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Registration Statement 333-130051
Filed Pursuant to Rule 433
Filed Pursuant to Rule 433
2008
COMMODITY - IGAR CONDITIONAL LONG-SHORT II
Investment products: Not FDIC Insured - No Bank Guarantee - May Lose Value
Please see Important Information at the end of presentation
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Important Information
The discussion contained in the following pages is for educational and
illustrative purposes only. The final terms of securities offered by JPMorgan
Chase & Co. may be different from those set forth in any illustrative
investment ideas contained herein and any such final terms will depend on,
among other things, market conditions on the applicable pricing date for such
securities. Any information relating to performance contained in these
materials is illustrative and no assurance is given that any indicated returns,
performance or results, whether historical or hypothetical, will be achieved.
Investment ideas are subject to change, and JPMorgan undertakes no duty to
update these materials, including any investment ideas, or to supply
corrections. This material shall be amended, superseded and replaced in its
entirety by a subsequent preliminary or final term sheet and/or pricing
supplement, and the documents referred to therein, which will be filed with the
Securities and Exchange Commission, or SEC. In the event of any inconsistency
between the materials presented in the following pages and any such preliminary
or final term sheet or pricing supplement, such preliminary or final term sheet
or pricing supplement shall govern.
In the event that JPMorgan Chase & Co. were to offer structured products and
you were to purchase any such securities, JPMorgan Chase & Co. and each of its
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may not be reproduced, distributed or transmitted to any other person or
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of JPMorgan Chase & Co.
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Commodity -IGAR Conditional Long-Short II executive summary
C-IGAR Overview
o The JPMorgan Commodity-Investable Global Asset Rotator ("Commodity-IGAR")
is a synthetic basket comprised of sub-indices of the global commodities
market. The basket is rebalanced monthly using a momentum-based strategy.
(1)
o The Commodity-IGAR Conditional Long-Short II, in a defined commodities
bull market, synthetically invests in up to 12 sub-indices per directional
position from a universe of 24 potential constituent sub-indices of the
S&P GSCI(TM) Excess Return Index, based upon price performance and consistent
momentum. 2 In a defined bear market, the strategy is able to hold long
and short positions in up to 24 sub-indices of the S&P GSCI.
o The methodology used to actively rebalance the Commodity-IGAR Conditional
Long-Short II consists of selecting up to a maximum of the 12 best/worst
performing sub-indices per direction given the market trend, which pass
the "Absolute Performance Test" and the "Consistent Momentum Test."(3)
1 The Commodity -IGAR Conditional Long-Short II is described as a synthetic or
notional basket because its reported level does not represent the value of any
actual assets held by any person. The level of the Commodity -IGAR Conditional
Long-Short II at any point is the value of a hypothetical portfolio of
sub-indices, less assessed index calculation fees. An investment in a Commodity
- -IGAR Conditional Long-Short II product does not represent an investment in the
underlying indices.
2 The Commodity -IGAR Conditional Long-Short II uses the S&P GSCI(TM) Excess
Return sub-indices. The S&P GSCI(TM) Excess Return index consists of the S&P GSCI
" Total Return index with the cash component excluded.
3 Please refer to pages 4 through 8 for a full explanation of the methodology
used in creating the synthetic basket.
4 The value of the Commodity -IGAR Conditional Long-Short II is published each
trading day under the Bloomberg ticker symbol "CMDT2CER". The hypothetical
historical information for the Commodity -IGAR in this presentation is
calculated for the period January 1991 to January 2008. JPMorgan has calculated
the levels using the methodology described on pages 4 through 8, with the
following assumption: not all 24 sub-indices were available during the entire
testing period (for example, from 1991 to 1993, 17 sub-indices were available.
Additional sub-indices were included in the calculation once they were added to
the S&P GSCI(TM) and had 12-month performance data. For the periods in which those
sub-indices did not exist, they have been ascribed an excess return over cash
of zero.
Returns for Commodity -IGAR Conditional Long-Short II are net of index
calculation costs of 0.96% per annum, deducted daily.
Past Performance does not guarantee future results.
Please refer to the important notices including that in relation to composite
performance, and the certain risk factors herein.
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Why use momentum investing for commodities?
Thinking through momentum investing and commodities
o Momentum is the proposition, empirically observable in some assets during
certain periods, that outperforming assets may outperform again in the
future and underperforming assets may underperform in the future. If there
is momentum, assets that were "winners" in the past theoretically have a
high probability of outperforming past "losers."
o Momentum investing attempts to capture potentially profitable
opportunities that arise from the current market direction.
o Momentum strategies tend to work particularly well for commodities, in
that supply/demand fundamentals for commodities are difficult to change
quickly (e.g. time it takes to extract new oil or minerals, or plant and
harvest new crops).
Note: Momentum strategies are effective at identifying the current market
direction in trending markets. However, markets may reverse and do the opposite
of what is indicated by the trend indicator, resulting in a trading loss for
the particular period.
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Commodity -IGAR Conditional Long-Short II
C-IGAR Conditional Long-Short II overiew
A strategy that gives exposure to global commodity markets based on the
following set of criteria:
o Consistent price performance over the last 12 months
o Consistent momentum
C-IGAR Conditional Long-Short II behaves dynamically in bull and bear markets:
o Bull markets will be determined by examining the equally weighted
portfolio of the 24 S&P GSCI(TM) Excess Return sub-indices in both an
Equally Weighted Basket Performance Test and an Equally Weighted Basket
Consistency Test*; if both are passed then the strategy invests in only
long assets.
o Otherwise, the strategy is open to both long and short positions.
