View:

Download DOC

Download PDF

Download XLS

Term Sheet To prospectus dated December 1, 2005, prospectus supplement dated October 12, 2006 and product supplement no. 39-XII dated September 3, 2008

Term Sheet to Product Supplement No. 39-XII Registration Statement No. 333-130051 Dated September 3, 2008; Rule 433

Structured  Investments		JPMorgan Chase & Co. $ Buffered Return Enhanced Notes Linked to a Weighted Basket Consisting of the S&P 500® Index, the NASDAQ-100 Index®, the PowerShares Water Resources Portfolio and the Financial Select Sector SPDR® Fund due March 8, 2010

General

• The notes are designed for investors who seek a return of 1.5 times the appreciation of a weighted basket consisting of two equity indices and two exchange-traded funds, up to a maximum total return on the notes of 20.60%* at maturity. Investors should be willing to forgo interest and dividend payments and, if the Basket declines by more than 13%, be willing to lose up to 87% of their principal.
• Senior unsecured obligations of JPMorgan Chase & Co. maturing March 8, 2010^†.
• Minimum denominations of $1,000 and integral multiples in excess thereof.
• The notes are expected to price on or about September 3, 2008 and are expected to settle on or about September 8, 2008.

• Product supplement no. 39-XII dated September 3, 2008:
  http://www.sec.gov/Archives/edgar/data/19617/000089109208004404/e32830_424b2.pdf

• Prospectus supplement dated October 12, 2006:
  http://www.sec.gov/Archives/edgar/data/19617/000089109206003117/e25276_424b2.pdf

• Prospectus dated December 1, 2005:
  http://www.sec.gov/Archives/edgar/data/19617/000089109205002389/e22923_base.txt

• APPRECIATION POTENTIAL — The notes provide the opportunity to enhance equity returns by multiplying a positive Basket Return by the Upside Leverage Factor, up to the Maximum Total Return on the notes of 20.60%*, or $1,206 for every $1,000 principal amount note. The actual Upside Leverage Factor will be set on the pricing date and will not be less than 1.5. 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.
  * The actual Maximum Total Return on the notes will be set on the pricing date and will not be less than 20.60%.
• LIMITED PROTECTION AGAINST LOSS — Payment at maturity of the principal amount of your notes is protected against a decline in the Ending Basket Level, as compared to the Starting Basket Level, of up to 13%. If the Ending Basket Level declines by more than 13%, for every 1% decline beyond 13%, 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 $130 for each $1,000 principal amount note.
• DIVERSIFICATION AMONG THE BASKET COMPONENTS — Because the S&P 500^® Index makes up 75% of the Basket, we expect that generally the market value of your notes and your payment at maturity will depend significantly on the performance of the S&P 500^® Index.
  The return on the notes is linked to a basket consisting of the S&P 500^® Index, the NASDAQ-100 Index^®, the PowerShares Water Resources Portfolio and the Financial Select Sector SPDR^® Fund. The S&P 500^® Index consists of 500 component stocks selected to provide a performance benchmark for the U.S. equity markets. The NASDAQ-100 Index^® is a modified market capitalization-weighted index of 100 of the largest stocks of non-financial companies listed on The Nasdaq National Market. The PowerShares Water Resources Portfolio is an exchange-traded fund managed by The PowerShares Exchange-Traded Fund Trust, a registered investment company, which seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Palisades Water Index. The Palisades Water Index is a modified equal-dollar weighted index comprised of U.S. exchange-traded companies engaged in the global water industry. The Financial Select Sector SPDR^® Fund is an exchange-traded fund of the Select Sector SPDR^® Trust, a registered investment company that consists of several separate investment portfolios and is managed by SSgA Funds Management, Inc. (“SSFM”). The Financial Select Sector SPDR^® Fund seeks investment results that, before expenses, generally correspond to the price and yield performance of publicly traded equity securities of companies in the financial services sector, as represented by the Financial Select Sector Index. The Financial Select Sector Index measures the performance of the financial services sector of the U.S. equity market, as defined by the S&P 500^® Index. For additional information about each Basket Component, see “The S&P 500^® Index,” “The NASDAQ-100 Index^®,” “The PowerShares Water Resources Portfolio” and the “The Financial Select Sector SPDR^® Fund” in the accompanying product supplement no. 39-XII.
• CAPITAL GAINS TAX TREATMENT — You should review carefully the section entitled “Certain U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 39-XII. 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 an “open transaction” for U.S. federal income tax purposes. Assuming this characterization is respected, your gain or loss on the notes should be treated as long-term capital gain or loss if you hold the 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. For example, the notes could be treated either as subject (in whole or in part) to the “constructive ownership transaction” rules of Section 1260 of the Internal Revenue Code of 1986, as amended (the “Code”), as discussed in the section entitled “Certain U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 39-XII, or as “contingent payment debt instruments”. A “constructive ownership transaction” includes a contract under which an investor will receive payment equal to or credit for the future value of any equity interest in a regulated investment company (such as the shares of the Basket Funds). Under the “constructive ownership” rules, if an investment in the notes is treated as a “constructive ownership transaction”, any long-term capital gain recognized by a U.S. Holder in respect of a note will be recharacterized as ordinary income to the extent such gain exceeds the amount of “net underlying long-term capital gain” (as defined in Section 1260 of the Code) of the U.S. Holder. In addition, an interest charge will also apply to any deemed underpayment of tax. Although the matter is not clear, Section 1260 of the Code should not apply to the notes. U.S. Holders should consult their tax advisors regarding the potential application of the “constructive ownership” rules.
  Moreover, on December 7, 2007, the Treasury Department and the IRS released a notice requesting comments on the possible U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments such as the notes. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of

