Term sheet
To prospectus
dated November
21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 172-A-II dated December 1, 2010
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Term Sheet to
Product Supplement No. 172-A-II
Registration Statement No. 333-155535
Dated December 1, 2010; Rule 433
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Structured
Investments
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$
Return Notes Linked to the JPMorgan Commodity Investable Global Asset
Rotator 9 Conditional Long-Short Index due December 6, 2012
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General
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The notes are designed for investors
who seek unleveraged exposure to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short
Index as described below. Investors should be willing to forgo interest
payments and, if the Ending Underlying Value is
less than the Strike 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.
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The Additional Amount referred to in
the accompanying product supplement no. 172-A-II is deemed to be $0 and,
therefore, the notes will not pay any Additional Amount at maturity.
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Senior unsecured obligations of JPMorgan
Chase & Co. maturing December
6, 2012
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Minimum denominations of $1,000 and
integral multiples thereof
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The notes are expected to price on or
about December 1, 2010 and are expected to settle on or about
December 6, 2010.
Key Terms
Underlying:
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JPMorgan Commodity Investable Global Asset Rotator 9
Conditional Long-Short Index (the Commodity-IGAR 9 Conditional Long-Short
or the Underlying)
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Payment at Maturity:
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Payment at maturity will reflect the
performance of the
Underlying. Your payment at maturity per $1,000
principal amount note will be calculated as follows:
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$1,000
× (1 + Underlying Return)
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In no event, however, will the
payment at maturity be less than $0. |
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You will lose some or all of your
investment at maturity if the Ending Underlying Value is less than the Strike Value.
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Underlying Return:
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Ending Underlying Value Strike
Value
Strike Value
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Strike Value:
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An Underlying value to be
determined on the pricing date in the sole discretion of the Note Calculation
Agent. The Strike Value may or may not be the regular official Underlying
closing value on the pricing date. Although the Note Calculation Agent
will make all determinations and will take all actions in relation to the
establishment of the Strike Value in good faith, it should be noted that such
discretion could have an impact (positive or negative), on the value of your
notes. The Note Calculation Agent is under no obligation to consider your
interests as a holder of the notes in taking any actions, including the
determination of the Strike Value, that might affect the value of your notes.
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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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December 3, 2012
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Maturity Date:
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December 6, 2012
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CUSIP:
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48124A4M6
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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 and
Description of Notes Postponement of a Determination Date in the accompanying
product supplement no. 172-A-II or early acceleration in the event of a
hedging disruption event as described under Supplemental Terms of the Notes
and in Selected Risk Considerations Commodity 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-5 of the accompanying product supplement no. 172-A-II and Selected
Risk Considerations beginning on page TS-3 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. 172-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 (2)
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Proceeds
to Us
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Per note
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$
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$
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$
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Total
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$
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$
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$
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(1)
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The price to the public
includes the estimated cost of hedging our obligations under the notes
through one or more of our affiliates.
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(2)
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If the notes priced
today, J.P. Morgan Securities LLC, which we refer to as JPMS, acting as agent
for JPMorgan Chase & Co., would receive a commission of approximately $20.00
per $1,000 principal amount note and would use a portion of that commission
to allow selling concessions to other affiliated or unaffiliated dealers of
approximately $1.00 per $1,000 principal amount note. The concessions of
approximately $1.00 per $1,000 principal amount note include concessions to
be allowed to selling dealers and concessions to be allowed to any arranging
dealer. 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 actual commission received by JPMS may be more or less than $20.00
and will depend on market conditions on the Pricing Date. In no event will
the commission received by JPMS, which includes concessions to be and other
amounts that may be allowed to other dealers, exceed $20.00 per $1,000
principal amount note. See Plan of Distribution beginning on page PS-44 of
the accompanying product supplement no. 172-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.
December 1, 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. 172-A-II dated December 1, 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. 172-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 and
our refer to JPMorgan Chase & Co.
JPMorgan Commodity Investable Global
Asset Rotator 9 Conditional Long-Short Index
The Commodity-IGAR 9 Conditional
Long-Short was developed and is maintained by J.P. Morgan Securities Ltd. to
implement a momentum-based algorithmic strategy for commodity allocations. The
Commodity-IGAR 9 Conditional Long-Short references the value of a synthetic
portfolio selected from a limited universe of commodity sub-indices, each of which is a component of the S&P GSCI
Index (S&P GSCI) and is intended to serve as a benchmark
value for a particular commodity. The Commodity-IGAR 9 Conditional Long-Short
is an excess return index intended to track the performance of a synthetic
portfolio of commodity excess return sub-indices. An excess return index
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.