Synthetic exposure is achieved through a basket containing up to 12
constituents (in a defined bull market), or up to 24 constituents in a defined
bear market, from a universe of 24 potential constituent sub-indices that
currently comprise the S&P GSCI(TM) Excess Return Commodity Index, with monthly
rebalancing.
An investment in a Commodity -IGAR Conditional Long-Short II product does not
represent a direct investment in the underlying indices and will perform
differently.
* Further explanation of the Equally Weighted Basket Performance Test and
Equally Weighted Basket Consistency Test is on pages 6 and 7.
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Investment universe of the 24 sub-indices that currently comprise the S&P GSCI(TM)
Excess Return
Sector: Energy Sector: Industrial metals
- -------------------------------------------------------------------------------
S&P GSCI(TM) excess Bloomberg S&P GSCI(TM) excess Bloomberg
return sub-indices ticker sub-indices ticker
- -------------------------------------------------------------------------------
Natural gas PGCNGP index Zinc SPGCIZP index
Gasoline PGCHUP index Nickel SPGCIKP index
Heating oil PGCHOP index Lead SPGCILP index
Gas oil PGCGOP index Copper SPGCICP index
Brent crude PGCBRP index Aluminium SPGCIAP index
WTI Crude oil PGCCLP index
Sector: Agricultural Sector: Precious metals
- -------------------------------------------------------------------------------
S&P GSCI(TM) excess Bloomberg S&P GSCI(TM) excess Bloomberg
return sub-indices ticker sub-indices ticker
- -------------------------------------------------------------------------------
Wheat SPGCWHP index Silver SPGCSIP index
Soybean SPGCSOP index Gold SPGCGCP index
Sugar SPGCSBP index
Red wheat SPGCKWP index
Sector: Livestock
------------------------------------
S&P GSCI(TM) excess Bloomberg
return sub-indices ticker
------------------------------------
Coffee SPGCKCP index Lean hogs SPGCLHP index
Cotton SPGCCTP index Live cattle SPGCLCP index
Corn SPGCCNP index Feeder cattle SPGCFCP index
Cocoa SPGCCCP index
S&P GSCI(TM) sub-indices are subject to change without notice.
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Commodity -IGAR Conditional Long-Short II rotation methodology
o The monthly reallocation consists in a series of tests leading to a
refinement of the global investment universe, which helps identify the
potential long and/or short positions. The short positions are conditional
on the Equally Weighted Basket Condition being not met(2). If the Equally
Weighted Basket Condition is met, only long positions are taken.
1 Consistent bull market is defined as months for which the equally -weighted
portfolio has a positive 12-month performance, and it passes the Equally
- -Weighted Basket Consistency Test, described on page 7. Equally -weighted
portfolio refers to the equally -weighted portfolio of all the S&P GSCI(TM) excess
return sub-indices described in page 5 with monthly rebalancing.
2 The Equally Weighted Basket Condition is designed to de-activate the
short-leg of the Commodity C-IGAR Conditional Long-Short II if, on any monthly
rebalancing date, the year-over-year performance of an equally weighted of the
referenced universe of S&P GSCI TM sub-indices is (a) positive and (b)
consistently positive. The Equally Weighted Basket Condition is described in
more detail on page 7.
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C-IGAR Conditional Long -Short II bull -bear determination and sub-index
selection process
Bull-bear market determination: The Equally Weighted Basket Condition
The Equally Weighted Basket Condition is met if an equally weighted basket of
the referenced universe of S&P GSCITM sub-indices passes both the Equally
Weighted Basket Performance Test and the Equally Weighted Basket Consistency
test (below). The short-leg of the Commodity C-IGAR Conditional Long-Short II
will be de-activated only if the Equally Weighted Basket Condition is met.
o The Equally Weighted Basket Performance Test - This test is passed if the
equally weighted basket has positive year-over-year performance (using a
rolling 12-month window).
o The Equally Weighted Basket Consistency Test - This test is passed if the
equally weighted basket scores at least a 6 on the test. The test is
similar to Test #2 described below, except that it is based on the equally
weighted basket, rather than an individual sub-index.
After the Equally Weighted Basket Tests are performed (above) and bull or bear
markets are determined, the below tests are conducted to choose C-IGAR
Conditional Long-Short II Components
Selection of Individual Sub-indices
o Test #1: Absolute Performance Test
- Positive 12-month absolute price performance (negative performance
for short positions); rolling 12-month window
If Test #1 is passed:
o Test # 2: Consistent Momentum Test
- Each month is assigned a momentum weighting with a greater weight
applied to the most recent months. If a sub-index has positive
performance for the month, it is assigned a weight per the chart
below. If the sub-index has negative performance for a month, it
receives a weight of 0. In the case for short commodity positions,
the test is inverted.
- If the sum of the monthly weightings is higher than 6 (out of a total
of 12*), the consistency test has been passed.
If both tests are passed, that sub-index is eligible to be included as a
constituent of the basket
Source: JPMorgan * The sum of the depicted weightings is not equal to 12 due to rounding
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Rotation methodology
Long portfolio
If the potential long portfolio is If the potential long portfolio is
composed of 12 or more sub-indices, composed of less than 12
then the long portfolio is an sub-indices, for example 9, then
equally weighted portfolio of the the long portfolio contains these 9
top 12 performing sub- indices over sub-indices with a weight of 1/12
the past 12 months (a weight of (for a net exposure of 9/12)
1/12 is assigned to each sub-index)
Short portfolio
If the potential short portfolio is If the potential short Portfolio is
composed of 12 or more sub-indices, composed of less than 12
then the short portfolio is an sub-indices, for example 9, then
equally-weighted portfolio of the the short portfolio contains these
worst 12 performing sub-indices 9 sub-indices with a weight of 1/12
over the past 12 months (a weight (for a net exposure of 9/12)
of 1/12 is assigned to each
sub-index)
An investment in a Commodity -IGAR Conditional Long-Short II product does not
represent a direct investment in the underlying indices.
