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January 2011
 

Preliminary Terms No. 32

Registration Statement No. 333-155535

Dated December 23, 2010

Filed pursuant to Rule 433

STRUCTURED INVESTMENTS
Opportunities in U.S. Multi-Asset

Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

The Outperformance Jump Securities offer the opportunity for investors to earn a return based on the performance of the SPDR® S&P® 500 ETF Trust (the “SPY shares”) relative to the performance of the iShares® Barclays 20+ Year Treasury Bond Fund (the “TLT Shares” and, together with the SPY Shares, the “ETF Shares”). Unlike ordinary debt securities, the securities do not pay interest and do not guarantee the return of any of the principal at maturity. Instead, at maturity, you will receive a positive return on the securities equal to 14.00% to 18.00%, which we refer to as the upside payment, if the share return of the SPY Shares (the “SPY return”) is greater than the share return of the TLT Shares (the “TLT return”). If, on the other hand, the SPY return is equal to or less than the TLT return, you will receive for each $10 stated principal amount of securities that you hold, a payment that is equal to or less than the stated principal amount of $10 by an amount that is proportionate to any amount by which the SPY return is less than the TLT return. This amount may be significantly less than the stated principal amount of the securities and may be zero. The securities are senior unsecured obligations of JPMorgan Chase & Co., and all payments on the securities are subject to the credit risk of JPMorgan Chase & Co.

SUMMARY TERMS  
Issuer: JPMorgan Chase & Co.
SPY Shares / Long Shares: Shares of the SPDR® S&P® 500 ETF Trust
TLT Shares / Short Shares: Shares of the iShares® Barclays 20+ Year Treasury Bond Fund
ETF Shares: The SPY Shares and TLT Shares
Underlying Indices: With respect to the SPY Shares, the S&P ® 500 Index, and with respect to the TLT Shares, the Barclays Capital U.S. 20+ Year Treasury Bond Index (each an “Underlying Index”)
Aggregate principal amount: $
Stated principal amount: $10 per security
Issue price: $10 per security (see “Commissions and Issue Price” below)
Pricing date: January     , 2011 (expected to price on or about January 25, 2011)
Original issue date: January     , 2011 (3 business days after the pricing date)
Maturity date: July 30, 2012, subject to adjustment for certain market disruption events and as described under “Description of Securities — Payment at Maturity” in the accompanying product supplement no. MS-10-A-I
Payment at maturity:

  • If the SPY return is greater than the TLT return, for each $10 stated principal amount security,

    $10 + upside payment

  • If the SPY return is equal to or less than the TLT return, for each $10 stated principal amount security,

    $10 x (1 + outperformance return)

    If the outperformance return is negative, this amount will be less than the stated principal amount of $10 and may be zero.

Upside payment: $1.40 to $1.80 per security (14.00% to 18.00% of the stated principal amount). The actual upside payment will be determined on the pricing date and will not be less than $1.40 or greater than $1.80. Accordingly, even if the SPY return is significantly greater than the TLT return, your payment at maturity will not exceed $11.40 to $11.80 per security.
Outperformance return: SPY return – TLT return, provided that the outperformance return will not be less than -100%
SPY return / Long return: The share return of the SPY Shares
TLT return / Short return: The share return of the TLT Shares
Share return: With respect to each ETF Share:
 
final share price – initial share price
initial share price
   
Initial Share Price: With respect to each ETF Share, the closing price of one such ETF Share on the pricing date, divided by the applicable adjustment factor
Final Share Price: With respect to each ETF Share, the closing price of one such ETF Share on the valuation date
Adjustment factor: With respect to each ETF Share, set equal to 1.0 on the pricing date, subject to adjustment under certain circumstances. See “General Terms of Securities — Anti-Dilution Adjustments” in the accompanying product supplement no. MS-10-A-I.
Valuation date: July 25, 2012, subject to adjustment for non-trading days or certain market disruption events and as described under “Description of Securities — Payment at Maturity” in the accompanying product supplement no. MS-10-A-I
CUSIP / ISIN: 46634X591 / US46634X5914
Listing: The securities will not be listed on any securities exchange.
Agent: J.P. Morgan Securities LLC (“JPMS”)
Commissions and issue price: Price to Public(1)(2) Fees and Commissions(2)(3) Proceeds to Issuer

