Term Sheet
To prospectus dated November 21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 154-A-II dated February 5, 2009
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Term Sheet to
Product Supplement No. 154-A-II
Registration Statement No. 333-155535
Dated March 18, 2009; Rule 433
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Structured
Investments
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$
Buffered Return Enhanced Notes Linked to the JPMorgan Commodity
Curve Index Crude Oil Excess Return Index due September 30, 2010 |
General
- The notes are
designed for investors who seek a return of at least 1.15* times the
appreciation of JPMorgan Commodity Curve Index Crude Oil Excess Return Index up
to a maximum total return on the notes of at least 40.25%* at maturity.
Investors should be willing to forgo interest payments and, if the Index
declines by more than 15%, be willing to lose up to 85% of their principal.
- Senior unsecured
obligations of JPMorgan Chase & Co. maturing September 30, 2010.
- Minimum
denominations of $20,000 and integral multiples of $1,000 in excess thereof.
- The notes are
expected to price on or about March 27, 2009 and are expected to settle on or about April 1, 2009.
Key Terms
Index:
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JPMorgan Commodity Curve Index Crude Oil Excess Return Index (the JPMCCI Crude Oil
Excess Return Index or the Index).
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Upside Leverage Factor:
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At least 1.15*
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Payment at Maturity:
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If the Ending Index Level is greater than
the Strike Level, you will receive a cash payment that provides you with a
return per $1,000 principal amount note equal to the Index Return multiplied
by 1.15*, subject to a Maximum Total Return on the notes of 40.25%*. For
example, if the Index Return is greater than or equal to 35.00%, you will
receive the Maximum Total Return on the notes of 40.25%*, which entitles you
to a maximum payment at maturity of $1,402.50 for every $1,000 principal amount note that
you hold. Accordingly, if the Index Return is positive, your payment at
maturity per $1,000 principal amount note will be calculated as follows,
subject to the Maximum Total Return:
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$1,000 + [$1,000 x
(Index Return x 1.15)]
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* The actual Upside Leverage Factor,
Maximum Total Return on the notes and the actual maximum payment at maturity will
be set on the pricing date and will not be less than 1.15, 40.25% and
$1,402.50 per $1,000 principal amount note, respectively.
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Your principal is
protected against up to a 15% decline of the Index at maturity. If the Ending
Index Level is equal to or declines from the Strike Level by up to 15%, you
will receive the principal amount of your notes at maturity.
If the Ending Index Level declines from
the Strike Level by more than 15%, you will lose 1% of the principal amount
of your notes for every 1% that the Index declines beyond 15%. Under these
circumstances, your payment at maturity per $1,000 principal amount note will
be calculated as follows:
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$1,000 + [$1,000 x
(Index Return + 15%)]
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If the Ending Index Level declines from
the Strike Level by more than 15%, you could lose up to $850 per $1,000
principal amount note.
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Buffer Amount:
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15%, which results in a minimum payment of $150 per $1,000
principal amount note.
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Index Return:
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Ending
Index Level Strike Level
Strike
Level
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Strike Level:
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An Index level to be determined on the pricing date in the
sole discretion of the calculation agent. The Strike Level may or may not
be the regular official weekday closing level of the Index on the pricing
date. Although the calculation agent will make all determinations and take
all action in relation to establishing the Strike Level 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 Level, that might affect
the value of your notes.
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Ending Index Level:
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The closing level of the Index on the Observation Date.
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Observation Date:
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September 27, 2010
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Maturity Date:
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September
30, 2010
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CUSIP:
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48123LQ31
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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. 154-A-II or
early acceleration in the event of a hedging disruption event as described
under General Terms of NotesConsequences of a Commodity Hedging
Disruption Event in the accompanying product supplement no. 154-A-II
and in Selected Risk ConsiderationsCommodity Futures Contracts Are
Subject to Uncertain Legal and Regulatory Regimes in this term sheet.
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The pricing of the notes
is subject to our special tax counsel delivering to us their opinion as
described under Selected Purchase Considerations Capital Gains Tax
Treatment.
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Investing in the Buffered
Return Enhanced Notes involves a number of risks. See Risk Factors beginning
on page PS-54 of the accompanying product supplement no. 154-A-II and Selected
Risk Considerations beginning on page TS-3 of this term sheet.