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What could portfolio look like in different market environments?
Clearly bullish
commodity market
- - Long up to 12 sub-indices
- - If less than 12 sub-indices, portion of portfolio is un-invested
Clearly bearish commodity market with
less consistent sub-index performance
- - Long up to 12-sub-indices and short up to 12 sub-indices
- - If less than 24 sub-indices, portion of portfolio is un-invested
Clearly bearish commodity market
- - Long positions possible, but most likely portfolio would simply be short
up to 12 sub-indices
- - Portion of portfolio could be un-invested
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Commodity -IGAR Conditional Long-Short II in a portfolio
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Performance against benchmark: C-IGAR Conditional Long-Short II
o A hypothetical historical performance analysis of the Commodity-IGAR
Conditional Long-Short II shows high levels of absolute returns versus the
S&P GSCITM and an improvement of the risk-adjusted returns to a simple
strategy generated by an equally weighted S&P GSCITM portfolio.
o Commodity-IGAR Conditional Long-Short II has a hypothetical return since
September 15, 2006 of 26.94%.*
Equally-weighted refers to the equally -weighted portfolio of all the S&P
GSCITM excess return sub-indices with monthly rebalancing S&P GSCI(TM) refers to
S&P GSCI(TM) Excess Return Index.
Returns for Commodity -IGAR Conditional Long-Short II are net of index
calculation costs of 0.96% per annum, while the performance of S&P GSCI(TM) and
the equally -weighted portfolio do not take into account any potential
access/replication cost
* Hypothetical Returns calculated from 15th September 2006 to 31st January
2008. See pages 20 and 21 for some of the terms of this page.
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Correlation with market benchmarks
o Hypothetical historical analysis shows that Commodity-IGAR Conditional
Long-Short II has limited correlation to the major asset classes except
commodities
Equity global is represented by the MSCI World(R)
Equity US is represented by Standard & Poor"s 500 Total Return Index(R)
Corporate bonds are represented by the Lehman Aggregate (R)
Government bonds are represented by JPMorgan Hedged USD GBI Global Index(R)
The T-bill component of the SPGCCIT Index(R) has been subtracted from the four
above benchmark indices for the correlation and beta calculations
Commodities are represented by S&P GSCI(TM) Excess Return Index
Source: JPMorgan. Information is calculated for the period March 1996 to
January 2008
Returns for Commodity -IGAR Conditional Long-Short II are net of index
calculation costs of 0.96% per annum
See page 21 for additional information about the benchmark indices referred to
on this page
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USD-denominated Commodity IGAR Conditional Long-Short II Return Note Structure
Structure Details:
JPMorgan & Chase Co. Issued Note
24-Month Tenor; Issue Price: 100%
100% Participation
Additional Amount at maturity of 4.00%
Payout at Maturity:
- 100% x (1 + Underlying Return) + 4.00%
Initial Underlying Value: Equally weighted average based on the underlying
closing values on the 5 dates specified in the term sheet.
Ending Underlying Value: an equally weighted average of the underlying
closing values on the 5 dates specified in the term sheet.
Risk Considerations:
Your investment in the notes may result in a loss
No protection against loss
Investments related to the value of commodities tend to be more volatile than
traditional securities investments
Owning the notes involves the risks associated with momentum investment
strategy
Owning the notes is not the same as owning the constituent sub-indices or
commodity contracts
The notes may be subject to increased volatility due to the use of leverage
Because the Commodity -IGAR Conditional Long-Short II may include notional
short positions, the Commodity -IGAR Conditional Long-Short II may be subject
to additional risks
See additional risk factors on pages 22-24.
References to Underlying are to the Commodity -IGAR
Conditional Long-Short II
Hypothetical Payout at Maturity
Ending Proceeds from Additional Payment Total
Underlying Underlying Amount at Maturity Return (%)
Value
- -------------------------------------------------------------------------------
130.0 $300,000 $40,000 $1,340,000 34.0%
128.0 $280,000 $40,000 $1,320,000 32.0%
126.0 $260,000 $40,000 $1,300,000 30.0%
124.0 $240,000 $40,000 $1,280,000 28.0%
122.0 $220,000 $40,000 $1,260,000 26.0%
120.0 $200,000 $40,000 $1,240,000 24.0%
118.0 $180,000 $40,000 $1,220,000 22.0%
116.0 $160,000 $40,000 $1,200,000 20.0%
114.0 $140,000 $40,000 $1,180,000 18.0%
112.0 $120,000 $40,000 $1,160,000 16.0%
110.0 $100,000 $40,000 $1,140,000 14.0%
108.0 $ 80,000 $40,000 $1,120,000 12.0%
106.0 $ 60,000 $40,000 $1,100,000 10.0%
104.0 $ 40,000 $40,000 $1,080,000 8.0%
102.0 $ 20,000 $40,000 $1,060,000 6.0%
100.0 $ 0 $40,000 $1,040,000 4.0%
98.0 ($ 20,000) $40,000 $1,020,000 2.0%
96.0 ($ 40,000) $40,000 $1,000,000 0.0%
94.0 ($ 60,000) $40,000 $ 980,000 -2.0%
92.0 ($ 80,000) $40,000 $ 960,000 -4.0%
90.0 ($100,000) $40,000 $ 940,000 -6.0%
88.0 ($120,000) $40,000 $ 920,000 -8.0%
86.0 ($140,000) $40,000 $ 900,000 -10.0%
84.0 ($160,000) $40,000 $ 880,000 -12.0%
82.0 ($180,000) $40,000 $ 860,000 -14.0%
80.0 ($200,000) $40,000 $ 840,000 -16.0%
78.0 ($220,000) $40,000 $ 820,000 -18.0%
76.0 ($240,000) $40,000 $ 800,000 -20.0%
74.0 ($260,000) $40,000 $ 780,000 -22.0%
72.0 ($280,000) $40,000 $ 760,000 -24.0%
70.0 ($300,000) $40,000 $ 740,000 -26.0%
For illustrative purposes only.
