Term sheet
To prospectus
dated November
21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 172-A-I dated July 31, 2009
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Term Sheet to
Product Supplement No. 172-A-I
Registration Statement No. 333-155535
Dated September
18, 2009;
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 September 26, 2011 |
General
- 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 declines from 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.
- The Additional Amount referred to
in the accompanying product supplement no. 172-A-I is deemed to be $0 and,
therefore, the notes will not pay any Additional Amount at maturity.
- Senior unsecured obligations of
JPMorgan Chase & Co. maturing September 26, 2011.
- Minimum denominations of $1,000 and
integral multiples thereof.
- The notes are expected to price on or
about September 21, 2009 and are expected to settle on or
about September 24,
2009.
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. Any payment on the notes is
subject to the credit risk of JPMorgan Chase & Co. The principal
amount of your notes will be fully exposed to any decline in the Ending Underlying Value, as
compared to the Strike Value, provided that your payment at maturity will not
be less than zero. Accordingly, at maturity, you will receive an amount per $1,000 principal amount note calculated as follows:
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$1,000
x (1 + Underlying Return)
provided that your payment at maturity will
not be less than zero.
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You may lose some or all of your
investment at maturity if the Ending Underlying Value declines from 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 calculation agent. The
Strike Value may or may not be the regular official Underlying closing value
on the pricing date. Although the 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
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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September 21, 2011
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Maturity Date:
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September 26, 2011
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CUSIP:
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48123L7C2
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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-I or early acceleration in
the event of a hedging disruption event as described under General
Terms of Notes Consequences of a Commodity Hedging Disruption Event
in the accompanying product supplement no. 172-A-I 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-I and Selected Risk Considerations
beginning on page TS-2 of this term sheet.
JPMorgan Chase & Co. has filed a
registration statement (including a prospectus) with the Securities and
Exchange Commission, or SEC, for the offering to which this term sheet
relates. Before you invest, you should read the prospectus in that
registration statement and the other documents relating to this offering that
JPMorgan Chase & Co. has filed with the SEC for more complete information
about JPMorgan Chase & Co. and this offering. You may get these documents
without cost by visiting EDGAR on the SEC website at www.sec.gov.
Alternatively, JPMorgan Chase & Co., any agent or any dealer participating
in this offering will arrange to send you the prospectus, the prospectus
supplement, product supplement no. 172-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.
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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 Inc., which we refer to as JPMSI, acting as
agent for JPMorgan Chase & Co., would receive a commission of
approximately $18.00 per $1,000 principal amount note and would use a portion
of that commission to allow selling concessions to other dealers of approximately
$1.00 per $1,000 principal amount note. This commission includes the
projected profits that our affiliates expect to realize in consideration for
assuming risks inherent in hedging our obligations under the notes. The
actual commission received by JPMSI may be more or less than $18.00 and will
depend on market conditions on the pricing date. In no event will the
commission received by JPMSI, which includes concessions to be allowed to
other dealers, exceed $22.50 per $1,000 principal amount note. See Plan of
Distribution beginning on page PS-42 of the accompanying product supplement
no. 172-A-I.
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The agent for this offering, JPMSI, is an affiliate of
ours. See Supplemental Plan of Distribution (Conflicts of Interest) in this
term sheet.
The notes are not bank deposits and
are not insured by the Federal Deposit Insurance Corporation or any other
governmental agency, nor are they obligations of, or guaranteed by, a bank.
The notes are not guaranteed under the Federal Deposit Insurance
Corporations Temporary Liquidity Guarantee Program.
September 18, 2009
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-I dated July 31, 2009. 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-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):
Our Central Index Key, or CIK, on the
SEC website is 19617. As used in this term sheet, the Company, we, us or
our refers to JPMorgan Chase & Co.
JPMorgan Commodity Investable Global
Asset Rotator 9 Conditional Long-Short Index
The Commodity Investable Global Asset
Rotator 9 Conditional Long-Short Index (the
Commodity-IGAR 9 Conditional Long-Short or the Underlying).
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 GSCITM
Index (S&P GSCITM) 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%.
Prior to August 24, 2009,
Commodity-IGAR 9 Conditional Long-Short was calculated based on the rules dated
February 13, 2009 (the Original Rules). On and after August 24, 2009, the
Commodity-IGAR 9 Conditional Long-Short was calculated (and is currently being
calculated) using the rules dated July 31, 2009, which became effective on
August 24, 2009 (the Current Rules). For more information on the Current
Rules, see Annex B to the accompanying product supplement no. 172-A-I.
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 GSCITM 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-I.
