Term sheet
To prospectus
dated November
21, 2008,
prospectus supplement dated November 21, 2008 and
product supplement no. 169-A-I dated July 29, 2009
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Term sheet to
Product Supplement No.
169-A-I
Registration Statement No.
333-155535
Dated September 24, 2010; Rule 433
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Structured
Investments
|
|
JPMorgan Chase &
Co.
$
Single
Review Notes Linked to the S&P GSCI Crude Oil Index Excess
Return due April 6, 2011 |
General
- The notes are designed
for investors who seek a single fixed Payment at Maturity if the S&P GSCITM
Crude Oil Index Excess Return (the Index) level is at or above the
Initial Index Level on the Final Valuation Date. If the level of the Index is
not at or above the Initial Index Level on the Final Valuation Date, investors
are protected against up to a 10% decline of the Ending Index Level but if the
Ending Index Level declines by more than 10% from the Initial Index Level, you
will lose 1.1111% of the principal amount of notes for every 1% decline in the
Ending Index Level as compared to the Initial Index Level. You will lose some
or all of your principal if the Ending Index Level declines by more than 10%
from the Initial Index Level. Investors in the notes should be willing to
accept this risk of loss, and be willing to forgo interest payments, in
exchange for the opportunity to receive a single fixed payment if the Ending
Index Level is above the Initial Index Level. Any payment on the notes is
subject to the credit risk of JPMorgan Chase & Co.
- Senior unsecured debt
obligations of JPMorgan Chase & Co. maturing April 6, 2011.
- Minimum denominations
of $20,000 and $1,000 thereafter.
- The terms of the
notes as set forth below, to the extent they differ or conflict with those set
forth in the accompanying product supplement no. 169-A-I, will supersede the
terms set forth in product supplement no. 169-A-I.
- The notes are expected
to price on or about October 1, 2010 and are expected to settle on or about October 6, 2010.
Key Terms
Index:
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S&P GSCITM Crude Oil
Index Excess Return
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Payment at Maturity:
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If the Index Ending Level is greater
than or equal to the Initial Index Level, for every $1,000 principal amount
note, you will receive one payment of $1,000 plus a premium that will
not be less than 10.20%.
Notwithstanding anything to the contrary in the
accompanying product supplement no. 169-A-I, for purposes of these notes, if
the Ending Index Level declines from the Initial Index Level by less than
10%, you will receive the principal amount of your notes at maturity.
If the Ending Index Level declines from the Initial
Index Level by more than 10%, you will lose 1.1111% of the principal amount
of your notes for every 1% decline in the Ending Index Level beyond 10%, as
compared to the Initial Index Level and your payment at maturity per $1,000
principal amount note will be calculated as follows:
$1,000 + [$1,000 × (Final
Index Return + 10.00%) × 1.1111]
If the Ending Index
Level has declined by more than 10% from the Initial Index Level, you will
lose some or all of your initial principal amount note at maturity.
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Buffer Amount:
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10%
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Downside Leverage Factor:
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Notwithstanding
anything to the contrary in the accompanying product supplement no. 169-A-I,
for purposes of these notes, the downside leverage factor is 1.1111.
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Final 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 October 1, 2010.
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Ending Index Level:
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The Index closing level on the Final
Valuation Date.
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Final Valuation Date:
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April 1, 2011
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Maturity Date:
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April 6, 2011
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CUSIP:
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48124AK63
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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. 169-A-I or early acceleration in the event of a commodity
hedging disruption event as described under General Terms of Notes
Consequences of a Commodity Hedging Disruption Event in the accompanying
product supplement no. 169-A-I and in Selected Risk Considerations Commodity
Futures Contracts Are Subject to Uncertain Legal and Regulatory Regimes
herein.
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Investing in the
Single Review Notes involves a number of risks. See Risk Factors beginning
on page PS-6 of the accompanying product supplement no. 169-A-I 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. 169-A-I and this
term sheet if you so request by calling toll-free 866-535-9248.