The table above assumes an Initial Underlying Value of 100 and an initial
investment of $1,000,000. The actual Initial Underlying Value will be the
arithmetic average of the Underlying closing values on each of five specified
averaging dates after the pricing date.
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Appendix
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Commodity -IGAR Conditional Long-Short II:
Hypothetical net exposure to commodities over time
Source: JPMorgan. Information is calculated for the period January 1991 to
October 2007. Commodity -IGAR Conditional Long-Short II data is hypothetical.
S&P GSCI(TM) refers to S&P GSCI(TM) Excess Return Index
Equally -weighted refers to the equally -weighted portfolio of all the S&P
GSCI(TM) excess return sub-indices described in page 5 with monthly rebalancing
Hypothetical returns for Commodity -IGAR Conditional Long-Short II are net of
index calculation costs of 0.96% per annum, while the performance of S&P
GSCI(TM) and the equally -weighted portfolio do not take into account any
potential access/replication cost Net long or short exposure to commodities
means the hypothetical historical percentage of long or short allocation of the
Commodity -IGAR Conditional Long-Short II investment portfolio in the
investment universe described in page 5
Net exposure is defined as the sum of the net long exposure and the net short
exposure; gross commodity exposure can exceed 100%
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Performance Statistics
Commodity-IGAR S&P GSCI
Conditional (TM)Excess 4-WGBI
Long-Short II Return 1-HFRI FoF 2-HFRI Hedged
(hypothetical) Index Cash Diversified Macro 3-CTA S&P500 USD
Annualized compound
return 11.5% 3.2% 4.0% 8.7% 15.3% 9.4% 10.7% 7.3%
Volatility 12.6% 18.6% 0.4% 5.9% 7.9% 9.4% 13.5% 3.0%
Max return 11.4% 16.4% 0.5% 7.7% 7.9% 14.5% 11.4% 3.5%
Min return -12.6% -14.5% 0.1% -7.8% -6.4% -5.6% -14.5% -2.0%
Sharpe ratio 0.91 0.2 0.8 1.4 0.6 0.5 1.1
1991 performance 0.0% -1.4% 5.1% 13.9% 47.0% 21.5% 25.0% 11.5%
1992 performance -1.1% 0.8% 3.6% 10.3% 27.2% 9.9% 7.6% 7.9%
1993 performance 5.4% -15.0% 3.1% 25.4% 53.3% 19.9% 10.1% 12.4%
1994 performance 6.9% 0.8% 4.2% -3.1% -4.3% -0.7% 1.3% -3.7%
1995 performance -2.7% 13.8% 5.7% 7.8% 29.3% 15.1% 37.6% 18.1%
1996 performance 14.0% 27.2% 5.3% 12.8% 9.3% 14.6% 23.0% 8.7%
1997 performance 4.1% -18.4% 5.2% 13.7% 18.8% 10.1% 33.4% 10.6%
1998 performance 36.2% -38.8% 5.1% -5.5% 6.2% 9.4% 28.6% 11.0%
1999 performance 2.4% 34.4% 4.7% 28.5% 17.6% 3.8% 21.0% 1.3%
2000 performance 17.7% 41.1% 6.0% 2.5% 2.0% 6.2% -9.1% 10.7%
2001 performance 26.9% -34.3% 4.1% 2.8% 6.9% 4.2% -11.9% 6.3%
2002 performance -1.5% 29.9% 1.7% 1.1% 7.4% 11.9% -22.1% 8.0%
2003 performance 14.7% 19.5% 1.1% 11.4% 21.4% 13.2% 28.7% 2.0%
2004 performance 28.1% 15.7% 1.2% 7.2% 4.7% 4.3% 10.9% 4.8%
2005 performance 22.3% 21.6% 3.0% 7.5% 6.8% 5.0% 4.9% 5.1%
2006 performance 9.7% -24.3% 4.9% 8.7% 6.4% 6.7% 14.5% 3.3%
2007 performance 21.4% 30.0% 4.6% 5.4% 12.5% 5.4% -2.3% 7.8%
Source: JPMorgan
An investment in a Commodity -IGAR Conditional Long-Short II product does not represent a direct investment in
the underlying indices Time frame: Jan 1991 - Jan 2008
1- Hedge Fund Research Investment Fund of Funds index
is not an investable index
2- Hedge Fund Research Investment Macro index is not an investable index
3- Center for International Securities and Derivatives Markets (CISDM) is not an investable index
4- World Government Bond Index. This index includes most significant and liquid government bond markets
globally that have at least an investment grade rating
5- See page 21 for additional information about the benchmark indices referred to on this page
Past Performance does not guarantee future results.
Please refer to the important notices including that in relation to composite
performance, and the certain risk factors herein.