Per Security

 $10 $0.20 $9.80

Total

 $ $ $
(1)      The price to the public includes the estimated cost of hedging our obligations under the securities through one or more of our affiliates, which includes our affiliates’ expected cost of providing such hedge as well as the profit our affiliates expect to realize in consideration for assuming the risks inherent in providing such hedge. For additional related information, please see “Use of Proceeds” beginning on PS-21 of the accompanying product supplement no. MS-10-A-I.
(2)      The actual price to public and commissions for a particular investor may be reduced for volume purchase discounts depending on the aggregate amount of securities purchased by that investor. The lowest price payable by an investor is $9.925 per security. Please see “Syndicate Information” on page 5 for further details.
(3)      JPMS, acting as agent for JPMorgan Chase & Co., will receive a commission and will use all of that commission to allow selling concessions to Morgan Stanley Smith Barney LLC (“MSSB”) that will depend on market conditions on the pricing date. In no event will the commission received by JPMS and the selling concessions to be allowed to MSSB exceed $0.20 per $10 stated principal amount security. See “Underwriting (Conflicts of Interest)” beginning on page PS-72 of the accompanying product supplement no. MS-10-A-I.

Investing in the securities involves a number of risks. See “Risk Factors” on page PS-7 of the accompanying product supplement no. MS-10-A-I and “Risk Factors” beginning on page 8 of these preliminary terms.

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of the securities or passed upon the accuracy or the adequacy of this document or the accompanying prospectus supplement and prospectus. Any representation to the contrary is a criminal offense.

The securities 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.

YOU SHOULD READ THIS DOCUMENT TOGETHER WITH THE RELATED PRODUCT SUPPLEMENT NO. MS-10-A-I, PROSPECTUS SUPPLEMENT AND PROSPECTUS, EACH OF WHICH CAN BE ACCESSED VIA THE HYPERLINKS BELOW, BEFORE YOU DECIDE TO INVEST.

Product supplement no. MS-10-A-I dated December 23, 2010:
http://www.sec.gov/Archives/edgar/data/19617/000089109210005828/e41348_424b2.pdf
Prospectus supplement dated November 21, 2008:
http://www.sec.gov/Archives/edgar/data/19617/000089109208005661/e33600_424b2.pdf
Prospectus dated November 21, 2008:
http://www.sec.gov/Archives/edgar/data/19617/000089109208005658/e33655_424b2.pdf

The issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in this offering will arrange to send you the prospectus if you request it by calling toll-free (800) 869-3326.

Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

Investment Overview

The Outperformance Jump Securities

The Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012, which we refer to as the securities, can be used:

The securities are exposed on a 1:1 basis to the underperformance of the SPY Shares relative to the TLT Shares if the SPY return is less than the TLT return.

Maturity: 18 months
Upside payment: $1.40 to $1.80 per security (14.00% to 18.00% of the stated principal amount) (to be determined on the pricing date)
Minimum payment at maturity: None

SPDR® S&P® 500 ETF Trust Overview

The SPDR® S&P® 500 ETF Trust is a unit investment trust that issues securities called “Trust Units,” or “Units.” The SPDR® S&P® 500 ETF Trust is a registered investment company, and its objective is to provide investment results that, before expenses, generally correspond to the price and yield performance of the S&P 500® Index, which consists of 500 component stocks selected to provide a performance benchmark for the U.S. equity markets.

Information as of market close on December 22, 2010:

Bloomberg Ticker Symbol: SPY
Current ETF Share Price: $125.79
52 Weeks Ago: $111.97
52 Week High (on 12/22/10): $125.79
52 Week Low (on 7/2/10): $102.20

SPY Shares Historical Performance – Daily Closing Price
January 3, 2005 to December 22, 2010

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

iShares® Barclays 20+ Year Treasury Bond Fund Overview

The iShares® Barclays 20+ Year Bond Fund is an exchange-traded fund managed by iShares® Trust, a registered investment company, which seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the long-term sector of the United States Treasury market as defined by the Barclays Capital U.S. 20+ Year Treasury Bond Index.