income or loss with respect to these instruments; the relevance of factors such as the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by Non-U.S. Holders should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gain as ordinary income that is subject to an interest charge (as discussed above). 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 on a retroactive basis.
You should consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the notes, including possible alternative characterizations in general and the possible impact of the notice described above in particular.

• YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal in excess of $130 per $1,000 principal amount note. The return on the notes at maturity is linked to the performance of the Basket and will depend on whether, and the extent to which, the Basket Return is positive or negative. Your investment will be exposed to any decline in the Ending Basket Level, as compared to the Starting Basket Level, beyond the 13% buffer. Accordingly, you could lose up to $870 for each $1,000 principal amount note that you invest in.
• YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM TOTAL RETURN — If the Ending Basket Level is greater than the Starting Basket 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 Basket, 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 20.60%.
• 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 agent’s 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 agent’s 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.
• THERE ARE RISKS ASSOCIATED WITH THE POWERSHARES WATER RESOURCES PORTFOLIO — Although the PowerShares Water Resources Portfolio’s shares are listed for trading on the American Stock Exchange (the “AMEX”) and a number of similar products have been traded on various national securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for the shares of the PowerShares Water Resources Portfolio or that there will be liquidity in the trading market. In addition, PowerShares Capital Management LLC, which we refer to as PowerShares Capital, is the PowerShares Water Resources Portfolio’s investment advisor. The PowerShares Water Resources Portfolio is subject to management risk, which is the risk that PowerShares Capital’s investment strategy, the implementation of which is subject to a number of constraints, may not produce the intended results.
• DIFFERENCES BETWEEN THE POWERSHARES WATER RESOURCES PORTFOLIO AND THE PALISADES WATER INDEX — The PowerShares Water Resources Portfolio may not fully replicate the performance of the Palisades Water Index due to the temporary unavailability of certain securities in the secondary market or due to other extraordinary circumstances, may hold securities not included in the Palisades Water Index and will reflect additional transaction costs and fees that are not included in the calculation of the Palisades Water Index, all of which may lead to a lack of correlation between the PowerShares Water Resources Portfolio and the Palisades Water Index. In addition, corporate actions with respect to the sample of equity securities (such as mergers and spin-offs) may impact the variance between the PowerShares Water Resources Portfolio and the Palisades Water Index. Finally, because the shares of the PowerShares Water Resources Portfolio are traded on the AMEX and are subject to market supply and investor demand, the market value of one share of the PowerShares Water Resources Portfolio may differ from the net asset value per share of the PowerShares Water Resources Portfolio. For all of the foregoing reasons, the performance of the PowerShares Water Resources Portfolio may not correlate with the performance of the Palisades Water Index.
• THE POWERSHARES WATER RESOURCES PORTFOLIO IS CONCENTRATED IN THE WATER INDUSTRY — All or substantially all of the equity securities held by the PowerShares Water Resources Portfolio are issued by companies that focus on the provision of potable water, the treatment of water and the technology and services that are directly related to water consumption. Adverse developments in the water industry may significantly affect the value of the equity securities underlying PowerShares Water Resources Portfolio. Companies involved in the water industry are subject to environmental considerations, taxes, government regulation, price and supply fluctuations, competition and water conservation. As a result, the value of the notes may be subject to greater volatility and be more adversely affected by a single economic, political or regulatory occurrence affecting these industries than a different investment linked to securities of a more broadly diversified group of issuers.
• THE PERFORMANCE OF THE FINANCIAL SELECT SECTOR SPDR^® FUND MAY NOT CORRELATE TO THE PERFORMANCE OF THE FINANCIAL SELECT SECTOR INDEX — The Financial Select Sector SPDR^® Fund will generally invest in all of the equity securities included in the Financial Select Sector Index. There may, however, be instances where SSFM may choose to overweight another stock in the Financial Select Sector Index, purchase securities not included in the Financial Select Sector Index that SSFM believes are appropriate to substitute for a security included in the Financial Select Sector Index or utilize various combinations of other available investment techniques in seeking to track accurately the Financial Select Sector Index. In addition, the performance of the Financial Select Sector SPDR^® Fund will reflect additional transaction costs and fees that are not included in the calculation of the Financial Select Sector Index. Also, corporate actions with respect to the equity securities (such as mergers and spin-offs)