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Correlation Matrix
S&P GSCI(TM)
Commodity-IGAR Excess 1-HFRI 4-WGBI
Conditional Long- Return FoF 2-HFRI Hedged
Short II (hypothetical) Index Cash Diversified Macro 3-CTA S&P500 USD
Commodity IGAR Conditional 1.00 0.3103 -0.04 0.03 0.08 0.18 -0.14 -0.0238
Long-Short II (hypothetical)
S&P GSCI(TM) Excess Return 1.00 -0.07 0.17 0.16 0.10 0.00 0.02
Index
Cash 1.00 0.02 0.04 0.02 0.09 0.20
HFRI FoF Diversified 1.00 0.72 0.28 0.48 0.01
HFRI Macro 1.00 0.47 0.36 0.33
CTA 1.00 0.03 0.35
S&P500 1.00 0.01
WGBI Hedged USD 1.00
Source: JPMorgan
An investment in a Commodity -IGAR Conditional Long-Short II product does not represent a direct investment in
the underlying indices Time frame: Jan 1991 - Jan 2008; Excluding CTA for which data is available only until
Dec 2007
See page 11 for a description of the C-IGAR Conditional Long-Short II hypothetical historical information.
See page 21 for additional information about the benchmark indices referred to on this page
Past Performance does not guarantee future results.
Please refer to the important notices including that in relation to composite performance, and the certain
risk factors herein.
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Hypothetical C-IGAR Conditional Long -Short II Long Leg Constituents 2007/08
Note: The long leg constituents shown above are hypothetical only because Commodity -IGAR Conditional
Long-Short II was established in March 2008
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Hypothetical C-IGAR Conditional Long-Short II Short Leg Constituents 2007 /08
Commodity-IGAR Conditional Long-Short II Long Leg Monthly Constituents in 2007/2008
Note: The short leg constituents shown above are hypothetical only because
Commodity -IGAR Conditional Long-Short II was established in March 2008
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Definitions of Terms
An annualized return is an investment return, discounted retroactively from a
cumulative figure, at which money, compounded annually, would reach the
cumulative total.
Beta is a measure of the volatility, or systematic risk, of a security or a
portfolio in comparison to the market as a whole. Beta is calculated using
regression analysis, and you can think of beta as the tendency of a security's
returns to respond to swings in the market. A beta of 1 indicates that the
security's price will move with the market. A beta less than 1 means that the
security will be less volatile than the market. A beta greater than 1 indicates
that the security's price will be more volatile than the market. For example,
if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.
Correlation is a statistical measure of the degree to which the movements of
two variables are randomly related. Correlation can range from -1.0 to 1.0 with
1.0 indicating a perfect positive correlation and -1.0 indicating a perfect
negative correlation.
Down Capture is the ratio of the portfolio return to the market return when the
market declines.
The Sharpe ratio is a return/risk measure, where the return (the numerator) is
defined as the incremental average monthly return of an investment over the
risk free rate. Risk (the denominator) is defined as the standard deviation of
the monthly investment returns less the risk free rate. A risk free rate of 4%
was used to calculate the Sharpe ratio. Values are presented in annualized
terms; annualized Sharpe ratios are calculated by multiplying the monthly
Sharpe ratio by the square root of twelve.
Up Capture is the ratio of the portfolio return to the market return when the
market rises.
Volatility is a statistical measure of the dispersion of returns for a given
security or market index. A higher volatility means that a security's value can
potentially be spread out over a larger range of values. This means that the
price of the security can change dramatically over a short time period in
either direction. Whereas a lower volatility would mean that a security's value
does not fluctuate dramatically, but changes in value at a steady pace over a
period of time.
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Definitions of Indices
All index performance information has been obtained from third parties and
should not be relied upon as being complete or accurate. Indices are shown for
comparison purposes only. They are not investment products available for
purchase. Indices are unmanaged and generally do not take into account fees or
expenses or employ special investment techniques such as leveraging or short
selling. Furthermore, while some hedge fund indices may provide useful
indications of the general performance of the hedge fund industry or particular
hedge fund strategies, all hedge fund indices are subject to selection,
valuation, survivorship and entry biases, and lack transparency with respect to
their proprietary computations.
The S&P 500 Index ("S&P 500") consists of 500 stocks chosen for market size,
liquidity and industry group representation. It is a market -value weighted
index (stock price times number of shares outstanding), with each stock's
weight in the Index proportionate to its market value. All returns include
reinvested dividends except where indicated otherwise.
The Lehman Brothers Aggregate Bond Index represents securities that are U.S.
domestic, taxable and dollar denominated. The index covers the U.S. investment
grade fixed rate bond market, with index components for government and
corporate securities, mortgage pass-through securities, and asset-backed
securities. These major sectors are subdivided into more specific indices that
are calculated and reported on a regular basis
Hedge Fund Research Composite Index ("HFRI") is a widely used fund-weighted
industry benchmark, although the exact composition of this index remains
proprietary. The results above are compiled from the hedge funds in HFRI"s
database. HFRI performance reporting began in January 1990. The single-strategy
proxies for Relative Value, Event Driven, Macro, Short selling,
Trading/Opportunistic, and Equity Long Bias were all derived from the
single-strategy indices of the Hedge Fund Research, Inc. All index definitions
can be found at www.hedgefundresearch.com
The MSCI World Index is a free float-adjusted market capitalization index that
is designed to measure global developed market equity performance. The MSCI
World Index consists of the following 23 developed market country indices:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,
Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United
States.
CISDM CTA Asset Weighted Index - The CISDM CTA Asset Weighted Index reflects
the dollar-weighted performance of Commodity Trading Advisors (CTAs) reporting
to the CISDM Hedge Fund/CTA Database. CTAs trade a wide variety of OTC and
exchange traded forward, futures and options markets (e.g., physicals,
currency, financial) based on a wide variety of trading models. In order to be
included in the asset weighted index universe, a CTA must have at least
$500,000 under management and at least a 12-month track record.