Information as of market close on December 22, 2010:

Bloomberg Ticker Symbol: TLT
Current ETF Share Price: $93.12
52 Weeks Ago: $90.65
52 Week High (on 8/31/10): $108.56
52 Week Low (on 4/5/10): $87.47

TLT Shares Historical Performance – Daily Closing Price
January 3, 2005 to December 22, 2010

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

Key Investment Rationale

Investors will receive a positive return on the securities if the SPY return on the valuation date is greater than the TLT return.

Payment Scenario 1   The SPY return is greater than the TLT return. In this scenario, you will receive $11.40 to $11.80 per security (114.00% to 118.00% of the stated principal amount), as determined on the pricing date. Accordingly, even if the SPY return is significantly greater than the TLT return, your payment at maturity will not exceed $11.40 to $11.80 per security, and your return may be less than if you invested in the ETF Shares directly.
Payment Scenario 2 The SPY return is equal to or less than the TLT return. In this scenario, you will receive an amount equal to the stated principal amount of $10 or an amount less than the stated principal amount of $10 by an amount proportionate to any amount by which the SPY return is less than the TLT return on the valuation date. There is no minimum payment at maturity.

Summary of Selected Key Risks (see page 8)

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

Fact Sheet

The securities offered are senior unsecured obligations of JPMorgan Chase & Co., will pay no interest, do not guarantee any return of your principal at maturity and have the terms described in product supplement no. MS-10-A-I, the prospectus supplement and the prospectus, as supplemented or modified by these preliminary terms. At maturity, if the SPY return is greater than the TLT return an investor will receive for each $10 stated principal amount security that the investor holds, the $10 stated principal amount and a fixed return equal to the upside payment. However, if the SPY return is less than or equal to the TLT return, the payment at maturity will be equal to or less than the stated principal amount of $10 by an amount that is proportionate to the amount by which the SPY return is less than the TLT return. The securities are senior notes issued as part of JPMorgan Chase & Co.’s Series E Medium-Term Notes program. All payments on the securities are subject to the credit risk of JPMorgan Chase & Co.

Expected Key Dates    
Pricing date: Original issue date (settlement date): Maturity date:
January     , 2011 (expected to price on or about January 25, 2011) January     , 2011 (3 business days after the pricing date) July 25, 2012, subject to postponement due to a market disruption event and as described under “Description of Securities — Payment at Maturity” in the accompanying product supplement no. MS-10-A-I

Key Terms  
Issuer: JPMorgan Chase & Co.
SPY Shares / Long Shares: Shares of the SPDR® S&P® 500 ETF Trust
TLT Shares / Short Shares: Shares of the iShares® Barclays 20+ Year Treasury Bond Fund
ETF Shares: The SPY Shares and TLT Shares
Underlying Indices: With respect to the SPY Shares, the S&P ® 500 Index, and with respect to the TLT Shares, the Barclays Capital U.S. 20+ Year Treasury Bond Index (each an “Underlying Index”)
Aggregate principal amount: $
Issue price: $10 per security (see “Syndicate Information” on page 5)
Stated principal amount: $10 per security
Denominations: $10 per security and integral multiples thereof
Interest: None
Payment at maturity:

  • If the SPY return is greater than the TLT return, for each $10 stated principal amount security,

    $10 + upside payment

  • If the SPY return is equal to or less than the TLT return, for each $10 stated principal amount security,

    $10 x (1 + outperformance return)

    If the outperformance return is negative, this amount will be less than the stated principal amount of     $10 and may be zero.
Upside payment: $1.40 to $1.80 per security (11.40% to 11.80% of the stated principal amount). The actual upside payment will be determined on the pricing date and will not be less than $1.40 or greater than $1.80. Accordingly, even if the SPY return is significantly greater than the TLT return, your payment at maturity will not exceed $11.40 to $11.80 per security.
Outperformance return: SPY return – TLT return, provided that the outperformance return will not be less than -100%
SPY return / Long return: The share return of the SPY Shares
TLT return / Short return: The share return of the TLT Shares
Share return: With respect to each ETF Share:
 
