Term sheet
To prospectus dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 158-A-II dated November 30, 2009
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Term Sheet to
Product Supplement 158-A-II
Registration Statement No. 333-155535
Dated December 1, 2009; Rule 433
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Structured
Investments
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$
Principal Protected Notes Linked to the JPMorgan
Efficiente (USD) Index due December 31, 2015
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General
- Senior unsecured obligations of
JPMorgan Chase & Co. maturing December 31, 2015*
- Cash payment at maturity of principal
plus the Additional Amount, as described below
- The notes are designed for investors
who seek exposure to any appreciation of the JPMorgan Efficiente (USD) Index over
the term of the notes. Investors should be willing to forgo interest and
dividend payments while seeking full principal protection at maturity. Any
payment on the notes is subject to the credit risk of JPMorgan Chase & Co.
- The JPMorgan Efficiente (USD) Index is
a JPMorgan strategy that tracks the excess returns of a synthetic portfolio,
selected from up to nine indices, above the returns of the JPMorgan Cash Index
USD 3 Month and offers exposure to a diverse range of asset classes and
geographic regions.
- Minimum denominations of $1,000 and
integral multiples thereof.
- The notes are expected to price on or about December 22, 2009 and are expected to settle on or about
December 28, 2009.
Key
Terms
Index:
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The JPMorgan Efficiente (USD) Index (the Index)
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Payment at Maturity:
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At maturity, you will receive a cash payment, for
each $1,000 principal amount note, of $1,000 plus the Additional Amount,
which may be zero.
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Additional Amount:
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The Additional Amount per $1,000
principal amount note paid at maturity will equal $1,000 x the Index Return x
the Participation Rate; provided that the Additional Amount
will not be less than zero.
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Participation Rate:
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At least 100%. The actual Participation Rate will be
determined on the pricing date and will not be less than 100%.
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Index Return:
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Ending Index Level Initial Index Level
Initial Index Level
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Initial Index Level:
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The Index closing level on the pricing date, which is
expected to be on or about December 22,
2009
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Ending Index Level:
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The Index closing level on the Observation Date
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Observation Date:
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December 28, 2015*
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Maturity Date:
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December 31, 2015*
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CUSIP:
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48124ACY1
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*
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Subject to postponement in the event
of a market disruption event and as described under Description of Notes Payment
at Maturity in the accompanying product supplement no. 158-A-II.
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Subject to the
impact of a commodity hedging disruption event as described under General
Terms of Notes Market Disruption Events and General Terms of Notes Consequences
of a Commodity Hedging Disruption Event in the accompanying product supplement
no. 158-A-II. In the event of a commodity hedging disruption event, we have
the right, but not the obligation, to cause the note calculation agent to
determine on the commodity hedging disruption date the value of the Additional
Amount payable at maturity. Under these circumstances, the value of the
Additional Amount payable at maturity will be determined prior to, and
without regard to the level of the Index on, the Observation Date.
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Investing in the Principal Protected
Notes involves a number of risks. See Risk Factors beginning on page PS-7 of
the accompanying product supplement no. 158-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. 158-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 Inc., which we refer to as JPMSI, acting
as agent for JPMorgan Chase & Co., would receive a commission of
approximately $63.90 per $1,000 principal amount note and would use a portion
of that commission to allow selling concessions to other dealers of
approximately $35.00 per $1,000 principal amount note. This commission
includes the projected profits that our affiliates expect to realize, some of
which may be allowed to other dealers for assuming risks inherent in hedging
our obligations under the notes. The actual commission received by JPMSI may
be more or less than $63.90 and will depend on market conditions on the
pricing date. In no event will the commission received by JPMSI, which
includes concessions and other amounts that may be allowed to other dealers,
exceed $80.00 per $1,000 principal amount note. See Plan of
Distribution (Conflicts of Interest) beginning on page PS-81 of the
accompanying product supplement no. 158-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, 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. 158-A-II
dated November 30, 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. 158-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.govas follows (or if such address has changed, by
reviewing our filings for the relevant date on the SEC website):
You may access
additional information regarding The JPMorgan Efficiente (USD) Index in the
Strategy Guide at the following URL: http://www.sec.gov/Archives/edgar/data/19617/000095010309002500/usd_strategyguide09.pdf
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 Efficiente (USD) Index
The JPMorgan Efficiente (USD) Index (the Index) was developed and is
maintained and calculated by J.P. Morgan Securities Ltd. (JPMSL), one of our
affiliates. JPMSL acts as the calculation agent for the Index (the index calculation
agent). The Index is a notional dynamic basket that tracks the excess returns
of a portfolio of nine indices (each a Basket Constituent, and collectively
the Basket Constituents) above the JPMorgan Cash Index USD 3 Month (also a
Basket Constituent). The Basket Constituents represent a diverse range of
asset classes and geographic regions.