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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J.P. Morgan Securities Inc., which we refer to as JPMSI,
acting as agent for JPMorgan Chase & Co., will receive a commission that
will depend on market conditions on the pricing date. This commission will
include the projected profits that our affiliates expect to realize in
consideration for assuming risks inherent in hedging our obligations under
the notes. In no event will that commission, which will include structuring
and development fees, exceed $22.50 per $1,000 principal amount note. See
Plan of Distribution beginning on page PS-88 of the accompanying product supplement
no. 154-A-II.
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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.
March 18, 2009
ADDITIONAL TERMS
SPECIFIC TO THE NOTES
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. 154-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.
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. 154-A-II dated February 5, 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. 154-A-II, as the notes involve risks
not associated with conventional debt securities. We urge you to consult your
investment, legal, tax, accounting and other advisers before you invest in the
notes.
You may access these documents on the SEC website
at www.sec.gov as follows (or if such
address has changed, by reviewing our filings for the relevant date on the SEC
website):
Our Central Index Key, or CIK, on the SEC website is 19617.
As used in this term sheet, the Company, we, us or our refers to
JPMorgan Chase & Co.
What Is the Total
Return on the Notes at Maturity Assuming a Range of Performance for the JPMCCI
Crude Oil Excess Return?
The following table illustrates the hypothetical
total return at maturity on the notes. The total return as used in this term
sheet is the number, expressed as a percentage, that results from comparing the
payment at maturity per $1,000 principal amount note to $1,000. The hypothetical total returns set
forth below assume a Strike Level of 430, an Upside Leverage Factor of 1.15 and
a Maximum Total Return on the notes of 40.25%. The hypothetical total returns set forth below are for
illustrative purposes only and may not be the actual total returns applicable
to a purchaser of the notes. The numbers appearing in the following table and
examples have been rounded for ease of analysis.
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Index Closing
Level
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Index Return
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Total Return
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774.00
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80.00%
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40.25%
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709.50
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65.00%
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40.25%
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645.00
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50.00%
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40.25%
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602.00
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40.00%
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40.25%
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580.50
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35.00%
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40.25%
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559.00
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30.00%
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34.50%
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516.00
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20.00%
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23.00%
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473.00
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10.00%
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11.50%
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451.50
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5.00%
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5.75%
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434.30
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1.00%
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1.15%
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430.00
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0.00%
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0.00%
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408.50
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-5.00%
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0.00%
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387.00
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-10.00%
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0.00%
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365.50
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-15.00%
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0.00%
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344.00
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-20.00%
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-5.00%
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301.00
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-30.00%
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-15.00%
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258.00
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-40.00%
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-25.00%
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215.00
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-50.00%
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-35.00%
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172.00
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-60.00%
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-45.00%
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129.00
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-70.00%
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-55.00%
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86.00
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-80.00%
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-65.00%
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43.00
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-90.00%
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-75.00%
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0.00
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-100.00%
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-85.00%
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JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the JPMorgan Commodity Curve Index Crude Oil Excess Return Index
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TS-1 |
Hypothetical
Examples of Amounts Payable at Maturity
The following examples illustrate how
the total returns set forth in the table on the previous page are calculated.
Example 1: The level of the Index
increases from a Strike Level of 430 to an Ending Index Level of 451.50. Because the Ending Index Level of 451.50
is greater than the Strike Level of 430 and the Index Return of 5% multiplied
by 1.15 does not exceed the Maximum Total Return of 40.25%, the investor receives
a payment at maturity of $1,057.50 per $1,000 principal amount note, calculated
as follows:
$1,000 +
[$1,000 x (5% x 1.15)] = $1,057.50
Example 2: The level of the Index
decreases from a Strike Level of 430 to an Ending Index Level of 365.50. Although the Index Return is negative,
because the Ending Index Level of 365.50 is less than the Strike Level of 430
by not more than the Buffer Amount of 15%, the investor receives a payment at
maturity of $1,000 per $1,000 principal amount note.
Example 3: The level of the Index
increases from a Strike Level of 430 to an Ending Index Level of 602. Because the Ending Index Level of 602
is greater than the Strike Level of 430 and the Index Return of 40% multiplied
by 1.15 exceeds the Maximum Total Return of 40.25%, the investor receives a
payment at maturity of $1,402.50 per $1,000 principal amount note, the maximum
payment on the notes.