final share price – initial share price
initial share price
Initial Share Price: With respect to each ETF Share, the closing price of one such ETF Share on the pricing date, divided by the applicable adjustment factor
Final Share Price: With respect to each ETF Share, the closing price of one such ETF Share on the valuation date
Adjustment factor: Set equal to 1.0 on the pricing date, subject to adjustment under certain circumstances. See “General Terms of Securities — Anti-Dilution Adjustments” in the accompanying product supplement no. MS-10-A-I.
Valuation date: July 25, 2012, subject to adjustment for non-trading days or certain market disruption events and as described under “Description of Securities — Payment at Maturity” in the accompanying product supplement no. MS-10-A-I
Postponement of maturity date: If the scheduled maturity date is not a business day, then the maturity date will be the following business day. If the scheduled valuation date is not a trading day or if a market disruption event occurs on that day so that the valuation date as postponed falls less than three business days prior to the scheduled maturity date, the maturity date of the securities will be postponed until the third business day following the valuation date as postponed.
Risk factors: Please see “Risk Factors” beginning on page 8.

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

General Information  
Listing: The securities will not be listed on any securities exchange.
CUSIP / ISIN: 46634X591 / US46634X5914
Minimum ticketing size: 100 securities
Tax considerations:

You should review carefully the section entitled “Certain U.S. Federal Income Tax Consequences” in the accompanying product supplement no. MS-10-A-I. Subject to the limitations described therein, and based on certain factual representations received from us, in the opinion of our special tax counsel, Davis Polk & Wardwell LLP, your securities should be treated as “open transactions” for U.S. federal income tax purposes that generate long- term capital gain or loss if held for more than one year. 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 securities. 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 securities, 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 securities, including possible alternative treatments and the issues presented by this notice. Non-U.S. Holders should also note that they may be withheld upon 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 discussion in “Risk Factors – The tax consequences of an investment in the securities are unclear” in this document and 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 securities.

Trustee: Deutsche Bank Trust Company Americas (formerly Bankers Trust Company)
Calculation agent: JPMS
Use of proceeds and hedging:

The net proceeds we receive from the sale of the securities will be used for general corporate purposes and, in part, by us or by one or more of our affiliates in connection with hedging our obligations under the securities.

For further information on our use of proceeds and hedging, see “Use of Proceeds” in the accompanying product supplement no. MS-10-A-I.

Benefit plan investor considerations: See “Benefit Plan Investor Considerations” in the accompanying product supplement no. MS-10-A-I.
Contact: Morgan Stanley Smith Barney clients may contact their local Morgan Stanley Smith Barney branch office or Morgan Stanley Smith Barney’s principal executive offices at 2000 Westchester Avenue, Purchase, New York 10577 (telephone number (800) 869-3326).

Syndicate Information    
Issue price of the securities Commissions Principal amount of securities
for any single investor
$10.0000 $0.2000 <$1MM
$9.9625 $0.1625 ≥$1MM and <$3MM
$9.9438 $0.1438 ≥$3MM and <$5MM
$9.9250 $0.1250 ≥$5MM

MSSB may reclaim selling concessions allowed to individual brokers within MSSB in connection with the offering, if, within 30 days of the offering, MSSB repurchases the securities distributed by such brokers.

This offering summary represents a summary of the terms and conditions of the securities. We encourage you to read the accompanying product supplement no. MS-10-A-I, the prospectus supplement and prospectus for this offering, which can be accessed via the hyperlinks on the front page of this document.

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

How the Jump Securities Work

Payoff Diagram

The payoff diagram below illustrates the payment at maturity on the securities for a range of hypothetical outperformance returns. The payoff diagram is based on the following terms:

Stated principal amount: $10 per security
Hypothetical upside payment: $1.60 (16.00% of the stated principal amount) per security (which represents the midpoint of the range of $1.40 and $1.80)*
Hypothetical maximum payment at maturity: $11.60 per security (which represents the midpoint of the range of $11.40 and $11.80)*
Minimum payment at maturity: None
*If the actual upside payment and maximum payment at maturity as determined on the pricing date are less than $1.60 and $11.60, respectively, your return, if any, may be lower than the returns shown below.