may impact the variance between the Financial Select Sector SPDR^® Fund and the Financial Select Sector Index. Finally, because the shares of the Financial Select Sector SPDR^® Fund are traded on the AMEX and are subject to market supply and investor demand, the market value of one share of the Financial Select Sector SPDR^® Fund may differ from the net asset value per share of the Financial Select Sector SPDR^® Fund. For all of the foregoing reasons, the performance of the Financial Select Sector SPDR^® Fund may not correlate with the performance of the Financial Select Sector Index. For additional information about the variation between the performance of the Financial Select Sector SPDR^® Fund and the performance of the Financial Select Sector Index, see the information set forth under “The Financial Select Sector SPDR^® Fund” in the accompanying product supplement no. 39-XII.
• THE FINANCIAL SELECT SECTOR SPDR^® FUND IS CONCENTRATED IN THE FINANCIAL SERVICES SECTOR — All or substantially all of the equity securities held by the Financial Select Sector SPDR^® Fund are issued by companies whose primary line of business is directly associated with the financial services sector. Profitability is largely dependent on the availability and cost of capital funds, and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers can negatively impact the sector. Insurance companies may be subject to severe price competition. Adverse economic, business or political developments affecting real estate could have a major effect on the value of real estate securities. As a result, the value of the notes may be subject to greater volatility and be more adversely affected by a single economic, political or regulatory occurrence affecting these industries than a different investment linked to securities of a more broadly diversified group of issuers.
• 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 component equity securities of the Basket Indices or equity securities held by the Basket Funds would have.
• 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.
• WE ARE CURRENTLY ONE OF THE COMPANIES THAT MAKE UP THE S&P 500^® INDEX — We are currently one of the companies that make up the S&P 500^® Index. To our knowledge, we are not currently affiliated with any other issuers the equity securities of which are included in the S&P 500^® 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 Index and the notes.
• THE ANTI-DILUTION PROTECTION FOR THE BASKET FUNDS IS LIMITED — The calculation agent will make adjustments to the Share Adjustment Factor for certain events affecting the shares of the Basket Funds. However, the calculation agent will not make an adjustment in response to all events that could affect the shares of the Basket Funds. If an event occurs that does not require the calculation agent to make an adjustment, the value of the notes may be materially and adversely affected.
• 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.
• MANY ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE NOTES — In addition to the level of the Basket 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 of the Basket Components;
  • the time to maturity of the notes;
  • the dividend rate on the component equity securities of the Basket Indices or the equity securities held by the Basket Funds;
  • interest and yield rates in the market generally as well as in each of the markets of the securities composing the Basket Indices and the equity securities held by the Basket Funds;
  • the occurrence of certain events to the Basket Funds that may or may not require an adjustment to the relevant Share Adjustment Factor;
  • a variety of economic, financial, political, regulatory or judicial events; and
  • our creditworthiness, including actual or anticipated downgrades in our credit ratings.