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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-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, 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 December 2007, Treasury and the IRS
released a notice requesting comments on the U.S. federal income tax treatment
of prepaid forward contracts and similar instruments, which might include the
notes. The notice focuses in particular on whether to require holders of
these instruments to accrue income over the term of their investment. It
also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; the relevance of factors such as the nature
of the underlying property to which the instruments are linked; the degree, if
any, to which income (including any mandated accruals) realized by Non-U.S.
Holders should be subject to withholding tax; and whether these instruments are
or should be subject to the constructive ownership regime, which very
generally can operate to recharacterize certain long-term capital gain as
ordinary income that is subject to an interest charge. While the notice requests
comments on appropriate transition rules and effective dates, any Treasury
regulations or other guidance promulgated after consideration of these issues
could materially and adversely affect the tax consequences of an investment in
the notes, possibly with retroactive effect. Both U.S. and Non-U.S.
Holders should consult their tax advisers regarding the U.S. federal income tax
consequences of an investment in the notes, including possible alternative
treatments and the issues presented by this notice. Non-U.S. Holders should
also note that they may be withheld upon at a rate of up to 30% unless they
have submitted a properly completed IRS Form W-8BEN or otherwise satisfied the
applicable documentation requirements.
Subject to certain
assumptions and representations received from us, 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 GSCITM constituent sub-indices, in any of
the commodities whose futures contracts determine the levels of the S&P
GSCITM constituent sub-indices or the
constituent sub-indices of the Commodity-IGAR 9 Conditional Long-Short, or in
any 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-I dated July
31, 2009.
- 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 zero.
- 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 declines relative to the Strike Value, you
will lose 1% of your investment in the notes, provided that the payment
at maturity will not be less than zero. The Additional Amount referred to in
the accompanying product supplement no. 172-A-I 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 adversely
affect the value of the notes.
- CERTAIN BUILT-IN COSTS ARE LIKELY TO
ADVERSELY AFFECT THE VALUE OF THE NOTES PRIOR TO MATURITY While the payment at maturity, if any,
described in this term sheet is based on the full principal amount of your
notes, the original issue price of the notes includes the agents commission
and the estimated cost of hedging our obligations under the notes. As a
result, and as a general matter, the price, if any, at which JPMSI will be
willing to purchase notes from you in secondary market transactions, if at all,
will likely be lower than the original issue price and any sale prior to the
maturity date could result in a substantial loss to you. This secondary market
price will also be affected by a number of factors aside from the agents
commission and hedging costs, including those set forth under Many Economic
and Market Factors Will Impact the Value of the Notes below.
The notes are not designed to be short-term trading instruments. Accordingly,
you should be able and willing to hold your notes to maturity.
- INVESTMENTS RELATED TO THE VALUE OF
COMMODITIES TEND TO BE MORE VOLATILE THAN TRADITIONAL SECURITIES INVESTMENTS The market values of commodities
tend to be highly volatile. 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. 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
Commodity-IGAR 9 Conditional Long-Short provides one avenue for exposure to
commodities. The high volatility and cyclical nature of commodity markets may
render these investments inappropriate as the focus of an investment portfolio.
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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 |
- 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. The Commodity
Futures Trading Commission has recently announced that it is considering
imposing position limits on certain commodities (such as energy commodities)
and the manner in which current exemptions for bona fide hedging transactions
or positions are implemented in order to protect against excessive speculation.
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
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-I 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 GSCITM 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 assets in the market that
are not included in the universe of constituent sub-indices. For example, for
July 2009, the Commodity-IGAR 9
Conditional Long-Short synthetic portfolio contains long positions in one
constituent sub-index and short positions in twelve sub-indices, and therefore
eleven-twelfths of the current Commodity-IGAR 9 Conditional Long-Short
synthetic portfolio is deemed uninvested. By contrast, the S&P GSCITM
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 CONTRACTS The return on your notes will not
reflect the return you would realize if you actually held or sold short the
commodity contracts replicating 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 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 commodity 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 ADVERSELY AFFECT
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 options futures contract prices that may occur during
a single business day. These limits are generally referred to as daily price
fluctuation limits and the maximum or minimum price of a contract on any given
day as a result of these limits is referred to as a limit price. Once the
limit price has been reached in a particular contract, no trades may be made at
a different price. Limit prices have the effect of precluding trading in a
particular contract or forcing the liquidation of contracts at disadvantageous
times or prices. These circumstances could adversely affect the level of the Commodity-IGAR 9 Conditional
Long-Short and,
therefore, the value of your notes.