Outperformance Jump Securities Payoff Diagram

How it works

January 2011
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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

Hypothetical Examples on Payment at Maturity

  Example 1 Example 2 Example 3
SPY return: 50% -3% -20%
TLT return: 30% -5% 50%
Outperformance Return: 20% 2% -70%
Payment at Maturity: $11.60 $11.60 $3.00
Return on the securities: 16% 16% -70%

Example 1: if the SPY return is 50% and the TLT return is 30% on the valuation date:
Because the SPY return is greater than the TLT return, the payment at maturity will be calculated as follows:

$10 + upside payment = $10.00 + $1.60 = $11.60

Example 2: if the SPY return is -3% and the TLT return is -5% on the valuation date:
Because the SPY return is greater than the TLT return, the payment at maturity will be calculated as follows:

$10 + upside payment = $10.00 + $1.60 = $11.60

In this example, although both ETF Shares decline, the investor receives a positive return because the SPY Shares decrease by a lower percentage than the percentage decrease of the TLT Shares over the term of the securities.

Example 3: if the SPY return is -20% and the TLT return is 50% on the valuation date:
Because the SPY return is less than the TLT return, the payment at maturity will be calculated as follows:

     outperformance return = -20% - 50% = -70%
payment at maturity = $10 × (1 + outperformance return) = $3.00

In this example, the SPY Shares underperforms the TLT Shares and the investor receives an amount that is significantly less than the stated principal amount.

These hypothetical examples are based on a hypothetical upside payment of $1.60, which is the midpoint of the range of $1.40 to $1.80. If the actual upside payment and maximum payment at maturity as determined on the pricing date are less than $1.60 and $11.60, respectively, your return, if any, may be lower than the returns shown above.

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

Payment at Maturity

At maturity, investors will receive for each $10 stated principal amount of securities that they hold an amount in cash based upon the SPY return relative to the TLT return, determined as follows:

If the SPY return is greater than the TLT return:

$10 + upside payment:

The upside payment will be $1.40 to $1.80 per security, to be determined on the pricing date.

If the SPY return is less than or equal to the TLT return:

$10 × (1 + outperformance return)
Principal   1 + Outperformance Return
$10 ×   [1 + (SPY return – TLT return]]  

Because the outperformance return will be less than or equal to 0%, this payment at maturity will be less than or equal to $10 and may be zero.

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

Risk Factors

The following is a non-exhaustive list of certain key risk factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled “Risk Factors” beginning on page PS-7 of the accompanying product supplement no. MS-10-A-I. We also urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the securities.

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

In addition, we are currently one of the companies that make up one of the SPY Shares and the S&P 500® Index. We will not have any obligation to consider your interests as an investor in the securities in taking any corporate action that might affect the value of the SPY shares, the S&P 500® Index or the securities.

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

The TLT Shares holds bonds with maturities longer than 20 years, which typically tend to be more sensitive to interest rate changes.

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

asserting an alternative characterization or treatment for the securities, the timing and character of income on the securities could differ materially and adversely from our description herein. 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 securities. 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 securities, possibly with retroactive effect. Both U.S. and Non-U.S. Holders should review carefully the section entitled “Certain U.S. Federal Income Tax Consequences” in the accompanying product supplement no. MS-10-A-I and consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments and the issues presented by this notice. Non-U.S. Holders should also note that they may be withheld upon unless they have submitted a properly completed IRS Form W-8BEN or otherwise satisfied the applicable documentation requirements.

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

Information about the ETF Shares and the Underlying Indices

The SPDR® S&P® 500 ETF Trust. The SPDR® S&P® 500 ETF Trust is an investment company registered under the Investment Company Act of 1940, as amended. Trust Units represent an undivided ownership interest in a portfolio of all, or substantially all, of the common stocks of the S&P 500® Index. Shares of the fund trade on NYSE Arca, Inc. under the ticker symbol “SPY.” Information provided to or filed with the SEC by the SPDR® S&P® 500 ETF Trust pursuant to the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, can be located by reference to the SEC file numbers 033-46080 and 811-06125, respectively, through the SEC’s website at http://www.sec.gov. In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents. We make no representation or warranty as to the accuracy or completeness of such information.

