Table	of	Contents

# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

Annual	report	pursuant	to	section	13	or	15(d)

of	The	Securities	Exchange	Act	of	1934

For	the	fiscal	year	ended

# J.P.	Morgan	Chase	&	Co.

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of incorporation	or	organization)

270	Park	Avenue,	New	York,	NY

(Address	of	principal	executive	offices)

Registrant's	telephone	number,	including	area	code:	(212)	270-6000

Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

Title	of	each	class

Commission	file

(I.R.S.	employer identification	no.)

(Zip	code)

# Common	stock

Depositary	shares	representing	a	one-tenth	interest	in	6⅝%

cumulative	preferred	stock	(stated	value—$500)

Adjustable	rate	cumulative	preferred	stock,	Series	A

Adjustable	rate	cumulative	preferred	stock,	Series	L

Adjustable	rate	cumulative	preferred	stock,	Series	N

Chase	Capital	V

Guarantee	of	7.00%	Capital	Securities,	Series	G,	of

Chase	Capital	VII

Guarantee	of	8.25%	Capital	Securities,	Series	H,	of

Chase	Capital	VIII

Guarantee	of	7.50%	Capital	Securities,	Series	I,	of

J.P.	Morgan	Chase	Capital	IX

Guarantee	of	7.00%	Capital	Securities,	Series	J,	of

J.P.	Morgan	Chase	Capital	X

Guarantee	of	5⅞%	Capital	Securities,	Series	K,	of

J.P.	Morgan	Chase	Capital	XI

Guarantee	of	6.25%	Capital	Securities,	Series	L,	of

J.P.	Morgan	Chase	Capital	XII

Indexed	Linked	Notes	on	the	S&P	500 ®

JPMorgan	Market	Participation	Notes	on	the	S&P	500 ® 	Index	due March	12,	2008

Capped	Quarterly	Observation	Notes	Linked	to	S&P	500 ® 	Index	due

Capped	Quarterly	Observation	Notes	Linked	to	S&P	500 ® October	30,	2008

	Index	due

Capped	Quarterly	Observation	Notes	Linked	to	S&P	500 ®

Consumer	Price	Indexed	Securities	due	January	15,	2010

The	Indexed	Linked	Notes,	JPMorgan	Market	Participation	Notes,	Capped	Quarterly	Observation	Notes	and	Consumer

Price	Indexed	Securities	are	listed	on	the	American	Stock	Exchange; all	other	securities	named	above	are	listed	on	the	New	York	Stock	Exchange.

Securities	registered	pursuant	to	Section	12(g)	of	the	Act:	none

						Indicate	by	check	mark	whether	the	Registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934 during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing

						Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the best	of	Registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to this	Form	10-K.	[X]

						Indicate	by	check	mark	whether	Registrant	is	an	accelerated	filer	(as	defined	in	Exchange	Act	Rule	12b-2).	Yes	..X..	No	.....

Document	Incorporated	by	Reference:	Portions	of	Registrant's	proxy	statement	for	the	2004	annual	meeting	of	stockholders,	which	will	be	filed	within	120 days	of	registrant's	fiscal	year-end,	are	incorporated	by	reference	in	this	Form	10-K	in	response	to	Items	10,	11,	12,	13	and	14	of	Part	III.

# Form	10-K	Index

| Part	I |  | Page |
| :--- | :--- | :--- |
| Item\t1 | Business | \t1 |
|  | Overview | \t1 |
|  | Business\tsegments | \t1 |
|  | Competition | \t1 |

|  | Supervision	and	regulation | 1 |
| :--- | :--- | :--- |
|  | Important\tfactors\tthat\tmay\taffect\tfuture\tresults | \t5 |
|  | Non-U.S.\toperations | \t7 |
|  | Distribution\tof\tassets,\tliabilities\tand\tstockholders'\tequity;\tinterest\trates\tand\tinterest\tdifferentials | \t132-136 |
|  | Return\ton\tequity\tand\tassets | \t129,\t132 |
|  | Securities\tportfolio | \t137 |
|  | Loan\tportfolio | \t52-64,\t98-99,\t138-139 |
|  | Summary\tof\tloan\tand\tlending-related\tcommitments\tloss\texperience | \t64-65,\t100,\t141-142 |
|  | Deposits | \t142-143 |
|  | Short-term\tand\tother\tborrowed\tfunds | \t143 |
| Item\t2 | Properties | \t7 |
| Item\t3 | Legal\tproceedings | \t8 |
| Item\t4 | Submission\tof\tmatters\tto\ta\tvote\tof\tsecurity\tholders | \t11 |
|  | Executive\tofficers\tof\tthe\tregistrant | \t11 |
| Part\tII |  |  |
| Item\t5 | Market\tfor\tregistrant's\tcommon\tequity\tand\trelated\tstockholder\tmatters | \t12 |
| Item\t6 | Selected\tfinancial\tdata | \t12 |
| Item\t7 | Management's\tdiscussion\tand\tanalysis\tof\tfinancial\tcondition\tand\tresults\tof\toperations | \t12 |
| Item\t7A | Quantitative\tand\tqualitative\tdisclosures\tabout\tmarket\trisk | \t12 |
| Item\t8 | Financial\tstatements\tand\tsupplementary\tdata | \t12 |
| Item\t9 | Changes\tin\tand\tdisagreements\twith\taccountants\ton\taccounting\tand\tfinancial\tdisclosure | \t12 |
| Item\t9A | Controls\tand\tprocedures | \t12 |
| Part\tIII |  |  |
| Item\t10 | Directors\tand\texecutive\tofficers\tof\tJPMorgan\tChase | \t12 |
| Item\t11 | Executive\tcompensation | \t12 |
| Item\t12 | Security\townership\tof\tcertain\tbeneficial\towners\tand\tmanagement\tand\trelated\tstockholder\tmatters | \t13 |
| Item\t13 | Certain\trelationships\tand\trelated\ttransactions | \t13 |
| Item\t14 | Principal\taccounting\tfees\tand\tservices | \t13 |
| Part\tIV |  |  |
| Item\t15 | Exhibits,\tfinancial\tstatement\tschedules\tand\treports\ton\tform\t8-K | \t14 |

# Part	I

# Item	1:	Business

On	January	14,	2004,	JPMorgan	Chase	&	Co.	("JPMorgan	Chase")	and	Bank	One Corporation	("Bank	One")	announced	an	agreement	to	merge.	The	merger	agreement between	JPMorgan	Chase	and	Bank	One	has	been	approved	by	the	boards	of directors	of	both	companies.	The	merger	is	subject	to	approval	by	the	shareholders	of both	institutions	as	well	as	U.S.	federal	and	state	and	non-U.S.

# Overview

J.P.	Morgan	Chase	&	Co.	("JPMorgan	Chase"	or	"the	Firm")	is	a	financial	holding company	incorporated	under	Delaware	law	in	1968.	As	of	December	31,	2003, JPMorgan	Chase	was	one	of	the	largest	banking	institutions	in	the	United	States,	with $771	billion	in	assets	and	$46	billion	in	stockholders'	equity.

JPMorgan	Chase	is	a	global	financial	services	firm	with	operations	in	more	than	50 countries.	Its	principal	bank	subsidiaries	are	JPMorgan	Chase	Bank	("JPMorgan	Chase Bank"),	a	New	York	banking	corporation	headquartered	in	New	York	City,	and	Chase Manhattan	Bank	USA,	National	Association	("Chase	USA"),	headquartered	in Delaware.	The	Firm's	principal	nonbank	subsidiary	is	J.P.	Morgan	Securities	Inc. ("JPMSI").

The	bank	and	nonbank	subsidiaries	of	JPMorgan	Chase	operate	nationally	as	well	as through	overseas	branches	and	subsidiaries,	representative	offices	and	affiliated banks.

The	Firm's	website	is	www.jpmorganchase.com.	JPMorgan	Chase	makes	available free	of	charge,	through	its	website,	annual	reports	on	Form	10-K,	quarterly	reports	on Form	10-Q	and	current	reports	on	Form	8-K,	and	any	amendments	to	those	reports filed	or	furnished,	pursuant	to	Section	13(a)	or	Section	15(d)	of	the	Securities Exchange	Act	of	1934,	as	soon	as	reasonably	practicable	after	it	electronically	files such	material	with,	or	furnishes	such	material	to,	the	Securities	and	Exchange Commission	(the	"SEC").	The	Firm	has	adopted,	and	posted	on	its	website,	a	Code	of Ethics	for	its	Chief	Executive	Officer,	Chief	Financial	Officer,	Chief	Accounting	Officer and	other	senior	financial	officers.

# Business	segments

JPMorgan	Chase's	activities	are	internally	organized,	for	management	reporting purposes,	into	five	major	business	segments	(Investment	Bank,	Treasury	&	Securities Services,	Investment	Management	&	Private	Banking,	JPMorgan	Partners	and	Chase Financial	Services).	A	description	of	the	Firm's	business	segments	and	the	products and	services	they	provide	to	their	respective	client	bases	are	discussed	in	the "Segment	results"	section	of	Management's	discussion	and	analysis	("MD&A") beginning	on	page	27,	and	in	Note	34	on	page	126.

# Competition

JPMorgan	Chase	and	its	subsidiaries	and	affiliates	operate	in	a	highly	competitive environment.	Competitors	include	other	banks,

regulatory	authorities.	Completion	of	the	transaction	is	expected	to	occur	in	mid-2004. See	Agreement	to	merge	with	Bank	One	Corporation	on	page	24	for	a	further description	of	the	merger.

The	information	presented	in	this	Annual	Report	on	Form	10-K	does	not	give	effect	to the	merger.

brokerage	firms,	investment	banking	companies,	merchant	banks,	insurance companies,	mutual	fund	companies,	credit	card	companies,	mortgage	banking companies,	automobile	financing	companies,	leasing	companies,	e-commerce	and other	Internet-based	companies,	and	a	variety	of	other	financial	services	and	advisory companies.	JPMorgan	Chase's	businesses	compete	with	these	other	firms	with	respect to	the	range	of	products	and	services	offered	and	the	types	of	clients,	customers, industries	and	geographies	served.	With	respect	to	some	of	its	geographies	and products,	JPMorgan	Chase	competes	globally;	with	respect	to	others,	the	Firm competes	on	a	regional	basis.	JPMorgan	Chase's	ability	to	compete	effectively depends	on	the	relative	performance	of	its	products,	the	degree	to	which	the	features	of its	products	appeal	to	customers,	and	the	extent	to	which	the	Firm	is	able	to	meet	its clients'	objectives	or	needs.	The	Firm's	ability	to	compete	also	depends	on	its	ability	to attract	and	retain	its	professional	and	other	personnel,	and	on	its	reputation.

The	financial	services	industry	has	experienced	consolidation	and	convergence	in recent	years,	as	financial	institutions	involved	in	a	broad	range	of	financial	services industries	have	merged.	This	convergence	trend	is	expected	to	continue,	as demonstrated	by	the	proposed	merger	of	JPMorgan	Chase	and	Bank	One. Consolidation	could	result	in	competitors	of	JPMorgan	Chase	gaining	greater	capital and	other	resources,	such	as	a	broader	range	of	products	and	services	and	geographic diversity.	It	is	possible	that	competition	will	become	even	more	intense	as	the	Firm continues	to	compete	with	financial	institutions	that	may	be	larger,	or	better	capitalized, or	may	have	a	stronger	local	presence	in	certain	geographies.

# Supervision	and	regulation

Permissible	business	activities:	The	Firm	is	subject	to	regulation	under	state	and federal	law,	including	the	Bank	Holding	Company	Act	of	1956,	as	amended	(the "BHCA").

Under	the	Gramm-Leach-Bliley	Act	("GLBA"),	enacted	in	1999,	bank	holding companies	meeting	certain	eligibility	criteria	may	elect	to	become	"financial	holding companies,"	which	may	engage	in	any	activities	that	are	"financial	in	nature,"	as	well	as in	additional	activities	that	the	Board	of	Governors	of	the	Federal	Reserve	System	(the "Federal	Reserve	Board")	and	the	United	States	Department	of	the	Treasury	("U.S. Treasury	Department")	determine	are	financial	in	nature	or	incidental	or	complementary to	financial	activities.	Under	GLBA,	"financial	activities"	specifically

include	insurance,	securities	underwriting	and	dealing,	merchant	banking,	investment advisory	and	lending	activities.	JPMorgan	Chase	elected	to	become	a	financial	holding company	as	of	March	13,	2000.

Under	regulations	implemented	by	the	Federal	Reserve	Board,	if	any	depository institution	controlled	by	a	financial	holding	company	ceases	to	be	"well-capitalized"	or "well-managed"	(as	defined	below),	the	Federal	Reserve	Board	may	impose	corrective capital	or	managerial	requirements	on	the	financial	holding	company	and	place limitations	on	its	ability	to	conduct	the	broader	financial	activities	permissible	for financial	holding	companies.

In	addition,	the	Federal	Reserve	Board	may	require	divestiture	of	the	holding company's	depository	institutions	if	the	deficiencies	persist.	The	regulations	also provide	that	if	any	depository	institution	controlled	by	a	financial	holding	company	fails to	maintain	a	satisfactory	rating	under	the	Community	Reinvestment	Act	("CRA"),	the Federal	Reserve	Board	must	prohibit	the	financial	holding	company	and	its	subsidiaries from	engaging	in	any	additional	activities	other	than	those	permissible	for	bank	holding companies	that	are	not	financial	holding	companies.	The	depository	institution subsidiaries	of	JPMorgan	Chase	currently	meet	the	capital,	management	and	CRA requirements	necessary	to	permit	the	Firm	to	conduct	the	broader	activities	permitted under	GLBA.	However,	there	can	be	no	assurance	that	this	will	continue	to	be	the	case in	the	future.

Regulation	by	Federal	Reserve	Board	under	GLBA:	Under	GLBA's	system	of "functional	regulation,"	the	Federal	Reserve	Board	acts	as	an	"umbrella	regulator,"	and certain	of	JPMorgan	Chase's	subsidiaries	are	regulated	directly	by	additional	regulatory authorities	based	on	the	particular	activities	of	those	subsidiaries	(e.g.,	securities	and investment	advisory	activities	are	regulated	by	the	SEC,	and	insurance	activities	are regulated	by	state	insurance	commissioners).	The	Firm	must	continue	to	file	reports and	other	information	with,	and	submit	to	examination	by,	the	Federal	Reserve	Board as	umbrella	regulator.	However,	under	GLBA,	with	respect	to	matters	affecting functionally	regulated	subsidiaries,	the	Federal	Reserve	Board	is	required	to	defer	to the	applicable	functional	regulators	unless	the	Federal	Reserve	Board	concludes	that the	activities	at	issue	pose	a	risk	to	a	depository	institution	or	breach	a	specific	law	the Federal	Reserve	Board	has	the	authority	to	enforce.

Dividend	restrictions:	Federal	law	imposes	limitations	on	the	payment	of	dividends	by the	subsidiaries	of	JPMorgan	Chase	that	are	chartered	by	a	state	and	are	member banks	of	the	Federal	Reserve	System	(a	"state	member	bank")	or	national	banks. Nonbank	subsidiaries	of	JPMorgan	Chase	are	not	subject	to	those	limitations.	The amount	of	dividends	that	may	be	paid	by	a	state	member	bank,	such	as	JPMorgan Chase	Bank,	or	by	a	national	bank,	such	as	Chase	USA,	is	limited	to	the	lesser	of	the amounts	calculated	under	a	"recent	earnings"	test	and	an	"undivided	profits"	test. Under	the	recent	earnings	test,	a	dividend	may	not	be	paid	if	the	total	of	all	dividends declared	by	a	bank	in	any	calendar	year	is	in	excess	of	the	current	year's	net	income combined	with	the	retained	net	income	of	the	two	preceding	years,	unless	the	bank obtains	the	approval	of	its	appropriate	federal	banking	regulator	(which,	in	the	case	of	a state	member	bank,	is	the	Federal	Reserve	Board	and,	in	the	case	of	a	national	bank, is	the	Office	of	the	Comptroller	of	the	Currency	(the	"Comptroller	of	the	Currency")). Under	the	undivided	profits

test,	a	dividend	may	not	be	paid	in	excess	of	a	bank's	"undivided	profits."	Similar restrictions	on	the	payment	of	dividends	by	JPMorgan	Chase	Bank	are	imposed	by New	York	law.	See	Note	25	on	page	114	for	the	amount	of	dividends	that	the	Firm's principal	bank	subsidiaries	could	pay,	at	December	31,	2003	and	2002,	to	their respective	bank	holding	companies	without	the	approval	of	their	relevant	banking regulators.

In	addition	to	the	dividend	restrictions	described	above,	the	Federal	Reserve	Board,	the Comptroller	of	the	Currency	and	the	Federal	Deposit	Insurance	Corporation	(the "FDIC")	have	authority	to	prohibit	or	to	limit	the	payment	of	dividends	by	the	banking organizations	they	supervise,	including	JPMorgan	Chase	and	its	bank	and	bank	holding company	subsidiaries,	if,	in	the	banking	regulator's	opinion,	payment	of	a	dividend would	constitute	an	unsafe	or	unsound	practice	in	light	of	the	financial	condition	of	the banking	organization.

Capital	requirements:	The	federal	banking	regulators	have	adopted	risk-based	capital and	leverage	guidelines	that	require	the	Firm's	capital-to-assets	ratios	to	meet	certain minimum	standards.

The	risk-based	capital	ratio	is	determined	by	allocating	assets	and	specified	off-balance sheet	financial	instruments	into	four	weighted	categories,	with	higher	levels	of	capital being	required	for	the	categories	perceived	as	representing	greater	risk.	Under	the guidelines,	capital	is	divided	into	two	tiers:	Tier	1	capital	and	Tier	2	capital.	For	a	further discussion	of	Tier	1	capital	and	Tier	2	capital,	see	Note	26	on	page	114.	The	amount	of Tier	2	capital	may	not	exceed	the	amount	of	Tier	1	capital.	Total	capital	is	the	sum	of Tier	1	capital	and	Tier	2	capital.

Banking	organizations	are	required	to	maintain	a	total	capital	ratio	(total	capital	to	risk- weighted	assets)	of	8%	and	a	Tier	1	capital	ratio	of	4%.

The	risk-based	capital	requirements	explicitly	identify	concentrations	of	credit	risk	and certain	risks	arising	from	non-traditional	banking	activities,	and	the	management	of those	risks,	as	important	factors	to	consider	in	assessing	an	institution's	overall	capital adequacy.	Other	factors	taken	into	consideration	by	federal	regulators	include:	interest rate	exposure;	liquidity,	funding	and	market	risk;	the	quality	and	level	of	earnings;	the quality	of	loans	and	investments;	the	effectiveness	of	loan	and	investment	policies;	and management's	overall	ability	to	monitor	and	control	financial	and	operational	risks, including	the	risks	presented	by	concentrations	of	credit	and	non-traditional	banking activities.	In	addition,	the	risk-based	capital	rules	incorporate	a	measure	for	market	risk in	foreign	exchange	and	commodity	activities	and	in	the	trading	of	debt	and	equity instruments.	The	market	risk-based	capital	rules	require	banking	organizations	with large	trading	activities	(such	as	JPMorgan	Chase)	to	maintain	capital	for	market	risk	in an	amount	calculated	by	using	the	banking	organizations'	own	internal	Value-at-Risk models	(subject	to	parameters	set	by	the	regulators).

The	federal	banking	agencies	have	also	implemented	specialized	capital	requirements with	respect	to	securitizations	and	equity	in	nonfinancial	companies.

The	federal	banking	regulators	have	established	minimum	leverage	ratio	guidelines. The	leverage	ratio	is	defined	as	Tier	1	capital	divided	by	average	total	assets	(net	of the	allowance	for	loan	losses,	goodwill	and	certain	intangible	assets).	The	minimum leverage	ratio	is	3%	for	strong	bank	holding	companies	(i.e.,	those	rated

composite	1	under	the	Bank	subsidiaries,	Other	subsidiaries,	Parent	company, Earnings	and	Capital	adequacy,	or	"BOPEC,"	rating	system)	and	for	bank	holding companies	that	have	implemented	the	Federal	Reserve	Board's	risk-based	capital measure	for	market	risk.	Other	bank	holding	companies	must	have	a	minimum leverage	ratio	of	4%.	Bank	holding	companies	may	be	expected	to	maintain	ratios	well above	the	minimum	levels	depending	upon	their	particular	condition,	risk	profile	and growth	plans.

Tier	1	components:	Capital	surplus	and	common	stock	remain	the	most	important forms	of	capital	at	JPMorgan	Chase.	Because	common	equity	has	no	maturity	date	and because	dividends	on	common	stock	are	paid	only	when	and	if	declared	by	the	Board of	Directors,	common	equity	is	available	to	absorb	losses	over	long	periods	of	time. Noncumulative	perpetual	preferred	stock	is	similar	to	common	stock	in	its	ability	to absorb	losses.	If	the	Board	of	Directors	does	not	declare	a	dividend	on	noncumulative perpetual	preferred	stock	in	any	dividend	period,	the	holders	of	the	instrument	are never	entitled	to	receive	that	dividend	payment.	JPMorgan	Chase's	outstanding noncumulative	preferred	stock	is	a	type	commonly	referenced	as	a	"FRAP":	a	fixed- rate/adjustable	preferred	stock.	However,	because	the	interest	rate	on	FRAPs	may increase	(up	to	a	predetermined	ceiling),	the	Federal	Reserve	Board	treats	the	Firm's noncumulative	FRAPs	in	a	manner	similar	to	cumulative	perpetual	preferred	securities. The	Federal	Reserve	Board	permits	cumulative	perpetual	preferred	securities	to	be included	in	Tier	1	capital	but	only	up	to	certain	limits,	as	these	financial	instruments	do not	provide	as	strong	protection	against	losses	as	common	equity	and	noncumulative, non-FRAP	securities.	Cumulative	perpetual	preferred	stock	does	not	have	a	maturity date,	similar	to	other	forms	of	Tier	1	capital.	However,	any	dividends	not	declared	on cumulative	preferred	stock	accumulate	and	thus	continue	to	be	due	to	the	holder	of	the instrument	until	all	arrearages	are	satisfied.	Currently,	the	Federal	Reserve	Board	also permits	trust	preferred	securities	to	be	included	in	Tier	1	capital	up	to	certain	limits. Trust	preferred	securities	are	a	type	of	security	generally	issued	by	a	special-purpose trust	established	and	owned	by	JPMorgan	Chase.	Proceeds	from	the	issuance	to	the public	of	the	trust	preferred	security	are	lent	to	the	Firm	for	at	least	30	(but	not	more than	50)	years.	The	intercompany	note	that	evidences	this	loan	provides	that	the interest	payments	by	JPMorgan	Chase	on	the	note	may	be	deferred	for	up	to	five years.	During	the	period	of	any	such	deferral,	no	payments	of	dividends	may	be	made on	any	outstanding	JPMorgan	Chase	preferred	or	common	stock	or	on	the	outstanding trust	preferred	securities	issued	to	the	public.	During	2003,	the	Firm	implemented Financial	Accounting	Standards	Board	(the	"FASB")	Interpretation	No.	46	Consolidation of	Variable	Interest	Entities	(FIN	46),	which	addresses	the	consolidation	rules	to	be applied	to	entities	defined	in	FIN	46,	as	"variable	interest	entities."	Prior	to	FIN	46, trusts	that	issued	trust	preferred	securities	were	consolidated	subsidiaries	of	their respective	parents.	As	a	result	of	FIN	46,	JPMorgan	Chase	is	no	longer	permitted	to consolidate	these	trusts.	As	a	result,	it	is	possible	that	the	Federal	Reserve	Board	may conclude	that	trust	preferred	securities	would	no	longer	qualify	as	treatment	as	Tier	1 regulatory	capital.	Although	the	Federal	Reserve	Board	has	issued	a	supervisory	letter indicating	that	trust	preferred	securities	will	continue	at	present	to	be	treated	as	Tier	1 capital	until	notice	is	given	to	the	contrary,	such	guidance	also	indicated	that	the Federal

Reserve	Board	may	provide	further	guidance	on	this	point.	Therefore,	there	is	no certainty	that	trust	preferred	securities	will	continue	to	be	treated	as	Tier	1	capital instruments	or	that	existing	issues	will	be	grandfathered	for	such	treatment.

Tier	2	components:	Long-term	subordinated	debt	(generally	having	an	original	maturity of	10-12	years)	is	the	primary	form	of	JPMorgan	Chase's	Tier	2	capital.	Subordinated debt	is	deemed	a	form	of	regulatory	capital	because	payments	on	the	debt	are subordinated	to	other	creditors	of	JPMorgan	Chase,	including	holders	of	senior	and medium	long-term	debt	and	counterparties	on	derivative	contracts.

The	minimum	risk-based	capital	requirements	adopted	by	the	federal	banking	agencies follow	the	Capital	Accord	of	the	Basel	Committee	on	Banking	Supervision.	The	Basel Committee,	which	is	comprised	of	bank	supervisors	and	central	banks	from	the	Group of	Ten	countries,	issued	its	Capital	Accord	in	1988	to	achieve	convergence	in	the capital	regulations	applicable	to	internationally	active	banking	organizations.	The	Basel Committee	issued	a	proposed	replacement	for	the	Capital	Accord	in	January	2001	and, subsequently,	issued	a	number	of	working	papers	supplementing	various	aspects	of that	replacement	(the	"New	Accord").	Based	on	these	documents,	the	New	Accord would	adopt	a	three-pillar	framework	for	addressing	capital	adequacy.	These	pillars would	include	minimum	capital	requirements,	more	emphasis	on	supervisory assessment	of	capital	adequacy	and	greater	reliance	on	market	discipline.	The minimum	capital	requirements	in	the	New	Accord	would	also	incorporate	a	capital charge	for	operational	risk.	In	August	2003,	the	federal	banking	regulators	issued	an Advanced	Notice	of	Proposed	Rulemaking	("ANPR")	addressing	the	implementation	of the	New	Accord	in	the	United	States.	The	ANPR	contemplates	requiring	all	U.S. banking	institutions	with	either	total	banking	assets	of	at	least	$250	billion	or	more	or total	on-balance	sheet	foreign	exposure	of	$10	billion	or	more	("core	banks")	to implement	the	advanced	approaches	for	measuring	risk	under	the	New	Accord	on	a mandatory	basis.	As	a	core	bank,	JPMorgan	Chase	will	thus	be	required	to	implement advanced	measurement	techniques	employing	its	internal	estimates	of	certain	key	risk drivers	to	derive	capital	requirements.	Prior	to	implementation	of	the	new	capital regime,	core	banks,	such	as	JPMorgan	Chase,	will	be	required	to	demonstrate	to	their primary	federal	supervisor	that	their	internal	criteria	meet	relevant	supervisory standards.	While	the	Basel	Supervisors	Committee	has	targeted	December	31,	2006 for	implementation	of	the	New	Accord,	the	U.S.	regulators	have	proposed	an	effective date	of	January	1,	2007	with	certain	transitional	implementation	arrangements.

FDICIA:	The	Federal	Deposit	Insurance	Corporation	Improvement	Act	of	1991 ("FDICIA")	provides	a	framework	for	regulation	of	depository	institutions	and	their affiliates,	including	parent	holding	companies,	by	their	federal	banking	regulators	and, among	other	things,	requires	the	relevant	federal	banking	regulator	to	take	"prompt corrective	action"	with	respect	to	a	depository	institution	if	that	institution	does	not	meet certain	capital	adequacy	standards.

Pursuant	to	FDICIA,	the	Federal	Reserve	Board,	the	FDIC	and	the	Comptroller	of	the Currency	adopted	regulations	setting	forth	a	five-tier	scheme	for	measuring	the	capital adequacy	of	the	depository	institutions	they	supervise.	Under	the	regulations (commonly	referred	to	as	the	"prompt	corrective	action"	rules),	an	institution

would	be	placed	in	one	of	the	following	five	capital	categories	when	these	ratios	fall within	the	prescribed	ranges:

|  | Total<br>capital | Tier	1<br>capital | Tier	1<br>leverage |  |
| :--- | :--- | :--- | :--- | :--- |
|  |  | At\tLeast |  |  |
| Well-capitalized | 10% | 6% | 5% |  |
| Adequately\tcapitalized | 8% | 4% | 4%(a) | 4%(a) |
|  |  | Less\tThan |  |  |
| Undercapitalized | 8% | 4% | 4% | (a) |
| Significantly\tundercapitalized | 6% | 3% | 3% |  |

An	institution	may	be	treated	as	being	in	a	capital	category	lower	than	that	indicated based	on	other	supervisory	criteria.

Supervisory	actions	by	the	appropriate	federal	banking	regulator	under	the	"prompt corrective	action"	rules	generally	will	depend	upon	an	institution's	classification	within the	five	capital	categories.	The	regulations	apply	only	to	banks	and	not	to	bank	holding companies	such	as	JPMorgan	Chase;	however,	subject	to	limitations	that	may	be imposed	pursuant	to	GLBA,	as	described	below,	the	Federal	Reserve	Board	is authorized	to	take	appropriate	action	at	the	holding	company	level	based	on	the undercapitalized	status	of	the	holding	company's	subsidiary	banking	institutions.	In certain	instances	relating	to	an	undercapitalized	banking	institution,	the	bank	holding company	would	be	required	to	guarantee	the	performance	of	the	undercapitalized subsidiary	and	may	be	liable	for	civil	money	damages	for	failure	to	fulfill	its commitments	on	that	guarantee.

As	of	December	31,	2003,	each	of	JPMorgan	Chase's	banking	subsidiaries	was	"well- capitalized."

FDIC	Insurance	Assessments:	FDICIA	also	requires	the	FDIC	to	establish	a	risk- based	assessment	system	for	FDIC	deposit	insurance.	Under	the	FDIC's	risk-based insurance	premium	assessment	system,	each	depository	institution	is	assigned	to	one of	nine	risk	classifications	based	upon	certain	capital	and	supervisory	measures	and, depending	upon	its	classification,	is	assessed	insurance	premiums	on	its	deposits.

Depository	institutions	insured	by	the	Bank	Insurance	Fund	are	required	to	pay premiums	ranging	from	0	basis	points	to	27	basis	points	of	U.S.	deposits.	Each	of JPMorgan	Chase's	banks,	including	JPMorgan	Chase	Bank	and	Chase	USA,	currently qualifies	for	the	0	basis	point	assessment.	Legislation	has	been	introduced	in	Congress that,	if	enacted,	would	give	the	FDIC	discretion	to	impose	deposit	insurance	premiums on	all	depository	institutions.	In	addition,	if	the	ratio	of	insured	deposits	to	money	in	the Bank	Insurance	Fund	drops	below	specified	levels,	the	FDIC	would	be	required	to impose	premiums	on	all	banks	insured	by	the	Bank	Insurance	Fund.	All	depository institutions	must	also	pay	an	annual	assessment	so	that	the	Financing	Corporation ("FICO")	may	pay	interest	on	bonds	it	issued	in	connection	with	the	resolution	of savings	association	insolvencies	occurring	prior	to	1991.	The	FICO	assessment	for	the first	quarter	of	2004	is	1.54	basis	points	of	U.S.	deposits.	The	rate	schedules	are subject	to	future	adjustments	by	the	FDIC.	In	addition,	the	FDIC	has	authority	to	impose special

assessments	from	time	to	time,	subject	to	certain	limitations	specified	in	the	Deposit Insurance	Funds	Act.

# Powers	of	the	FDIC	upon	insolvency	of	an	insured	depository	institution:	An

FDIC-insured	depository	institution	can	be	held	liable	for	any	loss	incurred	or	expected to	be	incurred	by	the	FDIC	in	connection	with	another	FDIC-insured	institution	under common	control	with	such	institution	being	in	"default"	or	"in	danger	of	default" (commonly	referred	to	as	"cross-guarantee"	liability).	"Default"	is	generally	defined	as the	appointment	of	a	conservator	or	receiver	and	"in	danger	of	default"	is	defined	as certain	conditions	indicating	that	a	default	is	likely	to	occur	absent	regulatory assistance.	An	FDIC	cross-guarantee	claim	against	a	depository	institution	is	generally superior	in	right	of	payment	to	claims	of	the	holding	company	and	its	affiliates	against such	depository	institution.

If	the	FDIC	is	appointed	the	conservator	or	receiver	of	an	insured	depository	institution, upon	its	insolvency	or	in	certain	other	events,	the	FDIC	has	the	power:	(1)	to	transfer any	of	the	depository	institution's	assets	and	liabilities	to	a	new	obligor	without	the approval	of	the	depository	institution's	creditors;	(2)	to	enforce	the	terms	of	the depository	institution's	contracts	pursuant	to	their	terms;	or	(3)	to	repudiate	or	disaffirm any	contract	or	lease	to	which	the	depository	institution	is	a	party,	the	performance	of which	is	determined	by	the	FDIC	to	be	burdensome	and	the	disaffirmance	or repudiation	of	which	is	determined	by	the	FDIC	to	promote	the	orderly	administration	of the	depository	institution.	The	above	provisions	would	be	applicable	to	obligations	and liabilities	of	those	of	JPMorgan	Chase's	subsidiaries	that	are	insured	depository institutions,	such	as	JPMorgan	Chase	Bank	and	Chase	USA,	including,	without limitation,	obligations	under	senior	or	subordinated	debt	issued	by	those	banks	to investors	(referred	to	below	as	"public	noteholders")	in	the	public	markets.