Historical performance data for each
sub-index is run through the Commodity-IGAR 9 Conditional Long-Short algorithms
on a monthly basis. The algorithms test each sub-indexs performance and
consistency. The performance algorithm tests the year-over-year performance for
each sub-index, and the consistency tests filter out sub-indices that have not
demonstrated consistent positive monthly performance over a one-year period, attributing greater weight to more
recent monthly periods.
If on any monthly rebalancing date, the
year-over-year performance of an equally weighted basket of the referenced
universe of GSCI sub-indices is (a) positive and (b) consistently positive, the short leg of the Commodity-IGAR 9
Conditional Long-Short will be de-activated.
Up to twelve sub-indices that are
ranked with the strongest positive performance and successfully pass the
consistency test are assigned a conditional long-short target weight of
one-twelfth (1/12) in the synthetic portfolio until the next monthly rebalancing. The weighting
of one-twelfth will apply to each of the strongest sub-indices even if their
number is less than twelve. If the short leg of the Commodity-IGAR 9
Conditional Long-Short is not de-activated, up to twelve sub-indices that are
ranked with the weakest negative performance and successfully pass the
conditional short consistency test are assigned a conditional long-short target
weight of minus one-twelfth (1/12) in the synthetic portfolio until the
next monthly rebalancing. The remaining constituents are assigned a weight of
zero percent (0%).
The value of the Commodity-IGAR 9
Conditional Long-Short is the value of the synthetic portfolio, minus an adjustment factor deducted
daily at an annual rate of 0.96%.
As of November 30, 2010, the Commodity-IGAR 9 Conditional Long-Short synthetic
portfolio contains twelve long positions in the S&P GSCI sub-indices
referencing the following commodities: Coffee, Copper, Cotton, Corn, Feeder
Cattle, Gold, Live Cattle, Red Wheat, Silver, Soybean, Sugar and Wheat. As of November 30, 2010, the synthetic portfolio contains no
short positions.
The value of the Commodity-IGAR 9
Conditional Long-Short is published each trading day under the Bloomberg ticker
symbol CMDT9CER.
Selected Purchase Considerations
- INVESTMENT EXPOSURE TO THE COMMODITY-IGAR
9 CONDITIONAL LONG-SHORT The notes provide unleveraged exposure to the Commodity-IGAR 9 Conditional Long-Short. 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 DYNAMIC BASKET OF
SUB-INDICES REPRESENTING SUB-ASSET CLASSES OF THE GLOBAL COMMODITY MARKET The return on the notes is linked to the performance of the JPMorgan
Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index. The Commodity-IGAR
9 Conditional Long-Short references the value of a synthetic portfolio drawn
from the constituent sub-indices of the S&P GSCI using an
investment strategy that is generally known as momentum investing. The
rebalancing method therefore seeks to capitalize on positive or negative trends
in the U.S. dollar level of the constituents on the assumption that if certain
constituents performed well in the past, they will continue to perform well in
the future. See The JPMorgan Commodity Investable Global Asset Rotator 9
Conditional Long-Short Index in the accompanying product supplement no. 172-A-II.
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JPMorgan
Structured Investments
Return Notes Linked to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index
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TS-1 |
- CAPITAL GAINS TAX TREATMENT You should review carefully the section
entitled Certain U.S. Federal Income Tax Consequences in the accompanying
product supplement no. 172-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 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, such as the notes. The notice focuses in particular on
whether to require holders of these instruments to accrue income over the term
of their investment. It also asks for comments on a number of related topics, including the character
of income or loss with respect to these instruments; the relevance of factors
such as the nature of the underlying property to which the instruments are
linked; the degree, if any, to which income (including any mandated accruals)
realized by Non-U.S. Holders should be subject to withholding tax; and whether
these instruments are or should be subject to the constructive ownership
regime, 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 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 S&P GSCI constituent sub-indices, in any of the
commodities whose futures contracts determine the levels of the S&P GSCI constituent sub-indices or the
constituent sub-indices of the Commodity-IGAR 9 Conditional Long-Short or in
any futures contracts relating to such commodities for which there is an active
secondary market. These risks are explained in more detail in the Risk
Factors section of the accompanying product supplement no. 172-A-II dated December 1, 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 Underlying, and will depend on whether, and
the extent to which, the Underlying Return is positive or negative. Your
investment will be fully exposed to any decline in the Ending Underlying Value,
as compared to the Strike Value, provided that the payment at
maturity will not be less than $0.