Example 4: The level of the Index
decreases from a Strike Level of 430 to an Ending Index Level of 301. Because the Index Return is negative
and the Ending Index Level of 301 is less than the Strike Level of 430 by more
than the Buffer Amount of 15%, the investor receives a payment at maturity of
$850 per $1,000 principal amount note, calculated as follows:
$1,000 +
[$1,000 x (-30% + 15%)] = $850
Example 5: The level of the Index
decreases from a Strike Level of 430 to an Ending Index Level of 0. Because the Index Return is negative
and the Ending Index Level of 0 is less than the Strike Level of 430 by more
than the Buffer Amount of 15%, the investor receives a payment at maturity of
$150 per $1,000 principal amount note, which reflects the principal protection
provided by the Buffer Amount of 15%, calculated as follows:
$1,000 +
[$1,000 x (-100% + 15%)] = $150
JPMorgan Commodity Curve Index Crude Oil
Excess Return
The JPMorgan Commodity Curve Index (JPMCCI) is a family of
one hundred-five single commodity indices, twenty-one sector indices, three
energy light indices and three aggregate commodity indices, including the JPMorgan
Commodity Curve Index Crude Oil Excess Return Index (the JPMCCI Crude Oil
Excess Return Index), that seeks to offer a diversified and representative
approach to passive commodity investing. Unlike other commodity indices, which
generally focus exposure at a single maturity (traditionally, the front month
contract or a single deferred contract), JPMCCI seeks to track exposure along
the entire futures curve (i.e., exposure to futures contracts with
different maturities) in proportion to their open interest.
JPMCCI, including the JPMCCI Crude Oil Excess Return Index,
uses open interest to determine the inclusion and relative weights of the
individual commodities to arrive at a total market benchmark, which is based on
the entire commodity curve. Each commoditys monthly contract compositions are
determined by reference to the historical distribution of the open interest of
contracts across the futures curve for the relevant calendar month by reference
to the preceding three years.
Although positions will be adjusted monthly, many contracts
are deemed to be held in JPMCCI, including the JPMCCI Crude Oil Excess Return
Index, for multiple months because JPMCCI will synthetically own contracts at
deferred points of the futures curve. Therefore, only a portion of JPMCCIs
nominal positions will roll each month. This is different from traditional
commodities indices, which are generally deemed to have liquidated their
current nominal holdings entirely after the end of the rolling period from one
contract to another.
The value of the JPMCCI Crude Oil Excess Return Index is
published each trading day under the Bloomberg ticker symbol JMCXCLER.
Selected Purchase
Considerations
- APPRECIATION
POTENTIAL The notes provide the opportunity to enhance returns by multiplying a
positive Index Return by 1.15, up to the Maximum Total Return on the notes of
40.25%, or a maximum payment at maturity of $1,402.50 for every $1,000
principal amount note. The actual Upside Leverage Factor, Maximum Total Return
on the notes and the actual maximum payment at maturity will be set on the
pricing date and will not be less than 1.15, 40.25% and $1,402.50 per $1,000
principal amount note, respectively. 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.
- LIMITED PROTECTION
AGAINST LOSS Payment at maturity of the principal amount of the notes is
protected against a decline of the Ending Index Level, as compared to the Strike
Level, of up to 15%. If the Ending Index Level declines by more than 15%, for
every 1% decline in the Index beyond 15%, you will lose an amount equal to 1%
of the principal amount of your notes. Accordingly, at maturity you will
receive a payment equal to at least $150 for each $1,000 principal amount note.
- RETURN LINKED TO
JPMORGAN COMMODITY CURVE INDEX CRUDE OIL EXCESS RETURN The return on the
notes is linked to the performance of the JPMCCI Crude Oil Excess Return
Index, which seeks to offer a diversified and representative approach to
passive commodity investing. Unlike other commodity indices that focus
exposure at a single maturity (traditionally, the front month contract or a
single deferred contract), the JPMCCI Crude Oil Excess Return Index seeks to
track exposure along the entire futures curve (i.e., exposure to futures
contracts with different maturities) for each commodity included in the JPMCCI
Crude Oil Excess Return Index in proportion to their open interest. The
JPMCCI Crude Oil Excess Return Index measures the return from a hypothetical
investment in the relevant commodity futures contracts, taking into account the
effect of any monthly composition changes with respect to the relevant
commodities in each roll period. See The JPMorgan Commodity Curve Index in
the accompanying product supplement no. 154-A-II.