Under	federal	law,	the	claims	of	a	receiver	of	an	insured	depository	institution	for administrative	expenses	and	the	claims	of	holders	of	U.S.	deposit	liabilities	(including the	FDIC,	as	subrogee	of	the	depositors)	have	priority	over	the	claims	of	other unsecured	creditors	of	the	institution,	including	public	noteholders,	in	the	event	of	the liquidation	or	other	resolution	of	the	institution.	As	a	result,	whether	or	not	the	FDIC	ever sought	to	repudiate	any	obligations	held	by	public	noteholders	of	any	subsidiary	of	the Firm	that	is	an	insured	depository	institution,	such	as	JPMorgan	Chase	Bank	or	Chase USA,	the	public	noteholders	would	be	treated	differently	from,	and	could	receive,	if anything,	substantially	less	than,	the	depositors	of	the	depository	institution.

The	USA	PATRIOT	Act:	On	October	26,	2001,	President	Bush	signed	into	law	The USA	PATRIOT	Act	of	2001	(the	"Act").

The	Act	substantially	broadens	existing	anti-money	laundering	legislation	and	the extraterritorial	jurisdiction	of	the	United	States,	imposes	new	compliance	and	due diligence	obligations,	creates	new	crimes	and	penalties,	compels	the	production	of documents	located	both	inside	and	outside	the	United	States,	including	those	of	non- U.S.	institutions	that	have	a	correspondent	relationship	in	the	United	States,	and clarifies	the	safe	harbor	from	civil	liability	to	customers.	The	Act	mandates	the	U.S. Treasury	Department	to	issue	a	number	of	regulations	to	further	clarify	the	Act's requirements	or	provide	more	specific	guidance	on	their	application.

The	Act	requires	all	"financial	institutions,"	as	defined,	to	establish	certain	anti-money laundering	compliance	and	due	diligence	programs.	The	Act	requires	financial institutions	that	maintain	correspondent	accounts	for	non-U.S.	institutions	or	persons	or that	are	involved	in	private	banking	for	"non-United	States	persons"	or	their representatives,	to	establish	"appropriate,	specific	and,	where	necessary,	enhanced due	diligence	policies,	procedures,	and	controls	that	are	reasonably	designed	to	detect and	report	instances	of	money	laundering	through	those	accounts."	JPMorgan	Chase believes	its	programs	satisfy	the	requirements	of	the	Act.

Other	supervision	and	regulation:	Under	current	Federal	Reserve	Board	policy, JPMorgan	Chase	is	expected	to	act	as	a	source	of	financial	strength	to	its	bank subsidiaries	and	to	commit	resources	to	support	the	bank	subsidiaries	in	circumstances where	it	might	not	do	so	absent	such	policy.	However,	because	GLBA	provides	for functional	regulation	of	financial	holding	company	activities	by	various	regulators,	GLBA prohibits	the	Federal	Reserve	Board	from	requiring	payment	by	a	holding	company	or subsidiary	to	a	depository	institution	if	the	functional	regulator	of	the	payor	objects	to such	payment.	In	such	a	case,	the	Federal	Reserve	Board	could	instead	require	the divestiture	of	the	depository	institution	and	impose	operating	restrictions	pending	the divestiture.

Any	loans	by	a	bank	holding	company	to	any	of	its	subsidiary	banks	are	subordinate	in right	of	payment	to	deposits	and	to	certain	other	indebtedness	of	the	subsidiary	banks. In	the	event	of	a	bank	holding	company's	bankruptcy,	any	commitment	by	the	bank holding	company	to	a	federal	bank	regulatory	agency	to	maintain	the	capital	of	a subsidiary	bank	at	a	certain	level	will	be	assumed	by	the	bankruptcy	trustee	and entitled	to	a	priority	of	payment.

The	bank	subsidiaries	of	JPMorgan	Chase	are	subject	to	certain	restrictions	imposed by	federal	law	on	extensions	of	credit	to,	and	certain	other	transactions	with,	the	Firm and	certain	other	affiliates	and	on	investments	in	stock	or	securities	of	JPMorgan Chase	and	those	affiliates.	These	restrictions	prevent	JPMorgan	Chase	and	other affiliates	from	borrowing	from	a	bank	subsidiary	unless	the	loans	are	secured	in specified	amounts.

The	Firm's	bank	and	certain	of	its	nonbank	subsidiaries	are	subject	to	direct supervision	and	regulation	by	various	other	federal	and	state	authorities	(many	of	which will	be	considered	"functional	regulators"	under	GLBA).	JPMorgan	Chase	Bank	as	a New	York	State-chartered	bank	and	a	state	member	bank,	is	subject	to	supervision	and regulation	by	the	New	York	State	Banking	Department	as	well	as	by	the	Federal Reserve	Board	and	the	FDIC.	JPMorgan	Chase's	national	bank	subsidiaries,	such	as Chase	USA,	are	subject	to	substantially	similar	supervision	and	regulation	by	the Comptroller	of	the	Currency.	Supervision	and	regulation	by	each	of	the	foregoing regulatory	agencies	generally	include	comprehensive	annual	reviews	of	all	major aspects	of	the	relevant	bank's	business	and	condition,	as	well	as	the	imposition	of periodic	reporting	requirements	and	limitations	on	investments	and	other	powers.	The Firm	also	conducts	securities	underwriting,	dealing	and	brokerage	activities	through JPMSI	and	other	broker-dealer	subsidiaries,	all	of	which	are	subject	to	the	regulations of	the	SEC	and	the	National	Association	of	Securities	Dealers,	Inc.	JPMSI	is	a	member of	the	New	York	Stock	Exchange.	The	operations	of	JPMorgan	Chase's	mutual	funds also	are	subject	to	regulation	by	the	SEC.	The	types	of	activities	in	which	the	non-U.S.

branches	of	JPMorgan	Chase	Bank	and	the	international	subsidiaries	of	JPMorgan Chase	may	engage	are	subject	to	various	restrictions	imposed	by	the	Federal	Reserve Board.	Those	non-U.S.	branches	and	international	subsidiaries	also	are	subject	to	the laws	and	regulatory	authorities	of	the	countries	in	which	they	operate.

The	activities	of	JPMorgan	Chase	Bank	and	Chase	USA	as	consumer	lenders	also	are subject	to	regulation	under	various	federal	laws,	including	the	Truth-in-Lending,	the Equal	Credit	Opportunity,	the	Fair	Credit	Reporting,	the	Fair	Debt	Collection	Practice and	the	Electronic	Funds	Transfer	Acts,	as	well	as	various	state	laws.	These	statutes impose	requirements	on	the	making,	enforcement	and	collection	of	consumer	loans	and on	the	types	of	disclosures	that	need	to	be	made	in	connection	with	such	loans.

In	addition,	under	the	requirements	imposed	by	GLBA,	JPMorgan	Chase	and	its subsidiaries	are	required	periodically	to	disclose	to	their	retail	customers	the	Firm's policies	and	practices	with	respect	to	(1)	the	sharing	of	non-public	customer	information with	JPMorgan	Chase	affiliates	and	others	and	(2)	the	confidentiality	and	security	of that	information.	Under	GLBA,	retail	customers	also	must	be	given	the	opportunity	to "opt	out"	of	information	sharing	arrangements	with	non-affiliates,	subject	to	certain exceptions	set	forth	in	GLBA.

# Important	factors	that	may	affect	future	results

From	time	to	time,	the	Firm	has	made	and	will	make	forward-looking	statements.	These statements	can	be	identified	by	the	fact	that	they	do	not	relate	strictly	to	historical	or current	facts.	Forward-looking	statements	often	use	words	such	as	"anticipate,"	"target," "expect,"	"estimate,"	"intend,"	"plan,"	"goal,"	"believe"	or	other	words	of	similar	meaning. Forward-looking	statements	give	JPMorgan	Chase's	current	expectations	or	forecasts of	future	events,	circumstances	or	results.	JPMorgan	Chase's	disclosures	in	this	report, including	in	the	MD&A	section,	contain	forward-looking	statements.	The	Firm	also	may make	forward-looking	statements	in	its	other	documents	filed	with	the	SEC	and	in	other written	materials.	In	addition,	the	Firm's	senior	management	may	make	forward-looking statements	orally	to	analysts,	investors,	representatives	of	the	media	and	others.

Any	forward-looking	statements	made	by	or	on	behalf	of	the	Firm	speak	only	as	of	the date	they	are	made.	JPMorgan	Chase	does	not	undertake	to	update	forward-looking statements	to	reflect	the	impact	of	circumstances	or	events	that	arise	after	the	date	the forward-looking	statement	was	made.	The	reader	should,	however,	consult	any	further disclosures	of	a	forward-looking	nature	JPMorgan	Chase	may	make	in	its	Annual Reports	on	Form	10-K,	its	Quarterly	Reports	on	Form	10-Q	and	its	Current	Reports	on Form	8-K.

All	forward-looking	statements,	by	their	nature,	are	subject	to	risks	and	uncertainties. The	Firm's	actual	future	results	may	differ	materially	from	those	set	forth	in	JPMorgan Chase's	forward-looking	statements.	Factors	that	might	cause	JPMorgan	Chase's future	financial	performance	to	vary	from	that	described	in	its	forward-looking statements	include	the	credit,	market,	operational,	liquidity,	interest	rate	and	other	risks discussed	in	the	MD&A	section	of	this	report	and	in	other	periodic	reports	filed	with	the SEC.	In	addition,	the	following	discussion	sets	forth	cer-

tain	risks	and	uncertainties	that	the	Firm	believes	could	cause	its	actual	future	results	to differ	materially	from	expected	results.	However,	other	factors	besides	those	listed below	or	discussed	in	JPMorgan	Chase's	reports	to	the	SEC	also	could	adversely affect	the	Firm's	results,	and	the	reader	should	not	consider	any	such	list	of	factors	to be	a	complete	set	of	all	potential	risks	or	uncertainties.	This	discussion	is	provided	as permitted	by	the	Private	Securities	Litigation	Reform	Act	of	1995.

Merger	of	JPMorgan	Chase	and	Bank	One.	There	are	significant	risks	and uncertainties	associated	with	the	Firm's	proposed	merger	with	Bank	One.	For	example, the	merger	may	not	be	consummated,	or	may	not	be	consummated	by	mid-2004	as currently	anticipated,	as	a	result	of	the	inability	to	obtain	governmental	approvals	of	the merger	on	the	proposed	terms	or	the	failure	of	either	company	to	receive	shareholder approval	for	the	merger.	In	addition,	JPMorgan	Chase	may	fail	to	realize	the	growth opportunities	and	cost	savings	anticipated	to	be	derived	from	the	merger.	If	the	Firm	is not	able	to	combine	successfully	the	businesses	of	JPMorgan	Chase	and	Bank	One, the	anticipated	benefits	from	the	merger	may	not	be	realized	fully	or	at	all	or	may	take longer	to	realize	than	expected.	For	example,	it	is	possible	that	the	integration	process could	result	in	the	loss	of	key	employees,	or	that	the	disruption	of	ongoing	business from	the	merger	could	adversely	affect	JPMorgan	Chase's	ability	to	maintain relationships	with	clients	or	suppliers.	Finally,	upon	consummation	of	the	merger, management's	present	expectations	of	the	future	results	of	the	merger	may	be	modified or	revised.

Business	conditions	and	general	economy.	The	profitability	of	JPMorgan	Chase's businesses	could	be	adversely	affected	by	a	worsening	of	general	economic	conditions in	the	United	States	or	abroad.	The	difficult	global	market	and	economic	conditions	that existed	in	2002	improved	markedly	in	2003.	While	the	outlook	for	the	Firm	for	2004	is cautiously	optimistic,	based	upon	the	gradual	improvement	of	the	overall	economic environment,	there	can	be	no	assurances	that	the	economic	recovery	that	began	in 2003	will	continue	throughout	2004.

Factors	such	as	the	liquidity	of	the	global	financial	markets,	the	level	and	volatility	of equity	prices	and	interest	rates,	investor	sentiment,	inflation,	and	the	availability	and cost	of	credit	could	significantly	affect	the	activity	level	of	clients	with	respect	to	size, number	and	timing	of	transactions	affected	by	the	Firm's	investment	banking	business, including	its	underwriting	and	advisory	businesses,	and	also	may	affect	the	realization of	cash	returns	from	JPMorgan	Chase's	private	equity	business.	A	recurrence	of	a market	downturn	would	likely	lead	to	a	decline	in	the	volume	of	transactions	that JPMorgan	Chase	executes	for	its	customers	and,	therefore,	lead	to	a	decline	in	the revenues	it	receives	from	trading	commissions	and	spreads.	Higher	interest	rates	or continued	weakness	in	the	market	also	could	affect	the	willingness	of	financial	investors to	participate	in	loan	syndications	or	underwritings	managed	by	JPMorgan	Chase.	The Firm	generally	maintains	large	trading	portfolios	in	the	fixed	income,	currency, commodity	and	equity	markets	and	has	significant	investment	positions,	including merchant	banking	investments	at	JPMorgan	Partners.	The	revenues	derived	from mark-to-market	values	of	JPMorgan	Chase's	business	are	affected	by	many	factors, including	JPMorgan	Chase's	credit	standing;	its	success	in	proprietary	positioning; volatility	in	interest	rates	and	in	equity	and	debt	markets;	and	the	economic,

political	and	business	factors	described	below.	JPMorgan	Chase	anticipates	that	these revenues	will	fluctuate	over	time.

The	fees	JPMorgan	Chase	earns	for	managing	assets	are	also	dependent	upon general	economic	conditions.	For	example,	a	higher	level	of	U.S.	or	non-U.S.	interest rates	or	a	downturn	in	trading	markets	could	affect	the	valuations	of	the	mutual	funds managed	by	the	Firm,	which,	in	turn	could	affect	the	Firm's	revenues.	Moreover,	even in	the	absence	of	a	market	downturn,	below-market	performance	by	JPMorgan Chase's	mutual	funds	could	result	in	outflows	of	assets	under	management	and, therefore,	reduce	the	fees	the	Firm	receives.

The	credit	quality	of	JPMorgan	Chase's	on-balance	sheet	and	off-balance	sheet	assets may	be	affected	by	business	conditions.	In	a	poor	economic	environment	there	is	a greater	likelihood	that	more	of	the	Firm's	customers	or	counterparties	could	become delinquent	on	their	loans	or	other	obligations	to	JPMorgan	Chase,	which,	in	turn,	could result	in	a	higher	level	of	charge-offs	and	a	higher	level	of	provision	for	credit	losses,	all of	which	would	adversely	affect	the	Firm's	earnings.

The	Firm's	consumer	businesses	are	particularly	affected	by	domestic	economic conditions,	including	U.S.	interest	rates,	the	rate	of	unemployment,	the	level	of consumer	confidence,	changes	in	consumer	spending,	and	the	number	of	personal bankruptcies,	as	these	factors	will	affect	the	level	of	consumer	loans	and	credit	quality.

Competition.	JPMorgan	Chase	operates	in	a	highly	competitive	environment	and expects	various	factors	to	cause	competitive	conditions	to	continue	to	intensify.	The Firm	expects	competition	to	intensify	as	continued	merger	activity	in	the	financial services	industry	produces	larger,	better-capitalized	companies	that	are	capable	of offering	a	wider	array	of	financial	products	and	services,	and	at	more	competitive	prices. In	addition,	technological	advances	and	the	growth	of	e-commerce	have	made	it possible	for	non-depository	institutions	to	offer	products	and	services	that	traditionally were	banking	products	and	for	financial	institutions	to	compete	with	technology companies	in	providing	electronic	and	Internet-based	financial	solutions.

Non-U.S.	operations;	trading	in	non-U.S.	securities.	The	Firm	does	business throughout	the	world,	including	in	developing	regions	of	the	world	commonly	known	as emerging	markets.	JPMorgan	Chase's	businesses	and	revenues	derived	from	non-U.S. operations	are	subject	to	risk	of	loss	from	unfavorable	political	and	diplomatic developments,	currency	fluctuations,	social	instability,	changes	in	governmental policies	or	policies	of	central	banks,	expropriation,	nationalization,	confiscation	of assets	and	changes	in	legislation	relating	to	non-U.S.	ownership.	JPMorgan	Chase also	invests	in	the	securities	of	corporations	located	in	non-U.S.	jurisdictions,	including emerging	markets.	Revenues	from	the	trading	of	non-U.S.	securities	also	may	be subject	to	negative	fluctuations	as	a	result	of	the	above	factors.	The	impact	of	these fluctuations	could	be	accentuated	because,	generally,	non-U.S.	trading	markets, particularly	in	emerging	market	countries,	are	smaller,	less	liquid	and	more	volatile	than U.S.	trading	markets.

Operational	risk.	JPMorgan	Chase,	like	all	large	corporations,	is	exposed	to	many types	of	operational	risk,	including	the	risk	of	fraud	by	employees	or	outsiders, unauthorized	transactions	by	employees	or	operational	errors,	including	clerical	or record-keeping	errors	or	errors	resulting	from	faulty	or	disabled	computer

or	telecommunications	systems.	Given	the	high	volume	of	transactions	at	JPMorgan Chase,	certain	errors	may	be	repeated	or	compounded	before	they	are	discovered	and successfully	rectified.	In	addition,	the	Firm's	necessary	dependence	upon	automated systems	to	record	and	process	its	transaction	volume	may	further	increase	the	risk	that technical	system	flaws	or	employee	tampering	or	manipulation	of	those	systems	will result	in	losses	that	are	difficult	to	detect.	The	Firm	may	also	be	subject	to	disruptions	of its	operating	systems,	arising	from	events	that	are	wholly	or	partially	beyond	its	control (including,	for	example,	computer	viruses	or	electrical	or	telecommunications	outages), which	may	give	rise	to	losses	in	service	to	customers	and	to	loss	or	liability	to	the	Firm. The	Firm	is	further	exposed	to	the	risk	that	its	external	vendors	may	be	unable	to	fulfill their	contractual	obligation	to	the	Firm	(or	will	be	subject	to	the	same	risk	of	fraud	or operational	errors	by	their	respective	employees	as	is	the	Firm),	and	to	the	risk	that	its (or	its	vendors')	business	continuity	and	data	security	systems	prove	not	to	be sufficiently	adequate.	The	Firm	also	faces	the	risk	that	the	design	of	its	controls	and procedures	prove	inadequate,	or	are	circumvented,	thereby	causing	delays	in	detection or	errors	in	information.	Although	JPMorgan	Chase	maintains	a	system	of	controls designed	to	keep	operational	risk	at	appropriate	levels,	there	can	be	no	assurance	that JPMorgan	Chase	will	not	suffer	losses	from	operational	risks	in	the	future	that	may	be material	in	amount.

Government	monetary	policies	and	economic	controls.	JPMorgan	Chase's businesses	and	earnings	are	affected	by	general	economic	conditions,	both	domestic and	international.	JPMorgan	Chase's	businesses	and	earnings	also	are	affected	by	the fiscal	or	other	policies	that	are	adopted	by	various	regulatory	authorities	of	the	United States,	non-U.S.	governments	and	international	agencies.	For	example,	policies	and regulations	of	the	Federal	Reserve	Board	influence,	directly	and	indirectly,	the	rate	of interest	paid	by	commercial	banks	on	their	interest-bearing	deposits	and	also	may impact	the	value	of	financial	instruments	held	by	the	Firm.	These	actions	of	the	Federal Reserve	Board	also	determine	to	a	significant	degree	the	cost	to	JPMorgan	Chase	of funds	for	lending	and	investing.	The	nature	and	impact	of	future	changes	in	economic and	market	conditions	and	fiscal	policies	are	not	predictable	and	are	beyond	JPMorgan Chase's	control.	In	addition,	these	policies	and	conditions	can	impact	the	Firm's customers	and	counterparties,	both	in	the	U.S.	and	abroad,	which	may	increase	the	risk that	such	customers	or	counterparties	default	on	their	obligations	to	JPMorgan	Chase.

Reputational	and	legal	risk.	The	Firm's	ability	to	attract	and	retain	customers	and employees	could	be	adversely	affected	to	the	extent	its	reputation	is	damaged.	The failure	of	the	Firm	to	deal,	or	to	appear	to	fail	to	deal,	with	various	issues	that	could	give rise	to	reputational	risk	could	cause	harm	to	the	Firm	and	its	business	prospects.	These issues	include,	but	are	not	limited	to,	appropriately	dealing	with	potential	conflicts	of interest,	legal	and	regulatory	requirements,	ethical	issues,	money-laundering,	privacy, record-keeping,	sales	and	trading	practices	and	the	proper	identification	of	the	legal, reputational,	credit,	liquidity	and	market	risks	inherent	in	its	products.	Failure	to	address appropriately	these	issues	could	also	give	rise	to	additional	legal	risk	to	the	Firm,	which could,	in	turn,	increase	the	size	and	number	of	claims	and	damages	asserted	against the	Firm	or	subject	the	Firm	to	enforcement	actions,	fines	and	penalties.

Credit,	market,	liquidity	and	private	equity	risk.	JPMorgan	Chase's	revenues	also are	dependent	upon	the	extent	to	which	management	can	successfully	achieve	its business	strategies	within	a	disciplined	risk	environment.	JPMorgan	Chase's	ability	to grow	its	businesses	is	affected	by	pricing	and	competitive	pressures,	as	well	as	by	the costs	associated	with	the	introduction	of	new	products	and	services	and	the	expansion and	development	of	new	distribution	channels.	The	ability	of	management	to	utilize	the "Shareholder	Value	Added"	methodology	to	evaluate	investment	opportunities	and	the ability	to	maintain	expense	discipline	will	be	important	factors	in	determining	the	extent to	which	the	Firm	achieves	its	financial	targets.	In	addition,	to	the	extent	any	of	the instruments	and	strategies	JPMorgan	Chase	uses	to	hedge	or	otherwise	manage	its exposure	to	market,	credit	and	private	equity	risk	are	not	effective,	the	Firm	may	not	be able	to	mitigate	effectively	its	risk	exposures	in	particular	market	environments	or against	particular	types	of	risk.	JPMorgan	Chase's	balance	sheet	growth	will	be dependent	upon	the	economic	conditions	described	above,	as	well	as	on	its determination	to	securitize,	sell,	purchase	or	syndicate	particular	loans	or	loan portfolios.	JPMorgan	Chase's	trading	revenues	and	interest	rate	risk	are	dependent upon	its	ability	to	identify	properly,	and	mark	to	market,	changes	in	the	value	of	its financial	instruments	caused	by	changes	in	market	prices	or	rates.	The	Firms's earnings	will	also	be	dependent	upon	how	effectively	its	critical	accounting	estimates, including	those	used	in	its	private	equity	valuations,	prove	accurate	and	upon	how effectively	it	determines	and	assesses	the	cost	of	credit	and	manages	its	risk concentrations.	To	the	extent	its	assessments	of	migrations	in	credit	quality	and	of	risk concentrations,	or	its	assumptions	or	estimates	used	in	establishing	its	valuation models	for	the	fair	value	of	its	assets	and	liabilities	or	for	its	loan	loss	reserves,	prove inaccurate	or	not	predictive	of	actual	results,	the	Firm	could	suffer	higher-than- anticipated	losses.	The	successful	management	of	credit,	market,	operational	and private	equity	risk	is	an	important	consideration	in	managing	the	Firm's	liquidity	risk,	as evaluation	by	rating	agencies	of	the	management	of	these	risks	affects	their determinations	as	to	the	Firm's	credit	ratings	and,	therefore,	its	cost	of	funds.

# Non-U.S.	operations

For	geographic	distributions	of	total	revenue,	total	expense,	income	before	income	tax expense	and	net	income,	see	Note	32	on	page	124.	For	a	discussion	of	non-U.S.	loans, see	Note	11	on	page	99	and	the	sections	entitled	"Country	exposure"	in	the	MD&A	on page	58	and	"Cross-border	outstandings"	on	page	139.

# Item	2:	Properties

The	headquarters	of	JPMorgan	Chase	is	located	in	New	York	City	at	270	Park	Avenue, which	is	a	50-story	bank	and	office	building	owned	by	JPMorgan	Chase.	This	location contains	approximately	1.3	million	square	feet	of	space.	In	addition,	JPMorgan	Chase leases	approximately	2.2	million	square	feet	of	office	space	in	two	midtown	Manhattan office	buildings,	277	Park	Avenue	and	245	Park	Avenue,	which,	together	with	270	Park, comprise	the	JPMorgan	Chase	"midtown	campus."	The	277	Park	Avenue	building	is fully	occupied.	The	lower	floors	of	245	Park	Avenue	are	occupied	by	JPMorgan	Chase, but	approximately	200,000	square	feet	on	the	upper	floors	are	presently	being marketed.	JPMorgan	Chase	also	owns	and	occupies	a	large	portion	of	a	60-

story	building	at	One	Chase	Manhattan	Plaza	in	New	York	City.	This	location	has approximately	2	million	square	feet	of	commercial	office	and	retail	space,	of	which approximately	700,000	square	feet	is	leased	to	outside	tenants.	JPMorgan	Chase	also owns	and	occupies	a	22-story	building	at	4	New	York	Plaza,	New	York	City.	This location	has	900,000	square	feet	of	commercial	office	and	retail	space,	none	of	which	is leased	to	outside	tenants.	JPMorgan	Chase	is	also	a	tenant	in	a	number	of	other	office buildings	in	Manhattan.

In	the	third	quarter	of	2003,	JPMorgan	Chase	sold	the	two	adjacent	buildings	it	owned at	23	Wall	Street	and	15	Broad	Street	in	New	York	City	to	a	private	developer.	The	two buildings	contain	approximately	1	million	square	feet	of	commercial	office	and	retail space.

JPMorgan	Chase	built	and	fully	occupies	a	two-building	complex	known	as	Chase MetroTech	Center	in	downtown	Brooklyn,	New	York	that	was	completed	in	1992.	This facility	contains	approximately	1.75	million	square	feet	and	houses	operations	and product	support	functions.	JPMorgan	Chase	currently	leases	two	office	buildings	at	The Newport	Office	Center	in	Jersey	City,	New	Jersey,	comprising	approximately	1.1	million square	feet	of	office	and	retail	space.	JPMorgan	Chase	and	its	subsidiaries	also	own and	occupy	administrative	and	operational	facilities	in	Hicksville,	New	York;	Tampa, Florida;	Tempe,	Arizona;	Newark,	Delaware;	and	in	Houston,	Arlington	and	El	Paso, Texas.

In	the	United	Kingdom,	JPMorgan	Chase	occupies,	in	the	aggregate,	approximately 2.6	million	square	feet	of	space.	The	most	significant	components	of	leased	space	in London	are	370,000	square	feet	at	125	London	Wall,	325,000	square	feet	at Aldermanbury,	and	a	450,000	square-foot	office	complex	at	60	Victoria	Embankment	in London.	JPMorgan	Chase	owns	and	occupies	a	350,000	square-foot	operations	center in	Bournemouth.

In	addition	to	the	above,	JPMorgan	Chase	and	its	subsidiaries	occupy	retail	branches, offices	and	other	administrative	and	operational	facilities	throughout	the	world	under various	types	of	ownership	and	leasehold	agreements.	The	properties	occupied	by JPMorgan	Chase	are	used	across	all	of	JPMorgan	Chase's	business	segments	and	for corporate	purposes.

JPMorgan	Chase	incurred	charges	of	$270	million	in	2003	and	$120	million	in	2002	to cover	the	costs	of	disposing	of	excess	space.	JPMorgan	Chase	continues	to	evaluate its	current	and	projected	space	requirements,	particularly	in	light	of	its	proposed	merger with	Bank	One.	There	is	no	assurance	that	the	Firm	will	be	able	to	dispose	of	its	excess premises	or	that	it	will	not	incur	additional	charges	in	connection	with	such	dispositions.

# Item	3:	Legal	proceedings

Enron	litigation.	JPMorgan	Chase	is	involved	in	a	number	of	lawsuits	and	investigations arising	out	of	its	banking	relationships	with	Enron	Corp.	and	its	subsidiaries	("Enron"). Pending	in	London	is	a	lawsuit	by	the	Firm	against	Westdeutsche	Landes-bank Girozentrale	("WLB")	seeking	to	compel	payment	of	$165	million	under	an	Enron- related	letter	of	credit	issued	by	WLB.

Actions	involving	Enron	have	been	initiated	by	parties	against	JPMorgan	Chase,	its directors	and	certain	of	its	officers.	These	lawsuits	include	a	series	of	purported	class actions	brought	on	behalf	of	shareholders	of	Enron,	including	the	lead	action	captioned Newby	v.	Enron	Corp.,	and	a	series	of	purported	class	actions	brought	on	behalf	of Enron	employees	who	participated	in	various	employee	stock	ownership	plans, including	the	lead	action	captioned	Tittle	v.	Enron	Corp.	The	consolidated	complaint filed	in	Newby	names	as	defendants,	among	others,	JPMorgan	Chase,	several	other investment	banking	firms,	a	number	of	law	firms,	Enron's	former	accountants	and affiliated	entities	and	individuals	and	other	individual	defendants,	including	present	and former	officers	and	directors	of	Enron,	and	it	purports	to	allege	claims	against	JPMorgan Chase	and	the	other	defendants	under	federal	and	state	securities	laws.	The	Tittle complaint	named	as	defendants,	among	others,	JPMorgan	Chase,	several	other investment	banking	firms,	a	law	firm,	Enron's	former	accountants	and	affiliated	entities and	individuals	and	other	individual	defendants,	including	present	and	former	officers and	directors	of	Enron	and	purports	to	allege	claims	against	JPMorgan	Chase	and certain	other	defendants	under	the	Racketeer	Influenced	and	Corrupt	Organizations	Act ("RICO")	and	state	common	law.	On	December	20,	2002,	the	Court	denied	the	motion of	JPMorgan	Chase	and	other	defendants	to	dismiss	the	Newby	action.	On September	30,	2003,	Judge	Harmon	dismissed	all	claims	against	JPMorgan	Chase	in Tittle.

Additional	actions	include	a	purported	consolidated	class	action	lawsuit	by	JPMorgan Chase	stockholders	alleging	that	the	Firm	issued	false	and	misleading	press	releases and	other	public	documents	relating	to	Enron	in	violation	of	Section	10(b)	of	the Securities	Exchange	Act	of	1934	and	Rule	10b-5	thereunder;	a	putative	class	action	on behalf	of	JPMorgan	Chase	employees	who	participated	in	the	Firm's	employee	stock ownership	plans	alleging	claims	under	the	Employee	Retirement	Income	Security	Act ("ERISA")	for	alleged	breaches	of	fiduciary	duties	and	negligence	by	JPMorgan	Chase, its	directors	and	named	officers;	shareholder	derivative	actions	alleging	breaches	of fiduciary	duties	and	alleged	failures	to	exercise	due	care	and	diligence	by	the	Firm's directors	and	named	officers	in	the	management	of	JPMorgan	Chase;	individual	and putative	class	actions	in	various	courts	by	Enron	investors,	creditors	and	holders	of participating	interests	related	to	syndicated	credit	facilities;	third-party	actions	brought by	defendants	in	Enron-related	cases,	alleging	federal	and	state	law	claims	against JPMorgan	Chase	and	many	other	defendants;	investigations	by	governmental agencies	with	which	the	Firm	is	cooperating;	and	an	adversary	proceeding	brought	by Enron	in	bankruptcy	court	seeking	damages	for	alleged	aiding	and	abetting	breaches	of fiduciary	duty	by	Enron	insiders,	return	of	alleged	fraudulent	conveyances	and preferences,	and	equitable	subordination	of	JPMorgan	Chase's	claims	in	the	Enron bankruptcy.	On	July	28,	2003,	an	examiner	appointed	in	the	Enron	bankruptcy	case filed	with	the	bankruptcy	court	the	third	in	a	series	of	reports.	In	this	report,	the	Enron examiner	opined	that	the	Enron	bankruptcy	estate	has	colorable	claims	against	(among others)	JPMorgan	Chase	for	aiding	and	abetting	breaches	of	fiduciary	duties	by	certain of	Enron's	officers	with	respect	to	certain	transactions	involving	Enron,	for	equitable subordination	and	for	avoidance	of	allegedly	preferential	payments	made	to	the	Firm. The	report	acknowledges	that	any	such	claims	may	be	subject	to	certain	defenses which	could	be	asserted	by	JPMorgan	Chase.

By	joint	order	of	the	district	court	handling	Newby,	Tittle	and	a	number	of	other	Enron- related	cases	and	the	bankruptcy	court	handling	Enron's	bankruptcy	case,	a	mediation among	various	investors	and	creditor	plaintiffs,	the	Enron	bankruptcy	estate	and	a number	of	financial	institution	defendants,	including	JPMorgan	Chase,	has	been initiated	before	The	Honorable	William	C.	Conner,	Senior	United	States	District	Judge for	the	Southern	District	of	New	York.