- NO PROTECTION AGAINST LOSS If the Underlying Return is negative,
at maturity, you will lose some or all of your investment. For each 1% that
the Ending Underlying Value is less than the Strike Value, you will lose 1% of
your investment in the notes, provided that the payment at maturity will
not be less than $0. The Additional Amount referred to in the accompanying
product supplement no. 172-A-II is deemed to be $0 and, therefore, the notes
will not pay any Additional Amount 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 affect adversely the value of the notes.
- POTENTIAL CONFLICTS We and our affiliates play a variety
of roles in connection with the issuance of the notes, including acting as COMIGAR
Calculation Agent the entity that calculates the Commodity-IGAR 9 Conditional
Long-Short values, and acting as Note Calculation Agent and hedging our
obligations under the notes. In performing these duties, the economic
interests of the COMIGAR Calculation Agent, the Note Calculation Agent and
other affiliates of ours are potentially adverse to your interests as an
investor in the notes. Although the Note
Calculation Agent will make all determinations and will take all actions in
relation to the establishment of the Strike Value in good faith, it should be
noted that such discretion could have an impact (positive or negative), on the
value of your notes. The Note Calculation Agent is under no obligation to
consider your interests as a holder of the notes in taking any actions,
including the determination of the Strike Value, that might affect the value of
your notes.
- CERTAIN BUILT-IN COSTS ARE LIKELY TO
AFFECT ADVERSELY 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 JPMS 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 Affect 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.
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JPMorgan
Structured Investments
Return Notes Linked to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index
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TS-2 |
- INVESTMENTS RELATED TO THE VALUES OF
COMMODITIES TEND TO BE MORE VOLATILE THAN TRADITIONAL SECURITIES INVESTMENTS Market prices of the commodity
futures contracts included in the constituent sub-indices of the Commodity-IGAR
9 Conditional Long-Short tend to be highly volatile and may fluctuate rapidly
based on numerous factors. Commodity market values are not related to the
value of a future income or earnings stream, as tends to be the case with
fixed-income and equity investments, but are subject to variables of specific
application to commodities markets. These variables include 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 have a larger impact on commodity prices and
commodity-linked instruments than on traditional fixed-income and equity
securities. These variables may create additional investment risks that cause
the value of the notes to be more volatile than the values of traditional
securities. These and other factors may affect the levels of the sub-indices
included from time to time in the Commodity-IGAR 9 Conditional Long-Short, and
thus the value of your notes, in unpredictable or unanticipated ways. The high volatility and cyclical nature
of commodity markets may render such an investment inappropriate as the focus
of an investment portfolio.
- THE NOTES DO NOT OFFER DIRECT EXPOSURE
TO COMMODITY SPOT PRICES The constituent sub-indices of the Commodity-IGAR 9 Conditional
Long-Short include commodity futures contracts, not physical commodities (or
their spot prices). The price of a futures contract reflects the expected
value of the commodity upon delivery in the future, whereas the spot price of a
commodity reflects the immediate delivery value of the commodity. A variety of
factors can lead to a disparity between the expected future price of a
commodity and the spot price at a given point in time, such as the cost of
storing the commodity for the term of the futures contract, interest charges
incurred to finance the purchase of the commodity and expectations concerning
supply and demand for the commodity. The price movements of a futures contract
are typically correlated with the movements of the spot price of the referenced
commodity, but the correlation is generally imperfect and price moves in the spot
market may not be reflected in the futures market (and vice versa).
Accordingly, the notes may underperform a similar investment that is linked to
commodity spot prices.
- COMMODITY FUTURES CONTRACTS ARE SUBJECT
TO UNCERTAIN LEGAL AND REGULATORY REGIMES The commodity futures contracts that underlie the
constituents of the Commodity-IGAR 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 Commodity-IGAR 9 Conditional Long-Short. Any
future regulatory changes, including but not limited to changes resulting from
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank
Act), which was enacted on July 21, 2010, may have a substantial adverse
effect on the value of your notes. Additionally, in accordance with the
Dodd-Frank Act, the U.S. Commodity Futures Trading Commission is drafting
regulations that will affect market participants position limits in certain
commodity-based futures contracts, such as futures contracts on certain energy
and agricultural based commodities. These proposed regulations, when final and
implemented, may reduce liquidity in the exchange-traded market for such
commodity-based futures contracts. Such restrictions may result in the COMIGAR
Calculation Agent exercising its discretionary right under the rules governing
the Commodity-IGAR 9 Conditional Long-Short to exclude or substitute
constituents of the Commodity-IGAR 9 Conditional Long-Short or modify the rules
governing the Commodity-IGAR 9 Conditional Long-Short, which may, in turn, have
a negative effect on the level of the Commodity-IGAR 9 Conditional Long-Short
and your payment at maturity. Please see The JPMorgan Core Commodity Investable
Global Asset Rotator Excess Return Extraordinary Events Affecting Commodity-IGAR
9 Conditional Long-Short and Constituent Sub-Indices in the accompanying
product supplement no. 172-A-I for more information. 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 early and pay you an amount determined in good faith and in a
commercially reasonable manner by the Note Calculation Agent. 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. 172-A-II for more information.