- CAPITAL GAINS TAX
TREATMENT You should review carefully the
section entitled Certain U.S. Federal Income Tax Consequences in the
accompanying product supplement no. 154-A-II. The pricing of the notes is
subject to delivery of an opinion of our special tax counsel, Davis Polk &
Wardwell, that it is reasonable to treat the notes as open transactions for U.S. federal income tax
purposes. The opinion will be subject to the limitations described in the
section entitled Certain U.S. Federal Income Tax Consequences in the
accompanying product supplement no. 154-A-II and will be based on certain
factual representations to be received from us on or prior to the pricing date.
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, on December
7, 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
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JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the JPMorgan Commodity Curve Index Crude Oil Excess Return Index
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TS-2 |
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.
Selected Risk
Considerations
An investment in the notes involves significant risks.
Investing in the notes is not equivalent to investing directly in the JPMCCI
Crude Oil Excess Return Index or in any futures contracts or exchange-traded or
over-the-counter instruments based on, or other instruments linked to the
JPMCCI Crude Oil Excess Return Index. These risks are explained in more
detail in the Risk Factors section of the accompanying product supplement no.
154-A-II.
- YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS The notes do not guarantee any return
of principal in excess of $150 per $1,000 principal amount note. 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 or negative.
Your investment will be exposed to any decline in the Ending Index Level, as
compared to the Strike Level, beyond the 15% buffer. Accordingly, you could
lose up to $850 for each $1,000 principal amount note that you invest in.
- 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.
- YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM TOTAL
RETURN If the
Ending Index Level is greater than the Strike Level, for each $1,000 principal
amount note, you will receive at maturity $1,000 plus an additional amount that
will not exceed a predetermined percentage of the principal amount, regardless
of the appreciation in the Index, which may be significant. We refer to this
percentage as the Maximum Total Return, which will be set on the pricing date
and will not be less than 40.25%.
- COMMODITY PRICES ARE
CHARACTERIZED BY HIGH AND UNPREDICTABLE VOLATILITY, WHICH COULD LEAD TO A HIGH
AND UNPREDICTABLE VOLATILITY IN THE INDEX Market prices of the commodity
options futures contracts underlying the JPMCCI Crude Oil Excess Return Index
tend to be highly volatile and may fluctuate rapidly based on numerous factors,
including changes in supply and demand relationships; governmental programs and
policies; national and international monetary, trade, political and economic
events; changes in interest and exchange rates; speculation and trading
activities in commodities and related contracts; weather; and agricultural,
trade, fiscal and exchange control policies. Many commodities are also highly
cyclical. These factors may affect the level of the Index in varying ways, and
different factors may cause the value of different commodities included in the
Index, and the commodity futures contracts of their prices, to move in inconsistent
directions at inconsistent rates. This, in turn, will affect the value of the
notes linked to the Index. The high volatility and cyclical nature of
commodity markets may render such an investment inappropriate as the focus of
an investment portfolio.
- COMMODITY FUTURES
CONTRACTS ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES The commodity
futures contracts that underlie the JPMCCI Crude Oil Excess Return Index 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 JPMCCI Crude Oil Excess Return Index. The United States
Congress has considered legislation that might, if enacted, subject us to
position limits on positions in commodity futures contracts. Such restrictions may
result in a modification of the rules, which may, in turn, have a negative
effect on the level of the JPMCCI Crude Oil Excess Return Index
and your payment, if any, 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, accelerate the payment on your
notes. 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. 154-A-II for more
information.
- OWNING THE NOTES
INVOLVES THE RISKS ASSOCIATED WITH THE JPMCCI CRUDE OIL EXCESS RETURN INDEXS
OPEN INTEREST INVESTMENT STRATEGY The JPMCCI Crude Oil Excess Return Index
seeks to offer a diversified and representative approach to passive commodity
investing. Unlike other commodity indices which focus exposure at a single
maturity (traditionally, the front month contract or a single deferred contract),
the JPMCCI Crude Oil Excess Return Index seeks to track exposure along the
entire futures curve (i.e., exposure to futures contracts with different
maturities) in proportion to their open interest. No assurance can be given
that the investment strategy used to construct the JPMCCI Crude Oil Excess
Return Index will be successful or that the JPMCCI Crude Oil Excess Return
Index will outperform an alternative index that might be constructed from
commodity futures contracts that focus exposure at a single maturity.