On	July	28,	2003,	the	Firm	announced	that	it	had	reached	agreements	with	the Securities	and	Exchange	Commission	("SEC"),	the	Federal	Reserve	Bank	of	New	York ("FRB"),	the	New	York	State	Banking	Department	("NYSBD"),	and	the	New	York County	District	Attorney's	Office	("NYDA")	resolving	matters	relating	to	JPMorgan Chase's	involvement	with	certain	transactions	involving	Enron.	In	connection	with	the SEC	settlement,	the	SEC	alleged	that	JPMorgan	Chase	aided	and	abetted	a	securities fraud	by	Enron.	JPMorgan	Chase	has	neither	admitted	nor	denied	the	SEC's allegations	but	has	consented	to	relief	sought	by	the	SEC,	including	an	order	enjoining the	Firm	from	future	violations	of	the	antifraud	provisions	of	the	securities	laws	and requiring	the	Firm	to	pay	a	total	of	$135	million,	consisting	of	$65	million	of disgorgement	of	revenues,	$5	million	of	interest	and	$65	million	of	penalties.	The agreement	with	the	NYDA	provides	that	neither	JPMorgan	Chase	nor	any	of	its	officers or	employees	will	be	prosecuted	by	the	NYDA	and	that	the	Firm	will	pay	a	total	of $27.5	million,	consisting	of	$25	million	in	penalties	and	$2.5	million	in	reimbursement	of expenses	of	the	NYDA.	JPMorgan	Chase	has	also	committed	to	take	certain	measures to	improve	controls	with	respect	to	structured	finance	transactions.	The	agreement	with the	FRB	and	NYSBD,	a	formal	written	agreement,	requires	JPMorgan	Chase	to	adopt programs	acceptable	to	the	FRB	and	the	NYSBD	for	enhancing	the	Firm's	management of	credit	risk	and	legal	and	reputational	risk,	particularly	in	relation	to	its	participation	in structured	finance	transactions.

WorldCom	litigation.	J.P.	Morgan	Securities	Inc.	("JPMSI")	and	JPMorgan	Chase	have been	named	as	defendants	in	more	than	50	actions	that	were	filed	in	either	United States	District	Courts	or	state	courts	in	more	than	20	states	and	in	one	arbitral	panel beginning	in	July	2002	arising	out	of	alleged	accounting	irregularities	in	the	books	and records	of	WorldCom	Inc.	Plaintiffs	in	these	actions	are	individual	and	institutional investors,	including	state	pension	funds,	who	purchased	debt	securities	issued	by WorldCom	pursuant	to	public	offerings	in	1997,	1998,	2000	and	2001.	JPMSI	acted	as an	underwriter	of	the	1998,	2000	and	2001	offerings	and	was	an	initial	purchaser	in	the December	2000	private	bond	offering.	In	addition	to	JPMSI,	JPMorgan	Chase	and,	in two	actions,	J.P.	Morgan	Securities	Ltd.	("JPMSL")	in	its	capacity	as	one	of	the underwriters	of	the	international	tranche	of	the	2001	offering,	the	defendants	in	various of	the	actions	include	other	underwriters,	certain	executives	of	WorldCom	and WorldCom's	auditors.	In	the	actions,	plaintiffs	allege	that	defendants	either	knew	or were	reckless	or	negligent	in	not	knowing	that	the	securities	were	sold	to	plaintiffs	on the	basis	of	misrepresentations	and	omissions	of	material	facts	concerning	the	financial condition	of	WorldCom.	The	complaints	against	JPMorgan	Chase,	JPMSI	and	JPMSL assert	claims	under	federal	and	state	securities	laws,	other	state	statutes	and	under common	law	theories	of	fraud	and	negligent	misrepresentation.

Commercial	Financial	Services	litigation.	JPMSI	(formerly	known	as	Chase	Securities Inc.)	has	been	named	as	a	defendant	in	several	actions	that	were	filed	in	or	transferred to	the	United	States	District	and	Bankruptcy	Courts	for	the	Northern	District	of Oklahoma	or	filed	in	Oklahoma	state	court	beginning	in	October	1999,	arising	out	of	the failure	of	Commercial	Financial	Services,	Inc.	("CFSI").	Plaintiffs	in	these	actions	are institutional	investors	who	purchased	approximately	$2.0	billion	in	original	face	amount of	asset-backed	securities	issued	by	CFSI.	The	securities	were	backed	by	charged-off credit	card	receivables.	In	addition	to	JPMSI,	the	defendants	in	various	of	the	actions are	the	founders	and	key	executives	of	CFSI,	as	well	as	its	auditors	and	outside counsel.	JPMSI	is	alleged	to	have	been	the	investment	bankers	to	CFSI	and	to	have acted	as	an	initial	purchaser	and	as	placement	agent	in	connection	with	the	issuance	of certain	of	the	securities.	Plaintiffs	allege	that	defendants	either	knew	or	were	reckless or	negligent	in	not	knowing	that	the	securities	were	sold	to	plaintiffs	on	the	basis	of misleading	misrepresentations	and	omissions	of	material	facts.	The	complaints	against JPMSI	assert	claims	under	the	Securities	Exchange	Act	of	1934,	under	the	Oklahoma Securities	Act	and	under	common	law	theories	of	fraud	and	negligent misrepresentation.	In	the	actions	against	JPMSI,	damages	in	the	amount	of approximately	$1.6	billion,	allegedly	suffered	as	a	result	of	defendants' misrepresentations	and	omissions,	plus	punitive	damages	and	interest,	are	being claimed.	CFSI	has	commenced	an	action	against	JPMSI	in	Oklahoma	state	court	and has	asserted	claims	against	JPMSI	for	professional	negligence	and	breach	of	fiduciary duty.	CFSI	alleges	that	JPMSI	failed	to	detect	and	prevent	its	insolvency.	CFSI	seeks unspecified	damages.	CFSI	has	also	commenced,	in	its	bankruptcy	case,	an	adversary proceeding	against	JPMSI	and	its	credit	card	affiliate,	Chase	Manhattan	Bank	USA, N.A.,	alleging	that	certain	payments,	aggregating	$78.4	million,	made	in	connection with	CFSI's	purchase	or	securitization	of	charged-off	credit	card	receivables	were constructive	fraudulent	conveyances,	and	seeks	to	recover	such	payments	and interest.	A	trial	date	on	the	adversary	proceeding	has	been	set	for	November	1,	2004.

IPO	allocation	litigation.	Beginning	in	May	2001,	JPMorgan	Chase	and	certain	of	its securities	subsidiaries	have	been	named,	along	with	numerous	other	firms	in	the securities	industry,	as	defendants	in	a	large	number	of	putative	class	action	lawsuits filed	in	the	United	States	District	Court	for	the	Southern	District	of	New	York.	These suits	purport	to	challenge	alleged	improprieties	in	the	allocation	of	stock	in	various public	offerings,	including	some	offerings	for	which	a	JPMorgan	Chase	entity	served	as an	underwriter.	The	suits	allege	violations	of	securities	and	antitrust	laws	arising	from alleged	material	misstatements	and	omissions	in	registration	statements	and prospectuses	for	the	initial	public	offerings	("IPOs")	and	alleged	market	manipulation with	respect	to	aftermarket	transactions	in	the	offered	securities.	The	securities	claims allege,	among	other	things,	misrepresentations	and	market	manipulation	of	the aftermarket	trading	for	these	offerings	by	tying	allocations	of	shares	in	IPOs	to undisclosed	excessive	commissions	paid	to	JPMorgan	Chase	and	to	required aftermarket	purchase	transactions	by	customers	who	received	allocations	of	shares	in the	respective	IPOs,	as	well	as	allegations	of	misleading	analyst	reports.	The	antitrust claims	allege	an	illegal	conspiracy	to	require	customers,	in	exchange	for	IPO allocations,	to	pay	undisclosed	and	excessive	commissions	and	to	make	aftermarket

purchases	of	the	IPO	securities	at	a	price	higher	than	the	offering	price	as	a precondition	to	receiving	allocations.	On	February	13,	2003,	the	Court	denied	the motions	of	JPMorgan	Chase	and	others	to	dismiss	the	securities	complaints.	On November	3,	2003,	the	Court	granted	defendants'	motion	to	dismiss	the	antitrust	claims relating	to	the	IPO	allocation	practices.	A	separate	antitrust	claim	alleging	that	JPMSI and	the	other	underwriters	conspired	to	fix	their	underwriting	fees	is	in	discovery.

JPMorgan	Chase	has	also	received	various	subpoenas	and	informal	requests	from governmental	and	other	agencies	seeking	information	relating	to	IPO	allocation practices.	On	February	20,	2003,	JPMSI	reached	a	settlement	with	the	National Association	of	Securities	Dealers	("NASD")	pursuant	to	which	the	NASD	censured JPMSI	and	fined	it	$6	million	for	activities	it	found	to	constitute	unlawful	profit	sharing	by Hambrecht	&	Quist	Group	in	the	period	immediately	prior	to	and	following	its acquisition	in	2000.	In	agreeing	to	the	resolution	of	the	charges,	JPMSI	neither admitted	nor	denied	the	NASD's	contentions.	In	late	September	JPMSI	and	the	SEC agreed	to	resolve	matters	relating	to	the	SEC's	investigation	of	JPMSI's	IPO	allocation practices	during	1999	and	2000.	The	SEC	alleged	that	JPMSI	violated	Rule	101	of	SEC Regulation	M	in	certain	"hot"	IPOs	by	attempting	to	induce	certain	customers	to	place aftermarket	orders	for	IPO	shares	before	the	IPO	was	completed.	Also,	in	the	case	of one	IPO,	the	SEC	alleged	that	JPMSI	violated	"just	and	equitable	principles	of	trade" under	NASD	Conduct	Rule	2110	by	persuading	at	least	one	customer	to	accept	an allocation	of	shares	in	a	"cold"	IPO	in	exchange	for	a	promise	of	an	allocation	of	shares in	an	upcoming	IPO	that	was	expected	to	be	oversubscribed.	JPMSI	neither	admitted nor	denied	the	SEC's	allegations,	but	consented	to	a	judgment	(entered	October	1, 2003)	enjoining	JPMSI	from	future	violations	of	Regulation	M	and	NASD	Conduct Rule	2110	and	requiring	JPMSI	to	pay	a	civil	penalty	of	$25	million.

Research	analysts'	conflicts.	On	December	20,	2002,	the	Firm	reached	a	settlement agreement	in	principle	with	the	SEC,	the	NASD,	the	New	York	Stock	Exchange ("NYSE"),	the	New	York	State	Attorney	General's	Office	and	the	North	American Securities	Administrators	Association,	on	behalf	of	state	securities	regulators,	to	resolve their	investigations	of	JPMorgan	Chase	relating	to	research	analyst	independence. Pursuant	to	the	agreement	in	principle,	JPMorgan	Chase,	without	admitting	or	denying the	allegations	concerning	alleged	conflicts,	agreed,	among	other	things:	(i)	to	pay	$50 million	for	retrospective	relief,	(ii)	to	adopt	internal	structural	and	operational	reforms that	will	further	augment	the	steps	it	has	already	taken	to	ensure	the	integrity	of JPMorgan	Chase	analyst	research,	(iii)	to	contribute	$25	million	spread	over	five	years to	provide	independent	third-party	research	to	clients	and	(iv)	to	contribute	$5	million towards	investor	education.	Mutually	satisfactory	settlement	documents	have	been negotiated	and	approved	by	the	SEC,	the	NYSE,	the	NASD	and	the	Texas	State Securities	Board.	Mutually	satisfactory	settlement	documents	have	been	negotiated and	approved	by	the	regulatory	authorities	in	all	but	a	few	states,	and	settlement documents	are	in	the	process	of	being	negotiated	with	the	remaining	states.	On October	31,	2003,	the	Court	entered	final	judgment	pursuant	to	the	settlement	with	the SEC.

JPMSI	has	been	named	as	a	co-defendant	with	nine	other	broker-dealers	in	two actions	involving	allegations	similar	to	those	at	issue	in	the	regulatory	investigations:	a putative	class	action	filed

in	federal	court	in	Colorado	seeking	an	unspecified	amount	of	money	damages	for alleged	violations	of	federal	securities	laws,	and	an	action	filed	in	West	Virginia	state court	by	West	Virginia's	Attorney	General	seeking	recovery	from	the	defendants	in	the aggregate	of	$5,000	for	each	of	what	are	alleged	to	be	hundreds	of	thousands	of violations	of	the	state's	consumer	protection	statute.	On	August	8,	2003,	the	plaintiffs	in the	Colorado	action	dismissed	the	complaint	without	prejudice.	Motions	to	dismiss	the West	Virginia	action	and	to	disqualify	private	counsel	retained	by	the	Attorney	General to	prosecute	that	action	are	pending.

JPMSI	was	served	by	the	SEC,	NASD	and	NYSE	on	or	about	May	30,	2003,	with subpoenas	or	document	requests	seeking	information	regarding	certain	present	and former	officers	and	employees	in	connection	with	a	follow-up	to	the	regulatory investigations,	this	time	focusing	on	whether	particular	individuals	properly	performed supervisory	functions	regarding	domestic	equity	research.	The	Firm	is	cooperating	with the	investigations,	which	continue.

Litigation	reserve	and	other.	During	the	fourth	quarter	of	2002,	the	Firm	established	a reserve	of	$900	million	related	to	costs	anticipated	to	be	incurred	in	connection	with	the various	private	litigation	and	regulatory	inquiries	involving	Enron	and	the	other	material legal	actions,	proceedings	and	investigations	discussed	above.	In	the	second	quarter	of 2003,	the	Firm	added	$100	million	to	the	reserve	related	to	Enron.	Of	the	$1	billion, $700	million	was	allocated	to	the	various	cases,	proceedings	and	investigations associated	with	Enron.	The	balance	of	$300	million	was	allocated	to	the	various litigations,	proceedings	and	investigations	involving	the	Firm's	debt	and	equity underwriting	activities	and	equity	research	practices.	The	reserve	may	be	revised	in	the future.	As	of	December	31,	2003,	the	Enron-related	litigation	reserve	was	$524	million, and	the	balance	of	the	$300	million	set	aside	at	December	31,	2002	was	$221	million.

In	addition	to	the	various	cases,	proceedings	and	investigations	for	which	the	reserve has	been	established,	JPMorgan	Chase	and	its	subsidiaries	are	named	as	defendants in	a	number	of	other	legal	actions	and	governmental	proceedings	arising	in	connection with	their	respective	businesses.	Additional	actions,	investigations	or	proceedings	may be	brought	from	time	to	time	in	the	future.	In	view	of	the	inherent	difficulty	of	predicting the	outcome	of	legal	matters,	particularly	where	the	claimants	seek	very	large	or indeterminate	damages	or	where	the	cases	present	novel	legal	theories	or	involve	a large	number	of	parties,	the	Firm	cannot	state	with	confidence	what	the	eventual outcome	of	the	pending	matters	(including	the	pending	matters	as	to	which	the	reserve has	been	established)	will	be,	what	the	timing	of	the	ultimate	resolution	of	these	matters will	be	or	what	the	eventual	loss,	fines	or	penalties	related	to	each	pending	matter	may be.	Subject	to	the	foregoing	caveat,	JPMorgan	Chase	anticipates,	based	upon	its current	knowledge,	after	consultation	with	counsel	and	after	taking	into	account	its litigation	reserves,	that	the	outcome	of	the	legal	actions,	proceedings	and	investigations currently	pending	against	it	should	not	have	a	material	adverse	effect	on	the consolidated	financial	condition	of	the	Firm,	although	the	outcome	of	a	particular proceeding	or	the	imposition	of	a	particular	fine	or	penalty	may	be	material	to	JPMorgan Chase's	operating	results	for	a	particular	period,	depending	upon,	among	other	factors, the	size	of	the	loss	or	liability	and	the	level	of	JPMorgan	Chase's	income	for	that	period.

# Item	4:	Submission	of	matters	to	a	vote	of	security	holders

None.

# Executive	officers	of	the	registrant

Name Age Positions	and	offices	held	with	JPMorgan	Chase (at	December	31,	2003) William	B.	Harrison,	Jr. 60 Chairman	and	Chief	Executive	Officer	since	November	2001,	prior	to	which	he	was	President	and	Chief Executive	Officer	from	December	2000.	He	was	Chairman	and	Chief	Executive	Officer	from	January	through December	2000	and	President	and	Chief	Executive	Officer	from	June	through	December	1999,	prior	to which	he	had	been	Vice	Chairman	of	the	Board. David	A.	Coulter 56 Head	of	the	Investment	Bank	and	of	Investment	Management	&	Private	Banking.	He	had	been	head	of Chase	Financial	Services	until	May	2002.	Prior	to	joining	JPMorgan	Chase	in	2000,	he	led	the	West	Coast operations	of	The	Beacon	Group,	prior	to	which	he	was	Chairman	and	Chief	Executive	Officer	of BankAmerica	Corporation	and	Bank	of	America	NT	&	SA.

Chief	Financial	Officer.

Director	Human	Resources,	head	of	Security	since	September	2001	and	since	July	2003	head	of	Real Estate/Facilities,	General	Services.

Head	of	Chase	Financial	Services,	Treasury	&	Securities	Services	and	since	July	2003	of	Technology.	He had	been	co-head	of	the	Investment	Bank	until	May	2002.	Prior	to	2001,	he	was	responsible	for	global markets,	the	international	infrastructure	and	cash	management	and	securities	processing	services.

Director	of	Corporate	Marketing	and	Communications.

General	Counsel.

Chairman	of	Technology	Council.	He	led	the	Infrastructure	Delivery	Model	Initiative	from	June	2001	until July	2003.	Prior	to	2001,	he	had	been	Chief	Operating	Officer	of	the	Private	Banking	Initiative	(Morgan OnLine)	of	J.P.	Morgan	&	Co.	Incorporated.

Head	of	JPMorgan	Partners.

Chief	Risk	Officer	and	Chairman,	Risk	Management	Committee.	He	had	been	co-head	of	Credit	&	Rates	for the	Investment	Bank	from	2001	until	July	2003,	prior	to	which	he	headed	the	Global	Trading	Division.

Unless	otherwise	noted,	during	the	five	fiscal	years	ended	December	31,	2003,	all	of	JPMorgan	Chase's	above-named	executive	officers	have	continuously	held	senior-level	positions with	JPMorgan	Chase	or	its	predecessor	institutions,	J.P.	Morgan	&	Co.	Incorporated	and	The	Chase	Manhattan	Corporation.	There	are	no	family	relationships	among	the	foregoing executive	officers.

# Parts	II	&	III

# Part	II

# Item	5:	Market	for	registrant's	common	equity and	related	stockholder	matters

The	outstanding	shares	of	JPMorgan	Chase's	common	stock	are	listed	and	traded	on the	New	York	Stock	Exchange,	the	London	Stock	Exchange	Limited	and	the	Tokyo Stock	Exchange.	For	the	quarterly	high	and	low	prices	of	JPMorgan	Chase's	common stock	on	the	New	York	Stock	Exchange	for	the	last	two	years,	see	the	section	entitled "Supplementary	information	—	selected	quarterly	financial	data	(unaudited)"	on	page 128.	JPMorgan	Chase	declared	quarterly	cash	dividends	on	its	common	stock	in	the amount	of	$0.34	per	share	for	each	quarter	of	2003	and	2002.	The	common	dividend payout	ratio	based	on	reported	net	income	was	43%	for	2003,	171%	for	2002	and 168%	for	2001.	At	January	31,	2004,	there	were	123,838	holders	of	record	of JPMorgan	Chase's	common	stock.	For	information	regarding	securities	authorized	for issuance	under	the	Firm's	employee	stock-based	compensation	plans,	see	Item	12	on page	13.

# Item	6:	Selected	financial	data

For	five-year	selected	financial	data,	see	"Five-year	summary	of	financial	highlights (unaudited)"	on	page	129.

# Item	7:	Management's	discussion	and	analysis of	financial	condition	and	results	of	operations

Management's	discussion	and	analysis	of	the	financial	condition	and	results	of operations,	entitled	"Management's	discussion	and	analysis,"	appears	on	pages	22 through	80.	Such	information	should	be	read	in	conjunction	with	the	Consolidated financial	statements	and	Notes	thereto,	which	appear	on	pages	82	through	127.

# Item	7A:	Quantitative	and	qualitative disclosures	about	market	risk

For	information	related	to	market	risk,	see	the	"Market	risk	management"	section	on pages	66	through	72	and	Note	28	on	page	116.

# Item	8:	Financial	statements	and supplementary	data

The	Consolidated	financial	statements,	together	with	the	Notes	thereto	and	the	report	of PricewaterhouseCoopers	LLP	dated	January	20,	2004	thereon,	appear	on	pages	81 through	127.

Supplementary	financial	data	for	each	full	quarter	within	the	two	years	ended December	31,	2003	are	included	on	page	128	in	the	table	entitled	"Supplementary information	—	selected	quarterly	financial	data	(unaudited)."	Also	included	is	a "Glossary	of	terms''	on	pages	130	and	131.

# Item	9:	Changes	in	and	disagreements	with accountants	on	accounting	and	financial disclosure

# Item	9A:	Controls	and	procedures

Within	the	75-day	period	prior	to	the	filing	of	this	report,	an	evaluation	was	carried	out under	the	supervision	and	with	the	participation	of	the	Firm's	management,	including	its Chief	Executive	Officer	and	Chief	Financial	Officer,	of	the	effectiveness	of	the	design and	operation	of	its	disclosure	controls	and	procedures	(as	defined	in	Rule	13a-14(c) under	the	Securities	Exchange	Act	of	1934).	See	Exhibits	31.1	and	31.2	for	the Certification	statements	issued	by	the	Chief	Executive	Officer	and	Chief	Financial Officer.	Based	upon	that	evaluation,	the	Chief	Executive	Officer	and	Chief	Financial Officer	concluded	that	the	design	and	operation	of	these	disclosure	controls	and procedures	were	effective.	No	significant	changes	were	made	in	the	Firm's	internal controls	or	in	other	factors	that	could	significantly	affect	these	controls	subsequent	to the	date	of	their	evaluation.

# Part	III

# Item	10:	Directors	and	executive	officers	of JPMorgan	Chase

# Item	11:	Executive	compensation

# Item	12:	Security	ownership	of	certain	beneficial

# owners	and	management	and	related stockholder	matters

For	security	ownership	of	certain	beneficial	owners	and	management,	see	Item	13	below.

The	following	table	details	the	total	number	of	shares	available	for	issuance	under	JPMorgan	Chase	employee	stock-based	incentive	plans	(including	shares	available	for	issuance	to	nonemployee directors).	The	Firm	is	not	authorized	to	grant	stock-based	incentive	awards	to	nonemployees	other	than	to	nonemployee	directors.

| December	31,	2003<br>(Shares	in	thousands) | Number	of	shares	to	be<br>issued	upon	exercise	of<br>outstanding	options | Weighted-average<br>exercise	price	of<br>outstanding	options | Number	of	shares	remaining<br>available	for	future	issuance	under<br>equity	compensation	plans |
| :--- | :--- | :--- | :--- |
| Employee\tstock-based\tincentive\tplans\tapproved\tby\tshareholders | 224,658 | $37.66 | 184,819(a) |
| Employee\tstock-based\tincentive\tplans\tnot\tapproved\tby\tshareholders | 187,173 | 42.07 | 108,000 |
| Total | 411,831 | $39.67 | 292,819 |
| (a) |  |  |  |

(a) Includes	55	million	shares	of	restricted	stock/restricted	stock	units	available	for	grant	in	lieu	of	cash.

# Item	13:	Certain	relationships	and	related transactions

Information	related	to	JPMorgan	Chase's	Executive	Officers	is	included	on	page	11.	Pursuant to	Instruction	G	(3)	to	Form	10-K,	the	remainder	of	the	information	to	be	provided	in	Items	10, 11,	12,	13	and	14	of	Form	10-K	(other	than	information	pursuant	to	Rule	402	(i),	(k)	and	(l)	of Regulation	S-K)	is	incorporated	by	reference	to	JPMorgan	Chase's	definitive	proxy	statement for	the	2004	annual	meeting	of	stockholders,	which	proxy	statement	will	be	filed	with	the Securities	and	Exchange	Commission	pursuant	to	Regulation	14A	within	120	days	of	the	close of	JPMorgan	Chase's	2003	fiscal	year.

# Item	14:	Principal	accounting	fees	and	services

See	Item	13	above.

# Part	IV

# Item	15:	Exhibits,	financial	statement	schedules and	reports	on	form	8-K

# (A) Exhibits,	financial	statements	and	financial	statement schedules

The	Consolidated	financial	statements,	the	Notes	thereto	and	the	report thereon	listed	in	Item	8	are	set	forth	commencing	on	page	81.

Financial	statement	schedules	are	omitted	since	the	required	information	is either	not	applicable,	not	deemed	material,	or	is	shown	in	the	respective Consolidated	financial	statements	or	in	the	Notes	thereto.

3.1 Restated	Certificate	of	Incorporation	of	J.P.	Morgan	Chase	&	Co.	(incorporated by	reference	to	Exhibit	3.1	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan Chase	&	Co.	(the	"Registrant")	(File	No.	1-5805)	for	the	year	ended December	31,	2000).

4.1 Deposit	Agreement,	dated	as	of	February	8,	1996,	between	J.P.	Morgan	&	Co. Incorporated	(succeeded	through	merger	by	J.P.	Morgan	Chase	&	Co.)	and Morgan	Guaranty

Trust	Company	of	New	York	(succeeded	through	merger	by	JPMorgan	Chase Bank),	as	Depository	(incorporated	by	reference	to	Exhibit	4.7	to	the Registration	Statement	on	Form	8-A	of	The	Chase	Manhattan	Corporation (now	known	as	J.P.	Morgan	Chase	&	Co.)	File	No.	1-5805),	filed December	20,	2000.

4.2 Indenture,	dated	as	of	December	1,	1989,	between	Chemical	Banking Corporation	(now	known	as	J.P.	Morgan	Chase	&	Co.)	and	The	Chase Manhattan	Bank	(National	Association),	as	succeeded	to	by	Bankers	Trust Company	(now	known	as	Deutsche	Bank	Trust	Company	Americas),	as Trustee	(incorporated	by	reference	to	Exhibit	4.9	to	the	Registration	Statement on	Form	S-3	(File	No.	33-32409)	of	Chemical	Banking	Corporation).

4.3(a) Indenture,	dated	as	of	April	1,	1987,	as	amended	and	restated	as	of December	15,	1992,	between	Chemical	Banking	Corporation	(now	known	as J.P.	Morgan	Chase	&	Co.)	and	Morgan	Guaranty	Trust	Company	of	New	York (now	known	as	JPMorgan	Chase	Bank),	as	succeeded	to	by	U.S.	Bank	Trust National	Association,	as	Trustee	(incorporated	by	reference	to	Exhibit	4.3(a)	to the	Annual	Report	on	Form	10-K	of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805) for	the	year	ended	December	31,	2000).

4.3(b) Second	Supplemental	Indenture,	dated	as	of	October	8,	1996,	between	The Chase	Manhattan	Corporation	(now	known	as	J.P.	Morgan	Chase	&	Co.)	and U.S.	Bank	Trust	National	Association,	as	Trustee,	to	the	Indenture,	dated	as	of April	1,	1987,	as	amended	and	restated	as	of	December	15,	1992 (incorporated	by	reference	to	Exhibit	4.3(b)	to	the	Annual	Report	on	Form	10-K of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended December	31,	2000).

4.3(c) Third	Supplemental	Indenture,	dated	as	of	December	29,	2000,	between	The Chase	Manhattan	Corporation	(now	known	as	J.P.	Morgan	Chase	&	Co.)	and U.S.	Bank	Trust	National	Association,	as	Trustee,	to	the	Indenture,	dated	as	of April	1,	1987,	as	amended	and	restated	as	of	December	15,	1992 (incorporated	by	reference	to	Exhibit	4.3(c)	to	the	Annual	Report	on	Form	10-K of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended December	31,	2000).

4.4(a) Amended	and	Restated	Indenture,	dated	as	of	September	1,	1993,	between The	Chase	Manhattan	Corporation	(as	assumed	by	J.P.	Morgan	Chase	&	Co.) and	Chemical	Bank	(succeeded	through	merger	by	JPMorgan	Chase	Bank), as	Trustee	(incorporated	by	reference	to	Exhibit	4.4(a)	to	the	Annual	Report	on Form	10-K	of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended December	31,	2000).

4.4(b) First	Supplemental	Indenture,	dated	as	of	March	29,	1996,	among	Chemical Banking	Corporation	(now	known	as	J.P.	Morgan	Chase	&	Co.),	The	Chase Manhattan	Corporation,	Chemical	Bank,	as	resigning	Trustee,	and	U.S.	Bank Trust	National	Association,	as	successor	Trustee,	to	the	Amended	and Restated	Indenture,	dated	as	of	September	1,	1993	(incorporated	by reference	to	Exhibit	4.4(b)	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended	December	31,	2000).

4.4(c) Second	Supplemental	Indenture,	dated	as	of	October	8,	1996,	between	The Chase	Manhattan	Corporation	(now	known	as	J.P.	Morgan	Chase	&	Co.)	and U.S.	Bank	Trust	National	Association,	as	Trustee,	to	the	Amended	and Restated	Indenture,	dated	as	of	September	1,	1993	(incorporated	by reference	to	Exhibit	4.4(c)	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended	December	31,	2000).

4.4(d) Third	Supplemental	Indenture,	dated	as	of	December	29,	2000,	between	The Chase	Manhattan	Corporation	(now	known	as	J.P.	Morgan	Chase	&	Co.)	and U.S.	Bank	Trust	National	Association,	as	Trustee,	to	the	Amended	and Restated	Indenture,	dated	as	of	September	1,	1993	(incorporated	by reference	to	Exhibit	4.4(d)	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended	December	31,	2000).

4.5(a) Indenture	dated	as	of	August	15,	1982,	between	J.P.	Morgan	&	Co. Incorporated	(succeeded	through	merger	by	J.P.	Morgan	Chase	&	Co.)	and U.S.	Bank	Trust	National	Association,	as	Trustee	(incorporated	by	reference	to Exhibit	4.5(a)	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan	Chase	&	Co. (File	No.	1-5805)	for	the	year	ended	December	31,	2000).

4.5(b) First	Supplemental	Indenture,	dated	as	of	May	5,	1986,	between	J.P.	Morgan &	Co.	Incorporated	(succeeded	through	merger	by	J.P.	Morgan	Chase	&	Co.) and	U.S.	Bank	Trust	National	Association,	as	Trustee,	to	the	Indenture,	dated as	of	August	15,	1982	(incorporated	by	reference	to	Exhibit	4.5(b)	to	the Annual	Report	on	Form	10-K	of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805)	for the	year	ended	December	31,	2000).

4.5(c) Second	Supplemental	Indenture,	dated	as	of	February	27,	1996,	between	J.P. Morgan	&	Co.	Incorporated	(succeeded	through	merger	by	J.P.	Morgan	Chase &	Co.)	and	U.S.	Bank	Trust	National	Association,	as	Trustee,	to	the	Indenture, dated	as	of	August	15,	1982	(incorporated	by	reference	to	Exhibit	4.5(c)	to	the Annual	Report	on	Form	10-K	of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805)	for the	year	ended	December	31,	2000).

4.5(d) Third	Supplemental	Indenture,	dated	as	of	January	30,	1997,	between	J.P. Morgan	&	Co.	Incorporated	(succeeded	through	merger	by	J.P.	Morgan	Chase &	Co.)	and	U.S.	Bank	Trust	National	Association,	as	Trustee,	to	the	Indenture, dated	as	of	August	15,	1982	(incorporated	by	reference	to	Exhibit	4.5(d)	to	the Annual	Report	on	Form	10-K	of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805)	for the	year	ended	December	31,	2000).

4.5(e) Fourth	Supplemental	Indenture,	dated	as	of	December	29,	2000,	among	J.P. Morgan	&	Co.	Incorporated,	The	Chase	Manhattan	Corporation	(now	known as	J.P.	Morgan	Chase	&	Co.),	and	U.S.	Bank	Trust	National	Association,	as Trustee,	to	the	Indenture,	dated	as	of	August	15,	1982	(incorporated	by reference	to	Exhibit	4.5(e)	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended	December	31,	2000).

4.6(a) Indenture	dated	as	of	December	1,	1986,	between	J.P.	Morgan	&	Co. Incorporated	(succeeded	through	merger	by	J.P.	Morgan	Chase	&	Co.)	and U.S.	Bank	Trust	National	Association,	as	Trustee	(incorporated	by	reference	to Exhibit	4.6(a)	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan	Chase	&	Co. (File	No.	1-5805)	for	the	year	ended	December	31,	2000).

4.6(b) First	Supplemental	Indenture,	dated	as	of	May	12,	1992,	between	J.P.	Morgan &	Co.	Incorporated	(succeeded	through	merger	by	J.P.	Morgan	Chase	&	Co.) and	U.S.	Bank	Trust	National	Association,	as	Trustee,	to	the	Indenture,	dated as	of	December	1,	1986	(incorporated	by	reference	to	Exhibit	4.6(b)	to	the Annual	Report	on	Form	10-K	of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805)	for the	year	ended	December	31,	2000).