The Index rebalances quarterly
a synthetic portfolio composed of the Basket Constituents. The Index is based
on the modern portfolio theory approach to asset allocation, which suggests
how a rational investor should allocate his capital across the available
universe of assets to maximize return for a given risk appetite. The level of
the Efficiente Index is determined by tracking the returns of the synthetic
portfolio above the return of the JPMorgan Cash Index USD 3 Month.
The weights assigned to the
Basket Constituents within the synthetic portfolio are rebalanced quarterly.
The strategy assigns the weights to the Basket Constituents based upon the
returns and volatilities of multiple hypothetical portfolios comprised of the
Basket Constituents measured over the previous six months. The re-weighting
methodology seeks to identify the weights for each Basket Constituent that
would have resulted in the hypothetical portfolio with the highest return over
the relevant measurement period subject to an annualized volatility over the
same period of 8% or less. Thus, the portfolio exhibiting the highest return
with an annualized volatility of 8% or less is then selected, with the
weighting for such portfolio applied to the Basket Constituents. In the event
that none of the portfolios has an annualized volatility equal to or less than
8%, this volatility threshold is increased by 1% until a portfolio is selected.
The Index
is described as a notional or synthetic portfolio or basket of assets because
there is no actual portfolio of assets to which any person is entitled or in
which any person has any ownership interest. The Index merely references certain
assets, the performance of which will be used as a reference point for
calculating the level of the Index.
The
following are the Basket Constituents composing the Index and the maximum
weighting constraints assigned to the relevant sector and asset type to which each
belongs:
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Sector Cap
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Basket Constituent
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Asset Cap
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1
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Developed Equity
50%
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MSCI North
America Gross Total Return Index
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25%
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2
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MSCI Europe Gross
Total Return Index
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25%
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3
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MSCI
Pacific Gross Total Return Index
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25%
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4
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Emerging Markets
50%
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MSCI
Emerging Markets Gross Total Return Index
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25%
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5
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JPMorgan
Emerging Markets Bond Index Plus Composite
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25%
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6
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Alternative Investments
50%
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Dow
Jones UBS Commodity Index Total Return
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25%
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7
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GPR/JPMorgan
High Liquidity Global Property Index
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25%
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8
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Global Debt
50%
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JPMorgan
GBI Global Bond Total Return Index Hedged into U.S. Dollars
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25%
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9
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JPMorgan
Cash Index USD 3 Month
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50%
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See The
JPMorgan Efficiente (USD) Index
in the accompanying product supplement no. 158-A-II for more information on the
Index and the Basket Constituents.
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JPMorgan
Structured Investments
Principal Protected Notes Linked to the JPMorgan Efficiente (USD) Index
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TS-1 |
Selected
Purchase Considerations
- PRESERVATION OF CAPITAL AT MATURITY You will receive at least 100% of the principal
amount of your notes if you hold the notes to maturity, regardless of the
performance of the Index. 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.
- APPRECIATION POTENTIAL At maturity, in addition to your principal, for each
$1,000 principal amount note you will receive a payment equal to $1,000 x the
Index Return x the Participation Rate, provided that this
payment (the Additional Amount) will not be less than zero.
The Participation Rate will be determined on the pricing date and
will not be less than 100%.