World Government Bond Index is an index of Government Bonds from across the
world. To be eligible for inclusion an issue must have US $20 Billion, EUR15
Billion, and JPY 2.5 trillion for three consecutive. Once an issue satisfies
the criteria it will be added to the WGBI beginning with the next month. The
index is hedged into US Dollars.
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IMPORTANT RISK FACTORS
Your investment in the notes may result in a loss - The notes described above
do not guarantee any return of principal (other than the Additional Amount).
The return on the notes is linked to the performance of the Commodity -IGAR
Conditional Long-Short II, which is also referred to as the Underlying, and
will depend on whether, and the extent to which, the Underlying Return is
positive or negative. Your investment in any such notes will be fully exposed
to any decline in the Ending Underlying Value, as compared to the Initial
Underlying Value, provided that the final payment at maturity will not be less
than zero, although in all cases you will receive the Additional Amount at
maturity.
No protection against loss - If the Underlying Return is negative, at maturity,
if you purchase the notes described above, you will receive less than the
principal amount of the notes. For each 1% that the Ending Underlying Value
declines relative to the Initial Underlying Value, you will lose 1% of your
investment in the notes, although in all cases you will receive the Additional
Amount at maturity.
The Initial Underlying Value may be determined after the pricing date of the
notes - The Initial Underlying Value may be determined based on the arithmetic
average of the Underlying closing values on specified dates, which are referred
to as the Initial Averaging Dates. However, some or all of the Initial
Averaging Dates may occur following the pricing date of the notes described
above; as a result, the Initial Underlying Value will not be determined, and
you will therefore not know the Initial Underlying Value, until after the
pricing date. Any increase in the Underlying closing values on the Initial
Averaging Dates (relative to the Underlying closing values before the pricing
date) may establish a higher level that the Commodity -IGAR Conditional
Long-Short II must achieve for you to obtain a positive return on your
investment or avoid a loss of principal at maturity.
Investments Related to the Value of Commodities Tend to be more Volatile than
traditional securities investments - The market values of commodities tend to
be highly volatile. Commodity market values are not related to the value of a
future income or earnings stream, as tends to be the case with fixed-income and
equity investments, but are subject to variables of specific application to
commodities markets. These variables include 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. 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 described above to be more volatile than the values of
traditional securities. These and other factors may affect the levels of the
sub-indices included from time to time in Commodity -IGAR Conditional
Long-Short II, and thus the value of your notes, in unpredictable or
unanticipated ways. The Commodity -IGAR Conditional Long-Short II provides one
avenue for exposure to commodities. The high volatility and cyclical nature of
commodity markets may render these investments inappropriate as the focus of an
investment portfolio.
Owning the notes involves the risks associated with Commodity -IGAR Conditional
Long-Short II"s momentum investment strategy - The Commodity -IGAR Conditional
Long-Short II employs a mathematical model intended to implement what is
generally known as a momentum investment strategy, which seeks to capitalize on
consistent positive and negative market price trends based on the supposition
that consistent positive and negative market price trends may continue. This
strategy is different from a strategy that seeks long-term exposure to a
portfolio consisting of constant components. The Commodity -IGAR Conditional
Long-Short II strategy may fail to realize gains that could occur as a result
of holding a commodity that has experienced price declines, but after which
experiences a sudden price spike, or has experienced price increases, but after
which experiences a sudden price decline. Further, the rules of the Commodity
- -IGAR Conditional Long-Short II limit exposure to rapidly appreciating or
depreciating sub-indices. This is because the Commodity -IGAR Conditional
Long-Short II rebalances its exposure to sub-indices each month so that the
exposure to any one sub-index does not exceed one-twelfth of the total long or
short synthetic portfolio as of the time of a monthly rebalancing. By contrast,
a synthetic portfolio that does not rebalance monthly in this manner could see
greater compounded gains over time through exposur e to a consistently and
rapidly appreciating or depreciating sub-index. Because the rules of the
Commodity -IGAR Conditional Long-Short II limit the synthetic portfolio to
holding only to sub-indices that have shown consistent positive or negative
price appreciation, the synthetic portfolio may experience periods where it
holds few or no sub-indices, and therefore is unlikely during such periods to
achieve returns that exceed the returns realized by other investment
strategies, or be able to capture gains from other appreciating or depreciating
assets in the market that are not included in the universe of constituent
sub-indices.
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IMPORTANT RISK FACTORS (cont.)
Owning the notes is not the same as owning the constituent sub-indices or
commodities contracts - The return on the notes described above will not
reflect the return you would realize if you actually held or sold short the
commodity contracts replicating the constituent sub-indices of the Commodity
- -IGAR Conditional Long-Short II. The Commodity -IGAR Conditional Long-Short II
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 or interests in the
constituent sub-indices. Furthermore, the Commodity -IGAR Conditional
Long-Short II synthetic portfolio is subject to monthly rebalancing and the
assessment of a monthly index calculation fee that will reduce its value
relative to the value of the constituent sub-indices.
The notes may be subject to increased volatility due to the use of leverage -
The Commodity -IGAR Conditional Long-Short II employs a technique generally
known as "long-short" strategy. As part of this strategy, if the short leg of
the Commodity -IGAR Conditional Long-Short II is not de-activated, the sum of the
absolute values of the conditional long-short target weights may be greater
than 1 and, consequently, the Commodity -IGAR Conditional Long-Short II may
include leverage. Where the synthetic portfolio is leveraged, any price
movements in the commodity contracts replicating the constituent sub-indices
may result in greater changes in the value of the Commodity -IGAR Conditional
Long-Short II than if leverage was not used, which in turn could cause an
investor in the notes described above to receive a lower payment at maturity
than he/she would otherwise receive.