4.6(c) Second	Supplemental	Indenture,	dated	as	of	December	29,	2000,	among	J.P. Morgan	&	Co.	Incorporated,	The	Chase	Manhattan	Corporation	(now	known as	J.P.	Morgan	Chase	&	Co.),	and	U.S.	Bank	Trust	National	Association,	as Trustee,	to	the	Indenture,	dated	as	of	December	1,	1986	(incorporated	by reference	to	Exhibit	4.6(c)	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended	December	31,	2000).

4.7(a) Indenture	dated	as	of	March	1,	1993,	between	J.P.	Morgan	&	Co. Incorporated	(succeeded	through	merger	by	J.P.	Morgan	Chase	&	Co.)	and U.S.	Bank	Trust	National	Association,	as	Trustee	(incorporated	by	reference	to Exhibit	4.7(a)	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan	Chase	&	Co. (File	No.	1-5805)	for	the	year	ended	December	31,	2000).

4.7(b) First	Supplemental	Indenture,	dated	as	of	December	29,	2000,	among	J.P. Morgan	&	Co.	Incorporated,	The	Chase	Manhattan	Corporation	(now	known as	J.P.	Morgan	Chase	&	Co.),	and	U.S.	Bank	Trust	National	Association,	as Trustee,	to	the	Indenture,	dated	as	of	March	1,	1993	(incorporated	by reference	to	Exhibit	4.7(b)	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended	December	31,	2000).

4.8 Indenture	dated	May	25,	2001,	between	J.P.	Morgan	Chase	&	Co.	and Deutsche	Bank	Trust	Company	Americas	(previously	known	as	Bankers	Trust Company),	as	Trustee	(incorporated	by	reference	to	Exhibit	4(a)(1)	to	the Registration	Statement	on	Form	S-3	(File	No.	333-52826)	of	J.P.	Morgan Chase	&	Co.,	File	No.	1-	5805).

4.9(a) Junior	Subordinated	Indenture,	dated	as	of	December	1,	1996,	between	The Chase	Manhattan	Corporation	(now	known	as	J.P.	Morgan	Chase	&	Co.)	and The	Bank	of	New	York,	as	Debenture	Trustee	(incorporated	by	reference	to Exhibit	4.24	to	the	Registration	Statement	on	Form	S-3	(File	No.	333-19719)	of The	Chase	Manhattan	Corporation).

4.9(b) Guarantee	Agreement,	dated	as	of	January	24,	1997,	between	The	Chase Manhattan	Corporation	(now	known	as	J.P.	Morgan	Chase	&	Co.)	and	The Bank	of	New	York,	as	Trustee,	with	respect	to	the	Global	Floating	Rate	Capital Securities,	Series	B,	of	Chase	Capital	II	(incorporated	by	reference	to	Exhibit 4.8	to	the	Annual	Report	on	Form	10-K,	dated	December	31,	1997,	of	The Chase	Manhattan	Corporation,	File	No.	1-5805).

4.9(c) Amended	and	Restated	Trust	Agreement,	dated	as	of	January	24,	1997, among	The	Chase	Manhattan	Corporation	(now	known	as	J.P.	Morgan	Chase &	Co.),	The	Bank	of	New	York,	as	Property	Trustee,	The	Bank	of	New	York (Delaware),	as	Delaware	Trustee,	and	the	Administrative	Trustees	named therein,	with	respect	to	Chase	Capital	II	(incorporated	by	reference	to Exhibit	4.9	to	the	Annual	Report	on	Form	10-K,	dated	December	31,	1997,	of The	Chase	Manhattan	Corporation,	File	No.	1-5805).

4.10(a) Junior	Subordinated	Indenture,	dated	as	of	November	1,	1996,	between	J.P. Morgan	&	Co.	Incorporated	(succeeded	through	merger	by	J.P.	Morgan	Chase &	Co.)	and	U.S.	Bank	Trust	National	Association,	as	Debenture	Trustee (incorporated	by	reference	to	Exhibit	4(a)(1)	to	the	Registration	Statement	on Form	S-3	(File	No.	333-15079)	of	J.P.	Morgan	&	Co.	Incorporated,	File	No.	1- 5885).

4.10(b) Guarantee	Agreement,	dated	as	of	December	4,	1996,	between	J.P.	Morgan &	Co.	Incorporated	(succeeded	through	merger	by	J.P.	Morgan	Chase	&	Co.) and	U.S.	Bank	Trust	National	Association,	as	Guarantee	Trustee,	with	respect to	the	Capital	Securities	of	JPM	Capital	Trust	I	(incorporated	by	reference	to Exhibit	4.9(b)	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan	Chase	&	Co. (File	No.	1-5805)	for	the	year	ended	December	31,	2000).

4.10(c) Amended	and	Restated	Declaration	of	Trust,	dated	as	of	December	4,	1996, between	J.P.	Morgan	&	Co.	Incorporated	(succeeded	through	merger	by	J.P. Morgan	Chase	&	Co.)	and	U.S.	Bank	Trust	National	Association,	as	Property Trustee,	Wilmington	Trust	Company,	as	Delaware	Trustee,	and	the Administrative	Trustees	named	therein,	with	respect	to	JPM	Capital	Trust	I (incorporated	by	reference	to	Exhibit	4.9(c)	to	the	Annual	Report	on	Form	10-K of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended December	31,	2000).

10.1 Deferred	Compensation	Plan	for	Non-Employee	Directors	of	The	Chase Manhattan	Corporation	and	The	Chase	Manhattan	Bank,	as	amended	and restated	effective	December	1996	(incorporated	by	reference	to	Exhibit	10.1	to the	Annual	Report	on	Form	10-K,	dated	December	31,	1996,	of	The	Chase Manhattan	Corporation,	File	No.	1-5805).

10.2 Post-Retirement	Compensation	Plan	for	Non-Employee	Directors,	as amended	and	restated	as	of	May	21,	1996	(incorporated	by	reference	to Exhibit	10.2	to	the	Annual	Report	on	Form	10-K,	dated	December	31,	1996,	of The	Chase	Manhattan	Corporation,	File	No.	1-5805).

10.3 Deferred	Compensation	Program	of	The	Chase	Manhattan	Corporation	and Participating	Companies,	effective	as	of	January	1,	1996	(incorporated	by reference	to	Exhibit	10.3	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan Chase	&	Co.	(File	No.	1-5805)	for	the	year	ended	December	31,	2000).

10.4 Amended	and	Restated	1996	Long-Term	Incentive	Plan	of	The	Chase Manhattan	Corporation	(incorporated	by	reference	to	Schedule	14A,	filed	on April	5,	2000,	of	The	Chase	Manhattan	Corporation,	File	No.	1-5805).

10.5 The	Chase	Manhattan	1994	Long-Term	Incentive	Plan	(incorporated	herein	by reference	to	Exhibit	10O	to	The	Chase	Manhattan	Corporation's	Quarterly Report	on	Form	10-Q	for	the	quarter	ended	June	30,	1994,	File	No.	1-5945).

10.6 Amendment	to	The	Chase	Manhattan	1994	Long-Term	Incentive	Plan (incorporated	herein	by	reference	to	Exhibit	10S	to	The	Chase	Manhattan Corporation's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended September	30,	1995,	File	No.	1-5945).

10.7 Chemical	Banking	Corporation	Long-Term	Stock	Incentive	Plan,	as	amended and	restated	as	of	May	19,	1992	(incorporated	by	reference	to	Exhibit	10.7	to the	Annual	Report	on	Form	10-K,	dated	December	31,	1992,	of	Chemical Banking	Corporation,	File	No.	1-5805).

10.8 The	Chase	Manhattan	1987	Long-Term	Incentive	Plan,	as	amended (incorporated	by	reference	to	Exhibit	10A	to	The	Chase	Manhattan Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31, 1990,	File	No.	1-5945).

10.9 Amendment	to	The	Chase	Manhattan	1987/82	Long-Term	Incentive	Plan (incorporated	by	reference	to	Exhibit	10T	to	the	Quarterly	Report	on	Form	10- Q,	for	the	quarter	ended	September	30,	1995,	of	The	Chase	Manhattan Corporation,	File	No.	1-5945).

10.10 Key	Executive	Performance	Plan	of	The	Chase	Manhattan	Corporation,	as amended	and	restated	January	1,	1999	(incorporated	by	reference	to Schedule	14A,	filed	on	March	25,	1999,	of	The	Chase	Manhattan	Corporation, File	No.	1-5805).

10.11 Permanent	Life	Insurance	Options	Plan	(incorporated	by	reference	to Exhibit	10.11	to	the	Annual	Report	on	Form	10-K,	dated	December	31,	1992, of	Chemical	Banking	Corporation,	File	No.	1-5805).

10.12 Excess	Retirement	Plan	of	The	Chase	Manhattan	Bank	and	Participating Companies,	restated	effective	January	1,	1997	(incorporated	by	reference	to Exhibit	10.14	to	the	Annual	Report	on	Form	10-K	of	J.P.	Morgan	Chase	&	Co. (File	No.	1-5805)	for	the	year	ended	December	31,	2000).

10.13 1992	Stock	Incentive	Plan,	as	amended	(incorporated	by	reference	to Exhibit	10a	to	J.P.	Morgan	&	Co.	Incorporated's	Annual	Report	on	Form	10-K for	the	year	ended	December	31,	1994,	File	No.	1-5885).

10.14 Director	Stock	Plan,	as	amended	(incorporated	by	reference	to	Exhibit	10b	to J.P.	Morgan	&	Co.	Incorporated's	Annual	Report	on	Form	10-K	for	the	year ended	December	31,	1994,	File	No.	1-5885).

10.15 Deferred	Compensation	Plan	for	Directors'	Fees,	as	amended	(incorporated by	reference	to	Exhibit	10c	to	J.P.	Morgan	&	Co.	Incorporated's	Annual	Report on	Form	10-K	for	the	year	ended	December	31,	1992,	File	No.	1-5885).

10.16 1989	Stock	Incentive	Plan,	as	amended	(incorporated	by	reference	to Exhibit	10d	to	J.P.	Morgan	&	Co.	Incorporated's	Annual	Report	on	Form	10-K for	the	year	ended	December	31,	1994,	File	No.	1-5885).

10.17 1987	Stock	Incentive	Plan,	as	amended	(incorporated	by	reference	to Exhibit	10e	to	J.P.	Morgan	&	Co.	Incorporated's	Annual	Report	on	Form	10-K for	the	year	ended	December	31,	1994,	File	No.	1-5885).

10.18 Incentive	Compensation	Plan,	as	amended	(incorporated	by	reference	to Exhibit	10f	to	J.P.	Morgan	&	Co.	Incorporated's	Annual	Report	on	Form	10-K for	the	year	ended	December	31,	1997,	File	No.	1-5885).

10.19 Stock	Option	Award	(incorporated	by	reference	to	Exhibit	10h	to	J.P.	Morgan	& Co.	Incorporated's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended March	31,	1995,	File	No.	1-5885).

10.20 1995	Stock	Incentive	Plan,	as	amended	(incorporated	by	reference	to Exhibit	10i	to	J.P.	Morgan	&	Co.	Incorporated's	Annual	Report	on	Form	10-K for	the	year	ended	December	31,	1996,	File	No.	1-5885).

10.21 1995	Executive	Officer	Performance	Plan	(incorporated	by	reference	to Exhibit	10j	to	J.P.	Morgan	&	Co.	Incorporated's	Annual	Report	on	Form	10-K for	the	year	ended	December	31,	1995,	File	No.	1-5885).

10.22 1998	Performance	Plan	(incorporated	by	reference	to	Exhibit	10	to	J.P. Morgan	&	Co.	Incorporated's	Quarterly	Report	on	Form	10-Q	for	the	quarter ended	September	30,	1998,	File	No.	1-5885).

10.23 Executive	Retirement	Plan	of	The	Chase	Manhattan	Corporation	and	Certain Subsidiaries	(incorporated	by	reference	to	Exhibit	10.25	to	the	Annual	Report on	Form	10-K	of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805)	for	the	year ended	December	31,	2000).

10.24 Benefit	Equalization	Plan	of	The	Chase	Manhattan	Corporation	and	Certain Subsidiaries	(incorporated	by	reference	to	Exhibit	10.26	to	the	Annual	Report on	Form	10-K	of	J.P.	Morgan	Chase	&	Co.	(File	No.	1-5805)	for	the	year ended	December	31,	2000).

12.1 	Computation	of	ratio	of	earnings	to	fixed	charges.

12.2 Computation	of	ratio	of	earnings	to	fixed	charges	and	preferred	stock	dividend requirements.

21.1 	List	of	Subsidiaries	of	J.P.	Morgan	Chase	&	Co.

22.1 Annual	Report	on	Form	11-K	of	the	JPMorgan	Chase	401(k)	Savings	Plan	(to be	filed	by	amendment	pursuant	to	Rule	15d-21	under	the	Securities Exchange	Act	of	1934).

23.1 	Consent	of	independent	accountants.

31.1 	Certification.

32 Certification	pursuant	to	18	U.S.C.	Section	1350,	as	adopted	pursuant	to Section	906	of	the	Sarbanes-Oxley	Act	of	2002.

JPMorgan	Chase	hereby	agrees	to	furnish	to	the	Securities	and	Exchange Commission,	upon	request,	copies	of	instruments	defining	the	rights	of	holders	for	the outstanding	nonregistered	long-term	debt	of	JPMorgan	Chase	and	its	subsidiaries. These	instruments	have	not	been	filed	as	exhibits	hereto	by	reason	that	the	total amount	of	each	issue	of	such	securities	does	not	exceed

10%	of	the	total	assets	of	JPMorgan	Chase	and	its	subsidiaries	on	a	consolidated basis.	In	addition,	JPMorgan	Chase	hereby	agrees	to	file	with	the	Securities	and Exchange	Commission,	upon	request,	the	Guarantees	and	the	Amended	and	Restated Trust	Agreements	for	each	Delaware	business	trust	subsidiary	that	has	issued	Capital Securities.	The	provisions	of	such	agreements	differ	from	the	documents	constituting Exhibits	4.9(b)	and	(c)	and	4.10(b)	and	(c)	to	this	report	only	with	respect	to	the	pricing terms	of	each	series	of	Capital	Securities;	these	pricing	terms	are	disclosed	in	Note	18 on	page	111.

JPMorgan	Chase	filed	3	reports	on	Form	8-K	during	the	quarter	ended	December	31, 2003:

•	 Form	8-K	filed	October	1,	2003:	Press	release	announcing	that	J.P.	Morgan Securities	Inc.	("JPMSI")	had	entered	into	an	agreement	with	the	Securities	and Exchange	Commission	on	October	1,	2003	resolving	matters	relating	to	JPMSI's initial	public	offering	allocation	practices.

•	 Form	8-K	filed	October	22,	2003:	Press	release	announcing	JPMorgan	Chase's results	for	the	third	quarter	of	2003.

•	 Form	8-K	filed	October	27,	2003:	Form	of	the	Master	Agency	Agreement	between JPMorgan	Chase	and	the	Agents	listed	on	Exhibit	A	thereto,	relating	to	the JPMorgan	Chase	Medium-Term	Notes	and	Forms	of	Notes.

# Financial:

# Management's	discussion	and	analysis:

45 Risk	and	Capital	management

46 Capital	and	Liquidity	management

51 Credit	risk	management

66 Market	risk	management

74 Private	equity	risk	management

74 Critical	accounting	estimates	used	by	the	Firm

78 Accounting	and	reporting	developments

# Audited	financial	statements:

81 Management's	report	on	responsibility	for	financial	reporting

81 Report	of	independent	auditors

82 Consolidated	financial	statements

86 Notes	to	consolidated	financial	statements

# Supplementary	information:

129 Five-year	summary	of	financial	highlights

130 Glossary	of	terms

This	section	of	the	Annual	Report	provides	management's discussion	and	analysis	("MD&A")	of	the	financial	condition and	results	of	operations	for	JPMorgan	Chase.	See Glossary	of	terms	on	pages	130	and	131	for	a	definition	of terms	used	throughout	this	Annual	Report.

# Certain	forward-looking	statements

The	MD&A	contains	certain	forward-looking	statements. Those	forward-looking	statements	are	subject	to	risks	and uncertainties,	and	JPMorgan	Chase's	actual	results	may differ	from	those	set	forth	in	the	forward-looking	statements. See	JPMorgan	Chase's	reports	filed	with	the	Securities	and Exchange	Commission	for	a	discussion	of	factors	that	could cause	JPMorgan	Chase's	actual	results	to	differ	materially from	those	described	in	the	forward-looking	statements.

J.P.	Morgan	Chase	&	Co.	is	a	leading	global	financial	services	firm	with	assets	of $771	billion	and	operations	in	more	than	50	countries.	The	Firm	serves	more than	30	million	consumers	nationwide	through	its	retail	businesses,	and	many	of the	world's	most	prominent	corporate,	institutional	and	government	clients through	its	global	wholesale	businesses.

# Financial	performance	of	JPMorgan	Chase

| (in	millions,	except	per	share	and	ratio	data) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Revenue | $33,256 | $29,614 | 12% |
| Noninterest\texpense | \t 21,688 | \t 22,764 | (5) |
| Provision\tfor\tcredit\tlosses | 1,540 | 4,331 | (64) |
| Net\tincome | 6,719 | 1,663 | 304 |
| Net\tincome\tper\tshare\t–\tdiluted | 3.24 | 0.80 | 305 |
| Average\tcommon\tequity | \t 42,988 | \t 41,368 | 4 |
| Return\ton\taverage\tcommon\tequity\t("ROCE") | 16% | 4% | 1,200bp |
| Tier\t1\tcapital\tratio | 8.5% | 8.2% | 30bp |
| Total\tcapital\tratio | 11.8 | 12.0 | (20) |
| Tier\t1\tleverage\tratio | 5.6 | 5.1 | 50 |

In	2003,	global	growth	strengthened	relative	to	the	prior	two	years.	The	U.S.	economy improved	significantly,	supported	by	diminishing	geopolitical	uncertainties,	new	tax relief,	strong	profit	growth,	low	interest	rates	and	a	rising	stock	market.	Productivity	at U.S.	businesses	continued	to	grow	at	an	extraordinary	pace,	as	a	result	of	ongoing investment	in	information	technologies.	Profit	margins	rose	to	levels	not	seen	in	a	long time.	New	hiring	remained	tepid,	but	signs	of	an	improving	job	market	emerged	late	in the	year.	Inflation	fell	to	the	lowest	level	in	more	than	40	years,	and	the	Board	of Governors	of	the	Federal	Reserve	System	(the	"Federal	Reserve	Board")	declared	that its	long-run	goal	of	price	stability	had	been	achieved.

Against	this	backdrop,	J.P.	Morgan	Chase	&	Co.	("JPMorgan	Chase"	or	the	"Firm") reported	2003	Net	income	of	$6.7	billion,	compared	with	Net	income	of	$1.7	billion	in 2002.	All	five	of	the	Firm's	lines	of	business	benefited	from	the	improved	economic conditions,	with	each	reporting	increased	revenue	over	2002.	In	particular,	the	low– interest	rate	environment	drove	robust	fixed	income	markets	and	an	unprecedented mortgage	refinancing	boom,	resulting	in	record	earnings	in	the	Investment	Bank	and Chase	Financial	Services.

Total	revenue	for	2003	was	$33.3	billion,	up	12%	from	2002.	The	Investment	Bank's revenue	increased	by	approximately	$1.9	billion	from	2002,	and	Chase	Financial Services'	revenue	was	$14.6	billion	in	2003,	another	record	year.

Total	Noninterest	expense	was	$21.7	billion,	down	5%	from	the	prior	year.	In	2002,	the Firm	recorded	$1.3	billion	of	charges,	principally	for	Enron-related	surety	litigation	and the	establishment	of	litigation	reserves;	and	$1.2	billion	for	Merger	and	restructuring costs	related	to	programs	announced	prior	to	January	1,	2002.	Excluding	these	costs, expenses	rose	by	7%	in	2003,	reflecting	higher	performance-related	incentives; increased	costs	related	to	stock-based	compensation	and	pension	and	other postretirement	expenses;	and	higher	occupancy	expenses.	The	Firm	began	expensing stock	options	in	2003.	Restructuring	costs	associated	with	initiatives	announced	after January	1,	2002,	were	recorded	in	their	relevant	expense	categories	and	totaled $630	million	in	2003,	down	29%	from	2002.

The	2003	Provision	for	credit	losses	of	$1.5	billion	was	down	$2.8	billion,	or	64%,	from 2002.	The	provision	was	lower	than	total	net	charge-offs	of	$2.3	billion,	reflecting significant	improvement	in	the	quality	of	the	commercial	loan	portfolio.	Commercial nonperforming	assets	and	criticized	exposure	levels	declined	42%	and	47%, respectively,	from	December	31,	2002.	Consumer	credit	quality	remained	stable.

Earnings	per	diluted	share	("EPS")	for	the	year	were	$3.24,	an	increase	of	305%	over the	EPS	of	$0.80	reported	in	2002.	Results	in	2002	were	provided	on	both	a	reported basis	and	an	operating	basis,	which	excluded	Merger	and	restructuring	costs	and special	items.	Operating	EPS	in	2002	was	$1.66.	See	page	28	of	this	Annual	Report	for a	reconciliation	between	reported	and	operating	EPS.

# Summary	of	segment	results

The	Firm's	wholesale	businesses	are	known	globally	as	"JPMorgan,"	and	its	national consumer	and	middle	market	businesses	are	known	as	"Chase."	The	wholesale businesses	comprise	four	segments:	the	Investment	Bank	("IB"),	Treasury	&

Securities	Services	("TSS"),	Investment	Management	&	Private	Banking	("IMPB") and	JPMorgan	Partners	("JPMP").	IB	provides	a	full	range	of	investment	banking	and commercial	banking	products	and	services,	including	advising	on	corporate	strategy and	structure,	capital	raising,	risk	management,	and	market-making	in	cash	securities and	derivative	instruments	in	all	major	capital	markets.	The	three	businesses	within TSS	provide	debt	servicing,	securities	custody	and	related	functions,	and	treasury	and cash	management	services	to	corporations,	financial	institutions	and	governments.	The IMPB	business	provides	investment	management	services	to	institutional	investors, high	net	worth	individuals	and	retail	customers	and	also	provides	personalized	advice and	solutions	to	wealthy	individuals	and	families.	JPMP,	the	Firm's	private	equity business,	provides	equity	and	mezzanine	capital	financing	to	private	companies.	The Firm's	national	consumer	and	middle	market	businesses,	which	provide	lending	and full-service	banking	to	consumers	and	small	and	middle	market	businesses,	comprise Chase	Financial	Services	("CFS").

# Segment	results	–	Operating	basis

|  | Operating	revenue	(loss) | Operating	revenue	(loss) | Operating	earnings	(losses) | Operating	earnings	(losses) |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Year\tended\tDecember\t31,\n(in\tmillions,\texcept\tratios) | 2003 | Change\tfrom\n2002 | 2003 | Change\tfrom\n2002 | Return\ton\tallocated\tcapital\n2003 | 2002 |
| Investment\tBank | $14,440 | 16% | $3,685 | 183% | 19% | 6% |
| Treasury\t&amp;\tSecurities\tServices | 3,992 | 3 | 520 | (16) | 19 | 23 |
| Investment\tManagement\t&amp;\tPrivate\tBanking | 2,878 | 1 | 268 | 3 | 5 | 5 |
| JPMorgan\tPartners | (190) | 81 | (293) | 64 | NM | NM |
| Chase\tFinancial\tServices | 14,632 | 9 | 2,495 | 8 | 28 | 27 |
| Support\tUnits\tand\tCorporate | (626) | — | 44 | NM | NM | NM |
| JPMorgan\tChase | $35,126 | 13% | $6,719 | 99% | 16% | 8% |
| (a) |  |  |  |  |  |  |

(a) Represents	the	reported	results	excluding	the	impact	of	credit	card	securitizations	and,	in	2002,	merger	and	restructuring	costs	and	special	items.

The	table	above	shows	JPMorgan	Chase's	segment	results.	These	results	reflect	the manner	in	which	the	Firm's	financial	information	is	currently	evaluated	by	management and	is	presented	on	an	operating	basis.	Prior-period	segment	results	have	been adjusted	to	reflect	alignment	of	management	accounting	policies	or	changes	in organizational	structure	among	businesses.

IB	reported	record	earnings	of	$3.7	billion	for	2003,	up	183%	from	2002,	driven	by strong	growth	in	capital	markets	revenues	and	equity	underwriting	fees,	coupled	with	a significant	decline	in	credit	costs.	The	low–interest-rate	environment,	improvement	in equity	markets	and	volatility	in	credit	markets	produced	increased	client	and	portfolio management	revenue	in	fixed	income	and	equities,	as	well	as	strong	returns	in	Global Treasury.	Market-share	gains	in	equity	underwriting	contributed	to	the	increase	in Investment	banking	fees	over	2002.	IB's	return	on	allocated	capital	was	19%	for	the year.

TSS	earnings	of	$520	million	for	the	year	were	down	16%	compared	with	2002. Revenues	were	$4.0	billion	for	the	full	year,	up	3%	from	2002.	Institutional	Trust Services	and	Treasury	Services	posted	single-digit	revenue	growth.	Investor	Services revenue	declined	year-over-year	but	showed	an	improving	trend	over	the	last	four consecutive	quarters.	Return	on	allocated	capital	for	TSS	was	19%	for	the	year.

IMPB	increased	earnings	and	assets	under	supervision	in	2003.	Earnings	of	$268 million	for	the	full	year	were	up	3%	from	2002,	reflecting	an	improved	credit	portfolio, slightly	higher	revenues	and	the	benefits	of	managed	expense	growth.	The	increase	in revenues	reflected	the	acquisition	of	Retirement	Plan	Services,	and	increased	average equity	market	valuations	in	client	portfolios	and	brokerage	activity,	mostly	offset	by	the impact	of	institutional	net	outflows.	Investment	performance	in	core	institutional products	improved,	with	all	major	asset	classes	in	U.S.	institutional	fixed	income	and equities	showing	above-benchmark	results.	Return	on	allocated	capital	was	5%	for	the year;	return	on	tangible	allocated	capital	was	20%.

JPMP	performance	improved	significantly,	with	private	equity	gains	of	$27	million, compared	with	private	equity	losses	of	$733	million	for	2002.	Results	for	the	direct investments	portfolio	improved	by	$929	million	from	2002,	driven	by	realized	gains	on sales	and	declining	write-downs	in	the	second	half	of	2003.

JPMP	revenue	was	impacted	in	2003	by	losses	on	sales	and	writedowns	of	private third-party	fund	investments.	JPMP	decreased	its	operating	loss	for	the	year	by	64% compared	with	2002.

CFS	posted	record	earnings	of	$2.5	billion,	driven	by	record	results	and	origination volumes	at	each	of	the	national	credit	businesses	–mortgage,	credit	card	and	auto. Record	revenues	for	CFS	of	$14.6	billion	were	up	9%	from	2002,	driven	by	record revenues	in	Chase	Home	Finance.	Despite	significant	deposit	growth,	Chase	Regional Banking	revenues	decreased	due	to	deposit	spread	compression.	CFS's	return	on allocated	capital	was	28%	for	the	year.

In	2003,	JPMorgan	Chase	revised	its	internal	management	reporting	policies	to	allocate certain	revenues,	expenses	and	tax-related	items	that	had	been	recorded	within	the Corporate	segment	to	the	other	business	segments.	There	was	no	impact	on	the	Firm's overall	earnings.

For	a	discussion	of	the	Firm's	Segment	results,	see	pages	27–44	of	this	Annual	Report.

JPMorgan	Chase	increased	capital	during	2003.	At	December	31,	2003,	the	Firm's	Tier 1	capital	was	$43.2	billion,	$5.6	billion	higher	than	at	December	31,	2002.	The	Tier	1 capital	ratio	of	8.5%	was	well	in	excess	of	the	minimum	regulatory	guidelines,	it	was 8.2%	at	year-end	2002.	The	Firm	maintained	the	quarterly	dividend	of	$0.34	per	share on	its	common	stock.	JPMorgan	Chase	did	not	repurchase	shares	of	its	common	stock in	2003.	Management	expects	to	recommend	to	the	Board	of	Directors	that	the	Firm resume	its	share	repurchase	program	after	the	completion	of	the	pending	merger	with Bank	One	Corporation	(see	Business	events	below).

The	Firm's	liquidity	management	is	designed	to	ensure	sufficient	liquidity	resources	to meet	all	its	obligations,	both	on-	and	off–balance	sheet,	in	a	wide	range	of	market environments.	The	Firm's	access	to	the	unsecured	funding	markets	is	dependent	upon its	credit	rating.	During	2003,	the	Firm	maintained	senior	debt	ratings	of	AA-/Aa3/A+	at JPMorgan	Chase	Bank	and	A+/A1/A+	at	the	parent	holding	company.	Upon	the announcement	of	the	proposed	merger	with	Bank	One	Corporation,	Moody's	and	Fitch placed	the	Firm's	ratings	on	review	for	an

upgrade,	and	S&P	affirmed	all	of	the	Firm's	ratings.	See	Business	events	below.

# Risk	management

The	Firm	made	substantial	progress	in	lowering	its	risk	profile	in	2003.

Total	commercial	credit	exposure,	which	includes	loans,	derivative	receivables,	lending- related	commitments	and	other	assets,	declined	by	$30.2	billion,	or	7%,	from December	31,	2002.	Increased	financings	in	the	public	markets,	reduced	loan	demand and	loan	sales	drove	the	decline.	In	2003,	the	Firm	implemented	a	more	stringent exposure-review	process	and	lower	absolute	exposure	limits	for	industry	and	single- name	concentrations,	including	investment-grade	obligors.	The	Firm	was	also	more active	in	managing	commercial	credit	by	selling	higher-risk	loans	and	commitments	and entering	into	single-name	credit	default	swap	hedges.

Total	consumer	loans	on	a	managed	basis,	which	includes	both	reported	and securitized	loans,	increased	by	$15.7	billion,	or	10%,	from	December	31,	2002.	The consumer	portfolio	is	predominantly	U.S.-based.	The	largest	component,	1–4	family residential	mortgage	loans,	which	are	primarily	secured	by	first	mortgages,	comprised 43%	of	the	total	consumer	portfolio	at	December	31,	2003.

JPMP's	private	equity	portfolio	declined	by	12%	to	$7.3	billion	at	December	31,	2003, from	$8.2	billion	at	December	31,	2002.	At	year-end	2003,	the	portfolio	was	diversified across	industry	sectors	and	geographies	–	with	a	higher	percentage	invested	in	more mature	leveraged	buyouts	and	a	lower	percentage	in	venture	investments	than	at	year- end	2002.	The	carrying	value	of	JPMP's	portfolio	has	decreased	year-over-year, consistent	with	management's	goal	to	reduce,	over	time,	the	capital	committed	to private	equity.

The	Firm	uses	several	tools,	both	statistical	and	nonstatistical,	to	measure	market	risk, including	Value-at-Risk	("VAR"),	Risk	identification	for	large	exposures	("RIFLE"), economic	value	stress	tests	and	net	interest	income	stress	tests.	The	Firm	calculates VAR	daily	on	its	trading	and	nontrading	activities.	Average	trading	VAR	decreased	for full-year	2003.	The	year-end	trading	VAR	increased	compared	with	year-end	2002	due to	higher	VAR	for	equity	activities.	In	2003,	trading	losses	exceeded	VAR	on	only	one day,	a	result	that	is	consistent	with	the	99%	confidence	level.	Average,	maximum,	and December	31	nontrading	VAR	increased	in	2003,	primarily	due	to	the	increase	in market	volatility	during	the	2003	third	quarter	and	to	the	rise	in	interest	rates	in	the second	half	of	2003.	There	was	an	additional	day	in	2003	in	which	losses	exceeded VAR;	this	was	attributable	to	certain	positions	in	the	mortgage	banking	business.

The	Firm	is	also	committed	to	maintaining	business	practices	of	the	highest	quality.	The Fiduciary	Risk	Committee	is	responsible	for	overseeing	that	businesses	providing investment	or	risk	management	products	and	services	perform	at	the	appropriate standard	in	their	relationships	with	clients.	In	addition,	the	Policy	Review	Office oversees	the	review	of	transactions	with	clients	in	terms	of	appropriateness,	ethical issues	and	reputation	risk,	with

the	goal	that	these	transactions	are	not	used	to	mislead	investors	or	others.

During	the	year,	the	Firm	revised	its	capital	allocation	methodologies	for	credit, operational,	business	and	private	equity	risk.	This	resulted	in	the	reallocation	of	capital among	the	risk	categories	and	the	business	segments;	the	reallocation	did	not	result	in a	significant	change	in	the	amount	of	total	capital	allocated	to	the	business	segments as	a	whole.

For	a	further	discussion	of	Risk	management	and	the	capital	allocation	methodology, see	pages	45-74	of	this	Annual	Report.