You may revoke your
offer to purchase the notes at any time prior to the time at which we accept
such offer by notifying the applicable agent. We reserve the right to change
the terms of, or reject any offer to purchase, the notes prior to their
issuance. In the event of any changes to the terms of the notes, we will notify
you and you will be asked to accept such changes in connection with your
purchase. You may also choose to reject such changes in which case we may
reject your offer to purchase.
Neither the SEC nor any
state securities commission has approved or disapproved of the notes or passed
upon the accuracy or the adequacy of this term sheet, the accompanying product
supplement no. 169-A-I 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, which includes our affiliates expected cost of providing such
hedge as well as the profit our affiliates expect to realize in consideration
for assuming the risks inherent in providing such hedge. The estimated cost
of hedging includes the projected profits, which in no event will exceed
$5.00 per $1,000 principal amount note, that our affiliates expect to realize
in consideration for assuming the risk inherent in hedging our obligations
under the notes. Because hedging our obligations entails risk and may be
influenced by market forces beyond our control, the actual cost of such
hedging may result in a profit that is more or less than expected, or could
result in a loss. For additional related information, please see Use of
Proceeds beginning on page PS-19 of the accompanying product supplement no.
169-A-I.
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(2)
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Please see Supplemental Plan of Distribution
(Conflicts of Interest) on page TS-5 of this term sheet for information
about fees and commissions.
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The agent for this offering, J.P.
Morgan Securities LLC, which we refer to as JPMS, is an affiliate of ours. See Supplemental Plan of Distribution
(Conflicts of Interest) on page TS-5 of this term sheet.
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.
![](https://cdn.kscope.io/918dd9a5fbc8c4987f358f036e7b2092-jpm_logo.jpg)
September 24, 2010
Additional Terms Specific to the Notes
You should read this term
sheet together with the prospectus dated November 21, 2008, as
supplemented by the prospectus supplement dated November 21, 2008 relating to
our Series E medium-term notes of which these notes are a part, and the more
detailed information contained in product supplement no. 169-A-I dated July 29, 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. 169-A-I, as the notes
involve risks not associated with conventional debt securities. We urge you to
consult your investment, legal, tax, accounting and other advisers before you
invest in the notes.
You may access these documents on the SEC website
at www.sec.gov as follows (or if such address
has changed, by reviewing our filings for the relevant date on the SEC website):
Our Central Index Key, or CIK, on the SEC website
is 19617. As used in this term sheet, the Company, we, us or our
refers to JPMorgan Chase & Co.
Supplemental Terms of the Notes
The following additional terms shall apply to the
notes:
Commodity Hedging Disruption Event
Notwithstanding anything to the contrary in the
accompanying product supplement no. 169-A-I, for purposes of these notes,
commodity hedging disruption event means:
(a) due to (i) the adoption of, or any change in,
any applicable law, regulation, rule or order (including, without limitation,
any tax law); or (ii) the promulgation of, or any change in, the
interpretation, application, exercise or operation by any court, tribunal,
regulatory authority, exchange or trading facility or any other relevant entity
with competent jurisdiction of any applicable law, rule, regulation, order,
decision or determination (including, without limitation, as implemented by the
U.S. Commodities Futures Trading Commission or any exchange or trading
facility), in each case occurring on or after the pricing date, the calculation
agent determines in good faith that it is contrary (or upon adoption, it will
be contrary) to such law, rule, regulation, order, decision or determination
for us to purchase, sell, enter into, maintain, hold, acquire or dispose of our
or our affiliates (A) positions or contracts in securities, options, futures,
derivatives or foreign exchange or (B) other instruments or arrangements, in
each case, in order to hedge our obligations under the notes (in the aggregate
on a portfolio basis or incrementally on a trade by trade basis) (hedge
positions), including (without limitation) if such hedge positions (in whole
or in part) are (or, but for the consequent disposal thereof, would otherwise
be) in excess of any allowable position limit(s) in relation to any commodity
traded on any exchange(s) or other trading facility (it being within the sole
and absolute discretion of the calculation agent to determine which of the
hedge positions are counted towards such limit); or
(b) for any reason, we or our affiliates are unable,
after using commercially reasonable efforts, to (i) acquire, establish,
reestablish, substitute, maintain, unwind or dispose of any transaction(s) or
asset(s) the calculation agent deems necessary to hedge the risk of entering
into and performing our commodity-related obligations with respect to the
notes, or (ii) realize, recover or remit the proceeds of any such
transaction(s) or asset(s).