- OWNING THE NOTES INVOLVES THE RISKS
ASSOCIATED WITH COMMODITY-IGAR 9 CONDITIONAL LONG-SHORTS
MOMENTUM INVESTMENT STRATEGY The Commodity-IGAR 9 Conditional
Long-Short employs a mathematical model intended to implement what is generally
known as a momentum investment strategy, which seeks to capitalize on
consistent positive and negative market price trends based on the supposition
that consistent positive and negative market price trends may continue. This
strategy is different from a strategy that seeks long-term exposure to a
portfolio consisting of constant components. The Commodity-IGAR 9 Conditional
Long-Short strategy may fail to realize gains that could occur as a result of
holding a commodity that has experienced price declines, but after which
experiences a sudden price spike, or has experienced price increases, but after
which experiences a sudden price decline. Further, the rules of the Commodity-IGAR
9 Conditional Long-Short limit exposure to rapidly appreciating or depreciating
sub-indices. This is because the Commodity-IGAR 9 Conditional Long-Short rebalances
its exposure to sub-indices each month so that the exposure to any one
sub-index does not exceed one-twelfth of the total long or short synthetic
portfolio as of the time of a monthly rebalancing. By contrast, a synthetic
portfolio that does not rebalance monthly in this manner could see greater
compounded gains over time through exposure to a consistently and rapidly
appreciating or depreciating sub-index.
- THE COMMODITY-IGAR 9 CONDITIONAL
LONG-SHORT SYNTHETIC PORTFOLIO MAY HOLD FEW OR NO SUB-INDICES AND WILL NOT
REPLICATE THE COMPONENTS OR WEIGHTINGS OF THE S&P GSCI COMMODITY INDEX Because the rules of the Commodity-IGAR
9 Conditional Long-Short limit the synthetic portfolio to holding only
constituent sub-indices that have shown consistent
positive or negative price appreciation, the synthetic portfolio may experience
periods where it holds few or no constituent sub-indices, and therefore is
unlikely during such periods to achieve returns that exceed the returns
realized by other investment strategies, or be able to capture gains from other
appreciating or depreciating
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JPMorgan
Structured Investments
Return Notes Linked to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index
|
TS-3 |
assets in the market that are not included in the
universe of constituent sub-indices. By contrast, the S&P GSCI
seeks to allocate weights based on the relative importance of component
commodities within the overall economy. As a result, the Commodity-IGAR 9
Conditional Long-Short will not track an econometric-weighted commodity
portfolio or assume constant exposure to commodity positions.
- OWNING THE NOTES IS NOT THE SAME AS
OWNING THE CONSTITUENT SUB-INDICES OR COMMODITIES FUTURES CONTRACTS The return on your notes will not
reflect the return you would realize if you actually held or sold short the commodity
futures contracts composing the constituent sub-indices of the Commodity-IGAR 9
Conditional Long-Short. The Commodity-IGAR 9 Conditional Long-Short 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 futures contracts or interests in the
constituent sub-indices. Furthermore, the Commodity-IGAR 9 Conditional
Long-Short synthetic portfolio is subject to monthly rebalancing and the
assessment of a monthly index calculation fee that will reduce its value
relative to the value of the constituent sub-indices.
- THE NOTES MAY BE SUBJECT TO INCREASED
VOLATILITY DUE TO THE USE OF LEVERAGE The Commodity-IGAR 9 Conditional Long-Short employs a
technique generally known as long-short strategy. As part of this strategy,
if the short leg of the Commodity-IGAR 9 Conditional Long-Short is not de-activated,
the sum of the absolute values of the conditional long-short target weights may
be greater than 1 and, consequently, the Commodity-IGAR 9 Conditional
Long-Short may include leverage. Where the synthetic portfolio is leveraged,
any price movements in the commodityfutures contracts replicating the
constituent sub-indices may result in greater changes in the value of the Commodity-IGAR
9 Conditional Long-Short than if leverage was not used, which in turn could
cause you to receive a lower payment at maturity than you would otherwise
receive.