# Business	outlook

Global	economic	conditions	and	financial	markets	activity	are	expected	to	continue	to improve	in	2004.	While	rising	interest	rates	may	negatively	affect	the	mortgage	and Global	Treasury	businesses;	on	the	positive	side,	gains	in	market	share,	rising	equity values	and	increased	market	activity	may	benefit	many	of	the	Firm's	other	businesses.

The	Firm	expects	to	see	a	different	mix	of	earnings	in	2004.	IB	is	targeting	higher issuer	and	investor	client	revenue,	but	securities	gains	and	net	interest	income	may	be lower.	Mortgage	earnings	are	likely	to	decline	from	the	record	set	in	2003,	and	growth in	other	retail	businesses	may	not	be	sufficient	to	offset	the	decline	in	mortgage revenue.	Improved	equity	markets	and	increased	M&A	activity	may	provide	increased exit	opportunities	in	private	equity	and	could	result	in	higher	fees	in	IMPB	and	in	the custody	business	of	TSS.	Commercial	net	charge-off	ratios	may	be	lower,	but	credit costs	may	rise	as	the	reduction	in	the	Allowance	for	credit	losses	slows.	The	Firm expects	stable	consumer	net	charge-off	ratios	in	2004.

# Business	events

# Agreement	to	merge	with	Bank	One	Corporation

On	January	14,	2004,	JPMorgan	Chase	and	Bank	One	Corporation	("Bank	One") announced	an	agreement	to	merge.	The	merger	agreement,	which	has	been	approved by	the	boards	of	directors	of	both	companies,	provides	for	a	stock-for-stock	merger	in which	1.32	shares	of	JPMorgan	Chase	common	stock	will	be	exchanged,	on	a	tax-free basis,	for	each	share	of	Bank	One	common	stock.

The	merged	company,	headquartered	in	New	York,	will	be	known	as	J.P.	Morgan Chase	&	Co.	and	will	have	combined	assets	of	$1.1	trillion,	a	strong	capital	base,	2,300 branches	in	17	states	and	top-tier	positions	in	retail	banking	and	lending,	credit	cards, investment	banking,	asset	management,	private	banking,	treasury	and	securities services,	middle	markets	and	private	equity.	It	is	expected	that	cost	savings	of $2.2	billion	(pre-tax)	will	be	achieved	over	a	three-year	period.	Merger-related	costs	are expected	to	be	$3	billion	(pre-tax).

The	merger	is	subject	to	approval	by	the	shareholders	of	both	institutions	as	well	as U.S.	federal	and	state	and	non-U.S.	regulatory	authorities.	It	is	expected	to	be completed	in	mid-2004.

For	further	information	concerning	the	merger,	see	Note	2	on	page	87	of	this	Annual Report.

# Results	of	operations

This	section	discusses	JPMorgan	Chase's	results	of	operations	on	a	reported basis.	The	accompanying	financial	data	conforms	with	accounting	principles generally	accepted	in	the	United	States	of	America	("GAAP")	and	prevailing industry	practices.	The	section	should	be	read	in	conjunction	with	the Consolidated	financial	statements	and	Notes	to	consolidated	financial statements	beginning	on	page	82	of	this	Annual	Report.

# Revenues

| (in	millions) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Investment\tbanking\tfees | $2,890 | $2,763 | 5% |
| Trading\trevenue | 4,427 | 2,675 | 65 |
| Fees\tand\tcommissions | \t 10,652 | \t 10,387 | 3 |
| Private\tequity\tgains\t(losses) | 33 | (746) | NM |
| Securities\tgains | 1,446 | 1,563 | (7) |
| Mortgage\tfees\tand\trelated\tincome | 892 | 988 | (10) |
| Other\trevenue | 579 | 458 | 26 |
| Net\tinterest\tincome | \t 12,337 | \t 11,526 | 7 |
| Total\trevenue | $33,256 | $29,614 | 12% |

# Investment	banking	fees

Investment	banking	fees	of	$2.9	billion	rose	5%	from	2002.	For	a	discussion	of Investment	banking	fees,	which	are	primarily	recorded	in	IB,	see	IB	segment	results	on pages	29–31	of	this	Annual	Report.

# Trading	revenue

Trading	revenue	in	2003	of	$4.4	billion	was	up	65%	from	the	prior	year.	Fixed	income and	equity	capital	markets	activities	drove	growth	in	both	client	and	portfolio management	revenues.	Portfolio	management,	in	particular,	was	up	significantly	from 2002	as	a	result	of	gains	in	credit,	foreign	exchange	and	equity	derivatives	activities. Trading	revenue,	on	a	reported	basis,	excludes	the	impact	of	Net	interest	income	("NII") related	to	IB's	trading	activities,	which	is	reported	in	NII.	However,	the	Firm	includes trading-related	NII	as	part	of	Trading	revenue	for	segment	reporting	purposes	to	better assess	the	profitability	of	IB's	trading	business.	For	additional	information	on	Trading revenue,	see	IB	segment	discussion	on	pages	29–31	of	this	Annual	Report.

# Fees	and	commissions

Fees	and	commissions	of	$10.7	billion	in	2003	rose	3%	from	the	prior	year	as	a	result of	higher	credit	card	servicing	fees	associated	with	$5.8	billion	in	growth	in	average securitized	credit	card	receivables.	Also	contributing	to	the	increase	from	2002	were higher	custody,	institutional	trust	and	other	processing-related	service	fees.	These	fees reflected	the	more	favorable	environment	for	debt	and	equity	activities.	For	a	table showing	the	components	of	Fees	and	commissions,	see	Note	4	on	pages	88–89	of	this Annual	Report.

For	additional	information	on	Fees	and	commissions,	see	the	segment	discussions	of TSS	for	Custody	and	institutional	trust	service	fees,	IMPB	for	Investment	management and	service	fees,	and	CFS	for	consumer-related	fees	on	pages	32–33,	34–35	and	38– 43,	respectively,	of	this	Annual	Report.

# Private	equity	gains	(losses)

Private	equity	gains	of	$33	million	in	2003	reflect	significant	improvement	from	losses	of $746	million	in	2002.	For	a	discussion	of	Private	equity	gains	(losses),	which	are primarily	recorded	in	JPMP,	see	JPMP	results	on	pages	36–37.

# Securities	gains

In	2003,	Securities	gains	of	$1.4	billion	declined	7%	from	the	prior	year.	The	decline reflected	lower	gains	realized	from	the	sale	of	government	and	agency	securities	in	IB and	mortgage-backed	securities	in	Chase	Home	Finance	("CHF"),	driven	by	the increasing	interest	rate	environment	beginning	in	the	third	quarter	of	2003.	IB	uses available-for-sale	investment	securities	to	manage,	in	part,	the	asset/liability	exposures of	the	Firm;	CHF	uses	these	instruments	to	economically	hedge	the	value	of	mortgage servicing	rights	("MSRs").	For	a	further	analysis	of	securities	gains,	see	IB	and	CHF	on pages	29–31	and	39–40,	respectively,	of	this	Annual	Report.

# Mortgage	fees	and	related	income

Mortgage	fees	and	related	income	of	$892	million	in	2003	declined	10%	from	2002.	The decline	reflects	lower	mortgage	servicing	fees	and	lower	revenues	from	MSR	hedging activities;	these	were	offset	by	higher	fees	from	origination	and	sales	activity	and	other fees	derived	from	volume	and	market-share	growth.	Mortgage	fees	and	related	income, on	a	reported	basis,	excludes	the	impact	of	NII	and	securities	gains	and	losses	related to	Chase	Home	Finance's	mortgage	banking	activities.	For	a	further	discussion	of mortgage-related	revenue,	see	the	segment	discussion	for	Chase	Home	Finance	on pages	39–40	and	Note	4	on	page	89	of	this	Annual	Report.

# Other	revenue

Other	revenue	of	$579	million	in	2003	rose	26%	from	the	prior	year.	The	increase	was a	result	of	$200	million	in	gains	from	the	sale	of	securities	acquired	in	loan	satisfactions (compared	with	$26	million	in	2002),	partly	offset	by	lower	net	results	from	corporate and	bank-owned	life	insurance	policies.	Many	other	factors	contributed	to	the	change from	2002,	including	$73	million	of	write-downs	taken	in	2002	for	several	Latin American	investments.

# Net	interest	income

NII	of	$12.3	billion	was	7%	higher	than	in	2002.	The	increase	reflected	the	positive impact	of	lower	interest	rates	on	consumer	loan	originations	and	related	funding	costs. Average	mortgage	loans	in	CHF	rose	32%	to	$74.1	billion,	and	average	automobile loans	and	leases	in	Chase	Auto	Finance	increased	32%	to

$41.7	billion.	NII	was	reduced	by	a	lower	volume	of	commercial	loans	and	lower spreads	on	investment	securities.	As	a	component	of	NII,	trading-related	net	interest income	of	$2.1	billion	was	up	13%	from	2002	due	to	a	change	in	the	composition	of, and	growth	in,	trading	assets.

The	Firm's	total	average	interest-earning	assets	in	2003	were	$590	billion,	up	6%	from the	prior	year.	The	net	interest	yield	on	these	assets,	on	a	fully	taxable-equivalent basis,	was	2.10%,	compared	with	2.09%	in	the	prior	year.

# Noninterest	expense

| (in	millions) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Compensation\texpense | $11,695 | $10,983 | 6% |
| Occupancy\texpense | 1,912 | 1,606 | 19 |
| Technology\tand\tcommunications\texpense | 2,844 | 2,554 | 11 |
| Other\texpense | 5,137 | 5,111 | 1 |
| Surety\tsettlement\tand\tlitigation\treserve | 100 | 1,300 | (92) |
| Merger\tand\trestructuring\tcosts | — | 1,210 | NM |
| Total\tnoninterest\texpense | $21,688 | $22,764 | (5)% |

# Compensation	expense

Compensation	expense	in	2003	was	6%	higher	than	in	the	prior	year.	The	increase principally	reflected	higher	performance-related	incentives,	and	higher	pension	and other	postretirement	benefit	costs,	primarily	as	a	result	of	changes	in	actuarial assumptions.	For	a	detailed	discussion	of	pension	and	other	postretirement	benefit costs,	see	Note	6	on	pages	89–93	of	this	Annual	Report.	The	increase	pertaining	to incentives	included	$266	million	as	a	result	of	adopting	SFAS	123,	and	$120	million from	the	reversal	in	2002	of	previously	accrued	expenses	for	certain	forfeitable	key employee	stock	awards,	as	discussed	in	Note	7	on	pages	93–95	of	this	Annual	Report. Total	compensation	expense	declined	as	a	result	of	the	transfer,	beginning	April	1, 2003,	of	2,800	employees	to	IBM	in	connection	with	a	technology	outsourcing agreement.	The	total	number	of	full-time	equivalent	employees	at	December	31,	2003 was	93,453	compared	with	94,335	at	the	prior	year-end.

# Occupancy	expense

Occupancy	expense	of	$1.9	billion	rose	19%	from	2002.	The	increase	reflected	costs of	additional	leased	space	in	midtown	Manhattan	and	in	the	South	and	Southwest regions	of	the	United	States;	higher	real	estate	taxes	in	New	York	City;	and	the	cost	of enhanced	safety	measures.	Also	contributing	to	the	increase	were	charges	for unoccupied	excess	real	estate	of	$270	million;	this	compared	with	$120	million	in	2002, mostly	in	the	third	quarter	of	that	year.

# Technology	and	communications	expense

In	2003,	Technology	and	communications	expense	was	11%	above	the	prior-year level.	The	increase	was	primarily	due	to	a	shift	in	expenses:	costs	that	were	previously associated	with	Compensation	and	Other	expenses	shifted,	upon	the	commencement of	the	IBM	outsourcing	agreement,	to	Technology	and	communications	expense.	Also contributing	to	the	increase	were	higher	costs	related	to	software	amortization.	For	a further	discussion	of	the	IBM	outsourcing	agreement,	see	Support	Units	and	Corporate on	page	44	of	this	Annual	Report.

# Other	expense

Other	expense	in	2003	rose	slightly	from	the	prior	year,	reflecting	higher	Outside services.	For	a	table	showing	the	components	of	Other	expense,	see	Note	8	on	page 96	of	this	Annual	Report.

# Surety	settlement	and	litigation	reserve

The	Firm	added	$100	million	to	the	Enron-related	litigation	reserve	in	2003	to supplement	a	$900	million	reserve	initially	recorded	in	2002.	The	2002	reserve	was established	to	cover	Enron-related	matters,	as	well	as	certain	other	material	litigation, proceedings	and	investigations	in	which	the	Firm	is	involved.	In	addition,	in	2002	the Firm	recorded	a	charge	of	$400	million	for	the	settlement	of	Enron-related	surety litigation.

# Merger	and	restructuring	costs

Merger	and	restructuring	costs	related	to	business	restructurings	announced	after January	1,	2002,	were	recorded	in	their	relevant	expense	categories.	In	2002,	Merger and	restructuring	costs	of	$1.2	billion,	for	programs	announced	prior	to	January	1,	2002, were	viewed	by	management	as	nonoperating	expenses	or	"special	items."	Refer	to Note	8	on	pages	95–96	of	this	Annual	Report	for	a	further	discussion	of	Merger	and restructuring	costs	and	for	a	summary,	by	expense	category	and	business	segment,	of costs	incurred	in	2003	and	2002	for	programs	announced	after	January	1,	2002.

# Provision	for	credit	losses

The	2003	Provision	for	credit	losses	was	$2.8	billion	lower	than	in	2002,	primarily reflecting	continued	improvement	in	the	quality	of	the	commercial	loan	portfolio	and	a higher	volume	of	credit	card	securitizations.	For	further	information	about	the	Provision for	credit	losses	and	the	Firm's	management	of	credit	risk,	see	the	discussions	of	net charge-offs	associated	with	the	commercial	and	consumer	loan	portfolios	and	the Allowance	for	credit	losses,	on	pages	63–65	of	this	Annual	Report.

# Income	tax	expense

Income	tax	expense	was	$3.3	billion	in	2003,	compared	with	$856	million	in	2002.	The effective	tax	rate	in	2003	was	33%,	compared	with	34%	in	2002.	The	tax	rate	decline was	principally	attributable	to	changes	in	the	proportion	of	income	subject	to	state	and local	taxes.

# Segment	results

JPMorgan	Chase's	lines	of	business	are	segmented	based	on	the	products	and services	provided	or	the	type	of	customer	serviced	and	reflect	the	manner	in	which financial	information	is	currently	evaluated	by	the	Firm's	management.	Revenues	and expenses	directly	associated	with	each	segment	are	included	in	determining	that segment's	results.	Management	accounting	and	other	policies	exist	to	allocate	those remaining	expenses	that	are	not	directly	incurred	by	the	segments.

The	wholesale	businesses	of	JPMorgan	Chase	are	known	globally	as	"JPMorgan"	and comprise	the	Investment	Bank,	Treasury	&	Securities	Services,	Investment Management	&	Private	Banking	and	JPMorgan	Partners.	The	national	consumer	and middle	market	businesses	are	known	as	"Chase"	and	collectively	comprise	Chase Financial	Services.

# Basis	of	presentation

The	Firm	prepares	its	consolidated	financial	statements,	which	appear	on	pages	82–85 of	this	Annual	Report,	using	U.S.	GAAP	and	prevailing	industry	practices.	The	financial statements	are	presented	on	a	"reported	basis,"	which	provides	the	reader	with	an understanding	of	the	Firm's	results	that	can	be	consistently	tracked	from	year	to	year and	enables	a	comparison	of	the	Firm's	performance	with	other	companies'	U.S.	GAAP financial	statements.

In	addition	to	analyzing	the	Firm's	results	on	a	reported	basis,	management	looks	at results	on	an	"operating	basis,"	which	is	a	non-GAAP	financial	measure,	to	assess	each of	its	lines	of	business	and	to	measure	overall	Firm	results	against	targeted	goals.	The definition	of	operating	basis	starts	with	the	reported	U.S.	GAAP	results	and	then excludes	the	impact	of	credit	card	securitizations.	Securitization	does	not	change JPMorgan	Chase's	reported	versus	operating	net	income;	however,	it	does	affect	the classification	of	items	in	the	Consolidated	statement	of	income.	For	a	further	discussion of	credit	card	securitizations,	see	Chase	Cardmember	Services	on	page	41	of	this Annual	Report.

JPMorgan	is	the	brand	name.JPMorgan	ChaseChase	is	the	brand	name.Investment	Treasury	&InvestmentJPMorgan	Chase	Financial	BankSecurities	Management	&PartnersServices	ServicesPrivate	BankingProduct	type:Businesses:Businesses:Business:Businesses:

•Advisory•	Institutional	Trust•	Investment•	Private	equity•	Home	Finance•Debt	and	equityServicesManagementinvestments•	Cardmember	Services	underwriting•	Investor	Services•	Private	Banking•Auto	Finance•Market-making,•	Treasury	Services•	Regional	Banking	trading	and	investing:•	Middle	Market	—	Fixed	income	-	Treasury	—	Equities•Corporate	lending

Prior	to	2003,	the	Firm	excluded	from	its	operating	results	the	impact	of	merger	and restructuring	costs	and	special	items,	as	these	transactions	were	viewed	by management	as	not	part	of	the	Firm's	normal	daily	business	operations	or	unusual	in nature	and,	therefore,	not	indicative	of	trends.	To	be	considered	a	special	item,	the nonrecurring	gain	or	loss	had	to	be	at	least	$75	million	or	more	during	2002. Commencing	in	2003,	management	determined	that	many	of	the	costs	previously considered	nonoperating	were	to	be	deemed	operating	costs.	However,	it	is	possible that	in	the	future,	management	may	designate	certain	material	gains	or	losses	incurred by	the	Firm	to	be	"special	items."

The	segment	results	also	reflect	revenue-	and	expense-sharing	agreements	between certain	lines	of	business.	Revenue	and	expenses	attributed	to	shared	activities	are recognized	in	each	line	of	business,	and	any	double	counting	is	eliminated	at	the segment	level.	These	arrangements	promote	cross-selling	and	management	of	shared client	expenses.	They	also	ensure	that	the	contributions	of	both	businesses	are	fully recognized.

Prior-period	segment	results	have	been	adjusted	to	reflect	alignment	of	management accounting	policies	or	changes	in	organizational	structure	among	businesses. Restatements	of	segment	results	may	occur	in	the	future.

See	Note	34	on	pages	126-127	of	this	Annual	Report	for	further	information	about JPMorgan	Chase's	five	business	segments.

# Capital	allocation

The	Firm	allocates	capital	to	its	business	units	utilizing	a	risk-adjusted	methodology, which	quantifies	credit,	market,	operational	and	business	risks	within	each	business and	additionally,	for	JPMP,	private	equity	risk.	For	a	discussion	of	those	risks,	see	the risk	management	sections	on	pages	45–74	of	this	Annual	Report.	The	Firm	allocates additional	capital	to	its	businesses	incorporating	an	"asset	capital	tax"	on	managed assets	and	some	off–balance	sheet	instruments.	In	addition,	businesses	are	allocated capital	equal	to	100%	of	goodwill	and	50%	for	certain

The	accompanying	summary	table	provides	a	reconciliation	between	the	Firm's	reported	and	operating	results.

|  |  | 2003 | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Year\tended\tDecember\t31, |  | Reported | Credit | Operating | Reported | Credit | Special | Operating |
|  |  | (a) | (b) |  | (a) | (b) | (c) |  |
| (in\tmillions,\texcept\tper\tshare\tdata\tand\tratios) | (in\tmillions,\texcept\tper\tshare\tdata\tand\tratios) | results | card | basis | results | card | items | basis |
| Consolidated\tincome\tstatement |  |  |  |  |  |  |  |  |
| Total\trevenue |  | $33,256 | $1,870 | $35,126 | $29,614 | $1,439 | $— | $31,053 |
| Noninterest\texpense: |  |  |  |  |  |  |  |  |
| Compensation\texpense | \t(d) | 11,695 | — | 11,695 | 10,983 | — | — | 10,983 |
| Noncompensation\texpense | \t(d) | 9,993 | — | 9,993 | 10,571 | — | (1,398) | 9,173 |
| Merger\tand\trestructuring\tcosts |  | — | — | — | 1,210 | — | (1,210) | — |
| Total\tnoninterest\texpense |  | 21,688 | — | 21,688 | 22,764 | — | (2,608) | 20,156 |
| Provision\tfor\tcredit\tlosses |  | 1,540 | 1,870 | 3,410(e) | 4,331 | 1,439 | — | 5,770(e) |
| Income\tbefore\tincome\ttax\texpense |  | 10,028 | — | 10,028 | 2,519 | — | 2,608 | 5,127 |
| Income\ttax\texpense |  | 3,309 | — | 3,309 | 856 | — | 887 | 1,743 |
| Net\tincome |  | $6,719 | $— | $6,719 | $1,663 | $— | $1,721 | $3,384 |
| Earnings\tper\tshare\t–\tdiluted |  | $3.24 | $— | $3.24 | $0.80 | $— | $0.86 | $1.66 |
| Return\ton\taverage\tcommon\tequity | \t(f) | 16% |  | 16% | 4% |  |  | 8% |
| (a) | Represents\tcondensed\tresults\tas\treported\tin\tJPMorgan\tChase's\tfinancial\tstatements. | Represents\tcondensed\tresults\tas\treported\tin\tJPMorgan\tChase's\tfinancial\tstatements. |  |  |  |  |  |  |

(a) Represents	condensed	results	as	reported	in	JPMorgan	Chase's	financial	statements.

(b) Represents	the	impact	of	credit	card	securitizations.	For	securitized	receivables,	amounts	that	normally	would	be	reported	as	Net	interest	income	and	as	Provision	for	credit	losses	are	reported	as	Noninterest	revenue.

(c) There	were	no	special	items	in	2003.	For	2002,	includes	merger	and	restructuring	costs.	For	a	description	of	special	items,	see	Glossary	of	terms	on	page	131	of	this	Annual	Report.

(d) Compensation	expense	includes	$294	million	and	$746	million	of	severance	and	related	costs	at	December	31,	2003	and	2002,	respectively.	Noncompensation	expense	includes	$336	million	and	$144	million	of severance	and	related	costs	at	December	31,	2003	and	2002,	respectively.

(e) Represents	credit	costs,	which	is	composed	of	the	Provision	for	credit	losses	as	well	as	the	credit	costs	associated	with	securitized	credit	card	loans.

(f) Reflects	the	return	on	average	common	equity	as	it	relates	to	the	Firm.	Return	on	allocated	capital	is	a	similar	metric	used	by	the	business	segments.

other	intangibles	generated	through	acquisitions.	The	Firm	estimates	the	portfolio	effect on	required	economic	capital	based	on	correlations	of	risk	across	risk	categories.	This estimated	diversification	benefit	is	not	allocated	to	the	business	segments.

# Performance	measurement

The	Firm	uses	the	shareholder	value	added	("SVA")	framework	to	measure	the performance	of	its	business	segments.	To	derive	SVA,	a	non-GAAP	financial	measure, for	its	business	segments,	the	Firm	applies	a	12%	(after-tax)	cost	of	capital	to	each segment,	except	JPMP	–	this	business	is	charged	a	15%	(after-tax)	cost	of	capital.	The capital	elements	and	resultant	capital	charges	provide	each	business	with	the	financial framework	to	evaluate	the	trade-off	between	using	capital	versus	its	return	to sharehold-

ers.	Capital	charges	are	an	integral	part	of	the	SVA	measurement	for	each	business. Under	the	Firm's	model,	economic	capital	is	either	underallocated	or	overallocated	to the	business	segments,	as	compared	with	the	Firm's	total	common	stockholders' equity.	The	revenue	and	SVA	impact	of	this	over/under	allocation	is	reported	under Support	Units	and	Corporate.	See	Glossary	of	terms	on	page	131	of	this	Annual	Report for	a	definition	of	SVA	and	page	44	of	this	Annual	Report	for	more	details.

JPMorgan	Chase's	lines	of	business	utilize	individual	performance	metrics	unique	to the	respective	businesses	to	measure	their	results	versus	those	of	their	peers.	For	a further	discussion	of	these	metrics,	see	each	respective	line-of-business	discussion	in this	Annual	Report.

Contribution	of	businesses	in	2003	Operating	revenue	(loss)Consumer	42%Wholesale	and	other	58%Consumer	includes:Wholesale	and	other	includes:

Chase	Home	Finance12%	Investment	Bank41%	Chase	Cardmember	Services	18%	Treasury	&	Securities	Services	12%	Chase	Auto	Finance2%	Investment	Management	&	Private	Banking8%	Chase	Regional	Banking7%	Chase	Middle	Market4%	JPMorgan	Partners(1)%	Other	consumer	services(1)%	Support	Units	and	Corporate	(2)%

Operating	earnings	(losses)	Consumer	37%Wholesale	and	other	63%Consumer	includes:Wholesale	and	other	includes:

Chase	Home	Finance20%	Investment	Bank55%	Chase	Cardmember	Services	10%	Treasury	&	Securities	Services	8%	Chase	Auto	Finance3%	Investment	Management	&	Private	Banking4%	Chase	Regional	Banking1%	Chase	Middle	Market5%	JPMorgan	Partners(4)%	Other	consumer	services(2)%	Support	Units	and	Corporate	—%

# Investment	Bank

JPMorgan	Chase	is	one	of	the	world's	leading	investment	banks,	as	evidenced by	the	breadth	of	its	client	relationships	and	product	capabilities.	The	Investment Bank	has	extensive	relationships	with	corporations,	financial	institutions, governments	and	institutional	investors	worldwide.	The	Firm	provides	a	full range	of	investment	banking	and	commercial	banking	products	and	services, including	advising	on	corporate	strategy	and	structure,	capital	raising	in	equity and	debt	markets,	sophisticated	risk	management,	and	market-making	in	cash securities	and	derivative	instruments	in	all	major	capital	markets.	The	Investment Bank	also	commits	the	Firm's	own	capital	to	proprietary	investing	and	trading activities.

# Selected	financial	data

| and	employees) |  |  | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Operating\trevenue: |  |  |  |  |  |
| Investment\tbanking\tfees |  |  | $2,855 | $2,696 | 6% |
| Capital\tmarkets\tand\tlending\trevenue: |  |  |  |  |  |
| Trading-related\trevenue | (a) |  | 6,418 | 4,479 | 43 |
| Net\tinterest\tincome |  |  | 2,277 | 2,642 | (14) |
| Fees\tand\tcommissions |  |  | 1,646 | 1,619 | 2 |
| Securities\tgains |  |  | 1,065 | 1,076 | (1) |
| All\tother\trevenue |  |  | 179 | (14) | NM |
| Total\tcapital\tmarkets\tand\tlending\trevenue | Total\tcapital\tmarkets\tand\tlending\trevenue | Total\tcapital\tmarkets\tand\tlending\trevenue | 11,585 | 9,802 | 18 |
| Total\toperating\trevenue |  |  | 14,440 | 12,498 | 16 |
| Operating\texpense: |  |  |  |  |  |
| Compensation\texpense |  |  | 4,527 | 3,974 | 14 |
| Noncompensation\texpense | Noncompensation\texpense |  | 3,596 | 3,451 | 4 |
| Severance\tand\trelated\tcosts | Severance\tand\trelated\tcosts |  | 347 | 587 | (41) |
| Total\toperating\texpense |  |  | 8,470 | 8,012 | 6 |
| Operating\tmargin |  |  | 5,970 | 4,486 | 33 |
| Credit\tcosts |  |  | (181) | 2,393 | NM |
| Corporate\tcredit\tallocation |  |  | (36) | (82) | 56 |
| Operating\tearnings |  |  | $3,685 | $1,303 | 183 |
| Shareholder\tvalue\tadded: |  |  |  |  |  |
| Operating\tearnings\tless\tpreferred\tdividends | Operating\tearnings\tless\tpreferred\tdividends | Operating\tearnings\tless\tpreferred\tdividends | $3,663 | $1,281 | 186 |
| Less:\tcost\tof\tcapital |  |  | 2,295 | 2,390 | (4) |
| Shareholder\tvalue\tadded |  |  | $1,368 | $(1,109) | NM |
| Average\tallocated\tcapital |  |  | $19,134 | $19,915 | (4) |
| Average\tassets |  |  | \t 510,894 | \t 495,464 | 3 |
| Return\ton\tallocated\tcapital |  |  | 19% | 6% | 1,300bp |
| Overhead\tratio |  |  | 59 | 64 | (500) |
| Compensation\tas\t%\tof\trevenue | Compensation\tas\t%\tof\trevenue | (b) | 31 | 32 | (100) |
| Full-time\tequivalent\temployees | Full-time\tequivalent\temployees |  | 14,772 | 15,145 | (2)% |
| (a) |  |  |  |  |  |

(b) Excludes	severance	and	related	costs.

Operating	revenue	Operating	earnings	(in	millions)(in	millions,	except	ratios)Return	on	allocated	capital

# Financial	results	overview

The	2003	performance	of	IB	was	positively	influenced	by	a	low	interest-rate environment,	a	more	favorable	equities	market	and	an	improving	credit	market,	partially offset	by	continued	weakness	in	M&A	activity.

In	2003,	IB	reported	record	operating	earnings	of	$3.7	billion,	an	increase	of	183% compared	with	2002.	Revenue	growth	of	16%	far	outpaced	expense	growth	of	6%. Credit	costs	were	negative	$181	million	in	2003,	compared	with	$2.4	billion	in	2002. Return	on	allocated	capital	for	the	year	was	19%.

Operating	revenue	of	$14.4	billion	consisted	of	investment	banking	fees	for	advisory and	underwriting	services;	capital	markets	revenue	related	to	market-making,	trading and	investing;	and	revenue	from	corporate	lending	activities.

| (in	millions) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Investment\tbanking\tfees |  |  |  |
| Advisory | $640 | $743 | (14)% |
| Equity\tunderwriting | 697 | 470 | 48 |
| Debt\tunderwriting | 1,518 | 1,483 | 2 |
| Total | $2,855 | $2,696 | 6% |

Investment	banking	fees	of	$2.9	billion	were	up	6%.	While	Advisory	fees	declined	by 14%,	reflecting	depressed	levels	of	M&A	activity,	debt	underwriting	fees	were	up	2%. This	2%	increase	is	primarily	due	to	growth	in	high	yield	underwriting	and	structured finance	fees	and	reflects	a	partial	offset	of	lower	loan	syndication	fees.	The	key contributor	to	the	overall	increase	in	IB	fees	was	equity	underwriting	revenue,	which was	up	48%,	reflecting	increases	in	market	share	and	underwriting	volumes.

# Market	shares	and	rankings

|  | 2003 | 2003 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- |
| December\t31, | \t Market\tshare | Ranking\t\t Market\tshare | Ranking\t\t Market\tshare | Ranking |
| \t•\t\tGlobal\tsyndicated\tloans | 18% | #1 | 23% | #1 |
| \t•\t\tGlobal\tinvestment-grade\tbonds | 8 | #2 | 9 | #2 |
| \t•\tEuro-denominated\tcorporate |  |  |  |  |
| international\tbonds | 5 | #6 | 6 | #4 |
| \t•\t\tGlobal\tequity\t&amp;\tequity-related | 9 | #4 | 4 | #8 |
| \t•\t\tU.S.\tequity\t&amp;\tequity-related | 11 | #4 | 6 | #6 |
| \t•\t\tGlobal\tannounced\tM&amp;A | 16 | #5 | 14 | #5 |
| (a)\nDerived\tfrom\tThomson\tFinancial\tSecurities\tData,\twhich\treflects\tsubsequent\tupdates\tto\tprior-period |  |  |  |  |

(a) Derived	from	Thomson	Financial	Securities	Data,	which	reflects	subsequent	updates	to	prior-period information.	Global	announced	M&A	based	on	rank	value;	all	others	based	on	proceeds,	with	full	credit to	each	book	manager/equal	if	joint.	Because	of	joint	assignments,	market	share	of	all	participants	will add	up	to	more	than	100%.

The	Firm	improved	its	ranking	in	global	equity	and	equity-related	underwriting	to	No.	4 from	No.	8	in	2002.	It	also	maintained	its	No.	2	ranking	in	underwriting	global investment-grade	bonds,	its	No.	1	ranking	in	global	loan	syndications	and	its	No.	5 ranking	in	global	announced	M&A.

Capital	markets	revenue	includes	Trading	revenue,	Fees	and	commissions,	Securities gains,	related	Net	interest	income	and	Other	revenue.	These	activities	are	managed	on a	total-return	revenue	basis,	which	includes	operating	revenue	plus	the	change	in unrealized	gains	or	losses	on	investment	securities	and	hedges	(included	in	Other comprehensive	income)	and	internally	transfer-priced	assets	and	liabilities.	Capital markets	revenue	includes	client	and	portfolio	management	revenues.	Portfolio management	reflects	net	gains	or	losses	from	IB's	proprietary	trading	and	revenue	from risk	positions	in	client-related	market-making	activities.