Because the Commodity -IGAR Conditional Long-Short II Index may include
notional short positions, the Commodity -IGAR Conditional Long-Short II Index
may be subject to additional risks - The Commodity -IGAR Conditional Long-Short
II Index employs a technique generally known as "long-short" strategy. This
means the Commodity -IGAR Conditional Long-Short II Index could include a
number of notional long positions and a number of notional short positions.
Unlike long positions, short positions are subject to unlimited risk of loss
because there is no limit on the amount by which the price that the relevant
asset may appreciate before the short position is closed. Although the minimum
payment at maturity is $0, it is possible that any notional short position
included in the Commodity -IGAR Conditional Long-Short II may appreciate
substantially with an adverse impact on the Commodity -IGAR Conditional
Long-Short II value and the notes described above.
Commodity -IGAR Conditional Long-Short II Lacks an operating history - The
Commodity -IGAR Conditional Long-Short II was established on September 15,
2006, and therefore lacks historical performance. Back-testing or similar
analysis in respect of the Commodity -IGAR Conditional Long-Short II must be
considered illustrative only and may be based on estimates or assumptions not
used by the calculation agent when determining the Commodity -IGAR Conditional
Long-Short II values.
No interest payments - As a holder of the notes described above, an investor
will not receive any interest payments.
Lack of Liquidity - The notes described above will not be listed on any
securities exchange. There may be no secondary market for such notes, and J.P.
Morgan Securities Inc., which is also referred to as JPMSI, would not be
required to purchase notes in the secondary market. Even if there is a
secondary market, it may not provide enough liquidity to allow you to trade or
sell any notes issued by JPMorgan Chase & Co. 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.
Certain built-in costs are likely to adversely affect the value of the notes
prior to maturity - While the payment at maturity described above would be
based on the full principal amount of any notes sold by JPMorgan Chase & Co.,
the original issue price of the notes includes an agent"s commission and the
cost of hedging its obligations under the notes through one or more of JPMorgan
Chase & Co."s affiliates. As a result, 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. The notes are not
designed to be short-term trading instruments. Accordingly, you should be able
and willing to hold any notes that JPMorgan Chase & Co. ultimately issues to
maturity.
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IMPORTANT RISK FACTORS (cont.)
Potential conflicts - JPMorgan Chase & Co. and its affiliates play a variety of
roles in connection with the issuance of the notes, including acting as COMIGAR
Calculation Agent - the entity that calculates Commodity -IGAR Conditional
Long-Short II values, and acting as calculation agent and hedging JPMorgan
Chase & Co."s obligations under the notes. In performing these duties, the
economic interests of the COMIGAR Calculation Agent, the calculation agent and
other affiliates of JPMorgan Chase & Co. are potentially adverse to your
interests as an investor in the notes.
Many economic and market factors will affect the value of the notes - In
addition to the Underlying closing value on any day, the value of the notes
described above will be affected by a number of economic and market factors
that may either offset or magnify each other, including:
o the volatility in the Underlying and the constituent sub-indices;
o the time to maturity of such notes;
o the market price of the physical commodities upon which the futures
contracts that compose the constituent sub-indices are based;
o interest and yield rates in the market generally;
o economic, financial, political, regulatory, geographical, agricultural,
meteorological or judicial events that affect the commodities underlying
the constituent sub- indices or markets generally and which may affect the
value of the commodity futures contracts, and thus the closing levels of
the constituent sub-indices; and
o JPMorgan Chase & Co."s creditworthiness, including actual or anticipated
downgrades in its credit ratings.
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IMPORTANT NOTICE RELATING TO COMPOSITE PERFORMANCE OF INDICES (REPLICATING THE
HYPOTHETICAL HISTORICAL PERFORMANCE OF THE COMMODITY -IGAR CONDITIONAL
LONG-SHORT II AND THE S&P GSCI(TM) EXCESS RETURN INDEX )
Any historical composite performance record included in this Presentation is
hypothetical and it should be noted that the Constituents have not traded
together in the manner shown in the composite historical replication of the
Commodity -IGAR Conditional Long-Short II. Hypothetical performance results
have many inherent limitations, some of which are described below. No
representation is being made that the Commodity -IGAR Conditional Long-Short II
will achieve a composite performance record similar to that shown. In fact,
there are frequently sharp differences between a hypothetical historical
composite performance record and the actual record of the combination of those
underlying elements subsequently achieved.
It should be noted that certain important assumptions have been used in
compiling the back-testing information included in this Presentation. In
considering the "historical" hypothetical performance of the Commodity -IGAR
Conditional Long-Short II, it has been assumed that rebalancing could occur
instantaneously: in the Commodity -IGAR Conditional Long-Short II going forward
there is in fact a delay between the rotational selection of weighting for the
Constituents and the implementation of that weighting in the Commodity -IGAR
Conditional Long-Short II basket.
Any "back-testing" information provided herein is illustrative only and derived
from proprietary models based on certain historic data (which may or may not
correspond with the historic data that someone else would use to back-test this
product) and assumptions and estimates (not all of which may be specified
herein, which are subject to change without notice and which may not accurately
reflect the characteristics of the product described herein). Without limiting
the generality of the foregoing, JPMorgan has assumed historical monthly
observation points and data: reference to different observation points might
have produced different results over time.
In addition, the sub-components used in the back-testing do not necessarily
match over the full hypothetical historical period the historical composition
of the S&P GSCI(TM) EXCESS RETURN INDEX. Those constituents of the Commodity
- -IGAR Conditional Long-Short II (that is, sub-indices of the S&P GSCI(TM)
EXCESS RETURN INDEX ) which have not formed part of the S&P GSCI(TM) EXCESS
RETURN INDEX throughout the hypothetical historical period used for
back-testing, have been ascribed an excess return over cash of zero (0). More
generally, the results obtained from different models, assumptions, estimates
and/or historic data may be materially different from the results presented
herein and such "back-testing" information should not be considered indicative
of the actual results that might be obtained from an investment or
participation in a financial instrument or transaction referencing the product
described herein.