- RETURN LINKED TO A NOTIONAL DYNAMIC BASKET OF
SUB-INDICES THAT TRACKS THE EXCESS RETURNS OF A PORTFOLIO OF NINE INDICES
REPRESENTING A DIVERSE RANGE OF ASSETS AND GEOGRAPHIC REGIONS The return on the notes is linked to the performance
of the JPMorgan Efficiente (USD) Index. The Index tracks the excess returns of
a portfolio of nine indices using an investment strategy that is based on the modern
portfolio theory of asset allocation which suggests how a rational investor
should allocate his capital across the available universe of assets to maximize
return for a given risk appetite. The Index uses the concept of an efficient
frontier to define the asset allocation of the Index. An efficient frontier
for a portfolio of assets defines the optimum return of the portfolio for a
given amount of risk. The Index uses the volatility of returns of hypothetical
portfolios as the measure of risk. This strategy is based on the assumption
that the most efficient allocation of assets is one that maximizes returns per
unit of risk. See The JPMorgan Efficiente (USD) Index in the accompanying
product supplement no. 158-A-II.
- TAXED AS CONTINGENT PAYMENT DEBT INSTRUMENTS You should review carefully the section
entitled Certain U.S. Federal Income Tax Consequences in the accompanying
product supplement no. 158-A-II. Subject to the limitations described therein,
in the opinion of our special tax counsel, Davis Polk & Wardwell LLP, the notes will be treated for U.S. federal income tax purposes as contingent payment
debt instruments. You generally will be required to recognize interest income
in each year at the comparable yield, as determined by us, although we will
not make any payments with respect to the notes until maturity. Interest
included in income will increase your basis in your notes. Generally, any
amount received at maturity or earlier sale or exchange in excess of your
adjusted basis will be treated as additional interest income, while any loss
will be treated as an ordinary loss to the extent of all previous inclusions
with respect to your notes, which to that extent will be deductible against
other income (e.g., employment and interest income), with the balance treated
as capital loss, which may be subject to limitations. Special rules may apply
if the Additional Amount is determined prior to the Observation Date as a
result of a commodity hedging disruption event. You should consult your tax
adviser concerning the application of these rules. Purchasers who are not
initial purchasers of notes at their issue price should consult their tax
advisers with respect to the tax consequences of an investment in notes,
including the treatment of the difference, if any, between their basis in their
notes and the notes adjusted issue price.
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.
- COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE We will determine the comparable yield for the
notes and will provide that comparable yield, and the related projected payment
schedule, in the pricing supplement for the notes, which we will file with the
SEC. If the notes had priced on November 30, 2009
and we had determined the comparable yield on that date, it would have been an
annual rate of 3.65%, compounded semiannually. The actual comparable yield
that we will determine for the notes may be more or less than 3.65%, and will
depend upon a variety of factors, including actual market conditions and our
borrowing costs for debt instruments of comparable maturities. Neither the
comparable yield nor the projected payment schedule constitutes a
representation by us regarding the actual Additional Amount, if any, that we
will pay on the notes.
Selected
Risk Considerations
An
investment in the notes involves significant risks. Investing in the notes is
not equivalent to investing directly in the Index, any of the Basket
Constituents or any of the securities or futures contracts underlying the
Basket Constituents. These risks are explained in more detail in the Risk
Factors section of the accompanying product supplement no. 158-A-II dated November 30, 2009.
- MARKET RISK
The return on the notes at maturity is linked to the performance of the Index,
and will depend on whether, and the extent to which, the Index Return is
positive. YOU WILL RECEIVE NO MORE THAN THE FULL PRINCIPAL AMOUNT OF YOUR
NOTES AT MATURITY IF THE INDEX RETURN IS ZERO OR NEGATIVE.
- THE NOTES MIGHT NOT PAY MORE THAN THE PRINCIPAL AMOUNT
AT MATURITY You may receive a lower
payment at maturity than you would have received if you had invested directly
in the Index, any of the Basket Constituents, the securities or futures
contracts underlying the Basket Constituents or contracts relating to the Index
or any of the Basket Constituents for which there is an active secondary
market. If the Ending Index Level does not exceed the Initial Index Level, the
Additional Amount will be zero. This will be true even if the value of the
Index was higher than the Initial Index Level at some time during the life of
the notes but falls below the Initial Index Level on the Observation Date.
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JPMorgan
Structured Investments
Principal Protected Notes Linked to the JPMorgan Efficiente (USD) Index
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TS-2 |
- 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
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 through one
or more of our affiliates. 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.