Capital	markets	and	lending	total-return	revenue	of	$11.6	billion	was	up	22%	from last	year	due	to	strong	client	and	portfolio	management	revenue.	Excluding	Global Treasury,	Capital	markets	and	lending	total-return	revenue	was	$9.9	billion,	up	25% from	the	prior	year.

Fixed	income	revenue	of	$7.0	billion	was	up	28%	from	last	year.	The	increase	was driven	by	strong	client	driven	activity	in	European	and	emerging	markets,	as	well	as increased	portfolio	management	revenue	in	credit	and	foreign	exchange	markets. Global	Treasury	reported	record	revenue	of	$1.7	billion,	up	11%

# Reconciliation	of	Capital	markets	and	lending	operating	revenue	to	total-return	revenue

|  | Trading-related | Fees	and | Securities | NII	and | Total	operating | Total-return |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  |  | (a) |
| Year\tended\tDecember\t31,\t2003\t(in\tmillions) | revenue | commissions | gains | other | revenue | revenue |
| Fixed\tincome | $5,991 | $342 | $56 | $550 | $6,939 | $7,001 |
| Global\tTreasury | 64 | 1 | 1,002 | 659 | 1,726 | 1,684 |
| Credit\tportfolio | (185) | 368 | 1 | 1,237 | 1,421 | 1,421 |
| Equities | 548 | 935 | 6 | 10 | 1,499 | 1,499 |
| Total | $6,418 | $1,646 | $1,065 | $2,456 | $11,585 | $11,605 |
| Year\tended\tDecember\t31,\t2002\t(in\tmillions) |  |  |  |  |  |  |
| Fixed\tincome | $4,589 | $345 | $11 | $542 | $5,487 | $5,466 |
| Global\tTreasury | 22 | — | 1,061 | 732 | 1,815 | 1,513 |
| Credit\tportfolio | (143) | 358 | 3 | 1,288 | 1,506 | 1,506 |
| Equities | 11 | 916 | 1 | 66 | 994 | 994 |
| Total | $4,479 | $1,619 | $1,076 | $2,628 | $9,802 | $9,479 |

(a) Total-return	revenue,	a	non-GAAP	financial	measure,	represents	operating	revenue	plus	the	change	in	unrealized	gains	or	losses	on	investment	securities	and	hedges	(included	in	Other	comprehensive	income)	and internally	transfer-priced	assets	and	liabilities.

# IB's	Capital	markets	and	lending	activities	are	comprised	of	the	following:

Fixed	income	includes	client	and	portfolio	management	revenue	related	to	both market-making	and	proprietary	risk-taking	across	global	fixed	income	markets,	including government	and	corporate	debt,	foreign	exchange,	interest	rate	and	commodities markets.

Global	Treasury	manages	the	overall	interest	rate	exposure	and	investment	securities portfolio	of	the	Firm.	It	creates	strategic	balance	by	providing	a	diversification	benefit	to the	Firm's	trading,	lending	and	fee-based	activities.

Credit	portfolio	revenue	includes	net	interest	income,	fees	and	loan	sale	activity	for IB's	commercial	credit	portfolio.	Credit	portfolio	revenue	also	includes	gains	or	losses on	securities	received	as

part	of	a	loan	restructuring,	and	changes	in	the	credit	valuation	adjustment	("CVA"), which	is	the	component	of	the	fair	value	of	a	derivative	that	reflects	the	credit	quality	of the	counterparty.	See	page	59	of	the	Credit	risk	management	section	of	this	Annual Report	for	a	further	discussion	of	the	CVA.	Credit	portfolio	revenue	also	includes	the results	of	single-name	and	portfolio	hedging	arising	from	the	Firm's	lending	and derivative	activities.	See	pages	60–61	of	the	Credit	risk	management	section	of	this Annual	Report	for	a	further	discussion	on	credit	derivatives.

Equities	includes	client	and	portfolio	management	revenue	related	to	market-making and	proprietary	risk-taking	across	global	equity	products,	including	cash	instruments, derivatives	and	convertibles.

from	last	year,	driven	by	positioning	to	benefit	from	interest	rate	movements	and mortgage	basis	volatility.	Credit	portfolio	revenue	of	$1.4	billion	was	down	6%	the	result of	tightening	of	credit	spreads	in	the	second	quarter	of	2003,	as	well	as	lower	NII,	which reflected	lower	levels	of	commercial	loans.	Equities	revenue	of	$1.5	billion	was	up	51% from	last	year	due	to	higher	client	activity	and	portfolio	management	results	in derivatives	and	convertibles.

Operating	expense	increased	6%	from	2002,	reflecting	higher	incentives	related	to improved	financial	performance	and	the	impact	of	expensing	stock	options. Noncompensation	costs	were	up	4%	from	the	prior	year	due	to	increases	in	technology and	occupancy	costs.	Severance	and	related	costs	of	$347	million	were	down	41%. The	overhead	ratio	for	2003	was	59%,	compared	with	64%	in	2002.

Credit	costs	were	negative	$181	million,	$2.6	billion	lower	than	in	the	prior	year, reflecting	improvement	in	the	overall	credit	quality	of	the	commercial	portfolio	and	the restructuring	of	several	nonperforming	commercial	loans.

# Corporate	credit	allocation

In	2003,	IB	assigned	to	TSS	pre-tax	earnings	and	allocated	capital	associated	with clients	shared	with	TSS.	Prior	periods	have	been	revised	to	reflect	this	allocation.	The impact	to	IB	of	this	change	decreased	pre-tax	operating	results	by	$36	million	and

# Client	and	Nonclient	Revenue

| (in	millions) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Client\trevenue: |  |  |  |
| Investment\tbanking\tfees | $2,855 | $2,696 | 6% |
| Capital\tmarkets\trevenue: |  |  |  |
| Trading\trevenue | 4,485 | 3,840 | 17 |
| Other\tcapital\tmarkets\trevenue | 2,904 | 2,875 | 1 |
| Total\tclient\trevenue | 10,244 | 9,411 | 9 |
| Nonclient\trevenue: |  |  |  |
| Treasury\trevenue | 1,726 | 1,815 | (5) |
| Portfolio\tmanagement\trevenue | 2,470 | 1,272 | 94 |
| Total\tnonclient\trevenue | 4,196 | 3,087 | 36 |
| Operating\trevenue | $14,440 | $12,498 | 16% |

average	allocated	capital	by	$712	million,	and	it	increased	shareholder	value	added	by $65	million.

In	2004,	the	composition	of	IB's	revenues	is	expected	to	change.	Growth	in	client- related	revenue	may	be	offset	by	potentially	lower	securities	gains	and	NII.	NII	may	be lower	due	to	decreased	spreads	on	investment	securities	and	lower	loan	volumes.	The IB	credit	outlook	is	stable,	although	credit	costs	may	be	higher	than	the	unusually	low levels	seen	in	2003.

IB	Dimensions	of	2003	revenue	diversification	By	business	revenueBy	client	segment	By	geographic	region Fixed	income	capital	markets	48%Financial	institutions	54%North	America	56%	Treasury	12%Diversified	industries	12%	Europe/Middle	East	Debt	underwriting	11%31%	TMT	11%and	Africa	Equity	capital	markets	10%	Natural	resources	8%	Credit	portfolio	10%Asia/Pacific	8%	Equity	underwriting	5%Governments	7%	Advisory	4%Consumer/healthcare	5%Latin	America	5%	Real	estate	3%

# Treasury	&	Securities	Services

Treasury	&	Securities	Services,	a	global	leader	in	transaction	processing	and information	services	to	wholesale	clients,	is	composed	of	three	businesses. Institutional	Trust	Services	provides	a	range	of	services	to	debt	and	equity issuers	and	broker-dealers,	from	traditional	trustee	and	paying-agent	functions to	global	securities	clearance.	Investor	Services	provides	securities	custody	and related	functions,	such	as	securities	lending,	investment	analytics	and	reporting, to	mutual	funds,	investment	managers,	pension	funds,	insurance	companies	and banks	worldwide.	Treasury	Services	provides	treasury	and	cash	management,	as well	as	payment,	liquidity	management	and	trade	finance	services,	to	a diversified	global	client	base	of	corporations,	financial	institutions	and governments.

| and	employees) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Operating\trevenue: |  |  |  |
| Fees\tand\tcommissions | $2,562 | $2,412 | 6% |
| Net\tinterest\tincome | 1,219 | 1,224 | — |
| All\tother\trevenue | 211 | 256 | (18) |
| Total\toperating\trevenue | 3,992 | 3,892 | 3 |
| Operating\texpense: |  |  |  |
| Compensation\texpense | 1,261 | 1,163 | 8 |
| Noncompensation\texpense | 1,895 | 1,814 | 4 |
| Severance\tand\trelated\tcosts | 61 | 17 | 259 |
| Total\toperating\texpense | 3,217 | 2,994 | 7 |
| Operating\tmargin | 775 | 898 | (14) |
| Credit\tcosts | 1 | 1 | — |
| Corporate\tcredit\tallocation | 36 | 82 | (56) |
| Operating\tearnings | $520 | $621 | (16) |
| Shareholder\tvalue\tadded: |  |  |  |
| Operating\tearnings\tless\tpreferred\tdividends | $517 | $619 | (16) |
| Less:\tcost\tof\tcapital | 325 | 323 | 1 |
| Shareholder\tvalue\tadded | $192 | $296 | (35) |
| Average\tallocated\tcapital | $2,711 | $2,688 | 1 |
| Average\tassets | \t 18,993 | \t 17,780 | 7 |
| Return\ton\tallocated\tcapital | 19% | 23% | (400)bp |
| Overhead\tratio | 81 | 77 | 400 |
| Assets\tunder\tcustody\t(in\tbillions) | $7,597 | $6,336 | 20% |
| Full-time\tequivalent\temployees | \t 14,616 | \t 14,440 | 1 |

Treasury	&	Securities	Services	("TSS")	operating	earnings	decreased	by	16%	from 2002	while	delivering	a	return	on	allocated	capital	of	19%.	Increased	operating	expense of	7%	and	a	lower	corporate	credit	allocation	contributed	to	the	lower	earnings.

Operating	revenue	increased	by	3%,	with	growth	at	Institutional	Trust	Services	("ITS") of	7%.	ITS	revenue	growth	came	from	debt	product	lines,	increased	volume	in	asset servicing	and	the	result	of	acquisitions	which	generated	$29	million	of	new	revenue	in 2003.	Treasury	Services'	revenue	rose	6%	on	higher	trade	and	commercial	payment card	revenue	and	increased	balance-related	earnings,	including	higher	balance deficiency	fees	resulting	from	the	lower	interest	rate	environment.	Investor	Services' revenue	contracted	4%,	the	result	of	lower	NII	due	to	lower	interest	rates,	coupled	with lower	foreign	exchange	and	securities	lending	revenue.

TSS	results	included	a	pre-tax	gain	of	$41	million	on	the	sale	of	a	nonstrategic	business in	2003,	compared	with	a	pre-tax	gain	of	$50	million	on	the	sale	of	the	Firm's	interest	in a	non-U.S.	securities	clearing	firm	in	2002.

Operating	expense	increased	by	7%,	attributable	to	higher	severance,	the	impact	of acquisitions,	the	cost	associated	with	expensing	of	options,	increased	pension	costs and	charges	to	provide	for	losses	on	subletting	unoccupied	excess	real	estate.	The overhead	ratio	for	TSS	was	81%,	compared	with	77%	in	2002.

TSS	dimensions	of	2003	revenue	diversification	By	business	revenuesBy	client	segmentBy	geographic	region

(a)	Nonbank	financialThe	Americas	64%	Treasury	Services	40%	institutions	44%	Investor	Services	36%Large	corporations	21%	Europe,	Middle	East,	Banks	11%	Institutional	Trust	Services	23%	&	Africa	27%	Middle	market	18%	Public	sector/governments	6%Asia	9%	Other	1%	(a)	Includes	the	elimination	of	revenue	related	to	shared	activities	with	Chase	Middle	Market	in	the	amount	of	$347	million.

In	2003,	TSS	was	assigned	a	corporate	credit	allocation	of	pre-tax	earnings	and	the associated	capital	related	to	certain	credit	exposures	managed	within	IB's	credit portfolio	on	behalf	of	clients	shared	with	TSS.	Prior	periods	have	been	revised	to	reflect this	allocation.	For	2003,	the	impact	to	TSS	of	this	change	increased	pre-tax	operating results	by	$36	million	and	average	allocated	capital	by	$712	million,	and	it	decreased SVA	by	$65	million.	Pre-tax	operating	results	were	$46	million	lower	than	in	2002, reflecting	lower	loan	volumes	and	higher	related	expenses,	slightly	offset	by	a decrease	in	credit	costs.

TSS	revenue	in	2004	is	expected	to	benefit	from	improved	global	equity	markets	and from	two	recent	acquisitions:	the	November	2003	acquisition	of	the	Bank	One	corporate trust	portfolio,	and	the	January	2004	acquisition	of	Citigroup's	Electronic	Funds Services	business.	TSS	also	expects	higher	costs	as	it	integrates	these	acquisitions and	continues	strategic	investments	to	support	business	expansion.

| Year	ended	December	31, |  | Operating	Revenue | Operating	Revenue | Operating	Revenue |
| :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) |  | 2003 | 2002 | Change |
| Treasury\tServices |  | $1,927 | $1,818 | 6% |
| Investor\tServices |  | 1,449 | 1,513 | (4) |
| Institutional\tTrust\tServices | (a) | 928 | 864 | 7 |
| (a)(b) |  |  |  |  |
| Other |  | (312) | (303) | (3) |
| Total\tTreasury\t&amp;\tSecurities\tServices | Total\tTreasury\t&amp;\tSecurities\tServices | $3,992 | $3,892 | 3% |
| (a)\nIncludes\ta\tportion\tof\tthe\t$41\tmillion\tgain\ton\tsale\tof\ta\tnonstrategic\tbusiness\tin\t2003:\t$1\tmillion\tin |  |  |  |  |

(a) Includes	a	portion	of	the	$41	million	gain	on	sale	of	a	nonstrategic	business	in	2003:	$1	million	in Institutional	Trust	Services	and	$40	million	in	Other.

(b) Includes	the	elimination	of	revenues	related	to	shared	activities	with	Chase	Middle	Market,	and	a $50	million	gain	on	sale	of	a	non-U.S.	securities	clearing	firm	in	2002.

# Investment	Management	&	Private	Banking

Investment	Management	&	Private	Banking	provides	investment	management services	to	institutional	investors,	high	net	worth	individuals	and	retail customers,	and	it	provides	personalized	advice	and	solutions	to	wealthy individuals	and	families.

| and	employees) |  | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- | :--- |
| Operating\trevenue: |  |  |  |  |
| Fees\tand\tcommissions |  | $2,207 | $2,176 | 1% |
| Net\tinterest\tincome |  | 467 | 446 | 5 |
| All\tother\trevenue |  | 204 | 217 | (6) |
| Total\toperating\trevenue |  | 2,878 | 2,839 | 1 |
| Operating\texpense: |  |  |  |  |
| Compensation\texpense |  | 1,193 | 1,125 | 6 |
| Noncompensation\texpense |  | 1,235 | 1,221 | 1 |
| Total\toperating\texpense |  | 2,428 | 2,346 | 3 |
| Credit\tcosts |  | 35 | 85 | (59) |
| Pre-tax\tmargin |  | 415 | 408 | 2 |
| Operating\tearnings |  | $268 | $261 | 3 |
| Shareholder\tvalue\tadded: |  |  |  |  |
| Operating\tearnings\tless\tpreferred\tdividends | Operating\tearnings\tless\tpreferred\tdividends | $261 | $254 | 3 |
| Less:\tcost\tof\tcapital |  | 655 | 677 | (3) |
| Shareholder\tvalue\tadded |  | $(394) | $(423) | 7 |
| Tangible\tshareholder\tvalue\tadded | (a) | $108 | $84 | 29 |
| Average\tallocated\tcapital |  | 5,454 | 5,643 | (3) |
| Average\tassets |  | \t 33,685 | \t 35,729 | (6) |
| Return\ton\ttangible\tallocated\tcapital | (a) | 20% | 18% | 200bp |
| Return\ton\tallocated\tcapital |  | 5 | 5 | — |
| Overhead\tratio |  | 84 | 83 | 100 |
| (b) |  |  |  |  |
| Pre-tax\tmargin\tratio |  | 14 | 14 | — |
| Full-time\tequivalent\temployees |  | 7,756 | 7,827 | (1)% |
| (a)\nThe\tFirm\tuses\ttangible\tshareholder\tvalue\tadded\tand\treturn\ton\ttangible\tallocated\tcapital\tas\tadditional |  |  |  |  |

(a) The	Firm	uses	tangible	shareholder	value	added	and	return	on	tangible	allocated	capital	as	additional

measures	of	the	economics	of	the	IMPB	business	segment.	To	derive	these	measures,	the	impact	of goodwill	is	excluded.

(b)	 Measures	the	percentage	of	operating	earnings	before	taxes	to	total	operating	revenue.

Investment	Management	&	Private	Banking	("IMPB")	operating	earnings	are	influenced by	numerous	factors,	including	equity,	fixed	income	and	other	asset	valuations;	investor flows	and	activity	levels;	investment	performance;	and	expense	and	risk	management. Global	economic	conditions	rebounded	in	2003,	as	corporate	earnings	improved	and the	credit	environment	strengthened.	During	2003,	global	equity	markets	rose	(as exemplified	by	the	S&P	500	index,	which	rose	by	26%,	and	the	MSCI	World	index, which	rose	by	31%),	and	investor	activity	levels	increased	across	IMPB's	retail	and private	bank	client	bases,

particularly	during	the	second	half	of	the	year.	This	global	equity	market	recovery,	on	a year-over-year	basis,	brought	2003's	average	annual	market	levels	broadly	back	in	line with	2002's	average.	Investment	performance	in	core	institutional	products	improved with	all	major	asset	classes,	with	U.S.	institutional	fixed	income	and	equities	markets showing	above-benchmark	results.

IMPB's	operating	earnings	were	3%	higher	than	in	the	prior	year,	reflecting	an improved	credit	portfolio,	the	benefits	of	slightly	higher	revenues	and	managed expense	growth.	Quarterly	earnings	increased	sequentially	during	the	year.	During	the second	quarter	of	2003,	the	Firm	acquired	American	Century	Retirement	Plan	Services Inc.,	a	provider	of	defined	contribution	recordkeeping	services,	as	part	of	its	strategy	to grow	its	U.S.	retail	investment	management	business.	The	business	was	renamed JPMorgan	Retirement	Plan	Services	("RPS").	Return	on	tangible	allocated	capital	was 20%.

Operating	revenue	of	$2.9	billion	was	1%	higher	than	in	the	prior	year.	The	increase was	driven	by	higher	Fees	and	commissions	and	Net	interest	income.	The	growth	in Fees	and	commissions	reflected	the	acquisition	of	RPS	and	increased	average	equity market	valuations	in	client	portfolios,	partly	offset	by	institutional	net	outflows.	The growth	in	Net	interest	income	reflected	higher	brokerage	account	balances	and spreads.	The	decline	in	all	other	revenue	primarily	reflected	nonrecurring	items	in 2002.

Operating	expense	increased	by	3%,	reflecting	the	acquisition	of	RPS,	higher compensation	expense,	and	real	estate	and	software	write-offs,	partly	offset	by	the continued	impact	of	expense	management	programs.

The	59%	decrease	in	credit	costs	reflected	the	improvement	in	the	quality	of	the	credit portfolio	and	recoveries.

Americas	63%	Banking	18%Retail	28%	Asia/Pacific	11%Brokerage	11%Private	bank	50%Investment	management/	Europe,	Middle	East,	fiduciary	71%Institutional	22%	&	Africa	26%

Assets	under	supervision	("AUS")	at	December	31,	2003,	were	$758	billion,	an increase	of	18%	from	the	prior	year-end.	Assets	under	management	("AUM")	increased by	9%	to	$559	billion,	and	custody,	brokerage,	administration	and	deposit	accounts increased	by	54%	to	$199	billion.	The	increase	in	AUM	was	driven	by	higher	average equity	market	valuations	in	client	portfolios,	partly	offset	by	institutional	net	outflows. Custody,	brokerage,	administration	and	deposits	grew	by	$70	billion,	driven	by	the acquisition	of	RPS	($41	billion),	higher	average	equity	market	valuations	in	client portfolios,	and	net	inflows	from	Private	Bank	clients.	The	diversification	of	AUS	across product	classes,	client	segments	and	geographic	regions	helped	to	mitigate	the	impact of	market	volatility	on	revenue.	The	Firm	also	has	a	44%	interest	in	American	Century Companies,	Inc.,	whose	AUM	totaled	$87	billion	and	$72	billion	at	December	31,	2003 and	2002,	respectively.	These	amounts	are	not	included	in	the	Firm's	AUM	total	above.

Looking	forward	to	2004,	IMPB	believes	it	is	well	positioned	for	a	continued	global market	recovery.	Improved	investment	performance	and	the	continued	execution	of	the Private	Bank	and	retail	investment	management	strategies	are	expected	to	drive operating	earnings	growth.

# Assets	under	supervision

| At	December	31,	(in	billions) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Asset\tclass: |  |  |  |
| Liquidity | $160 | $144 | 11% |
| Fixed\tincome | 144 | 149 | (3) |
| Equities\tand\tother | 255 | 222 | 15 |
| Assets\tunder\tmanagement | 559 | 515 | 9 |
| Custody/brokerage/administration/deposits | 199 | 129 | 54 |
| Total\tassets\tunder\tsupervision | $758 | $644 | 18% |
| Client\tsegment: |  |  |  |
| Retail |  |  |  |
| Assets\tunder\tmanagement | $101 | $80 | 26% |
| Custody/brokerage/administration/deposits | 71 | 17 | 318 |
| Assets\tunder\tsupervision | 172 | 97 | 77 |
| Private\tBank |  |  |  |
| Assets\tunder\tmanagement | 138 | 130 | 6 |
| Custody/brokerage/administration/deposits | 128 | 112 | 14 |
| Assets\tunder\tsupervision | 266 | 242 | 10 |
| Institutional |  |  |  |
| Assets\tunder\tmanagement | 320 | 305 | 5 |
| Total\tassets\tunder\tsupervision | $758 | $644 | 18% |
| Geographic\tregion: |  |  |  |
| Americas |  |  |  |
| Assets\tunder\tmanagement | $360 | $362 | (1)% |
| Custody/brokerage/administration/deposits | 170 | 100 | 70 |
| Assets\tunder\tsupervision | 530 | 462 | 15 |
| Europe,\tMiddle\tEast\t&amp;\tAfrica\tand\tAsia/Pacific |  |  |  |
| Assets\tunder\tmanagement | 199 | 153 | 30 |
| Custody/brokerage/administration/deposits | 29 | 29 | — |
| Assets\tunder\tsupervision | 228 | 182 | 25 |
| Total\tassets\tunder\tsupervision | $758 | $644 | 18% |
| (a)\nExcludes\tAUM\tof\tAmerican\tCentury\tCompanies,\tInc. |  |  |  |

(a) Excludes	AUM	of	American	Century	Companies,	Inc.

# JPMorgan	Partners

JPMorgan	Partners,	the	global	private	equity	organization	of	JPMorgan	Chase, provides	equity	and	mezzanine	capital	financing	to	private	companies.	It	is	a diversified	investor,	investing	in	buyouts	and	in	growth	equity	and	venture opportunities	across	a	variety	of	industry	sectors,	with	the	objective	of	creating long-term	value	for	the	Firm	and	third-party	investors.

| and	employees) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Operating\trevenue: |  |  |  |
| Private\tequity\tgains\t(losses): |  |  |  |
| Direct\tinvestments | $346 | $(583) | $929 |
| Private\tthird-party\tfund\tinvestments | (319) | (150) | (169) |
| Total\tprivate\tequity\tgains\t(losses) | 27 | (733) | 760 |
| Net\tinterest\tincome\t(loss) | (264) | (302) | 38 |
| Fees\tand\tother\trevenue | 47 | 59 | (12) |
| Total\toperating\trevenue | (190) | (976) | 786 |
| Operating\texpense: |  |  |  |
| Compensation\texpense | 135 | 128 | 7 |
| Noncompensation\texpense | 140 | 171 | (31) |
| Total\toperating\texpense | 275 | 299 | (24) |
| Operating\tmargin | (465) | (1,275) | 810 |
| Operating\tlosses | $(293) | $(808) | 515 |
| Shareholder\tvalue\tadded: |  |  |  |
| Operating\tearnings\tless\tpreferred\tdividends | $(300) | $(815) | 515 |
| Less:\tcost\tof\tcapital | 869 | 944 | (75) |
| Shareholder\tvalue\tadded | $(1,169) | $(1,759) | 590 |
| Average\tallocated\tcapital | $5,789 | $6,293 | (8)% |
| Average\tassets | 8,818 | 9,677 | (9) |
| Full-time\tequivalent\temployees | 316 | 357 | (11) |

JPMorgan	Partners	("JPMP")	recognized	negative	operating	revenue	of	$190	million and	operating	losses	of	$293	million	in	2003.	Opportunities	to	realize	value	through sales,	recapitalizations	and	initial	public	offerings	("IPOs")	of	investments,	although limited,	improved	during	the	year	as	the	M&A	and	IPO	markets	started	to	recover.

Private	equity	gains	totaled	$27	million	in	2003,	compared	with	a	loss	of	$733	million	in 2002.	JPMP	recognized	gains	of	$346	million	on	direct	investments	and	losses	of $319	million	on	sales	and	writedowns	of	private	third-party	fund	investments.

Realized	cash	gains	on	direct	investments	of	$535	million	increased	18%	from	the previous	year.	Realized	cash	gains	were	recognized	across	all	industries	but	were primarily	realized	from	the	Industrial	and	Consumer	retail	and	services	sectors.	In addition,	JPMP	recorded	unrealized	gains	of	$215	million

from	the	mark-to-market	("MTM")	value	of	its	public	portfolio,	primarily	in	the	Healthcare infrastructure,	Technology	and	Telecommunications	sectors.

JPMP's	unrealized	and	realized	gains	were	partially	offset	by	net	write-offs	(realized losses)	and	write-downs	(unrealized	losses)	on	the	direct	portfolio	of	$404	million. These	write-downs	and	write-offs	included	$239	million	from	the	Technology	and Telecommunications	sectors.

| (in	millions) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Direct\tinvestments: |  |  |  |
| Realized\tcash\tgains | $535 | $452 | $83 |
| Write-ups/(write-downs/\twrite-offs) | (404) | (825) | 421 |
| (a) |  |  |  |
| MTM\tgains\t(losses) | 215 | (210) | 425 |
| Total\tdirect\tinvestments | 346 | (583) | 929 |
| Private\tthird-party\tfund\tinvestments | (319) | (150) | (169) |
| Total\tprivate\tequity\tgains\t(losses) | $27 | $(733) | 760 |

(a) Includes	mark-to-market	gains	(losses)	and	reversals	of	mark-to-market	gains	(losses)	due	to	public securities	sales.

# Investment	pace,	portfolio	diversification	and	capital	under	management

In	2003,	increased	emphasis	was	placed	on	leveraged	buyouts	and	growth	equity opportunities.	JPMP's	direct	investments	for	the	Firm's	account	in	2003	were	$773 million,	a	19%	decline	from	the	prior	year.	Approximately	67%	of	direct	investments were	in	the	Industrial,	Consumer	retail	and	services,	Life	sciences	and	Healthcare infrastructure	sectors.

JPMP	reduced	the	size	of	the	portfolio	by	12%,	largely	the	result	of	sales	of	third-party fund	investments,	which	declined	by	$744	million.

At	December	31,	2003,	the	carrying	value	of	JPMP's	public	securities	portfolio	was $643	million,	a	24%	increase	from	2002.	The	increase	resulted	from	higher	market valuations	and	from	IPOs	of	certain	portfolio	investments,	partially	offset	by	ongoing sales	activity.

The	Firm	continues	to	regard	JPMP	as	a	strategic	business	that	will	create	value	over the	long	term.	JPMP	is	seeking	to	sell	selected	investments	that	are	not	central	to	its portfolio	strategy,	with	the	goal	that,	over	time,	JPMP's	private	equity	portfolio	will represent	a	lower	percentage	of	the	Firm's	common	stockholders'	equity.

JPMP's	private	equity	portfolio	and	financial	performance	are	sensitive	to	the	level	of M&A,	IPO	and	debt	financing	activity.	Improved	markets	in	2004	could	provide increased	exit	opportunities	and	improved	financial	performance.

# JPMP	investment	portfolio

|  |  | 2003 | 2003 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| December\t31,\t(in\tmillions) |  | Carrying\tvalue | Cost | Carrying\tvalue | Cost |
| Direct\tinvestments: |  |  |  |  |  |
| (a)(b) |  |  |  |  |  |
| Public\tsecurities\t(51\tcompanies) |  | $643 | $451 | $520 | $663 |
| Private\tdirect\tsecurities\t(822\tcompanies) | (b) | 5,508 | 6,960 | 5,865 | 7,316 |
| Private\tthird-party\tfund\tinvestments\t(252\tfunds) | (b)(c) | 1,099 | 1,736 | 1,843 | 2,333 |
| Total\tinvestment\tportfolio |  | $7,250 | $9,147 | $8,228 | $10,312 |
| %\tof\tportfolio\tto\tthe\tFirm's\tcommon\tequity | (d) | 15% |  | 20% |  |
| (a) |  |  |  |  |  |

(b) Represents	the	number	of	companies	and	funds	at	December	31,	2003.

(c) Unfunded	commitments	to	private	equity	funds	were	$1.3	billion	and	$2.0	billion	at	December	31,	2003	and	2002,	respectively.

(d) For	purposes	of	calculating	this	ratio,	the	carrying	value	excludes	the	post–December	31,	2002	impact	of	public	MTM	valuation	adjustments,	and	the	Firm's	common	equity	excludes	SFAS	115	equity	balances.

JPMP's	diversified	investment	portfolio	(%	of	carrying	value)	Direct	investment	portfolio	byDirect	investment	portfolio	by	geographic	region	at	December	31,	2003investment	stage	at	December	31,	2003 North	America	75%Buyout	41%	Europe,	Middle	East	&	Africa	17%Growth	equity	37%Latin	America	5%Asia/Pacific	3%Venture	22% Total	investment	portfolio	by	industry	at	December	31,20032002 Real	estate	3%Real	estate	5%Media	4%Industrial	28%Media	3%Industrial	27%	Life	sciences	4%	Life	sciences	2%	Healthcare	infrastructure	6%Healthcare	infrastructure	6%	Consumer	retailFinancial	services	8%Consumer	retail	Financial	services	11%	&	services	15%&	services	12%	Technology	10%	Technology	9%	Funds	15%Funds	22%	Telecommunications	5%	Telecommunications	5% Industrial	includes:Industrial	includes:Packaging	6%	Packaging	6%	General	manufacturing	6%General	manufacturing	6%	Industrial	services	5%	Industrial	services	4%	Automotive	3%	Distribution	3%	Other	8%Other	8%

# Chase	Financial	Services

Chase	Financial	Services	is	a	major	provider	of	banking,	investment	and financing	products	and	services	to	consumers	and	small	and	middle	market businesses	throughout	the	United	States.	The	majority	of	its	revenues	and earnings	are	produced	by	its	national	consumer	credit	businesses,	Chase	Home Finance,	Chase	Cardmember	Services	and	Chase	Auto	Finance.	It	also	serves	as a	full-service	bank	for	consumers	and	small-	and	medium-sized	businesses through	Chase	Regional	Banking	and	Chase	Middle	Market.

| and	employees) |  | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- | :--- |
| Operating\trevenue: |  |  |  |  |
| Net\tinterest\tincome |  | $9,620 | $8,225 | 17% |
| Fees\tand\tcommissions |  | 3,561 | 3,489 | 2 |
| Securities\tgains |  | 382 | 493 | (23) |
| Mortgage\tfees\tand\trelated\tincome | Mortgage\tfees\tand\trelated\tincome | 892 | 988 | (10) |
| All\tother\trevenue |  | 177 | 231 | (23) |
| Total\toperating\trevenue |  | 14,632 | 13,426 | 9 |
| Operating\texpense: |  |  |  |  |
| Compensation\texpense |  | 2,870 | 2,536 | 13 |
| Noncompensation\texpense | Noncompensation\texpense | 4,299 | 3,943 | 9 |
| Severance\tand\trelated\tcosts | Severance\tand\trelated\tcosts | 95 | 99 | (4) |
| Total\toperating\texpense | Total\toperating\texpense | 7,264 | 6,578 | 10 |
| Operating\tmargin |  | 7,368 | 6,848 | 8 |
| Credit\tcosts |  | 3,431 | 3,159 | 9 |
| Operating\tearnings |  | $2,495 | $2,320 | 8 |
| Shareholder\tvalue\tadded: |  |  |  |  |
| Operating\tearnings\tless\tpreferred |  |  |  |  |
| dividends |  | $2,484 | $2,310 | 8 |
| Less:\tcost\tof\tcapital |  | 1,050 | 1,034 | 2 |
| Shareholder\tvalue\tadded |  | $1,434 | $1,276 | 12 |
| Average\tallocated\tcapital |  | $8,750 | $8,612 | 2 |
| Average\tmanaged\tloans | (a) | 185,761 | 155,926 | 19 |
| Average\tmanaged\tassets | (a) | 215,216 | 179,635 | 20 |
| Average\tdeposits |  | 109,802 | 97,464 | 13 |
| Return\ton\tallocated\tcapital | Return\ton\tallocated\tcapital | 28% | 27% | 100bp |
| Overhead\tratio |  | 50 | 49 | 100 |
| Full-time\tequivalent\temployees | Full-time\tequivalent\temployees | 46,155 | 43,543 | 6% |
| (a) | Includes\tcredit\tcard\treceivables\tthat\thave\tbeen\tsecuritized. | Includes\tcredit\tcard\treceivables\tthat\thave\tbeen\tsecuritized. |  |  |

(a) Includes	credit	card	receivables	that	have	been	securitized.