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Important information
This material is intended to inform you of products and services offered by
JPMorgan Private Bank. "JPMorgan Private Bank" is the marketing name for the
private banking business conducted by JPMorgan Chase & Co. and its subsidiaries
worldwide. JPMorgan Chase Bank, N.A. and J.P. Morgan Trust Company, N.A. are
members of the FDIC. J. P. Morgan Securities Inc. ("JPMSI") is a broker-dealer
and member of the NYSE, NASD (and other national and regional exchanges) and
SIPC. Brokerage services are offered through JPMSI and its brokerage
affiliates. The broker-dealers are not banks and are separate legal entities
from their bank affiliates. Investment management services are provided through
JPMorgan Chase Bank, N.A., J.P. Morgan Trust Company, N.A. and their
affiliates. JPMorgan Chase & Co. may operate various other broker-dealers or
investment advisory entities. In the U.S., private bankers are registered
representatives of JPMSI.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. JPMSI may act as market maker in financial
instruments or markets relevant to structured products. JPMSI may engage in
hedging or other operations in such markets relevant to its structured products
or options exposures. Neither structured products nor options are insured by
the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or
any other governmental agency.
Results and risks are based solely on hypothetical examples cited; actual
results and risks will vary depending on the specific circumstances. Investors
are urged to consider carefully whether structured products or option products
in general, as well as the products discussed herein, are suitable to their
needs. "S&P GSCITM" is a trademark of Standard and Poor"s Corporation and has
been licensed for use by JPMorgan Chase Bank, N.A.. Derivative transactions
entered into with JPMorgan are not sponsored, endorsed, sold, or promoted by
Standard & Poor"s Corporation and Standard & Poor"s Corporation makes no
representation regarding the advisability of entering into any derivative
transactions indexed to the S&P GSCI(TM). See also the risk discussions
included in this presentation.
Any of the broker-dealers may hold a position or act as market maker in the
financial instruments of any issuer discussed herein or act as an underwriter,
placement agent, advisor or lender to such issuer.
If reference is made to a product or service offered by the broker-dealers, the
obligations and the securities sold, offered or recommended are not deposits
and are not insured by the FDIC, the Federal Reserve Board, or any other
governmental agency. The broker-dealers are not banks and are separate legal
entities from their bank affiliates. The obligations of the broker-dealers are
not obligations of their bank or thrift affiliates (unless explicitly stated
otherwise), and these affiliates are not responsible for securities sold,
offered or recommended by the broker-dealer. The foregoing also applies to our
other non-bank, non-thrift affiliates. FDIC insurance and domestic deposit
preference are not applicable to deposits or other obligations of our bank
branches or banking affiliates outside the United States.
The views and strategies described herein may not be suitable for all
investors. This material is distributed with the understanding that we are not
rendering accounting, legal or tax advice. You should consult with your
independent advisors concerning such matters.
In discussion of options and other strategies, results and risks are based
solely on the hypothetical examples cited; actual results and risks will vary
depending on specific circumstances. Investors are urged to consider carefully
whether option or option-related products in general, as well as the products
or strategies discussed in this brochure are suitable to their needs. In actual
transactions, the client"s counterparty for OTC derivatives applications is
JPMorgan Chase Bank, N.A., London branch. For a copy of the "Characteristics
and Risks of Standardized Options" booklet, please contact your private banker.
We believe the information contained in this material to be reliable. The
opinions, estimates, and investment strategies and views expressed in this
document constitute the judgment of our investment strategists dedicated to
private clients, based on current market conditions and are subject to change
without notice. This material is not the product of JPMorgan"s research
department. As such, it should not be regarded as research or a research
report. Opinions expressed herein may differ from the opinions expressed by
other areas of JPMorgan, including research. The investment strategies and
views stated here may differ from those expressed for other purposes or in
other contexts by other JPMorgan market strategists.
Past performance is not indicative of comparable future results. The
investments discussed may fluctuate in price or value. Investors may get back
less than they invested. Changes in rates of exchange may have an adverse
effect on the value of investments.
Notwithstanding anything to the contrary, each recipient of this presentation,
and each employee, representative or other agent of such recipient may disclose
to any and all persons, without limitation of any kind, the U.S. income and
franchise tax treatment and the U.S. income and franchise tax structure of the
transactions contemplated hereby and all materials of any kind (including
opinions or other tax analyses) that are provided to such recipient relating to
such tax treatment and tax structure insofar as such treatment and/or structure
relates to a U.S. income or franchise tax strategy provided to such recipient
by JPMorgan Chase & Co. and its subsidiaries.
Past performance is no guarantee of future results.
Additional information is available upon request.
(C) 2008 JPMorgan Chase & Co.
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Important information
IRS Circular 230 Disclosure:
JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly,
any discussion of U.S. tax matters contained herein (including any attachments)
is not intended or written to be used, and cannot be used, in connection with
the promotion, marketing or recommendation by anyone unaffiliated with JPMorgan
Chase & Co. of any of the matters addressed herein or for the purpose of
avoiding U.S. tax-related penalties.
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Securities (including mutual funds) are not bank deposits and are not FDIC
insured, nor are they obligations of or guaranteed by JPMorgan Chase Bank,
N.A. or its affiliates. Securities (including mutual funds) involve
investment risks, including the possible loss of the principal amount
invested.
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(C) 2008 JPMorgan Chase & Co.
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