- 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 INDEX MAY NOT BE SUCCESSFUL, MAY NOT OUTPERFORM ANY
ALTERNATIVE STRATEGY THAT MIGHT BE EMPLOYED IN RESPECT OF THE BASKET
CONSTITUENTS OR ACHIEVE ITS TARGET VOLATILITY The Index follows a notional rules-based proprietary
strategy that operates on the basis of pre-determined rules. No assurance can
be given that the investment strategy on which the Index is based will be
successful or that the Index will outperform any alternative strategy that
might be employed or that the Index will achieve its target volatility of 8%.
- THE INDEX COMPRISES NOTIONAL ASSETS AND LIABILITIES The exposures to the Basket Constituents are purely
notional and will exist solely in the records maintained by or on behalf of the
index calculation agent. There is no actual portfolio of assets to which any
person is entitled or in which any person has any ownership interest.
Consequently, you will not have any claim against any of the Basket
Constituents composing the Index.
- OWNING THE NOTES INVOLVES THE RISKS ASSOCIATED WITH THE
INDEXS MOMENTUM INVESTMENT
STRATEGY The Index employs a
mathematical model intended to implement what is generally known as a momentum
investment strategy, which seeks to capitalize on positive market price trends
based on the supposition that positive market price trends may continue. This
strategy is different from a strategy that seeks long-term exposure to a
portfolio consisting of constant components with fixed weights. The Index may
fail to realize gains that could occur as a result of holding assets that have
experienced price declines, but after which experience a sudden price spike.
- THE INVESTMENT
STRATEGY USED TO CONSTRUCT THE INDEX INVOLVES QUARTERLY REBALANCING AND
WEIGHTING CAPS THAT ARE APPLIED TO THE BASKET CONSTITUENTS The
Basket Constituents are subject to quarterly rebalancing and maximum weighting
caps by asset type and geographical region. By contrast, a synthetic portfolio
that does not rebalance quarterly and is not subject to any weighting caps in
this manner could see greater compounded gains over time through exposure to a
consistently and rapidly appreciating portfolio consisting of the Basket
Constituents. Therefore, your return on the notes may be less than the return
you could realize on an alternative investment that was not subject to
rebalancing and weighting caps.
- CHANGES IN THE VALUE OF THE BASKET CONSTITUENTS MAY
OFFSET EACH OTHER Because the notes
are linked to the Index, which is linked to the performance of the Basket
Constituents, which collectively represent a diverse range of asset classes and
geographic regions, price movements between the Basket Constituents
representing different asset classes or geographic regions may not correlate
with each other. At a time when the value of a Basket Constituent representing
a particular asset class or geographic region increases, the value of other
Basket Constituents representing a different asset class or geographic region
may not increase as much or may decline. Therefore, in calculating the level of
the Index, increases in the value of some of the Basket Constituents may be
moderated, or more than offset, by lesser increases or declines in the level of
other Basket Constituents.
- CORRELATION OF PERFORMANCES AMONG THE BASKET
CONSTITUENTS MAY REDUCE PERFORMANCE OF THE
NOTES Performances amongst the
Basket Constituents may become highly correlated from time to time during the
term of the notes, including, but not limited to, a period in which there is a
substantial decline in a particular sector or asset type represented by the
Basket Constituents and which has a higher weighting in the Index relative to
any of the other sectors or asset types. High correlation during periods of
negative returns among Basket Constituents representing any one sector or asset
type and which Basket Constituents have a substantial percentage weighting in
the Index could cause you to only receive a return of your principal amount at
maturity.
- AN INVESTMENT IN THE NOTES IS SUBJECT TO RISKS
ASSOCIATED WITH NON-U.S. SECURITIES MARKETS, INCLUDING EMERGING MARKETS Some or all of the securities that compose seven of
the nine Basket Constituents of the Index (the MSCI North America Gross Total
Return Index, the MSCI Europe Gross Total Return Index, the MSCI Pacific Gross Total
Return Index and the MSCI Emerging Markets Gross Total Return
Index (together, the MSCI
Indices), the JPMorgan Emerging Markets
Bond Index Plus Composite ( the EMBI+ Composite), the GPR/JPMorgan High
Liquidity Global Property Index ( the Property Index) and the JPMorgan GBI Global
Bond Total Return Index Hedged into U.S. Dollars ( the GBI Total Return Index))
have been issued by non-U.S. issuers. Investments in securities linked to the
value of non-U.S. securities involve risks associated with the securities
markets in those countries, including risks of volatility in those markets,
governmental intervention in those markets and cross shareholdings in companies
in certain countries. The impact of any of these risks may enhance or offset
some or all of any change resulting from another factor or factors. See Risk
Factors in the accompanying product supplement 158-A-II for more information
on these risks.
