View:

Download DOC

Download PDF

Download XLS

Term sheet To prospectus dated December 1, 2005, prospectus supplement dated December 1, 2005 and product supplement no. 156-I dated November 5, 2008

Term Sheet Product Supplement No. 156-I Registration Statement No. 333-130051 Dated November 7, 2008; Rule 433

Structured  Investments		JPMorgan Chase & Co. $ Head-Start Buffered Equity Knock-Out Notes Linked to the S&P 500® Index due November 30, 2010

General

• The notes are designed for investors who seek unleveraged exposure to any moderate appreciation of the S&P 500^® Index, without upside return enhancement, over the term of the notes, with the potential for appreciation even if the Index Return is negative by up to 10%. Investors should be willing to forgo interest and dividend payments as well as (1) any return above a percentage that will be determined on the pricing date and that will not be less than 55% or greater than 60% and (2) if a Knock-Out Event occurs, any return above a fixed return of 8%. Investors should also be willing to lose up 70% of their principal if the Index declines by more than 30%.
• Senior unsecured obligations of JPMorgan Chase & Co. maturing November 30, 2010^†.
• Minimum denominations of $1,000 and integral multiples thereof.
• The notes are expected to price on or about November 24, 2008 and are expected to settle on or about November 28, 2008.

• Product supplement no. 156-I dated November 5, 2008:
  http://www.sec.gov/Archives/edgar/data/19617/000089109208005414/e33481_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

• POTENTIAL FOR POSITIVE UNLEVERAGED APPRECIATION EVEN IF THE INDEX RETURN IS NEGATIVE — If a Knock-Out Event has not occurred and the Ending Index Level (i) is greater than the Initial Index Level or (ii) is equal to or less than the Initial Index Level by not more than the Head-Start Percentage of 10%, at maturity, in addition to your principal, for each $1,000 principal amount note, you will receive a payment equal to $1,000 times the sum of the Head-Start Percentage and the Index Return. Under these circumstances, because the Head-Start Percentage is 10%, you will earn a positive return on the notes even if the Ending Index Level has declined from the Initial Index Level by less than 10%. If a Knock-Out Event has occurred, at maturity, in addition to your principal, for each $1,000 principal amount note, you will receive a payment equal to $1,080. You will receive this payment even if the Index Return is negative on the Observation Date.
• LIMITED PROTECTION AGAINST LOSS — If a Knock-Out Event has not occurred, payment at maturity of the principal amount of the notes is protected against a decline in the Ending Index Level, as compared to the Initial Index Level, of up to 30%. If the Ending Index Level declines by more than 30%, for every 1% decline of the Index beyond 30%, you will lose an amount equal to 1% of the principal amount of your notes. Accordingly, if a Knock-Out Event has not occurred, at maturity you will receive a payment equal to at least $300 for each $1,000 principal amount note.
• DIVERSIFICATION OF THE S&P 500^® INDEX — The return on the notes is linked to the S&P 500^® Index. The S&P 500^® Index consists of 500 component stocks selected to provide a performance benchmark for the U.S. equity markets. For additional information about the Index, see the information set forth under “The S&P 500^® Index” in the accompanying product supplement no. 156-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. 156-I. Subject to the limitations described therein, and based on certain factual representations received from us, in the opinion of our special tax counsel, Davis Polk & Wardwell, it is reasonable to treat 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 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. Assuming this characterization of the notes is respected, the IRS could assert that a “deemed” taxable exchange has occurred on the date on which a Knock-Out Event occurs, if any. If the IRS were successful in asserting that a taxable exchange has occurred, any gain on the deemed exchange would likely be capital gain. In this event, the tax treatment of the note following the Knock-Out Event would be uncertain. 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, 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. 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 the preceding paragraph, when read in combination with the section entitled “Certain U.S. Federal Income Tax Consequences” in the accompanying product supplement, constitutes the full opinion of Davis Polk & Wardwell regarding the material U.S. federal income tax treatment of owning and disposing of the notes.

• YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — If a Knock-Out Event has not occurred, the notes do not guarantee any return of principal in excess of $300 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 a Knock-Out Event has occurred, and, if a Knock-Out Event has not occurred, whether, and the extent to which, the Index Return is positive or negative. If a Knock-Out Event has not occurred, your investment will be exposed to any decline in the Ending Index Level, as compared to the Initial Index Level, beyond the 30% buffer. Under these circumstances, you could lose up to $700 for each $1,000 principal amount note that you invest in.
• THE “KNOCK-OUT” FEATURE WILL LIMIT YOUR RETURN ON THE NOTES AND MAY AFFECT YOUR PAYMENT AT MATURITY — Your investment in the notes may not perform as well as an investment in a security with a return based solely on the performance of the Index. Your ability to participate in the appreciation of the Index may be limited to the Knock-Out Rate of 8%. If a Knock-Out Event has occurred, the return on each $1,000 principal amount note will equal $1,000 x the Knock-Out Rate of 8%, or a payment at maturity of $1,080, and will not be determined by reference to the Index Return even though the Index Return may reflect significantly greater appreciation in the Index than 8%.
• THE NOTES ARE SUBJECT TO AN EMBEDDED MAXIMUM PAYMENT OF NOT LESS THAN $1,550 OR GREATER THAN $1,600 AT MATURITY — Because the Knock-Out Level will not be less than 145% or greater than 150% of the Initial Index Level, the Index Return used to calculate your payment at maturity if a Knock-Out Event has not occurred will not be less than 45% or greater than 50% and, therefore, the sum of the Index Return and the Head-Start percentage of 10% will not be less than 55% or greater than 60%. Accordingly, your total payment at maturity will be subject to an embedded maximum payment of not less than $1,550 or greater than $1,600 for each $1,000 principal amount note.
• RISK OF KNOCK-OUT EVENT OCCURRING IS GREATER IF THE INDEX IS VOLATILE — The likelihood of the Index closing above the Knock-Out Level during the Monitoring Period and thereby triggering a Knock-Out Event, will depend in large part on the volatility of the Index — the frequency and magnitude of changes in the level of the Index. Since its inception, the Index has experienced significant volatility.
• 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.
• NO INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive interest payments, and you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities composing the Index 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.
• 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. In addition, we are currently one of the companies that make up the 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.
• MANY ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE NOTES — In addition to the level of the Index on any day, the value of the notes will be affected by a number of economic and market factors that may either offset or magnify each other, including:
  • the expected volatility of the Index;
  • the time to maturity of the notes;
  • whether a Knock-Out Event has occurred;
  • the dividend rate on the equity securities underlying the Index;
  • interest and yield rates in the market generally;
  • a variety of economic, financial, political, regulatory or judicial events; and
  • our creditworthiness, including actual or anticipated downgrades in our credit ratings.