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JPMorgan
Structured Investments
Single
Review Notes Linked to the S&P GSCI Crude Oil Index Excess Return due April 6, 2011
|
TS-1 |
Hypothetical
Examples of Amounts Payable at Maturity
The following table illustrates the hypothetical total return on the
notes that could be realized on the Final Valuation Date for a range of
movements in the Index as shown under the column Final Index Return. The
following table assumes an Initial Index Level of 400 (which is not the actual
Initial Index Level applicable to these notes). The table reflects the Buffer
Amount of 10%, the Downside Leverage Factor of 1.1111 and a premium amount of
10.20%, regardless of the appreciation of the Index, which may be significant. There will be only one payment on the notes at maturity.
The hypothetical returns set forth below are for illustrative purposes only and
may not be the actual total returns applicable to a purchaser of the notes.
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Hypothetical
Ending Index Level
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Hypothetical
Index Return
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Hypothetical
Return on the
Notes on the
Maturity Date
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900.00
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80.00%
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10.2000%
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850.00
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70.00%
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10.2000%
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800.00
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60.00%
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10.2000%
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750.00
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50.00%
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10.2000%
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700.00
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40.00%
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10.2000%
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650.00
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30.00%
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10.2000%
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600.00
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20.00%
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10.2000%
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575.00
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15.00%
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10.2000%
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550.00
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10.00%
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10.2000%
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525.00
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5.00%
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10.2000%
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512.50
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2.50%
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10.2000%
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505.00
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1.00%
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10.2000%
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500.00
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0.00%
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10.2000%
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475.00
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-5.00%
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0.0000%
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450.00
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-10.00%
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0.0000%
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425.00
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-15.00%
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-5.5555%
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400.00
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-20.00%
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-11.1111%
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350.00
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-30.00%
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-22.2222%
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300.00
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-40.00%
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-33.3333%
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250.00
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-50.00%
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-44.4444%
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200.00
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-60.00%
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-55.5555%
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150.00
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-70.00%
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-66.6666%
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100.00
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-80.00%
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-77.7777%
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50.00
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-90.00%
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-88.8888%
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0.00
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-100.00%
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-100.0000%
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The following examples illustrate how the total
returns set forth in the table above are calculated.
Example 1: The level of the Index increases from the
Initial Index Level of 500 to an Ending Index level of 575. Because the Ending Index Level of 575 is greater than
the hypothetical Initial Index Level of 500, the investor receives
the premium of 10.20%, which corresponds to a payment of $1,102 per $1,000
principal amount note.
Example
2: The level of the Index decreases from the Initial Index Level of 500 to an
Ending Index level of 475. Because
the Ending Index Level of 475 is less than the Initial Index Level of 500 by
not more than the Buffer Amount of 10.00%, the investor receives a payment at
maturity of $1,000 per $1,000 principal amount note.
Example 3: The level of the Index decreases from the Initial Index Level of 500 to
an Ending Index Level of 250. Because the Ending Index Level of 250 is less than the Initial Index Level of
500 by more than the Buffer Amount of 10.00%, the investor receives a payment
at maturity of $555.56 per $1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 × (-50% +
10%) x 1.1111] = $555.56
Example
4: The level of the Index decreases from the Initial Index Level of 500 to an
Ending Index Level of 0. Because
the Ending Index Level of 0 is less than the Initial Index Level of 500 by more
than the Buffer Amount of 10%, the investor receives a payment at maturity of
$0 per $1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 × (-100% +
10%) x 1.1111] = $0
Selected Purchase
Considerations
- LIMITED APPRECIATION POTENTIAL If the Ending Index Level is greater than or equal
to the Initial Index Level on a the Final Valuation Date, your investment will
yield a payment per $1,000 principal amount note of $1,000 plus a premium that
will not be less than 10.20%. 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 notes is protected against a decline in the Ending Index Level, as
compared to the Initial Index Level, of up to the Buffer Amount of 10.00%. If
the Ending Index Level declines by more than 10.00%, you will lose 1.1111% of
the principal amount for every 1% decline of the Ending Index Level over the
term of the notes beyond 10.00%. If the Index Return is -90.00%, you will
lose your entire investment.