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JPMorgan
Structured Investments
Principal Protected Notes Linked to the JPMorgan Efficiente (USD) Index
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TS-3 |
- JPMSI AND ITS AFFILIATES MAY HAVE PUBLISHED RESEARCH,
EXPRESSED OPINIONS OR PROVIDED RECOMMENDATIONS THAT ARE INCONSISTENT WITH
INVESTING IN OR HOLDING THE NOTES. ANY SUCH RESEARCH, OPINIONS, OR
RECOMMENDATIONS COULD AFFECT THE MARKET VALUE OF THE NOTES JPMSI and its affiliates publish research from time
to time on financial markets and other matters that may influence the value of
the notes, or express opinions or provide recommendations that are inconsistent
with purchasing or holding the notes. JPMSI and its affiliates may have
published research or other opinions that call into question the investment
view implicit in an investment in the notes. Any research, opinions or
recommendations expressed by JPMSI or its affiliates may not be consistent with
each other and may be modified from time to time without notice. Investors
should make their own independent investigation of the merits of investing in
the notes and the Basket Constituents and the securities and futures contracts
underlying the Basket Constituents to which the notes are linked.
- THE NOTES ARE SUBJECT TO CURRENCY EXCHANGE RISK Because the prices of some or all of the securities
composing five of the nine Basket Constituents (the MSCI Indices and the
Property Index) (the Component Securities) are converted into U.S. dollars
for purposes of calculating the value of the relevant Basket Constituent, your
notes will be exposed to currency exchange rate risk with respect to each of
the currencies in which the Component Securities trade. Your net exposure will
depend on the extent to which such currencies strengthen or weaken against the
U.S. dollar and the relative weight of the Component Securities denominated in
each such currency. If, taking into account such weighting, the U.S. dollar
strengthens against such currencies, the value of the relevant Basket
Constituents will be adversely affected and the payment at maturity may be
reduced.
- THE INDEX HAS A LIMITED OPERATING HISTORY The Index was established on July
2, 2007, and therefore lacks
historical performance. Back-testing or similar analysis in respect of the Index
must be considered illustrative only and may be based on estimates or
assumptions not used by the index calculation agent when determining the Index
values.
- THE COMMODITY FUTURES CONTRACTS UNDERLYING THE DOW
JONES UBS COMMODITY INDEX TOTAL RETURN ARE SUBJECT TO LEGAL AND REGULATORY
REGIMES The commodity
futures contracts that underlie the Dow
Jones UBS Commodity Index Total Return
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
Index. Such regimes may result in the note calculation agent exercising its
discretionary right to exclude or substitute constituents of the Index, which
may, in turn, have a negative effect on the level of the Index and your payment
at maturity. In addition, we or our affiliates may be unable as a result of
such restrictions to effect transactions necessary to hedge our obligations
under the notes, in which case we may, in our sole and absolute discretion,
cause the note calculation agent to determine the value of the Additional
Amount for your notes early. If the Additional Amount for your notes is
determined early as the result of a commodity hedging disruption event, the amount
due and payable on your notes will be due and payable only at maturity and the
amount you receive at maturity will not reflect any further appreciation of the
Index after such early determination. Please see General Terms of Notes Market
Disruption Events and General Terms of
Notes Consequences of a Commodity Hedging Disruption Event in the
accompanying product supplement no. 158-A-II for more information.
- 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 that are specific to commodities
markets. 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 constituents
included from time to time in the Index, and thus the value of your notes, in
unpredictable or unanticipated ways. The high volatility and cyclical nature
of commodity markets may render these investments inappropriate as the focus of
an investment portfolio.