Chase	Financial	Services	("CFS")	operating	earnings	are	affected	by	numerous factors,	including	U.S.	economic	conditions,	the	volatility	and	level	of	interest	rates,	and competition	in	its	various	product	lines.	In	response	to	the	continuing	low–interest	rate environment	and	competition	in	the	marketplace,	in	2003,	CFS	focused	its	efforts	on growing	or	maintaining	market	share	in	its	various	businesses,	enhancing	its	online banking	capabilities,	disciplined	expense	management	and	maintaining	the	credit quality	of	its	loan	portfolios.	As	a	result	of

these	efforts,	2003	CFS	operating	earnings	were	a	record	$2.5	billion,	an	increase	of 8%	from	2002.	Return	on	allocated	capital	was	28%,	up	from	27%	in	2002. Shareholder	value	added	increased	by	12%.

Operating	revenue	was	$14.6	billion	in	2003,	an	increase	of	9%	over	2002.	Net interest	income	increased	17%	to	$9.6	billion,	reflecting	the	positive	impact	of	the	lower interest	rate	environment	on	consumer	loan	originations,	particularly	in	Chase	Home Finance	("CHF"),	and	lower	funding	costs.	The	increase	was	partly	offset	by	reduced spreads	on	deposits.	CHF	revenue	increased	by	38%	over	the	prior	year,	driven	by strong	operating	revenue	(which	excludes	MSR	hedging	revenue)	and,	to	a	lesser extent,	higher	MSR	hedging	revenue.	Chase	Cardmember	Services	("CCS")	revenue increased	by	4%,	the	result	of	lower	funding	costs,	growth	in	average	receivables	and higher	interchange	fees	earned	on	customer	purchases.	Chase	Auto	Finance	("CAF") revenue	grew	23%,	driven	by	record	originations	of	almost	$28	billion	and	lower	funding costs.	Chase	Regional	Banking	("CRB")	and	Chase	Middle	Market	("CMM")	revenues decreased	9%	and	1%,	respectively,	as	a	result	of	lower	deposit	spreads	from	lower interest	rates,	partly	offset	by	the	effect	of	significantly	higher	deposit	volumes compared	with	2002.

Operating	expense	rose	10%	to	$7.3	billion.	The	increase	in	expense	reflects	higher business	volume	and	higher	compensation	costs.	Partially	offsetting	higher	expenses were	savings	achieved	through	Six	Sigma	and	other	productivity	efforts.	The	overhead ratio	increased	slightly	compared	with	a	year	ago.

Credit	costs	on	a	managed	basis	(which	includes	securitized	credit	cards)	of	$3.4 billion	increased	by	9%	compared	with	the	prior	year.	While	credit	quality	remained stable	in	2003,	net	charge-offs	increased	by	2%.	The	increase	in	2003	net	charge-offs was	driven	by	a	19%	increase	in	average	managed	loans.	For	a	further	discussion	of the	consumer	credit	portfolio,	see	Credit	Risk	on	pages	61–62	of	this	Annual	Report.

Chase	Online	enrollees	reached	5.2	million,	an	increase	of	more	than	50%	from	year- end	2002.	Total	online	payment	transactions	increased	by	42%	to	more	than	27	million.

CFS's	online	offerings	ended	the	year	ranked	No.	3	in	credit	card	and	No.	6	in	banking by	Gómez	Scorecards™,	a	service	which	measures	the	quality	of	online	financial services	offerings.	CCS	accounts	sourced	from	the	Internet	channel	reached	16%	of new	account	originations	and	represented	5%	of	the	active	account	base	in	2003.	In CRB,	several	enhancements	to	consumer	online	offerings	–	including	check	imaging, statement	imaging	and	banking	alerts	–	resulted	in	significant	activation	of	online capabilities	by	customers.	CHF	continued	its	emphasis	on	providing	online	capabilities to	its	business-to-business	partners	and	increased	its	direct-to-consumer	web	usage	by more	than

100%.	In	CAF,	online	application	processing	reached	95%	dealer	penetration,	while consumer	adoption	of	Chase's	online	automobile	offerings	continued	to	grow.

In	2004,	CFS	anticipates	operating	revenue	and	earnings	will	be	lower,	primarily	due	to a	decrease	in	production	revenue	in	CHF,	as	refinancing	activity	declines	from	the record	levels	set	in	2003.	While	CFS	expects	the	other	retail	businesses	to	report modest	revenue	growth	and	improved	efficiencies,	this	growth	may	not	offset	the	lower mortgage	earnings.

# Chase	Financial	Services'	business	results

| Year	ended	December	31, | Home | Cardmember | Auto | Regional | Middle | Other |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | Finance | Services | Finance | Banking | Market | consumer\tservices | (a) | Total |
| 2003 |  |  |  |  |  |  |  |  |
| Operating\trevenue | $4,030 | $6,162 | $842 | $2,576 | $1,430 | $(408) |  | $14,632 |
| Operating\texpense | 1,711 | 2,202 | 292 | 2,383 | 871 | (195) |  | 7,264 |
| Credit\tcosts | 240 | 2,904 | 205 | 77 | 7 | (2) |  | 3,431 |
| Operating\tearnings | 1,341 | 679 | 205 | 70 | 324 | (124) |  | 2,495 |
| 2002 |  |  |  |  |  |  |  |  |
| Operating\trevenue | $2,928 | $5,939 | $683 | $2,828 | $1,451 | $(403) |  | $13,426 |
| Operating\texpense | 1,341 | 2,156 | 248 | 2,229 | 841 | (237) |  | 6,578 |
| Credit\tcosts | 191 | 2,753 | 174 | (11) | 72 | (20) |  | 3,159 |
| Operating\tearnings | 908 | 662 | 166 | 354 | 315 | (85) |  | 2,320 |
| Change |  |  |  |  |  |  |  |  |
| Operating\trevenue | 38% | 4% | 23% | (9)% | (1)% | (1)% |  | 9% |
| Operating\texpense | 28 | 2 | 18 | 7 | 4 | 18 |  | 10 |
| Credit\tcosts | 26 | 5 | 18 | NM | (90) | 90 |  | 9 |
| Operating\tearnings | 48 | 3 | 23 | (80) | 3 | (46) |  | 8 |
| (a) |  |  |  |  |  |  |  |  |

(a) Includes	the	elimination	of	revenues	and	expenses	related	to	the	shared	activities	with	Treasury	Services,	discontinued	portfolios,	support	services	and	unallocated	credit	costs.

# Chase	Home	Finance

The	following	table	sets	forth	key	revenue	components	of	CHF's	business.

| Operating	revenue | Operating	revenue | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- | :--- |
| Home\tFinance: |  |  |  |  |
| Operating\trevenue | Operating\trevenue | $3,800 | $2,751 | 38% |
| MSR\thedging\trevenue: |  |  |  |  |
| MSR\tvaluation\tadjustments | MSR\tvaluation\tadjustments | (785) | (4,504) | 83 |
| Hedging\tgains\t(losses) | Hedging\tgains\t(losses) | 1,015 | 4,681 | (78) |
| Total\trevenue | (a) | $4,030 | $2,928 | 38% |
| (a) |  |  |  |  |

(a) Includes	Mortgage	fees	and	related	income,	Net	interest	income	and	Securities	gains.

CHF	is	the	fourth	largest	mortgage	originator	and	servicer	in	the	United	States,	with more	than	four	million	customers.	CHF	conducts	business	in	all	50	states	and	has approximately	17,000	employees	in	more	than	300	locations	nationwide.	CHF	offers	an extensive	array	of	residential	mortgage	products	delivered	across	a	variety	of distribution	channels	and	customer	touch	points.	CHF	comprises	three	key	businesses: Production,	Servicing	and

Portfolio	Lending.	The	Production	business	originates	and	sells	mortgages.	The Servicing	business	manages	accounts	for	CHF's	four	million	customers.	The	Portfolio Lending	business	holds	for	investment	adjustable-rate	first	mortgage	loans,	home equity	and	manufactured	housing	loans	originated	and	purchased	through	the Production	channels.	These	three	segments	provide	CHF	with	balance	to	enable	it	to benefit	across	varying	business	cycles.	The	Production	segment	is	most	profitable when	mortgage	rates	are	declining	and	origination	volume	is	high.	Alternatively,	the Servicing	business	collects	more	fees	when	rates	are	rising	and	mortgage	prepayments are	low.	Portfolio	Lending	provides	increasing	NII,	with	growth	in	home	equity	and adjustable-rate	first	mortgage	lending.	The	counter-cyclical	(Production/Servicing)	and complementary	(Portfolio	Lending)	nature	of	these	businesses,	in	combination	with financial	risk	management,	enabled	CHF	to	produce	record	earnings.

The	residential	mortgage	market	had	a	record	year	in	2003,	with	an	estimated	$3.8 trillion	in	industry-wide	origination	volume.	The	strong	market	was	driven	by	historically low	interest	rates,	higher	consumer	confidence,	improved	housing	affordability	and exceptionally	strong	new	and	existing	home	sales.	CHF	capitalized	on	this environment,	achieving	record	levels	of

loan	originations	and	applications.	CHF's	production	market	share	grew	from	5.8%	in 2002	to	7.6%	in	2003,	primarily	due	to	successful	expansion	in	first	mortgage	and home	equity	lending	through	growth	in	strategic,	higher-margin	distribution	channels such	as	retail,	wholesale,	telephone-based	and	e-commerce.	Origination	volume totaled	a	record	$284	billion,	an	increase	of	82%	from	2002.	Home	Equity	volume,	a strategic	growth	area,	increased	by	71%	from	the	prior	year.	In	addition,	despite	record levels	of	loan	prepayments	in	2003,	loans	serviced	increased	by	10%	from	year-end 2002	to	$470	billion	at	December	31,	2003.

CHF	manages	and	measures	its	results	from	two	key	perspectives:	its	operating businesses	(Production/Servicing	and	Portfolio	Lending)	and	revenue	generated through	managing	the	interest	rate	risk	associated	with	MSRs.	The	table	below reconciles	management's	perspective	on	CHF's	business	results	to	the	reported	GAAP line	items	shown	on	the	Consolidated	statement	of	income	and	in	the	related	Notes	to consolidated	financial	statements.	While	the	operating	and	hedging	activities	are interrelated,	the	MSR	hedging	function	is	a	risk	management	activity	subject	to significant	volatility	as	market	interest	rates	and	yield	curves	fluctuate.	As	a	result, operating	business	results	are	reported	separately	from	hedging	results	to	gain	a	better perspective	on	each	activity.

| (in	millions) | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tinterest\tincome | $2,204 | $1,208 | $575 | $234 | $2,779 | $1,442 |
| Securities\tgains | — | — | 359 | 498 | 359 | 498 |
| Mortgage\tfees\tand\trelated\tincome | \t 1,596 | \t 1,543 | (704) | (555) | 892 | 988 |
| Total | $3,800 | $2,751 | $230 | $177 | $4,030 | $2,928 |

CHF	achieved	record	financial	performance	in	2003,	as	total	revenue	of	$4.0	billion increased	by	38%	from	2002.	Record	operating	earnings	of	$1.3	billion	increased	by 48%	from	2002.

CHF's	operating	revenue	(excluding	MSR	hedging	revenue)	of	$3.8	billion	increased	by 38%	over	2002.	The	strong	performance	was	due	to	record	production	revenue resulting	from	market-share	growth,	record	margins	and	higher	home	equity	revenue. Management	expects	a	decrease	in	revenue	in	2004,	as	production	margins	are expected	to	decline	due	to	lower	origination	volumes	and	increased	price	competition.

In	its	hedging	activities,	CHF	uses	a	combination	of	derivatives	and	AFS	securities	to manage	changes	in	the	market	value	of	MSRs.	The	intent	is	to	offset	any	changes	in the	market	value	of	MSRs	with	changes	in	the	market	value	of	the	related	risk management	instrument.	During	2003,	negative	MSR	valuation	adjustments	of $785	million	were	more	than	offset	by	$1.0	billion	of	aggregate	derivative	gains, realized	gains	on	sales	of	AFS	securities	and	net	interest	earned	on	AFS	securities. Unrealized

gains/(losses)	on	AFS	Securities	were	$(144)	million	at	December	31,	2003,	and $377	million	at	December	31,	2002.	For	a	further	discussion	of	MSRs,	see	Critical Accounting	Estimates	on	page	77	and	Note	16	on	pages	107–109	of	this	Annual	Report.

Operating	expense	of	$1.7	billion	increased	by	28%	from	2002	as	a	result	of	growth	in origination	volume	as	well	as	a	higher	level	of	mortgage	servicing.	Substantial	portions of	CHF's	expenses	are	variable	in	nature	and,	accordingly,	fluctuate	with	the	overall level	of	origination	and	servicing	activity.	In	addition	to	increases	brought	on	by	higher business	volumes,	expenses	increased	due	to	higher	performance-related	incentives, as	well	as	strategic	investments	made	to	further	expand	into	higher-margin	business sectors,	along	with	production-related	restructuring	efforts	initiated	in	the	fourth	quarter of	2003.	These	increases	were	partially	offset	by	continued	gains	in	productivity	and benefits	realized	from	Six	Sigma	initiatives	during	2003.

Credit	costs	of	$240	million	for	2003	increased	by	26%	from	2002	due	to	a	higher provision	for	credit	losses,	primarily	the	result	of	higher	loan	balances.	Credit	quality continued	to	be	strong	relative	to	2002,	as	evidenced	by	a	lower	net	charge-off	ratio and	30+	day	delinquency	rate.

# Business-related	metrics

| (in	billions,	except	ratios) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Origination\tvolume\tby\tchannel |  |  |  |
| Retail,\twholesale,\tand\tcorrespondent | $201 | $113 | 78% |
| Correspondent\tnegotiated\ttransactions | 83 | 43 | 93 |
| Total | $284 | $156 | 82% |
| Origination\tvolume\tby\tproduct |  |  |  |
| First\tmortgage | $260 | $142 | 83% |
| Home\tequity | 24 | 14 | 71 |
| Total | $284 | $156 | 82% |
| Loans\tserviced | $470 | $426 | 10% |
| End-of-period\toutstandings | 73.7 | 63.6 | 16 |
| Total\taverage\tloans\towned | 74.1 | 56.2 | 32 |
| MSR\tcarrying\tvalue | 4.8 | 3.2 | 50 |
| Number\tof\tcustomers\t(in\tmillions) | 4.1 | 4.0 | 2 |
| 30+\tday\tdelinquency\trate | 1.81% | 3.07% | (126)bp |
| Net\tcharge-off\tratio | 0.18 | 0.25 | (7) |
| Overhead\tratio | 42 | 46 | (400) |

# Chase	Cardmember	Services

CCS	is	the	fourth	largest	U.S.	credit	card	issuer,	with	$52.3	billion	in	managed receivables	and	$89.7	billion	in	total	volume	(customer	purchases,	cash	advances	and balance	transfers).	In	addition,	CCS	is	the	largest	U.S.	merchant	acquirer	(an	entity	that contracts	with	merchants	to	facilitate	the	acceptance	of	transaction	cards),	with	annual sales	volume	in	excess	of	$260	billion,	through	a	joint	venture	with	First	Data	Merchant Services.

CCS's	operating	results	exclude	the	impact	of	credit	card	securitizations.	CCS periodically	securitizes	a	portion	of	its	credit	card	portfolio	by	transferring	a	pool	of credit	card	receivables	to	a	trust,	which	sells	securities	to	investors.	CCS	receives	fee revenue	for	continuing	to	service	those	receivables	and	additional	revenue	from	any interest	and	fees	on	the	receivables	in	excess	of	the	interest	paid	to	investors,	net	of credit	losses	and	servicing	fees.	CCS	reports	credit	costs	on	a	managed	or	operating basis.	Credit	costs

on	an	operating	basis	are	composed	of	the	Provision	for	credit	losses	in	the Consolidated	statement	of	income	(which	includes	a	provision	for	credit	card receivables	in	the	Consolidated	balance	sheet)	as	well	as	the	credit	costs	associated with	securitized	credit	card	loans.	As	the	holder	of	the	residual	interest	in	the securitization	trust,	CCS	bears	its	share	of	the	credit	costs	for	securitized	loans.	In JPMorgan	Chase's	Consolidated	financial	statements,	credit	costs	associated	with securitized	credit	card	loans	reduce	the	noninterest	income	remitted	to	the	Firm	from the	securitization	trust.	This	income	is	reported	in	Credit	card	fees,	in	Fees	and commissions,	over	the	life	of	the	securitization.

Securitization	does	not	change	CCS's	reported	versus	operating	net	income;	however, it	does	affect	the	classification	of	items	on	the	Consolidated	statement	of	income.	The abbreviated	financial	information	presented	below	is	prepared	on	a	managed	basis	and includes	the	effect	of	securitizations.

|  | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Year\tended\tDecember\t31,\n(in\tmillions) | Reported | Effect\tof\nsecuritizations | Operating | Reported | Effect\tof\nsecuritizations | Operating |
| Revenue | $4,292 | $1,870 | $6,162 | $4,500 | $1,439 | $5,939 |
| Expense | 2,202 | — | 2,202 | 2,156 | — | 2,156 |
| Credit\tcosts | 1,034 | 1,870 | 2,904 | 1,314 | 1,439 | 2,753 |
| Operating\tearnings | 679 | — | 679 | 662 | — | 662 |
| Average\tloans | 18,514 | 32,365 | 50,879 | 22,565 | 26,519 | 49,084 |
| Average\tassets | 19,176 | 32,365 | 51,541 | 23,316 | 26,519 | 49,835 |

Operating	earnings	increased	by	3%	over	2002	to	$679	million,	driven	by	higher revenue,	partially	offset	by	higher	credit	costs	and	expenses.	The	operating environment	reflected	continued	competitive	pricing,	a	record	level	of	bankruptcy	filings and	low	receivables	growth.	This	was	partly	the	result	of	mortgage	refinancing	activity, which	permitted	consumers	to	use	cash	received	in	their	mortgage	refinancings	to	pay down	credit	card	debt.	CCS	was	able	to	grow	earnings	and	originate	a	record	number	of new	accounts	by	offering	rewards-based	products,	improving	operating	efficiency, delivering	high-level	customer	service	and	improving	retention	and	card	usage. Management	believes	that	the	shift	towards	rewards-based	products	positions	CCS	to capture	consumer	wallet	share	in	a	highly	competitive,	commoditized	marketplace.	In 2003,	CCS	launched	several	new	rewards	products,	including	the	ChasePerfect	card, the	Marathon	co-branded	card	and	the	GM	Small	Business	card.

Operating	revenue	increased	by	4%	to	$6.2	billion.	Net	interest	income	increased	by 2%,	reflecting	lower	funding	costs,	partly	offset	by	a	lower	yield.	The	4%	growth	in average	receivables	was	in	line	with	industry	trends.	Noninterest	revenue	increased	by 6%,	primarily	reflecting	higher	interchange	revenue,	partially	offset	by	higher	rebate costs.	The	increase	in	interchange	revenue	reflects	higher	purchase	volume	due	to	new account	growth	and	the	movement	towards	higher	spending	using	rewards-based products.	During	2003,	CCS	originated	4.2	million	new	accounts	via	multiple	distribution channels.	CCS	continues

to	make	progress	in	cross-selling	accounts	to	other	CFS	customers	(13%	of	new account	originations).	These	multiple-relationship	accounts	generate	more	revenue	and comprise	11%	of	the	active	account	base.

Operating	expense	of	$2.2	billion	increased	by	2%,	reflecting	disciplined	expense management	and	Six	Sigma	and	productivity	efforts.	Growth	in	expenses	was	primarily due	to	volume-related	costs.

Credit	costs	were	$2.9	billion,	an	increase	of	5%	from	2002.	The	increase	in	credit costs	primarily	reflected	4%	higher	net	charge-offs	due	to	an	increase	in	average outstandings.	Conservative	risk	management	and	rigorous	collection	practices contributed	to	CCS's	stable	credit	quality.

| (in	billions,	except	ratios) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| End-of-period\toutstandings | $52.3 | $51.1 | 2% |
| Average\toutstandings | 50.9 | 49.1 | 4 |
| (a) |  |  |  |
| Total\tvolume | 89.7 | 84.0 | 7 |
| New\taccounts\t(in\tmillions) | 4.2 | 3.7 | 14 |
| Active\taccounts\t(in\tmillions) | 16.5 | 16.5 | — |
| Total\taccounts\t(in\tmillions) | 30.8 | 29.2 | 5 |
| 30+\tday\tdelinquency\trate | 4.68% | 4.67% | 1bp |
| Net\tcharge-off\tratio | 5.89 | 5.89 | — |
| Overhead\tratio | 36 | 36 | — |
| (a)\nSum\tof\ttotal\tcustomer\tpurchases,\tcash\tadvances\tand\tbalance\ttransfers. |  |  |  |

(a) Sum	of	total	customer	purchases,	cash	advances	and	balance	transfers.

# Chase	Auto	Finance

CAF	is	the	largest	U.S.	bank	originator	of	automobile	loans	and	leases,	with	more	than 2.9	million	accounts.	In	2003,	CAF	had	a	record	number	of	automobile	loan	and	lease originations,	growing	by	10%	over	2002	to	$27.8	billion.	Loan	and	lease	receivables	of $43.2	billion	at	December	31,	2003,	were	16%	higher	than	at	the	prior	year-end. Despite	a	challenging	operating	environment	reflecting	slightly	declining	new	car	sales in	2003	and	increased	competition,	CAF's	market	share	among	automobile	finance companies	improved	to	6.1%	in	2003	from	5.7%	in	2002.	The	increase	in	market	share was	the	result	of	strong	organic	growth	and	an	origination	strategy	that	allies	the business	with	manufacturers	and	dealers.	CAF's	relationships	with	several	major	car manufacturers	contributed	to	2003	growth,	as	did	CAF's	dealer	relationships,	which increased	from	approximately	12,700	dealers	in	2002	to	approximately	13,700	dealers in	2003.

In	2003,	operating	earnings	were	$205	million,	23%	higher	compared	with	2002.	The increase	in	earnings	was	driven	by	continued	revenue	growth	and	improved	operating efficiency.	In	2003,	CAF's	operating	revenue	grew	by	23%	to	$842	million.	Net	interest income	grew	by	33%	compared	with	2002.	The	increase	was	driven	by	strong operating	performance	due	to	higher	average	loans	and	leases	outstanding,	reflecting continued	strong	origination	volume	and	lower	funding	costs.

Operating	expense	of	$292	million	increased	by	18%	compared	with	2002.	The increase	in	expenses	was	driven	by	higher	average

# Chase	Regional	Banking

CRB	is	the	No.	1	bank	in	the	New	York	tri-state	area	and	a	top	five	bank	in	Texas	(both ranked	by	retail	deposits),	providing	payment,	liquidity,	investment,	insurance	and credit	products	and	services	to	three	primary	customer	segments:	small	business, affluent	and	retail.	Within	these	segments,	CRB	serves	326,000	small	businesses, 433,000	affluent	consumers	and	2.6	million	mass-market	consumers.

CRB's	continued	focus	on	expanding	customer	relationships	resulted	in	a	14% increase	in	core	deposits	(for	this	purpose,	core	deposits	are	total	deposits	less	time deposits)	from	December	31,	2002,	and	a	77%	increase	in	the	cross-sell	of	Chase credit	products	over	2002.	In	2003,	mortgage	and	home	equity	originations	through CRB's	distribution	channels	were	$3.4	billion	and	$4.7	billion,	respectively.	Branch- originated	credit	cards	totaled	77,000,	contributing	to	23%	of	CRB	customers	holding Chase	credit	cards.	CRB	is	compensated	by	CFS's	credit	businesses	for	the	home finance	and	credit	card	loans	it	originates	and	does	not	retain	these	balances.

loans	outstanding,	higher	origination	volume	and	higher	performance-based	incentives. CAF's	overhead	ratio	improved	from	36%	in	2002	to	35%	in	2003,	as	a	result	of	strong revenue	growth,	continued	productivity	gains	and	disciplined	expense	management.

Credit	costs	increased	18%	to	$205	million,	primarily	reflecting	a	32%	increase	in average	loan	and	lease	receivables.	Credit	quality	continued	to	be	strong	relative	to 2002,	as	evidenced	by	a	lower	net	charge-off	ratio	and	30+	day	delinquency	rate.

CAF	also	comprises	Chase	Education	Finance,	a	top	provider	of	government- guaranteed	and	private	loans	for	higher	education.	Loans	are	provided	through	a	joint venture	with	Sallie	Mae,	a	government-sponsored	enterprise	and	the	leader	in	funding and	servicing	education	loans.	Chase	Education	Finance's	origination	volume	totaled $2.7	billion,	an	increase	of	4%	from	last	year.

| (in	billions,	except	ratios) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Loan\tand\tlease\treceivables | $ 43.2 | $ 37.4 | 16% |
| Average\tloan\tand\tlease\treceivables | 41.7 | 31.7 | 32 |
| Automobile\torigination\tvolume | 27.8 | 25.3 | 10 |
| Automobile\tmarket\tshare | 6.1% | 5.7% | 40bp |
| 30+\tday\tdelinquency\trate | 1.46 | 1.54 | (8) |
| Net\tcharge-off\tratio | 0.41 | 0.51 | (10) |
| Overhead\tratio | 35 | 36 | (100) |

While	CRB	continues	to	position	itself	for	growth,	decreased	deposit	spreads	related	to the	low-rate	environment	and	increased	credit	costs	resulted	in	an	80%	decline	in	CRB operating	earnings	from	2002.	This	decrease	was	partly	offset	by	an	8%	increase	in total	average	deposits.

Operating	revenue	of	$2.6	billion	decreased	by	9%	compared	with	2002.	Net	interest income	declined	by	11%	to	$1.7	billion,	primarily	attributable	to	the	lower	interest	rate environment.	Noninterest	revenue	decreased	6%	to	$927	million	due	to	lower	deposit service	fees,	decreased	debit	card	fees	and	one-time	gains	in	2002.	CRB's	revenue does	not	include	funding	profits	earned	on	its	deposit	base;	these	amounts	are	included in	the	results	of	Global	Treasury.

Operating	expense	of	$2.4	billion	increased	by	7%	from	2002.	The	increase	was primarily	due	to	investments	in	technology	within	the	branch	network;	also	contributing were	higher	compensation	expenses	related	to	increased	staff	levels	and	higher severance	costs	as	a	result	of	continued	restructuring.	This	increase	in	operating

expense	was	partly	offset	by	Six	Sigma	and	other	productivity	efforts.	CRB's	overhead ratio	increased	to	93%	in	2003	from	79%	in	2002,	reflecting	both	the	decline	in revenues	and	an	increase	of	expenses.

Credit	costs	of	$77	million	increased	by	$88	million	compared	with	2002	primarily driven	by	the	release	of	the	Allowance	for	loan	losses	in	2002.

| As	of	or	for	the	year	ended	December	31, | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Total\taverage\tdeposits\t(in\tbillions) | $75.1 | $69.8 | 8% |
| Total\tclient\tassets\t(a)(in\tbillions) | \t 108.7 | \t 103.6 | 5 |
| Number\tof\tbranches | 529 | 528 | — |
| Number\tof\tATMs | \t 1,730 | \t 1,876 | (8) |
| Overhead\tratio | 93% | 79% | 1,400bp |
| (a)\nDeposits,\tmoney\tmarket\tfunds\tand/or\tinvestment\tassets\t(including\tannuities). |  |  |  |

(a) Deposits,	money	market	funds	and/or	investment	assets	(including	annuities).

# Chase	Middle	Market

CMM	is	a	premier	provider	of	commercial	banking	and	corporate	financial	services	to companies	with	annual	sales	of	$10	million	to	$1	billion,	as	well	as	to	not-for-profit,	real estate	and	public-sector	entities.	CMM	maintains	a	leadership	position	in	the	New	York tri-state	market	and	select	Texas	markets;	it	also	leverages	its	expertise	in	distinct industry	segments,	such	as	Technology,	Corporate	mortgage	finance,	Entertainment and	certain	regional	markets,	such	as	Chicago,	Los	Angeles,	Boston	and	Denver.

The	CMM	relationship	management	model	brings	customized	solutions	to	more	than 12,000	middle	market	companies,	utilizing	the	products	and	services	of	the	entire	Firm. Products	and	services	include	cash	management,	lines	of	credit,	term	loans,	structured finance,	syndicated	lending,	M&A	advisory,	risk	management,	international	banking services,	lease	financing	and	asset-based	lending.	CMM	is	organized	by	geography, industry	and	product	to	deliver	greater	value	to	customers.	CMM's	2003	and	2002 results	included	100%	of	the	revenues	and	expenses	attributed	to	the	shared	activities with	Treasury	Services.	See	Segment	results	on	page	27	of	this	Annual	Report	for	a discussion	of	the	Firm's	revenue	and	expense-sharing	agreements	among	business segments.

CMM's	operating	earnings	of	$324	million	increased	by	3%	compared	with	2002. Operating	revenue	of	$1.4	billion	decreased	by	1%	compared	with	the	prior	year.	NII was	down	5%	due	to	lower	spreads,	partly	offset	by	17%	higher	deposits

and	3%	higher	loans	compared	with	2002.	Noninterest	revenue	increased	by	6%, primarily	reflecting	higher	deposit	service	and	corporate	finance	fees.	Deposit	service fees	increased,	as	the	lower	interest	rate	environment	resulted	in	reduced	values	of customers'	compensating	balances;	consequently,	customers	paid	incremental	fees	for deposit	services.

Operating	expense	was	$871	million,	an	increase	of	4%	compared	with	2002.	The increase	in	expenses	was	due	to	higher	severance	costs	and	higher	performance- based	incentives,	partly	offset	by	savings	from	Six	Sigma	and	other	productivity initiatives.

Credit	costs	of	$7	million	were	down	90%	from	the	prior	year.	This	decrease	was	due	to a	lower	required	allowance	and	36%	lower	net	charge-offs,	reflecting	strong	credit quality.

The	focus	for	2004	will	be	on	generating	revenue	growth	through	effective	cross-selling, the	delivery	of	superior	client	service	and	the	management	of	credit	quality	and expenses.

| (in	billions,	except	ratios) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Total\taverage\tloans | $ 14.1 | $ 13.7 | 3% |
| Total\taverage\tdeposits | 28.2 | 24.1 | 17 |
| Nonperforming\taverage\tloans\tas\ta\t%\tof\ttotal\taverage\tloans | 1.19% | 1.89% | (70)bp |
| Net\tcharge-off\tratio | 0.49 | 0.78 | (29) |
| Overhead\tratio | 61 | 58 | 300 |

# Support	Units	and	Corporate

| (in	millions,	except	employees) | 2003 | 2002 | Change |
| :--- | :--- | :--- | :--- |
| Operating\trevenue | $(626) | $(626) | $— |
| Operating\texpense | 34 | (73) | 107 |
| Credit\tcosts | 124 | 132 | (8) |
| Pre-tax\tloss | (784) | (685) | (99) |
| Income\ttax\tbenefit | 828 | 372 | 456 |
| Operating\tearnings\t(losses) | $44 | $(313) | 357 |
| Average\tallocated\tcapital | $1,150 | $ (1,783) | 2,933 |
| Average\tassets | \t 20,737 | \t 21,591 | (854) |
| Shareholder\tvalue\tadded | 78 | 88 | (10) |
| Full-time\tequivalent\temployees | 9,838 | \t 13,023 | (3,185) |

The	Support	Units	and	Corporate	sector	includes	technology,	legal,	audit,	finance, human	resources,	risk	management,	real	estate	management,	procurement,	executive management	and	marketing	groups	within	Corporate.	The	technology	and	procurement services	organizations	seek	to	provide	services	to	the	Firm's	businesses	that	are competitive	with	comparable	third-party	providers	in	terms	of	price	and	service	quality. These	units	use	the	Firm's	global	scale	and	technology	to	gain	efficiencies	through consolidation,	standardization,	vendor	management	and	outsourcing.