- SUSPENSION OR DISRUPTIONS OF MARKET
TRADING IN THE COMMODITY AND RELATED OPTIONS FUTURES
MARKETS MAY AFFECT ADVERSELY THE LEVEL OF THE COMMODITY-IGAR 9 CONDITIONAL
LONG-SHORT, 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 futures contract prices that may occur during any 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 level of the Commodity-IGAR 9 Conditional Long-Short and, therefore, the value of your
notes.
- BECAUSE THE COMMODITY-IGAR 9 CONDITIONAL LONG-SHORT INDEX
MAY INCLUDE NOTIONAL SHORT POSITIONS, THE COMMODITY-IGAR 9 CONDITIONAL LONG-SHORT INDEX MAY BE SUBJECT TO
ADDITIONAL RISKS The
Commodity-IGAR 9 Conditional Long-Short Index employs a technique generally
known as long-short strategy. This means the Commodity-IGAR 9 Conditional
Long-Short Index could include a number of notional long positions and a number
of notional short positions. Unlike long positions, short positions are
subject to unlimited risk of loss because there is no limit on the amount by
which the price that the relevant asset may appreciate before the short position
is closed. Although the minimum payment at maturity is $0, it is possible that
any notional short position included in the Commodity-IGAR 9 Conditional
Long-Short may appreciate substantially with an adverse impact on the Commodity-IGAR
9 Conditional Long-Short value and your notes.
- HIGHER FUTURES PRICES OF THE COMMODITY
FUTURES CONTRACTS UNDERLYING THE CONSTITUENT SUB-INDICES OF THE COMMODITY-IGAR
9 CONDITIONAL LONG-SHORT RELATIVE TO THE CURRENT PRICES OF SUCH CONTRACTS MAY
AFFECT THE VALUE OF THE COMMODITY-IGAR 9 CONDITIONAL LONG-SHORT AND THE VALUE
OF THE NOTES The
constituent sub-indices of the Commodity-IGAR 9 Conditional Long-Short are 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 constituent sub-indices of the Commodity-IGAR
9 Conditional Long-Short 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 contango, where the prices are higher in the distant
delivery months than in the nearer delivery months, the purchase of the November
contract would take place at a price that is higher than the price of the October
contract, thereby creating a negative roll yield. Contango could
adversely affect the value of the Commodity-IGAR 9 Conditional Long-Short and thus the value of notes
linked to the Commodity-IGAR
9 Conditional Long-Short. The future contracts underlying the sub-indices of the
Commodity-IGAR 9 Conditional Long-Short have historically been in contango.
- THE COMMODITY-IGAR 9 CONDITIONAL
LONG-SHORT HAS A LIMITED OPERATING HISTORY The Commodity-IGAR 9 Conditional Long-Short was established on
February 13, 2009 (and its governing rules were amended on July 31, 2009 and
effective as of August 24, 2009). Therefore, the Strategy has limited
historical performance. Back-testing or similar analysis in respect of the Commodity-IGAR
9 Conditional Long-Short must be considered illustrative only and may be based
on estimates or assumptions not used by the Note Calculation Agent when determining
the Commodity-IGAR 9 Conditional Long-Short values.
- THE NOTES ARE LINKED TO AN EXCESS
RETURN INDEX AND NOT A TOTAL RETURN INDEX The notes are linked to an excess return index and
not a total return index. The Underlying is an excess return index intended to
track the performance of a synthetic portfolio of commodity excess return
sub-indices. An excess return index, such as the Underlying, reflects the
returns that are potentially available through an uncollateralized investment
in the contracts
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JPMorgan
Structured Investments
Return Notes Linked to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index
|
TS-4 |
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.
- NO INTEREST PAYMENTS As a holder of the notes, you will
not receive any interest payments.
- LACK OF LIQUIDITY The notes will not be listed on any
securities exchange. JPMS, 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 JPMS is willing to buy the notes.