- HIGHER FUTURE PRICES OF THE COMMODITY FUTURES CONTRACTS
CONSTITUTING THE DOW JONES UBS COMMODITY INDEX TOTAL RETURN RELATIVE TO THEIR
CURRENT PRICES MAY DECREASE THE AMOUNT PAYABLE AT MATURITY As the exchange-traded futures contracts that
compose the Dow Jones UBS Commodity Index Total Return approach expiration,
they are replaced by contracts that have a later expiration. 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
roll yield. While many of the contracts included in the Dow Jones UBS
Commodity Index Total Return have historically exhibited consistent periods of
backwardation, backwardation will most likely not exist at all times. The
absence of backwardation in the commodity markets could result in negative
roll yields, which could adversely affect the level of the Dow Jones UBS
Commodity Index Total Return and, therefore, the level of the Index and the
value of your notes.
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JPMorgan
Structured Investments
Principal Protected Notes Linked to the JPMorgan Efficiente (USD) Index
|
TS-4 |
- RISKS ASSOCIATED WITH THE REAL ESTATE INDUSTRY WILL
AFFECT THE VALUE OF YOUR NOTES The
GPR/JPMorgan High Liquidity Global Property Index, one of the Basket
Constituents composing the Index, is composed of a variety of real
estate-related equity securities. The following are some of the conditions that
might impact the value of the equity securities included in the Property Index
and the level of the Property Index, and accordingly, the level of the Index
and the value of your notes:
- a decline in the value of real estate properties;
- increases in property and operating taxes;
- increased competition or overbuilding;
- a lack of available mortgage funds or other limits
on accessing capital;
- tenant bankruptcies and other credit problems;
- changes in zoning laws and governmental
regulations;
- changes in interest rates; and
- uninsured damages from floods, earthquakes or other
natural disasters.
The
difficulties described above could cause an upturn or a downturn in the real
estate industry generally or regionally and could cause the value of the equity
securities composing the Property Index and thus the level of the Property
Index to decline or remain flat during the term of the notes, which may
adversely affect the level of the Index and the value of your notes.
- THE JPMORGAN GBI GLOBAL BOND TOTAL RETURN INDEX HEDGED
INTO U.S. DOLLARS IS USED IN CALCULATING THE LEVEL OF THE INDEX The value of the GBI Total Return Index used to
calculate the level of Index and therefore the value of your notes is such
value hedged into U.S. dollars, and not the unhedged value of the JPMorgan GBI
Global Bond Total Return Index. The unhedged value of the JPMorgan GBI Global
Bond Total Return Index is publicly available. However, although the hedged
value of the JPMorgan GBI Global Bond Total Return Index is currently available
via Bloomberg (ticker JHDCGBIG), this value may not be publicly available on
Bloomberg throughout the term of your notes.
- CREDIT RATINGS OF THE
JPMORGAN EMERGING MARKETS BOND INDEX PLUS COMPOSITE COMPONENTS COULD ADVERSELY
AFFECT YOUR RETURN The EMBI+ Composite tracks the value
of bonds and loans that are rated Baa1 or below by Moodys Investor Services,
Inc. and BBB+ or below by Standard & Poors, a division of the McGraw
Hill Companies, which meet the rules for inclusion in the EMBI+ Composite and are
issued by countries deemed to be emerging markets. Emerging markets issuers of
the bonds and loans included in the EMBI+ Composite with such ratings are
considered by the major credit ratings agencies to have a comparatively high
risk of default. If one or more of such issuers does in fact default, the level
of the EMBI+ Composite could decrease, which may adversely affect the level of
the Index and the value of the notes.
- NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS As a holder of
the notes, you will not receive interest payments, and you will not have voting
rights or rights to receive cash dividends or other distributions or other
rights that holders of securities or futures contracts underlying the Basket
Constituents composing the Index would have.
- POTENTIAL CONFLICTS We and our affiliates play a variety of roles in connection with the
issuance of the notes, including acting as note calculation agent, index
calculation agent and hedging our obligations under the notes. In performing
these duties, the economic interests of the note calculation agent and other
affiliates of ours are potentially adverse to your interests as an investor in
the notes. In addition, we are currently one of the companies that make up the
MSCI Daily TR Gross North America, one of the Basket Components, and JPMSI, one
of our affiliates, is the sponsor of three of the Basket Constituents of the Index
(the EMBI+ Composite, the GBI Total Return Index and the JPM Cash Index ). We
will not have any obligation to consider your interests as a holder of the
notes in taking any corporate action that might affect the value of the MSCI
Daily TR Gross North America, the EMBI+ Composite, the GBI Total Return Index,
the JPM Cash Index and the notes.
