $200 and the payment at maturity is equal to $1,200 per $1,000 principal amount note, calculated as follows:

$1,000 + ($1,000 × [(120-100)/100] × 100%) = $1,200

Example 2: The value of the Index decreases from the Initial Index Value of 100 to an Ending Index Value of 85.  Because the Ending Index Value of 85 is lower than the Initial Index Value of 100, the payment at maturity per $1,000 principal amount note is the principal amount of $1,000.

Example 3: The value of the Index neither increases nor decreases from the Initial Index Value of 100.  Because the Ending Index Value of 100 is equal to the Initial Index Value of 100, the payment at maturity is equal to $1,000 per $1,000 principal amount note.


JPMorgan Structured Investments —
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

 TS-9

The following graph demonstrates the hypothetical total return on the notes at maturity for a subset of the Index Returns detailed in the table on the previous page (-30% to 40%). The numbers appearing in the graph have been rounded for ease of analysis.

Hypothetical Back-tested Data and Historical Information

The following graph sets forth the hypothetical back-tested performance of the Index based on the hypothetical back-tested weekly Index closing values from January 7, 2005 through November 30, 2009, and the historical performance of the Index based on the weekly Index closing values from November 30, 2009 through October 22, 2010. The Index was established on November 30, 2009. The Index closing value on October 28, 2010 was 103.26. We obtained the Index 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 Index should not be taken as an indication of future performance, and no assurance can be given as to the Index closing value on the pricing date or the Observation Date. We cannot give you assurance that the performance of the Index will result in the return of any of your initial investment at maturity. The hypothetical back-tested performance of the Multi-Strategy Index set forth in the following graph was calculated on materially the same basis as the performance of the Multi-Strategy Index is now calculated but does not represent the actual historical performance of the Index. Hypothetical daily performance data for the Multi-Strategy Index is net of an adjustment factor of 0.80% per annum.

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 a 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 —
Notes Linked to the J.P. Morgan Alternative Index Multi-Strategy 5 (USD)

 TS-10