- THE REPORTED LEVEL OF THE COMMODITY-IGAR
9 CONDITIONAL LONG-SHORT WILL INCLUDE THE DEDUCTION OF AN ADJUSTMENT FACTOR One way in which the Commodity-IGAR 9 Conditional Long-Short differs
from a typical index is that its daily reported level includes a deduction from
the aggregate values of its constituents of an adjustment factor assessed at an
annual rate of 0.96%. This adjustment factor is deducted daily and calculated
based on an actual/360 accrual basis. As a result of the deduction of this
amount, the value of the Commodity-IGAR 9 Conditional Long-Short will trail the
value of a hypothetical identically constituted synthetic portfolio from which
no such amount is deducted.
- 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 but not limited to:
- the expected volatility of the
Underlying and the constituent sub-indices;
- the time to maturity of the notes;
- the market price of the physical
commodities upon which the futures contracts underlying the constituent
sub-indices are based;
- interest and yield rates in the market
generally;
- a variety of economic, financial,
political, regulatory, geographical, agricultural, meteorological and judicial
events that affect the commodities underlying the constituent sub-indices or
markets generally and which may affect the value of the commodity futures
contracts, and thus the closing levels of the constituent sub-indices; and
- our creditworthiness, including actual
or anticipated downgrades in our credit ratings.
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JPMorgan
Structured Investments
Return Notes Linked to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index
|
TS-5 |
What Is the Payment at Maturity on the Notes, Assuming
a Range of Performances for the Commodity
Investable Global Asset Rotator 9 Conditional Long-Short?
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 a Strike Value of 125 for each $1,000 principal amount note. 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
|
Payment at
Maturity
|
|
225.000
|
80.00%
|
$1,800.00
|
212.500
|
70.00%
|
$1,700.00
|
200.000
|
60.00%
|
$1,600.00
|
187.500
|
50.00%
|
$1,500.00
|
175.000
|
40.00%
|
$1,400.00
|
162.500
|
30.00%
|
$1,300.00
|
150.000
|
20.00%
|
$1,200.00
|
137.500
|
10.00%
|
$1,100.00
|
131.250
|
5.00%
|
$1,050.00
|
125.625
|
0.50%
|
$1,005.00
|
125.000
|
0.00%
|
$1,000.00
|
112.500
|
-10.00%
|
$900.00
|
100.000
|
-20.00%
|
$800.00
|
87.500
|
-30.00%
|
$700.00
|
75.000
|
-40.00%
|
$600.00
|
62.500
|
-50.00%
|
$500.00
|
50.000
|
-60.00%
|
$400.00
|
37.500
|
-70.00%
|
$300.00
|
25.000
|
-80.00%
|
$200.00
|
12.500
|
-90.00%
|
$100.00
|
0.000
|
-100.00%
|
$0.00
|
|
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 Underlying increases
from the Strike Value of 125 to an Ending Underlying Value of 131.25. Because the Ending Underlying Value of 105 is greater
than the Strike Value of 100, the investor receives a payment at maturity of
$1,050 per $1,000 principal amount note, calculated as follows:
$1,000 x (1 + 5%) = $1,050
Example 2: The value of the Underlying decreases from the
Strike Value of 125 to an Ending Underlying Value of 100. Because the Ending Underlying Value of 100 is less than
the Strike Value of 125, the investor receives a payment at maturity of $800
per $1,000 principal amount note, calculated as follows:
$1,000 x (1 + -20%) = $800
Example
3: The value of the Underlying decreases from the Strike Value of 125 to an Ending
Underlying Value of 0. Because the Ending
Underlying Value of 0 is less than the Strike Value of 125, and because the
payment at maturity per $1,000 principal amount note may not be less than $0, the
investor receives a payment at maturity of $0 per $1,000 principal amount note.
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JPMorgan
Structured Investments
Return Notes Linked to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index
|
TS-6 |
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 February 6, 2009, and the historical
performance of the Underlying based on the weekly Underlying closing values
from February
13, 2009
through November
26, 2010. The Underlying was established on February 13, 2009. The Underlying closing value on November 30, 2010 was 125.1785. 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 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 Commodity-IGAR 9
Conditional Long-Short set forth in the following graph was calculated on
materially the same basis on which the performance of Commodity-IGAR 9
Conditional Long-Short is now calculated, but the number of S&P GSCI
sub-indices, and thus the universe of potential constituent sub-indices, has
changed over time. For example, in January 1991, there were only 17 S&P GSCI
sub-indices. There are currently 24 sub-indices. Hypothetical daily
performance data for Commodity-IGAR 9 Conditional Long-Short is net of an
adjustment factor of 0.96% 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.
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.
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JPMorgan
Structured Investments
Return Notes Linked to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index
|
TS-7 |