- OUR AFFILIATE, J.P.
MORGAN SECURITIES LTD., OR JPMSL, IS THE INDEX CALCULATION AGENT AND MAY ADJUST
THE INDEX IN A WAY THAT AFFECTS ITS LEVEL JPMSL, one of our affiliates,
acts as the index calculation agent and is responsible for calculating and
maintaining the Index and developing the guidelines and policies governing its
composition and calculation. Although judgments, policies and determinations
concerning the Index are made by JPMSL, JPMorgan Chase & Co., as the parent
company of JPMSL, ultimately controls JPMSL.
In addition, the
policies and judgments for which JPMSL is responsible could have an impact,
positive or negative, on the level of the Index and the value of your notes.
JPMSL is under no obligation to consider your interests as an investor in the notes.
Furthermore, the inclusion of the Basket Constituents in the Index is not an
investment recommendation by us or JPMSL of the Basket Constituents, or any of
the securities or futures contracts underlying the Basket Constituents.
- MANY ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE
OF THE NOTES In addition to
the level of the Index 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 expected volatility in the Index;
- the time to maturity of the notes;
- the dividend rate on the equity securities underlying
the Index;
- interest and yield rates in the market generally;
- a variety of economic, financial, political, regulatory
or judicial events;
- the exchange rate and the volatility of the exchange
rate between the U.S. dollar and the currencies in which the securities
underlying the Basket Constituents are traded; and
- our creditworthiness, including actual or anticipated
downgrades in our credit ratings.
|
JPMorgan
Structured Investments
Principal Protected Notes Linked to the JPMorgan Efficiente (USD) Index
|
TS-5 |
What Is the
Total Return on the Notes at Maturity Assuming a Range of Performance
for the Index?
The following table
illustrates the payment at maturity (including, where relevant, the payment of
the Additional Amount) for a $1,000 principal amount note for a hypothetical
range of performance for the Index Return from -80% to +80% and assumes a
Participation Rate of 100% and an Initial Index Level of 100. The actual Participation Rate will be determined on the
pricing date and will not be less than 100%. The following results
are based solely on the hypothetical example cited and assume that a commodity hedging
disruption event has not occurred during the term of the notes. The
hypothetical payments at maturity set forth below are for illustrative purposes
only and may not be the actual payments at maturity applicable to a purchaser
of the notes. The numbers appearing in the following table and examples have
been rounded for ease of analysis.
|
Ending
Index Level
|
Index
Return
|
Index Return x
Participation
Rate (100%)
|
Additional
Amount
|
|
Principal
|
|
Payment at
Maturity
|
|
180
|
80%
|
80%
|
$800.00
|
+
|
$1,000
|
=
|
$1,800.00
|
170
|
70%
|
70%
|
$700.00
|
+
|
$1,000
|
=
|
$1,700.00
|
160
|
60%
|
60%
|
$600.00
|
+
|
$1,000
|
=
|
$1,600.00
|
150
|
50%
|
50%
|
$500.00
|
+
|
$1,000
|
=
|
$1,500.00
|
140
|
40%
|
40%
|
$400.00
|
+
|
$1,000
|
=
|
$1,400.00
|
130
|
30%
|
30%
|
$300.00
|
+
|
$1,000
|
=
|
$1,300.00
|
120
|
20%
|
20%
|
$200.00
|
+
|
$1,000
|
=
|
$1,200.00
|
110
|
10%
|
10%
|
$100.00
|
+
|
$1,000
|
=
|
$1,100.00
|
105
|
5%
|
5%
|
$50.00
|
+
|
$1,000
|
=
|
$1,050.00
|
100
|
0%
|
0%
|
$0.00
|
+
|
$1,000
|
=
|
$1,000.00
|
90
|
-10%
|
0%
|
$0.00
|
+
|
$1,000
|
=
|
$1,000.00
|
80
|
-20%
|
0%
|
$0.00
|
+
|
$1,000
|
=
|
$1,000.00
|
70
|
-30%
|
0%
|
$0.00
|
+
|
$1,000
|
=
|
$1,000.00
|
60
|
-40%
|
0%
|
$0.00
|
+
|
$1,000
|
=
|
$1,000.00
|
50
|
-50%
|
0%
|
$0.00
|
+
|
$1,000
|
=
|
$1,000.00
|
40
|
-60%
|
0%
|
$0.00
|
+
|
$1,000
|
=
|
$1,000.00
|
30
|
-70%
|
0%
|
$0.00
|
+
|
$1,000
|
=
|
$1,000.00
|
20
|
-80%
|
0%
|
$0.00
|
+
|
$1,000
|
=
|
$1,000.00
|
|
Hypothetical Examples of Amounts
Payable At Maturity
The
following examples illustrate how the total returns set forth in the table above
calculated.