- POTENTIAL RETURN AT MATURITY, EVEN IF THE
INDEX RETURN IS ZERO ON
SUCH REVIEW DATE You
will receive a premium of not less than 10.20%, even if the Ending Index Return
is 0%.
- RETURN LINKED
TO THE S&P GSCI CRUDE OIL INDEX EXCESS RETURN The return on the notes is linked solely to the
S&P GSCI Crude Oil Index Excess Return, a sub-index of the S&P GSCI,
a composite index of commodity sector returns, calculated,
maintained and published daily by Standard & Poors, a division of the
McGraw-Hill Companies. The S&P GSCI is a world production-weighted
index that is designed to reflect the relative significance of principal
non-financial commodities (i.e., physical commodities) in the world
economy. The S&P GSCI represents the return of a portfolio of the futures
contracts for the underlying commodities. The S&P GSCI Crude Oil Index
Excess Return provides investors with a
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JPMorgan
Structured Investments
Single
Review Notes Linked to the S&P GSCI Crude Oil Index Excess Return
due April 6, 2011
|
TS-2 |
publicly available benchmark for
investment performance in the crude oil commodity markets. The S&P GSCI
Crude Oil Index Excess Return is an excess return index and not a total return
index. An excess return index reflects the returns that are potentially
available through an unleveraged investment in the contracts composing the
index (which, in the case of the Index, are the designated crude oil futures
contracts). By contrast, a total return index, in addition to reflecting
those returns, also reflects interest that could be earned on funds committed
to the trading of the underlying futures contracts. As presently constituted,
the only contracts used to calculate the Index are the West Texas Intermediate
(WTI) crude oil futures contracts traded on the New York Mercantile Exchange
(NYMEX). The Index also takes into account the trading volume of the IntercontinentalExchange
WTI crude oil futures contracts. The WTI crude oil futures contracts included
in the Index change each month because the contracts included in the Index at
any given time are currently required to be the WTI crude oil futures contracts
traded on the NYMEX with the closest expiration date (the front-month
contract). The front-month contract expires each month on the third business
day prior to the 25th calendar day of the month. The Index incorporates a
methodology for rolling into the contract with the next closest expiration date
(the next-month contract) each month. Assuming that markets are not
disrupted or limit up or limit down, the Index gradually reduces the
weighting of the front-month contract and increases the weighting of the
next-month contract over a five business day period commencing on the fifth
business day of the month, so that on the first day of the roll-over the
front-month contract represents 80% and the next-month contract represents 20%
of the Index, and on the fifth day of the roll-over period (i.e., the
ninth business day of the month) the next-month contract represents 100% of the
Index. See The GSCI Indices in the accompanying product supplement no.
169-A-I.
- CAPITAL GAINS TAX TREATMENT You should review carefully the section
entitled Certain U.S. Federal Income Tax Consequences in the accompanying
product supplement no. 169-A-I. Notwithstanding
any disclosure in that product supplement to the contrary, our special tax
counsel in this transaction is Sidley Austin LLP. As described therein, we and you will agree to
characterize and treat the notes for U.S.
federal income tax purposes as open transactions. Subject to the limitations
described therein, and based on certain factual representations received from
us, in the opinion of our special tax counsel, Sidley Austin LLP, it is reasonable to treat your purchase
and ownership of the notes as open transactions for U.S. federal income tax purposes. Assuming this characterization
is respected, your gain or loss on the notes should be treated as short-term
capital gain or loss. 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. For example, the notes
could be treated as contingent payment debt instruments, as discussed in the
section entitled Certain U.S. Federal Income Tax Consequences in the
accompanying product supplement no. 169-A-I.