- OWNING THE NOTES IS
NOT THE SAME AS OWNING ANY COMMODITY FUTURES CONTRACTS The return on
your notes will not reflect the return you would realize if you actually held
the commodity contracts replicating the JPMCCI Crude Oil Excess Return
Index. The JPMCCI Crude Oil Excess Return Index 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.
- SUSPENSION OR
DISRUPTIONS OF MARKET TRADING IN THE COMMODITY AND RELATED OPTIONS FUTURES
MARKETS MAY ADVERSELY AFFECT THE LEVEL OF THE JPMCCI CRUDE OIL EXCESS RETURN INDEX, 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 JPMCCI Crude Oil Excess Return Index and, therefore, the
value of your notes.
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JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the JPMorgan Commodity Curve Index Crude Oil Excess Return Index
|
TS-3 |
- HIGHER FUTURES PRICES
OF THE COMMODITY FUTURES CONTRACTS UNDERLYING THE JPMCCI CRUDE OIL EXCESS
RETURN RELATIVE TO THE CURRENT PRICES OF SUCH CONTRACTS MAY AFFECT THE VALUE OF
THE INDEX AND THE VALUE OF THE NOTES The JPMCCI Crude Oil Excess Return Index
is 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 JPMCCI Crude Oil Excess Return Index 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 JPMCCI Crude Oil Excess Return Index 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 JPMCCI Crude Oil Excess
Return Index. The presence
of contango in the commodity markets could result in negative roll yields,
which could adversely affect the value of the JPMCCI Crude Oil Excess
Return
Index and thus the value of notes linked to the JPMCCI Crude Oil Excess
Return
Index.
- COMMODITIES PRICES
ARE VOLATILE AND THE ROLL RETURN GENERATED BY ROLLING COMMODITY FUTURES
INCLUDED IN THE JPMCCI CRUDE OIL EXCESS RETURN INDEX WILL HAVE AN EFFECT ON
THE LEVEL OF THE INDEX AND THE VALUE OF THE NOTES The
JPMCCI
Crude Oil Excess Return Index is comprised of
commodity futures with different maturities selected on the basis of historical
open interest. Each month, contracts that are about to mature whose weighting
in the Index have been decreased or that cease to be available for trading
before the end of the next roll period will be rolled into contracts with
different maturities. In addition, because the JPMCCI Crude Oil Excess
Return Index is
weighted by open-interest, all contracts included in the JPMCCI Crude Oil Excess
Return
Index will be re-weighted on a monthly basis, whether they are
approaching maturity or not, to reflect the monthly change in their open
interest. The act of replacing and re-weighting the commodity futures that
comprise the JPMCCI Crude Oil Excess Return Index will
generate a profit or loss known as the roll return. This return will be
affected by a number of factors including, whether the prices of the relevant
longer dated contracts are more or less than the prices of the shorter dated
contracts. The roll return will generally be negative if the prices of the
relevant longer dated contracts are greater than the prices of the shorter
dated contracts. Conversely, if the prices of the longer dated contracts are
less than the prices of the shorter dated contracts then the roll return will
generally be positive. The prices of commodity futures can be volatile and the
roll return generated by rolling commodity futures included in the JPMCCI Crude Oil Excess
Return Index
will have an effect, be positive or negative, on the JPMCCI Crude Oil Excess
Return
Index, and therefore the value of the notes.
- THE JPMCCI CRUDE OIL EXCESS RETURN HAS A LIMITED HISTORY The JPMCCI Crude Oil Excess Return Index was established in November 9, 2007, and therefore its historical
performance is limited. Any back-testing or similar analysis in respect of the
JPMCCI Crude Oil Excess Return Indexmust be considered
illustrative only and may be based on estimates or assumptions not used by the
calculation agent when determining levels of the JPMCCI Crude Oil Excess Return Index. Past performance should not be considered indicative
of future performance.
- 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.
- 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.
- POTENTIAL
CONFLICTS We and our affiliates play a variety of roles in connection
with the issuance of the notes, including acting as Index Calculation Agent
the entity that calculates the JPMCCI Crude Oil Excess Return Index Levels
and acting as calculation agent and hedging our obligations under the notes. In
performing these duties, the economic interests of the Index Calculation
Agent, the calculation agent and other affiliates of ours are potentially
adverse to your interests as an investor in the notes. The Strike Level
will be an Index level determined on the pricing date in the sole discretion of
the calculation agent. Although the calculation agent will make all
determinations and take all action in relation to establishing the Strike Level
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 Level, that might
affect the value of your notes.