Example 1: The
level of the Index increases from the Initial Index Level of 100 to an Ending Index
Level of 120. Because the Ending Index Level of 120 is greater than the Initial
Index Level of 100, the Additional Amount is equal to $200 and the final payment
at maturity is equal to $1,200 per $1,000 principal amount note, calculated as
follows:
$1,000
+ ($1,000 x [(120-100)/100] x 100%) = $1,200
Example 2: The
level of the Index decreases from the Initial Index Level of 100 to an Ending Index
Level of 80. Because the Ending Index Level of 80 is lower than the Initial
Index Level of 100, the final payment per $1,000 principal amount note at
maturity is the principal amount of $1,000.
Example 3: The
level of the Index increases from the Initial Index Level of 100 to an Ending Index
Level of 110. Because the Ending Index Level of 110 is greater than the Initial
Index Level of 100, the Additional Amount is equal to $100 and the final payment
at maturity is equal to $1,100 per $1,000 principal amount note, calculated as
follows:
$1,000 + ($1,000 x [(110-100)/100] x 100%) = $1,100
|
JPMorgan
Structured Investments
Principal Protected Notes Linked to the JPMorgan Efficiente (USD) Index
|
TS-6 |
The following graph demonstrates a sub set of the
hypothetical returns detailed in the table above. The numbers appearing in the
graph have been rounded for ease of analysis. We cannot give you assurance
that the performance of the Index will result in the payment at maturity in
excess of $1,000 per $1,000 principal amount note.
Historical
Information
The following graph sets forth the hypothetical
back-tested performance of the Index based on the hypothetical back-tested
weekly Index closing level from January 2, 2004 through June 29, 2007, and the historical performance of the Index based on the weekly Index closing level
from July 6, 2007 through November 27, 2009. The Index was established on July 2, 2007. The Index closing level on November 30, 2009 was 101.58. We obtained the Index
closing levels below from Bloomberg Financial Markets. We make no
representation or warranty as to the accuracy or completeness of the
information obtained from Bloomberg Financial Markets.
The hypothetical back-tested and historical values of
the Index should not be taken as an indication of future performance, and no
assurance can be given as to the Index closing levels on the pricing date or
the Observation Date. We cannot give you assurance that the performance of the
Index will result in the return of any of your initial investment in excess of your
principal amount.
The data
for the hypothetical back-tested performance of the Index set forth in the
following graph was calculated on materially the same basis on which the
performance of the Index is now calculated but does not represent the actual
historical performance of the JPMorgan Efficiente (USD) Index.
The
hypothetical historical values above have not been verified by an independent
third party. The back-tested, hypothetical historical results above have
inherent limitations. These back-tested results are achieved by means of a
retroactive application of a back-tested model designed with the benefit of
hindsight. No representation
is made that an investment in the notes will or is likely to achieve returns
similar to those shown.
Alternative modeling techniques or assumptions would
produce different hypothetical historical information that might prove to be
more appropriate and that might differ significantly from the hypothetical
historical information set forth above. Hypothetical back-tested results are
neither an indicator nor guarantee of future returns. Actual results will
vary, perhaps materially, from the analysis implied in the hypothetical
historical information that forms part of the information contained in the
chart above.
|
JPMorgan
Structured Investments
Principal Protected Notes Linked to the JPMorgan Efficiente (USD) Index
|
TS-7 |