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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-3 |
- 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 backwardation,
where the prices are lower in the distant delivery months than in the nearer
delivery months, the sale of the October contract would take place at a price
that is higher than the price of the November contract, thereby creating a
positive roll yield. While many of the contracts included in the constituent sub-indices of the
Commodity-IGAR 9 Conditional Long-Short have historically exhibited
consistent periods of backwardation, backwardation will most likely not exist
at all times and there can be no assurance that backwardation will exist at
times that are advantageous, with respect to your interests as a holder of the
notes, to the valuation of the Commodity-IGAR 9 Conditional Long-Short. The presence of contango in the
commodity markets, (i.e., where the prices for the relevant futures
contract are higher in the distant delivery months than in nearby delivery
months) could result in negative roll yields, which could adversely affect
the value of the Commodity-IGAR
9 Conditional Long-Short and thus the value of notes linked to the Commodity-IGAR 9 Conditional
Long-Short.
- 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 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 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. JPMSI, intends to offer to purchase the notes in the
secondary market but is not required to do so. Even if there is a secondary
market, it may not provide enough liquidity to allow you to trade or sell the
notes easily. Because other dealers are not likely to make a secondary market
for the notes, the price at which you may be able to trade your notes is likely
to depend on the price, if any, at which JPMSI is willing to buy the notes.
- 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.
- 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 9 Conditional Long-Short values, and acting as
calculation agent and hedging our obligations under the notes. In performing
these duties, the economic interests of the COMIGAR Calculation Agent, the
calculation agent and other affiliates of ours are potentially adverse to your
interests as an investor in the notes. Although
the 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 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.
- MANY ECONOMIC AND MARKET FACTORS WILL
AFFECT THE VALUE OF THE NOTES In addition to the Underlying closing value on any day,
the value of the notes will be affected by a number of economic and market
factors that may either offset or magnify each other, including:
- the volatility in the Underlying and
the constituent sub-indices;
- the time to maturity of such notes;
- the market price of the physical
commodities upon which the futures contracts that compose the constituent
sub-indices are based;
- interest and yield rates in the
market generally;
- economic, financial, political,
regulatory, geographical, agricultural, meteorological or 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.
|
JPMorgan
Structured Investments
Return Notes Linked to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index
|
TS-4 |
What Is the Payment at Maturity on the Notes Assuming
a Range of Performance 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. 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
|
Payout at Maturity
|
|
225.00
|
80.00%
|
$1,800
|
212.50
|
70.00%
|
$1,700
|
200.00
|
60.00%
|
$1,600
|
187.50
|
50.00%
|
$1,500
|
175.00
|
40.00%
|
$1,400
|
162.50
|
30.00%
|
$1,300
|
150.00
|
20.00%
|
$1,200
|
137.50
|
10.00%
|
$1,100
|
131.25
|
5.00%
|
$1,050
|
125.00
|
0.00%
|
$1,000
|
112.50
|
-10.00%
|
$900
|
100.00
|
-20.00%
|
$800
|
87.50
|
-30.00%
|
$700
|
75.00
|
-40.00%
|
$600
|
62.50
|
-50.00%
|
$500
|
50.00
|
-60.00%
|
$400
|
37.50
|
-70.00%
|
$300
|
25.00
|
-80.00%
|
$200
|
12.50
|
-90.00%
|
$100
|
0.00
|
-100.00%
|
$0
|
|
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 Ending Underlying Value increases from
the Strike Value of 125 to an Ending Underlying Value of 131.25. Because the Ending Underlying Value of 131.25 is
greater than the Strike Value of 125, 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 Ending Underlying Value 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
|
JPMorgan
Structured Investments
Return Notes Linked to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index
|
TS-5 |
Hypothetical Back-tested Data and Historical
Information
The
following graph sets forth the hypothetical back-tested performance of the
Underlying based on the hypothetical back-tested weekly Underlying closing
values from January 2, 2004 through February 12, 2009, and the historical
performance of the Underlying based on the weekly Underlying closing values
from February 13, 2009 through September 11, 2009. The
Underlying was established on February 13, 2009. The Underlying closing value
on September 17, 2009 was 126.3892. 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 GSCITM 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 GSCITM
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.
Supplemental Plan of Distribution (Conflicts of
Interest)
We
own, directly or indirectly, all of the outstanding equity securities of JPMSI,
the agent for this offering. The net proceeds received from the sale of the
notes will be used, in part, by JPMSI or one of its affiliates in connection
with hedging our obligation under the notes. In accordance with NASD Rule
2720, JPMSI may not make sales in this offering to any of its discretionary
accounts without the prior written approval of the customer.
|
JPMorgan
Structured Investments
Return Notes Linked to the JPMorgan Commodity Investable Global Asset Rotator 9 Conditional Long-Short Index
|
TS-6 |