- THE
INDEX CALCULATION AGENT MAY CANCEL THE CALCULATION AND PUBLICATION OF THE
JPMCCI CRUDE OIL EXCESS RETURN INDEX DURING THE TERM OF THE NOTES With the approval of
the JPMCCI Supervisory Committee, the Index Calculation Agent may discontinue
the calculation and publication of the JPMCCI Crude Oil Excess Return Index.
For example, following a change in a law, regulation or rule applicable to
commodity futures contracts, the Index Calculation Agent may cancel publication
of the JPMCCI Crude Oil Excess Return Index if it determines that the
objective of the JPMCCI Crude Oil Excess Return Index can no longer be
achieved. If the publication of the JPMCCI Crude Oil Excess Return Index is
discontinued prior to, and such discontinuation is continuing on, the
Observation Date the closing level of the JPMCCI Crude Oil Excess Return
Index is to be determined, the calculation agent will either select a successor
index or determine the closing level of the JPMCCI Crude Oil Excess Return
Index for such date. Although the calculation agent will only select a
successor index that it determines, in its sole discretion, to be comparable to
the JPMCCI Crude Oil Excess Return Index and, if required to compute the
closing level of the JPMCCI Crude Oil Excess Return Index or any successor index,
will use, in good faith, the formula for and method of calculating such index
last in effect prior to such discontinuation of the publication of the JPMCCI
Crude Oil Excess Return Index may adversely affect the value of the notes.
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JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the JPMorgan Commodity Curve Index Crude Oil Excess Return Index
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- MANY ECONOMIC AND
MARKET FACTORS WILL AFFECT 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 volatility of
the JPMCCI Crude Oil Excess Return Index and the underlying futures contracts;
- the time to maturity
of the notes;
- the market price of
the physical commodities upon which the futures contracts underlying the JPMCCI
Crude Oil Excess Return Index 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 JPMCCI Crude Oil Excess
Return Index or markets generally and which may affect the value of the
commodity futures contracts, and thus the closing levels of the constituents;
and
- our creditworthiness, including
actual or anticipated downgrades in our credit ratings.
- THE OFFERING
OF THE NOTES MAY BE TERMINATED BEFORE PRICING This
term sheet has not been reviewed by our special tax counsel, Davis Polk &
Wardwell, and the pricing of the offering of the notes is subject to delivery
by them of an opinion regarding the tax treatment of the notes as described
under Selected Purchase Considerations Capital Gains Tax Treatment above.
If our special tax counsel does not deliver this opinion prior to pricing, the
offering of the notes will be terminated.
Hypothetical Back-tested Data and
Historical Information
The following graph sets forth the hypothetical back-tested
performance of the JPMCCI Crude Oil Excess Return Index based on hypothetical
back-tested weekly closing levels of the Index from January 2, 2004 through November 2, 2007, and the historical
performance of the Index based on the weekly closing level of the Index from November 9, 2007 through March 13, 2009. The Index was
established on November
9, 2007. The closing level of the Index on March 17, 2009 was 430.3741. We obtained the closing levels of the Index 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 levels of the Index should
not be taken as an indication of future performance, and no assurance can be
given as to the Index
closing level 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 $150 per $1,000 principal amount note. The data for the
hypothetical back-tested performance of JPMCCI Crude Oil Excess Return Index
set forth in the following graph was calculated on materially the same basis on
which the performance of the JPMCCI Crude Oil Excess Return Index is now calculated.
The hypothetical historical values above have not been
verified by an independent third party. The back-tested, hypothetical
historical results above have inherent limitations. These back-tested results
are achieved by means of a retroactive application of a back-tested model
designed with the benefit of hindsight.
Alternative modeling techniques or assumptions would produce different
hypothetical historical information that might prove to be more appropriate and
that might differ significantly from the hypothetical historical information
set forth above. Hypothetical back-tested results are neither an indicator nor
guarantee of future returns. Actual results will vary, perhaps materially,
from the analysis implied in the hypothetical historical information that forms
part of the information contained in the chart above.
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JPMorgan
Structured Investments
Buffered Return Enhanced Notes Linked to the JPMorgan Commodity Curve Index Crude Oil Excess Return Index
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