The iShares® Barclays 20+ Year Bond Fund. The iShares® Barclays 20+ Year Bond Fund is an exchange-traded fund managed by iShares® Trust (“iShares®”), a registered investment company. iShares® consists of numerous separate investment portfolios, including the Barclays 20+ Year Bond Fund Fund. BlackRock Fund Advisors (“BFA”) is currently the investment adviser for the Barclays 20+ Year Bond Fund. This fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. 20+ Year Treasury Bond Index. The fund’s investment objective and the Underlying Indices may be changed without shareholder approval. Shares of the fund trade on NYSE Arca, Inc. under the ticker symbol “TLT”. Information provided to or filed with the SEC by iShares® pursuant to the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, can be located by reference to the SEC file numbers 333-92935 and 811-09729, respectively, through the SEC’s website at http://www.sec.gov. In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents. We make no representation or warranty as to the accuracy or completeness of such information.

These preliminary terms relate only to the securities offered hereby and do not relate to the ETF Shares. We have derived all disclosures contained in these preliminary terms regarding the ETF Shares from the publicly available documents described in the preceding paragraph. In connection with the offering of the securities, neither we nor the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the ETF Shares. Neither we nor the agent makes any representation that such publicly available documents or any other publicly available information regarding the ETF Shares is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described in the preceding paragraph) that would affect the trading price of the ETF Shares (and therefore the price of the ETF Shares at the time we price the securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning the ETF Shares could affect the value received at maturity with respect to the securities and therefore the trading prices of the securities.

Neither we nor any of our affiliates makes any representation to you as to the performance of the ETF Shares.

We and/or our affiliates may presently or from time to time engage in business with the sponsors of the ETF Shares. In the course of such business, we and/or our affiliates may acquire non-public information with respect to the ETF Shares, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates may publish research reports with respect to the ETF Shares. The statements in the preceding two sentences are not intended to affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the securities, you should undertake an independent investigation of the ETF Shares as in your judgment is appropriate to make an informed decision with respect to an investment in securities linked to the ETF Shares.

iShares® is a registered trademark of BlackRock Institutional Trust Company, N.A. (“BTC”). The securities are not sponsored, endorsed, sold, or promoted by BTC. BTC makes no representations or warranties to the owners of the securities or any member of the public regarding the advisability of investing in the securities. BTC has no obligation or liability in connection with the operation, marketing, trading or sale of the securities.

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The S&P 500® Index. The S&P 500® Index, which is calculated, maintained and published by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“Standard & Poor’s), consists of 500 component stocks selected to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500® Index is based on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular time as compared to the aggregate average market capitalization of the 500 similar companies during the base period of the years 1941 through 1943. The S&P 500® Index is described under the heading “The SPDR® S&P® 500 ETF Trust — The S&P 500® Index” in the accompanying product supplement no. MS-10-A-I.

The Barclays Capital U.S. 20+ Year Treasury Bond Index. The Barclays Capital U.S. 20+ Year Treasury Bond Index measures the performance of public obligations of the U.S. Treasury. The Barclays Capital U.S. 20+ Year Treasury Bond Index is market capitalization weighted, includes all publicly issued U.S. Treasury securities that meet the criteria for inclusion and is rebalanced once a month on the last calendar day of the month. The U.S. Treasury securities included in the Barclays Capital U.S. 20+ Year Treasury Bond Index must have a remaining maturity of greater than 20 years, are rated investment grade (at least Baa3 by Moody’s Investors Service, Inc. or BBB- by Standard and Poor’s Financial Services, LLC) and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed-rate and non-convertible. Certain special issuances, such as flower bonds, targeted investor securities (“TINs”), state and local government series bonds (“SLGs”) and coupon issues that have been stripped from assets already included are excluded from the Barclays Capital U.S. 20+ Year Treasury Bond Index. The Barclays Capital U.S. 20+ Year Treasury Bond Index is described under the heading “The iShares® Barclays 20+ Year Bond Fund — Barclays Capital U.S. 20+ Year Treasury Bond Index” in the accompanying product supplement no. MS-10-A-I.

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

Historical Information

The following table sets forth the published high and low closing prices, as well as end-of-quarter closing prices, for each ETF Share for each quarter in the period from January 3, 2005 through December 22, 2010. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical closing values of the basket components should not be taken as an indication of future performance, and no assurance can be given as to the closing price on the valuation date.