Moreover, on December 7, 2007, the Treasury Department and the IRS
released a notice requesting comments on the U.S.
federal income tax treatment of prepaid forward contracts and similar
instruments, such as the notes. The notice focuses in particular on whether to
require holders of these instruments to accrue income over the term of their
investment. It also asks for comments on a number of related topics, including
the character of income or loss with respect to these instruments; the
relevance of factors such as the nature of the underlying property to which the
instruments are linked; the degree, if any, to which income (including any
mandated accruals) realized by Non-U.S. Holders should be subject to
withholding tax; and whether these instruments are or should be subject to the
constructive ownership regime, which very generally can operate to recharacterize
certain long-term capital gains 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.
Subject to certain assumptions and
representations received from us, the discussion in this section entitled
Capital Gains Tax Treatment, 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 Sidley Austin LLP regarding the material U.S. federal
income tax treatment of owning and disposing of the notes.
Selected Risk
Considerations
An investment in the notes involves significant risks. Investing
in the notes is not equivalent to investing directly in crude oil. These risks are explained in more detail in the
Risk Factors section of the accompanying product supplement no. 169-A-I dated
July 29, 2009.
- YOUR INVESTMENT IN THE NOTES MAY
RESULT IN A LOSS If the Ending
Index Level has declined by more than 10% from the Initial Index Level, you will
lose 1.1111% of your principal amount at maturity for every 1% decline in the
Ending Index Level beyond 10%, as compared to the Initial Index Level. You
may lose up to 100% of your initial investment.
- 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.
- POTENTIAL CONFLICTS We and our
affiliates play a variety of roles in connection with the issuance of the
notes, including acting as calculation agent and hedging our obligations under
the notes. In performing these duties, the economic interests of the
calculation agent and other affiliates of ours are potentially adverse to your
interests as an investor in the notes.
- LIMITED RETURN ON THE NOTES The potential gain on your notes will be limited
to the premium of at least 10.20% regardless of the appreciation of the Index,
which may be significant. Because the Index closing level at various times
during the term of the notes could be higher than on the Final Valuation Date,
you may receive a lower payment at maturity than you would have if you had
invested securities linked directly to the Index.
- 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 futures contracts underlying the Index tend to be
highly volatile. Commodity market prices 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 rapid fluctuations based on numerous
factors, including changes in supply and demand relationships, governmental
programs and policies, national and international monetary, trade, political
and economic
|
JPMorgan
Structured Investments
Single
Review Notes Linked to the S&P GSCI Crude Oil Index Excess Return due April 6, 2011
|
TS-3 |
events, changes in interest and exchange rates, speculation and
trading activities in commodities and related contracts, weather and
agricultural, trade, fiscal and exchange control policies. Many commodities are
also highly cyclical. These factors may have a larger impact on commodity
prices and commodity-linked instruments than on traditional fixed-income and
equity securities. These variables may create additional investment risks that
cause the value of the notes to be more volatile than the values of traditional
securities. These and other factors may affect the level of 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 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 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 Index. The effect on the value of the notes
of any future regulatory change, including but not limited to changes resulting
from the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was
enacted on July 21, 2010, is impossible to predict, but could be substantial
and adverse to your interest. In addition, 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 Index and your payment, if any, at maturity. Furthermore, 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. 169-A-I
for more information.
- 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
underlying the Index. The Index 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.
- SUSPENSIONS OR
DISRUPTIONS OF MARKET TRADING IN THE COMMODITY AND RELATED FUTURES
MARKETS MAY ADVERSELY AFFECT THE LEVEL OF THE 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 trading 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 Index and, therefore, the value of your
notes.
- HIGHER FUTURES
PRICES OF THE COMMODITY FUTURES CONTRACTS UNDERLYING THE INDEX RELATIVE TO THE
CURRENT PRICES OF SUCH CONTRACTS MAY AFFECT THE VALUE OF THE INDEX AND THE VALUE OF
THE NOTES The 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
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. 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
Index. The presence of contango in the commodity markets (i.e., where the
prices for the relevant futures contracts are higher in the distant delivery
months than in nearby delivery months) could result in negative roll yields,
which could adversely affect the value of the Index and thus the value of notes
linked to the Index.