SPDR® S&P® 500 ETF Trust High ($) Low ($) Period End ($)
    2005      
  First Quarter 122.78 116.54 118.05
  Second Quarter 121.58 113.82 119.17
  Third Quarter 124.70 119.46 123.02
  Fourth Quarter 127.82 117.50 124.50
  2006      
  First Quarter 130.99 125.51 129.84
  Second Quarter 132.63 122.57 127.25
  Third Quarter 133.74 123.35 133.57
  Fourth Quarter 143.07 133.07 141.66
  2007      
  First Quarter 146.01 137.41 142.07
  Second Quarter 154.15 142.24 150.38
  Third Quarter 155.03 141.13 152.67
  Fourth Quarter 156.44 140.90 146.39
  2008      
  First Quarter 144.94 127.90 131.89
  Second Quarter 143.08 127.69 128.04
  Third Quarter 130.70 111.38 116.54
  Fourth Quarter 116.00 75.95 90.33
  2009      
  First Quarter 93.44 68.11 79.44
  Second Quarter 95.09 81.00 91.92
  Third Quarter 107.33 87.95 105.56
  Fourth Quarter 112.67 102.54 111.44
  2010      
  First Quarter 117.40 105.87 116.99
  Second Quarter 121.79 103.22 103.22
  Third Quarter 114.79 102.2 114.12
  Fourth Quarter (through December 22, 2010) 125.79 113.75 125.79

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Outperformance Jump Securities based on the Performance of the SPDR® S&P® 500 ETF Trust Relative to the iShares® Barclays 20+ Year Treasury Bond Fund due July 30, 2012

iShares® Barclays 20+ Year Treasury Bond Fund High ($) Low ($) Period End ($)
    2005      
  First Quarter 94.07 87.67 89.34
  Second Quarter 96.72 88.68 96.72
  Third Quarter 95.95 91.49 92.23
  Fourth Quarter 92.55 88.08 91.83
  2006      
  First Quarter 92.47 86.86 86.86
  Second Quarter 86.63 82.65 84.39
  Third Quarter 90.28 83.19 89.41
  Fourth Quarter 91.59 87.20 88.48
  2007      
  First Quarter 90.66 86.72 88.35
  Second Quarter 88.85 82.42 85.23
  Third Quarter 91.00 83.41 88.72
  Fourth Quarter 95.58 87.63 93.05
  2008      
  First Quarter 97.18 90.95 95.89
  Second Quarter 95.67 88.87 92.34
  Third Quarter 98.49 90.14 94.88
  Fourth Quarter 122.45 92.74 119.35
  2009      
  First Quarter 116.65 100.56 105.71
  Second Quarter 106.37 88.19 94.57
  Third Quarter 98.84 90.40 98.66
  Fourth Quarter 99.70 89.46 89.87
  2010      
  First Quarter 92.31 88.61 89.46
  Second Quarter 101.75 87.47 101.75
  Third Quarter 108.56 98.33 105.51
  Fourth Quarter (through December 22, 2010) 105.56 90.94 93.12

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Supplemental Plan of Distribution

Subject to regulatory constraints, JPMS intends to use its reasonable efforts to offer to purchase the securities in the secondary market, but is not required to do so.

We or our affiliate may enter into swap agreements or related hedge transactions with one of our other affiliates or unaffiliated counterparties in connection with the sale of the securities and JPMS and/or an affiliate may earn additional income as a result of payments pursuant to the swap or related hedge transactions. See “Use of Proceeds” beginning on page PS-21 of the accompanying product supplement no. MS-10-A-I.

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Where You Can Find More Information

You may revoke your offer to purchase the securities 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 securities prior to their issuance. In the event of any changes to the terms of the securities, 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 document 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 securities are a part, and the more detailed information contained in product supplement no. MS-10-A-I dated December 23, 2010.

This document, together with the documents listed below, contains the terms of the securities 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, stand-alone 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. MS-10-A-I, as the securities 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 securities.

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 document, the “Company,” “we,” “us” and “our” refer to JPMorgan Chase & Co.

January 2011
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