- THE INDEX MAY BE MORE VOLATILE AND
SUSCEPTIBLE TO PRICE FLUCTUATIONS OF COMMODITIES THAN A BROADER COMMODITIES
INDEX The Index may be more
volatile and susceptible to price fluctuations than a broader commodities
index, such as the S&P GSCI. In contrast to the S&P GSCI, which
includes contracts on crude oil and non-crude oil commodities, the Index
comprises contracts on only crude oil. As a result, price volatility in the
contracts included in the Index will likely have a greater impact on the Index
than it would on the broader S&P GSCI. In addition, because
the Index omits principal market sectors composing the S&P GSCI, it will
be less representative of the economy and commodity markets as a whole and will
therefore not serve as a reliable benchmark for commodity market performance
generally.
- THE NOTES ARE LINKED TO AN
EXCESS RETURN INDEX, AND NOT A TOTAL RETURN INDEX The notes are linked to an excess return index and
not a total return index. An excess return index reflects the returns that are
potentially available through an unleveraged investment in the contracts
composing such index. By contrast, a total return index, in addition to
reflecting those returns, also reflects interest that could be earned on funds
committed to the trading of the underlying futures contracts.
- NO INTEREST
PAYMENTS As a holder of the notes,
you will not receive any interest payments.
- 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. As a result, the price, if any, at
which JPMS, will be willing to purchase notes from you in secondary market
transactions, if at all, will likely be lower than the original issue price and
any sale prior to the Maturity Date could result in a substantial loss to you. The
notes are not designed to be short-term
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JPMorgan
Structured Investments
Single
Review Notes Linked to the S&P GSCI Crude Oil Index Excess Return
due April 6, 2011
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TS-4 |
trading instruments. Accordingly, you
should be able and willing to hold the notes to maturity.
- LACK OF LIQUIDITY The notes will not be listed on any securities exchange. JPMS
intends to offer to purchase the notes in the secondary market but is not
required to do so. Even if there is a secondary market, it may not provide
enough liquidity to allow you to trade or sell the notes easily. Because other
dealers are not likely to make a secondary market for the notes, the price at
which you may be able to trade your notes is likely to depend on the price, if
any, at which JPMS is willing to buy the notes.
- MANY
ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE NOTES In addition to the Index closing level 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, frequency and magnitude of changes in
the level of the Index;
- supply and demand trends at any time for the physical
commodities upon which the futures contracts that compose the Index or the
exchange traded futures contracts on such commodities;
- the time to maturity of the notes;
- the market price of the physical commodities upon
which the futures contracts that compose the Index are based or the exchange
traded futures contracts on such commodities;
- interest and yield rates in the market;
- a variety of economic, financial, political,
regulatory, geographical or judicial events that affect commodities markets
generally or the futures contracts underlying the Index; and
- our creditworthiness, including actual or anticipated
downgrades in our credit ratings.
Historical Information
The following graph sets forth the historical
performance of the Index based on the weekly Index closing level from January 7, 2005
through September 17, 2010. The Index closing level on September 23, 2010
was 464.6352. 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.
![](https://cdn.kscope.io/918dd9a5fbc8c4987f358f036e7b2092-image002.gif)
Supplemental Plan of Distribution (Conflicts
of Interest)
We own, directly or indirectly, all of the
outstanding equity securities of JPMS, the agent for this offering. The net
proceeds received from the sale of notes will be used, in part, by JPMS or one
of its affiliates in connection with hedging our obligations under the notes.
In accordance with NASD Rule 2720, JPMS may not make sales in this offering to
any of its discretionary accounts without the prior written approval of the
customer.
JPMS, acting as agent for JPMorgan Chase & Co.,
will receive a commission that will depend on market conditions on the pricing
date. In no event will that commission exceed $5.00 per $1,000 principal amount
note. See Plan of Distribution beginning on page PS-48 of the accompanying
product supplement no. 169-A-I.
For a different portion of the notes to be sold in
this offering, an affiliated bank will receive a fee and another affiliate of
ours will receive a structuring and development fee. In no event will the total
amount of these fees exceed $5.00 per $1,000 principal amount note.
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JPMorgan
Structured Investments
Single
Review Notes Linked to the S&P GSCI Crude Oil Index Excess Return due April 6, 2011
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TS-5 |