Support	Units	and	Corporate	reflects	the	application	of	the	Firm's	management accounting	policies	at	the	corporate	level.	These	policies	allocate	the	costs	associated with	technology,	operational	and	staff	support	services	to	the	business	segments,	with the	intent	to	recover	all	expenditures	associated	with	these	services.	Other	items	are retained	within	Support	Units	and	Corporate	based	on	policy	decisions,	such	as	the over/under	allocation	of	economic	capital,	the	residual	component	of	credit	costs	and taxes.	Business	segment	revenues	are	reported	on	a	tax-equivalent	basis,	with	the offset	reflected	in	Support	Units	and	Corporate.

During	2003,	the	Firm	reviewed	its	management	accounting	policies,	which	resulted	in the	realignment	of	certain	revenues	and	expenses	from	the	Corporate	segment	to	other business	segments.	The	policy	refinements	ranged	from	updating	expense-allocation methodologies	to	revising	transfer	pricing	policies	to	more	clearly	reflect	the	actual interest	income	and	expense	of	the	Firm.	The	impact	of	these	changes	was	allocated among	the	business	segments;	prior	periods	have	been	revised	to	reflect	the	current methodologies.

For	2003,	Support	Units	and	Corporate	had	operating	earnings	of	$44	million, compared	with	an	operating	loss	of	$313	million	in	2002,	driven	primarily	by	income	tax benefits	not	allocated	to	the	business	segments.

In	allocating	the	allowance	(and	provision)	for	credit	losses,	each	business	is responsible	for	its	credit	costs.	Although	the	Support	Units	and	Corporate	sector	has	no traditional	credit	assets,	the	residual	component	of	the	allowance,	which	is	available	for losses	in	any	business	segment,	is	maintained	at	the	corporate	level.	For	a	further discussion	of	the	residual	component,	see	Allowance	for	credit	losses	on	pages	64-65 of	this	Annual	Report.

Average	allocated	capital	was	$2.9	billion	higher	than	2002,	reflecting	a	reduction	in risks	and	economic	capital	allocated	to	the	business	segments.

In	December	2002,	JPMorgan	Chase	entered	into	a	seven-year	agreement	with	IBM	to outsource	portions	of	the	Firm's	internal	technology	infrastructure	services. Commencing	April	1,	2003,	2,800	employees	were	transferred	to	IBM	in	connection with	this	agreement.	The	agreement	is	expected	to	transform	the	Firm's	technology infrastructure	through	increased	cost	variability,	access	to	the	best	research	and innovation,	and	improved	service	levels.	By	moving	from	a	traditional	fixed-cost approach	to	one	with	increased	capacity	and	cost	variability,	the	Firm	expects	to	be able	to	respond	more	quickly	to	changing	market	conditions.

Risk	management	at	JPMorgan	Chase	is	guided	by	several	principles,	including:

# •defined	risk	governance

•continual	evaluation	of	risk	appetite,	managed	through	risk	limits

•risk	assessment	and	measurement,	including	value-at-risk	analysis	and	portfolio stress	testing

•performance	measurement	(SVA)	that	allocates	risk-adjusted	capital	to	business units	and	charges	a	cost	against	that	capital.

Risk	management	and	oversight	begins	with	the	Risk	Policy	Committee	of	the	Board	of Directors,	which	reviews	the	governance	of	these	activities,	delegating	the	formulation of	policy	and	day-to-day	risk	oversight	and	management	to	the	Office	of	the	Chairman and	to	two	corporate	risk	committees:	the	Capital	Committee	and	Risk	Management Committee.

The	Capital	Committee,	chaired	by	the	Chief	Financial	Officer,	focuses	on	Firm-wide capital	planning,	internal	capital	allocation	and	liquidity	management.	The	Risk Management	Committee,

chaired	by	the	Chief	Risk	Officer,	focuses	on	credit	risk,	market	risk,	operational	risk, business	risk,	private	equity	risk	and	fiduciary	risk.	Both	risk	committees	have	decision- making	authority,	with	major	policy	decisions	and	risk	exposures	subject	to	review	by the	Office	of	the	Chairman.

In	addition	to	the	Risk	Policy	Committee,	the	Audit	Committee	of	the	Board	of	Directors is	responsible	for	oversight	of	guidelines	and	policies	to	govern	the	process	by	which risk	assessment	and	management	is	undertaken.	In	addition,	the	Audit	Committee reviews	with	management	the	system	of	internal	controls	and	financial	reporting	that	is relied	upon	to	provide	reasonable	assurance	of	compliance	with	the	Firm's	operational risk	management	processes.

The	Firm's	use	of	SVA,	which	incorporates	a	risk-adjusted	capital	methodology	as	its primary	performance	measure,	has	strengthened	its	risk	management	discipline	by charging	the	businesses	the	cost	of	capital	linked	to	the	risks	associated	with	their respective	activities.

For	a	discussion	of	capital	allocation	methodologies,	see	the	respective	risk management	sections	on	pages	46–74	of	this	Annual	Report.

# Capital	management

JPMorgan	Chase's	capital	management	framework	helps	to	optimize	the	use	of	capital by:

•	 Determining	the	amount	of	capital	commensurate	with:

- internal	assessments	of	risk	as	estimated	by	the	Firm's	economic	capital allocation	model

- the	Firm's	goal	to	limit	losses,	even	under	stress	conditions

- targeted	regulatory	ratios	and	credit	ratings

- the	Firm's	liquidity	management	strategy.

•	 Directing	capital	investment	to	activities	with	the	most	favorable	risk-adjusted returns.

# Available	versus	required	capital

| (in	billions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Common\tstockholders'\tequity | $43.0 | $41.4 |
| Economic\trisk\tcapital: |  |  |
| Credit\trisk | 13.1 | 14.0 |
| Market\trisk | 4.5 | 4.7 |
| Operational\trisk | 3.5 | 3.5 |
| Business\trisk | 1.7 | 1.8 |
| Private\tequity\trisk | 5.4 | 5.8 |
| Economic\trisk\tcapital | 28.2 | 29.8 |
| Goodwill\t/\tIntangibles | 8.9 | 8.8 |
| Asset\tcapital\ttax | 4.1 | 3.9 |
| Capital\tagainst\tnonrisk\tfactors | 13.0 | 12.7 |
| Total\tcapital\tallocated\tto\tbusiness\tactivities | 41.2 | 42.5 |
| Diversification\teffect | (5.1) | (5.3) |
| Total\trequired\tinternal\tcapital | 36.1 | 37.2 |
| Firm\tcapital\tin\texcess\tof\trequired\tcapital | $6.9 | $4.2 |

Economic	risk	capital:	JPMorgan	Chase	assesses	capital	adequacy	utilizing	internal risk	assessment	methodologies.	The	Firm	assigns	economic	capital	based	primarily	on five	risk	factors:	credit	risk,	market	risk,	operational	risk	and	business	risk	for	each business,	and	private	equity	risk,	principally	for	JPMP.	The	methodologies	quantify these	risks	and	assign	capital	accordingly.	These	methodologies	are	discussed	in	the risk	management	sections	of	this	Annual	Report.

A	review	of	the	Firm's	risk	and	capital	measurement	methodologies	was	completed	in 2003,	resulting	in	the	reallocation	of	capital	among	the	risk	categories	and	certain business	segments.	The	new	capital	measurement	methodologies	did	not	result	in	a significant	change	in	the	total	capital	allocated	to	the	business	segments	as	a	whole. Prior	periods	have	been	adjusted	to	reflect	the	revised	capital	measurement methodologies.	For	a	further	discussion	of	these	new	methodologies,	see	Capital allocation	for	credit	risk,	operational	risk	and	business	risk,	and	private	equity	risk	on pages	52,	73	and	74,	respectively,	of	this	Annual	Report.	Internal	capital	allocation methodologies	may	change	in	the	future	to	reflect	refinements	of	economic	capital methodologies.

Capital	also	is	assessed	against	business	units	for	certain	nonrisk	factors.	Businesses are	assessed	capital	equal	to	100%	of	any	goodwill	and	50%	for	certain	other intangibles	generated	through	acquisitions.	Additionally,	JPMorgan	Chase	assesses	an "asset	capital	tax"	against	managed	assets	and	some	off-balance	sheet	instruments. These	assessments	recognize	that	certain	minimum	regulatory	capital	ratios	must	be maintained	by	the	Firm.	JPMorgan	Chase	also	estimates	the	portfolio	effect	on	required economic	capital	based	on	correlations	of	risk	across	risk	categories.	This	estimated diversification	benefit	leads	to	a	reduction	in	required	economic	capital	for	the	Firm.

The	total	required	economic	capital	for	JPMorgan	Chase	as	determined	by	its	models and	after	considering	the	Firm's	estimated	diversification	benefits	is	then	compared with	available	common	stockholders'	equity	to	evaluate	overall	capital	utilization.	The Firm's	policy	is	to	maintain	an	appropriate	level	of	excess	capital	to	provide	for	growth and	additional	protection	against	losses.

The	Firm's	capital	in	excess	of	that	which	is	internally	required	as	of	December	31, 2003,	increased	by	$2.7	billion	over	December	31,	2002.	The	change	was	primarily due	to	an	increase	in	average	common	stockholders'	equity	of	$1.6	billion	and	to	a $1.3	billion	reduction	in	average	capital	allocated	to	business	activities,	principally	in relation	to	credit	risk	and	private	equity	risk.	Credit	risk	capital	decreased	by	$0.9	billion from	the	prior	year,	primarily	due	to	a	reduction	in	commercial	exposures,	improvement in	the	credit	quality	of	the	commercial	portfolio	and	an	increase	in	hedging	of commercial	exposures	using	single-name	credit	derivatives.	Private	equity	risk decreased	primarily	as	a	result	of	the	reduction	in	JPMP's	private	equity	portfolio.

Regulatory	capital:	JPMorgan	Chase's	primary	federal	banking	regulator,	the	Federal Reserve	Board,	establishes	capital	requirements,	including	well-capitalized	standards and	leverage	ratios,	for	the	consolidated	financial	holding	company	and	its	state- chartered	banks,	including	JPMorgan	Chase	Bank.	The	Office	of	the	Comptroller	of	the Currency	establishes	similar	capital	requirements	and	standards	for	the	Firm's	national bank	subsidiaries,	including	Chase	Manhattan	Bank	USA,	N.A.	As	of	December	31, 2003,	the	financial	holding	company	and	its	banking	subsidiaries	maintained	capital levels	well	in	excess	of	the	minimum	capital	requirements.

At	December	31,	2003,	the	Tier	1	and	Total	capital	ratios	were	8.5%	and	11.8%, respectively,	and	the	Tier	1	leverage	ratio	was	5.6%.	The	Capital	Committee	reviews the	Firm's	capital	levels	and	policies	regularly	in	light	of	changing	economic	conditions and	business	needs.	At	December	31,	2003,	Total	capital	of	JPMorgan	Chase	(the	sum of	Tier	1	and	Tier	2	capital)	was	$59.8	billion,	an	increase	of	$5.3	billion	from December	31,	2002.	This	increase	reflected	a	$5.6	billion	increase	in	Tier	1	capital, primarily	driven	by	a	$3.8	billion	increase	in	retained	earnings	(net	income	less common	and	preferred	dividends)	generated	during	the	period,	$1.1	billion	in	Tier	1 trust	preferred	net	issuance	and	$1.3	billion	in	net	stock	issuances	related	to	employee stock-based	benefit	plans.	This	increase	was	partially	offset	by	a	higher	deduction	for goodwill	and	nonqualifying

intangible	assets	primarily	due	to	an	acquisition	in	the	fourth	quarter	of	2003.	There was	minimal	impact	to	the	Firm's	Tier	1	and	Total	capital	ratios	due	to	the	adoption	of FIN	46,	as	the	Federal	Reserve	Board	provided	interim	regulatory	capital	relief	related to	asset-backed	commercial	paper	conduits	and	trust	preferred	vehicles.	The	effect	of FIN	46	on	the	Firm's	leverage	ratio	at	December	31,	2003,	was	a	reduction	of approximately	13	basis	points	as	no	regulatory	capital	relief	was	provided	for	leverage calculations.	The	Firm	revised	its	calculation	of	risk-weighted	assets	during	the	third quarter	of	2003;	capital	ratios	for	periods	ended	prior	to	June	30,	2003,	have	not	been recalculated.	Additional	information	regarding	the	Firm's	capital	ratios	and	a	more detailed	discussion	of	federal	regulatory	capital	standards	are	presented	in	Note	26	on pages	114-115	of	this	Annual	Report.

Stock	repurchases:	The	Firm	did	not	repurchase	any	shares	of	its	common	stock during	2003.	Management	expects	to	recommend	to	the	Board	of	Directors	that	the Firm	resume	its	share	repurchase	program	after	the	completion	of	the	pending	merger with	Bank	One.

Dividends:	Dividends	declared	in	any	quarter	are	determined	by	JPMorgan	Chase's Board	of	Directors.	The	dividend	is	currently	$0.34	per	share	per	quarter.

# Liquidity	management

# In	managing	liquidity,	management	considers	a	variety	of	liquidity	risk	measures as	well	as	market	conditions,	prevailing	interest	rates,	liquidity	needs	and	the desired	maturity	profile	of	its	liabilities.

Liquidity	risk	arises	from	the	general	funding	needs	of	the	Firm's	activities	and	in	the management	of	its	assets	and	liabilities.	JPMorgan	Chase	recognizes	the	importance	of sound	liquidity	management	as	a	key	factor	in	maintaining	strong	credit	ratings	and utilizes	a	liquidity	framework	intended	to	maximize	liquidity	access	and	minimize funding	costs.	Through	active	liquidity	management,	the	Firm	seeks	to	ensure	that	it will	be	able	to	replace	maturing	obligations	when	due	and	fund	its	assets	at	appropriate maturities	and	rates	in	all	market	environments.

# Liquidity	management	framework

The	Capital	Committee	sets	the	overall	liquidity	policy	for	the	Firm,	reviews	the contingency	funding	plan	and	recommends	balance	sheet	targets	for	the	Firm.	The Liquidity	Risk	Committee,	reporting	to	the	Capital	Committee,	identifies	and	monitors liquidity	issues,	provides	policy	guidance	and	maintains	an	evolving	contingency	plan. The	Balance	Sheet	Committee,	which	also	reports	to	the	Capital	Committee,	identifies and	monitors	key	balance	sheet	issues,	provides	policy	guidance	and	oversees adherence	to	policy.

JPMorgan	Chase	utilizes	liquidity	monitoring	tools	to	help	maintain	appropriate	levels	of liquidity	through	normal	and	stress	periods.	The	Firm's	liquidity	analytics	rely	on management's	judgment	about	JPMorgan	Chase's	ability	to	liquidate	assets	or	use them	as	collateral	for	borrowings.	These	analytics	also	involve	estimates	and assumptions,	taking	into	account	credit	risk	management's	historical	data	on	the funding	of	loan	commitments	(e.g.,	commercial	paper	back-up	facilities),	liquidity commitments	to	SPEs,	commitments	with	rating	triggers	and	collateral	posting requirements.	For	further	discussion	of	SPEs	and	other	off-balance	sheet arrangements,	see	Off-balance	sheet	arrangements	and	contractual	cash	obligations on	pages	49-50	as	well	as	Note	1,	Note	13	and	Note	14	on	pages	86-87,	100-103	and 103-106,	respectively,	of	this	Annual	Report.

The	Firm's	three	primary	measures	of	liquidity	are:

•	 Holding	company	short-term	surplus:	Measures	the	parent	holding	company's ability	to	repay	all	obligations	with	a	maturity	under	one	year	at	a	time	when	the ability	of	the	Firm's	banks	to	pay	dividends	to	the	parent	holding	company	is constrained.

•	 Cash	capital	surplus:	Measures	the	Firm's	ability	to	fund	assets	on	a	fully collateralized	basis,	assuming	access	to	unsecured	funding	is	lost.

•	 Basic	surplus:	Measures	JPMorgan	Chase	Bank's	ability	to	sustain	a	90-day	stress event	that	is	specific	to	the	Firm	where	no	new	funding	can	be	raised	to	meet obligations	as	they	come	due.

Each	of	the	Firm's	liquidity	surplus	positions,	as	of	December	31,	2003,	indicates	that JPMorgan	Chase's	long-dated	funding,	including	core	deposits,	exceeds	illiquid	assets and	that	the	Firm's	obligations	can	be	met	if	access	to	funding	is	temporarily	impaired.

An	extension	of	the	Firm's	ongoing	liquidity	management	is	its	contingency	funding plan,	which	is	intended	to	help	the	Firm	manage	through	liquidity	stress	periods.	The plan	considers	temporary	and	long-term	stress	scenarios	and	forecasts	potential funding	needs	when	access	to	unsecured	funding	is	severely	limited	or	nonexistent. These	scenarios	take	into	account	both	on-and	off-balance	sheet	exposures, evaluating	access	to	funds	by	the	parent	holding	company,	JPMorgan	Chase	Bank	and Chase	Manhattan	Bank	USA,	N.A.,	separately.

# Funding

Credit	ratings:	The	cost	and	availability	of	unsecured	financing	are	influenced	by	credit ratings.	A	reduction	in	these	ratings	could	adversely	affect	the	Firm's	access	to	liquidity sources,	and	could	increase	the	cost	of	funding	or	trigger	additional	collateral requirements.	Critical	factors	in	maintaining	high	credit	ratings	include:	a	stable	and diverse	earnings	stream;	strong	capital	ratios;	strong	credit	quality	and	risk management	controls;	diverse	funding	sources;	and	strong	liquidity	monitoring procedures.

The	credit	ratings	of	JPMorgan	Chase's	parent	holding	company	and	JPMorgan	Chase Bank	as	of	December	31,	2003,	were	as	follows:

|  | JPMorgan	Chase | JPMorgan	Chase | JPMorgan	Chase	Bank | JPMorgan	Chase	Bank |
| :--- | :--- | :--- | :--- | :--- |
|  | Short-term\ndebt | Senior\nlong-term\tdebt | Short-term\ndebt | Senior\nlong-term\tdebt |
| Moody's | \tP-1 | A1 | P-1 | Aa3 |
| S&amp;P | A-1 | A+ | A-1+ | AA- |
| Fitch | F1 | A+ | F1 | A+ |

Upon	the	announcement	of	the	proposed	merger	with	Bank	One,	Moody's	and	Fitch placed	the	ratings	of	the	Firm	under	review	for	possible	upgrade,	while	S&P	affirmed the	Firm's	ratings.

Balance	sheet:	The	Firm's	total	assets	increased	to	$771	billion	at	December	31, 2003,	from	$759	billion	at	December	31,	2002.	The	December	31,	2003,	balance	sheet includes	the	effect	of	adopting	FIN	46,	which	added	$10	billion	to	total	assets,	including $5.8	billion	in	commercial	loans	primarily	associated	with	multi-seller	asset-backed commercial	paper	conduits.	Commercial	loans	declined	$14.2	billion,	excluding	the impact	of	adopting	FIN	46,	as	a	result	of	weaker	loan	demand,	as	well	as	the	Firm's ongoing	efforts	to	reduce	commercial	exposure.	Consumer	loans	increased $11.6	billion,	led	by	strong	growth	in	mortgage	and	automobile	loans,	driven	by	the favorable	rate	environment	throughout	2003.	Credit	card	loans	declined	modestly, affected	by	increased	securitization	activity	and	higher	levels	of	payments	from	cash redeployed	from	consumer	mortgage	refinancings.	The	securities	portfolio	declined	due to	changes	in	positioning	related	to	structural	interest	rate	risk	management.	The continued	growth	in	deposits	contributed	to	the	decline	in	securities	sold	under repurchase	agreements.

Sources	of	funds:	The	diversity	of	the	Firm's	funding	sources	enhances	financial flexibility	and	limits	dependence	on	any	one	source,	thereby	minimizing	the	cost	of funds.	JPMorgan	Chase	has	access	to	funding	markets	across	the	globe	and	across	a broad	investor	base.	Liquidity	is	generated	using	a	variety	of	both	short-term	and	long- term	instruments,	including	deposits,	federal	funds	purchased,	repurchase	agreements, commercial	paper,	bank	notes,	medium-	and	long-term	debt,	capital	securities	and stockholders'	equity.	A	major	source	of	liquidity	for	JPMorgan	Chase	Bank	is	provided by	its	large	core	deposit	base.	For	this	purpose,	core	deposits	include	all	U.S.	domestic deposits	insured	by	the	FDIC,	up	to	the	legal	limit	of	$100,000	per	depositor.	In	addition to	core	deposits,	the	Firm	benefits	from	substantial,	stable	deposit	balances	originated by	TSS	through	the	normal	course	of	its	business.

Additional	funding	flexibility	is	provided	by	the	Firm's	ability	to	access	the	repurchase and	asset	securitization	markets.	These	alternatives	are	evaluated	on	an	ongoing	basis to	achieve	the	appropriate	balance	of	secured	and	unsecured	funding.	The	ability	to securitize	loans,	and	the	associated	gains	on	those	securitizations,	are	principally dependent	on	the	credit	quality	and	yields	of	the	assets	securitized	and	are	generally not	dependent	on	the

credit	ratings	of	the	issuing	entity.	Transactions	between	the	Firm	and	its	securitization structures	are	reflected	in	JPMorgan	Chase's	financial	statements;	these	relationships include	retained	interests	in	securitization	trusts,	liquidity	facilities	and	derivative transactions.	For	further	details,	see	Notes	13	and	14	on	pages	100-103	and	103-106, respectively,	of	this	Annual	Report.

Issuance:	Corporate	credit	spreads	narrowed	in	2003	across	industries	and	sectors, reflecting	the	market	perception	that	credit	risks	were	improving	sharply	throughout	the year,	as	the	number	of	downgrades	declined,	corporate	balance	sheet	cash	positions increased,	and	corporate	profits	exceeded	expectations.	JPMorgan	Chase's	credit spreads	outperformed	relative	to	peer	spreads	following	the	Enron	settlement,	reflecting reduced	headline	risk	and	improved	earnings	performance.	This	resulted	in	a	positive overall	shift	in	fixed	income	investor	sentiment	toward	JPMorgan	Chase,	as	evidenced by	increased	investor	participation	in	debt	transactions	and	extension	of	debt maturities.	The	Firm	took	advantage	of	its	narrowing	credit	spreads	by	issuing	long- term	debt	and	capital	securities	opportunistically	throughout	the	year.

During	2003,	JPMorgan	Chase	issued	approximately	$17.2	billion	of	long-term	debt	and capital	securities.	During	the	year,	$8.3	billion	of	long-term	debt	and	capital	securities matured	or	was	redeemed.	In	addition,	in	2003	the	Firm	securitized	approximately $13.3	billion	of	residential	mortgage	loans,	$8.8	billion	of	credit	card	loans	and $4.5	billion	of	automobile	loans,	resulting	in	pre-tax	gains	on	securitizations	of $168	million,	$44	million	and	$13	million,	respectively.	For	a	further	discussion	of	loan securitizations,	see	Note	13	on	pages	100-103	of	this	Annual	Report.

During	2003,	the	Firm	adopted	FIN	46	and,	as	a	result,	deconsolidated	the	trusts	that issue	trust	preferred	securities.	This	could	have	significant	implications	for	the	Firm's capital,	because	it	may	change	the	way	the	Federal	Reserve	Board	views	the	Tier	1 status	of	trust	preferred	securities.	On	July	2,	2003,	the	Federal	Reserve	Board	issued a	supervisory	letter	instructing	banks	and	bank	holding	companies	to	continue	to include	trust	preferred	securities	in	Tier	1	capital.	Based	on	the	terms	of	this	letter	and in	consultation	with	the	Federal	Reserve	Board,	the	Firm	continues	to	include	its	trust preferred	securities	in	Tier	1	capital.	However,	there	can	be	no	assurance	that	the Federal	Reserve	Board	will	continue	to	permit	trust	preferred	securities	to	count	as	Tier 1	capital	in	the	future.	For	a	further	discussion,	see	Note	18	on	pages	110-111	of	this Annual	Report.

Derivatives	are	used	in	liquidity	risk	management	and	funding	to	achieve	the	Firm's desired	interest	rate	risk	profile.	The	Firm	enters	into	derivatives	contracts	to	swap fixed-rate	debt	to	floating-rate	obligations	and	to	swap	floating-rate	debt	to	fixed-rate obligations.	Derivatives	contracts	are	also	used	to	hedge	the	variability	in	interest	rates that	arises	from	other	floating-rate	financial	instruments	and	forecasted	transactions, such	as	the	rollover	of	short-term	assets	and	liabilities.

# Off-balance	sheet	arrangements	and	contractual	cash obligations

Special-purpose	entities	("SPEs"),	special-purpose	vehicles	("SPVs"),	or	variable- interest	entities	("VIEs"),	are	an	important	part	of	the	financial	markets,	providing market	liquidity	by	facilitating	investors'	access	to	specific	portfolios	of	assets	and	risks. SPEs	are	not	operating	entities;	typically	they	are	established	for	a	single,	discrete purpose,	have	a	limited	life	and	have	no	employees.	The	basic	SPE	structure	involves a	company	selling	assets	to	the	SPE.	The	SPE	funds	the	asset	purchase	by	selling securities	to	investors.	To	insulate	investors	from	creditors	of	other	entities,	including the	seller	of	the	assets,	SPEs	are	often	structured	to	be	bankruptcy-remote.	SPEs	are critical	to	the	functioning	of	many	investor	markets,	including,	for	example,	the	market for	mortgage-backed	securities,	other	asset-backed	securities	and	commercial	paper. JPMorgan	Chase	is	involved	with	SPEs	in	three	broad	categories	of	transactions:	loan securitizations	(through	"qualifying"	SPEs),	multi-seller	conduits,	and	client intermediation.	Capital	is	held,	as	appropriate,	against	all	SPE-related	transactions	and related	exposures	such	as	derivative	transactions	and	lending-related	commitments.

The	Firm	has	no	commitments	to	issue	its	own	stock	to	support	any	SPE	transaction, and	its	policies	require	that	transactions	with	SPEs	be	conducted	at	arm's	length	and reflect	market	pricing.	Consistent	with	this	policy,	no	JPMorgan	Chase	employee	is permitted	to	invest	in	SPEs	with	which	the	Firm	is	involved	where	such	investment would	violate	the	Firm's	Worldwide	Rules	of	Conduct.	These	rules	prohibit	employees from	self-dealing	and	prohibit	employees	from	acting	on	behalf	of	the	Firm	in transactions	with	which	they	or	their	family	have	any	significant	financial	interest.

For	certain	liquidity	commitments	to	SPEs,	the	Firm	could	be	required	to	provide funding	if	the	credit	rating	of	JPMorgan	Chase	Bank	were	downgraded	below	specific levels,	primarily	P-1,	A-1	and	F1	for	Moody's,	Standard	&	Poor's	and	Fitch, respectively.	The	amount	of	these	liquidity	commitments	was	$34.0	billion	at December	31,	2003.	If	JPMorgan	Chase	Bank	were	required	to	provide	funding	under these	commitments,	the	Firm	could	be	replaced	as	liquidity	provider.	Additionally,	with respect	to	the	multi-seller	conduits	and	structured	commercial	loan	vehicles	for	which JPMorgan	Chase	Bank	has	extended	liquidity	commitments,	the	Bank	could	facilitate the	sale	or	refinancing	of	the	assets	in	the	SPE	in	order	to	provide	liquidity.

Of	these	liquidity	commitments	to	SPEs,	$27.7	billion	is	included	in	the	Firm's	total Other	unfunded	commitments	to	extend	credit	included	in	the	table	on	the	following page.	As	a	result	of	the	consolidation	of	multi-seller	conduits	in	accordance	with	FIN	46, $6.3	billion	of	these	commitments	are	excluded	from	the	table,	as	the	underlying	assets of	the	SPE	have	been	included	on	the	Firm's	Consolidated	balance	sheet.

The	following	table	summarizes	certain	revenue	information	related	to	VIEs	with	which the	Firm	has	significant	involvement,	and	qualifying	SPEs:

(a) Includes	consolidated	and	nonconsolidated	asset-backed	commercial	paper	conduits	for	a	consistent presentation	of	2003	results.

The	revenue	reported	in	the	table	above	represents	primarily	servicing	fee	income.	The Firm	also	has	exposure	to	certain	VIE	vehicles	arising	from	derivative	transactions	with VIEs;	these	transactions	are	recorded	at	fair	value	on	the	Firm's	Consolidated	balance sheet	with	changes	in	fair	value	(i.e.,	mark-to-market	gains	and	losses)	recorded	in Trading	revenue.	Such	MTM	gains	and	losses	are	not	included	in	the	revenue	amounts reported	in	the	table	above.

# Contractual	cash	obligations

In	the	normal	course	of	business,	the	Firm	enters	into	various	contractual	obligations that	may	require	future	cash	payments.	Contractual	obligations	at	December	31,	2003, include	Long-term	debt,	trust	preferred	capital	securities,	operating	leases,	contractual purchases	and	capital	expenditures	and	certain	Other	liabilities.	For	a	further discussion	regarding	Long-term	debt	and	trust	preferred	capital	securities,	see	Note	18 on	pages	109-111	of	this	Annual	Report.	For	a	further	discussion	regarding	operating leases,	see	Note	27	on	page	115	of	this	Annual	Report.

The	accompanying	table	summarizes	JPMorgan	Chase's	off-balance	sheet	lending- related	financial	instruments	and	significant	contractual	cash	obligations,	by	remaining maturity,	at	December	31,	2003.	Contractual	purchases	include	commitments	for	future cash	expenditures,	primarily	for	services	and	contracts	involving	certain	forward purchases	of	securities	and	commodities.	Capital	expenditures	primarily	represent future	cash	payments	for	real	estate-related	obligations	and	equipment.	Contractual purchases	and	capital	expenditures	at	December	31,	2003,	reflect	the	minimum contractual	obligation	under	legally	enforceable	contracts	with	contract	terms	that	are both	fixed	and	determinable.	Excluded	from	the	following	table	are	a	number	of obligations	to	be	settled	in	cash,	primarily	in	under	one	year.	These	obligations	are reflected	on	the	Firm's	Consolidated	balance	sheet	and	include	Deposits;	Federal	funds purchased	and	securities	sold	under	repurchase	agreements;	Other	borrowed	funds; purchases	of	Debt	and	equity	instruments	that	settle	within	standard	market	timeframes (e.g.	regular-way);	Derivative	payables	that	do	not	require	physical	delivery	of	the underlying	instrument;	and	certain	purchases	of	instruments	that	resulted	in	settlement failures.

| financial	instruments | financial	instruments | financial	instruments |  |  |  |  | Under | 1-3 | 4-5 | After |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| By\tremaining\tmaturity\tat\tDecember\t31,\t2003\t(in\tmillions) | By\tremaining\tmaturity\tat\tDecember\t31,\t2003\t(in\tmillions) | By\tremaining\tmaturity\tat\tDecember\t31,\t2003\t(in\tmillions) | By\tremaining\tmaturity\tat\tDecember\t31,\t2003\t(in\tmillions) | By\tremaining\tmaturity\tat\tDecember\t31,\t2003\t(in\tmillions) | By\tremaining\tmaturity\tat\tDecember\t31,\t2003\t(in\tmillions) | By\tremaining\tmaturity\tat\tDecember\t31,\t2003\t(in\tmillions) | 1\tyear | years | years | 5\tyears | Total |
| Consumer-related\nCommercial-related: | Consumer-related\nCommercial-related: | Consumer-related\nCommercial-related: |  |  |  |  | $151,931 | $504 | $620 | $23,868 | $176,923 |
| Other\tunfunded\tcommitments\tto\textend\tcredit | Other\tunfunded\tcommitments\tto\textend\tcredit | Other\tunfunded\tcommitments\tto\textend\tcredit | Other\tunfunded\tcommitments\tto\textend\tcredit | Other\tunfunded\tcommitments\tto\textend\tcredit | Other\tunfunded\tcommitments\tto\textend\tcredit | (a)(b) | 92,840 | 54,797 | 23,573 | 5,012 | 176,222 |
| Standby\tletters\tof\tcredit\tand\tguarantees | Standby\tletters\tof\tcredit\tand\tguarantees | Standby\tletters\tof\tcredit\tand\tguarantees | Standby\tletters\tof\tcredit\tand\tguarantees | Standby\tletters\tof\tcredit\tand\tguarantees | (a) |  | 17,236 | 12,225 | 4,451 | 1,420 | 35,332 |
| Other\tletters\tof\tcredit | Other\tletters\tof\tcredit | Other\tletters\tof\tcredit | (a) |  |  |  | 1,613 | 458 | 2,094 | 39 | 4,204 |
| Total\tcommercial-related | Total\tcommercial-related | Total\tcommercial-related | Total\tcommercial-related |  |  |  | 111,689 | 67,480 | 30,118 | 6,471 | 215,758 |
| Total\tlending-related\tcommitments | Total\tlending-related\tcommitments | Total\tlending-related\tcommitments | Total\tlending-related\tcommitments | Total\tlending-related\tcommitments |  |  | $263,620 | $67,984 | $30,738 | $30,339 | $392,681 |
| Contractual\tcash\tobligations |  |  |  |  |  |  |  |  |  |  |  |
| By\tremaining\tmaturity\tat\tDecember\t31,\t2003\t(in\tmillions) |  |  |  |  |  |  |  |  |  |  |  |
| Long-term\tdebt |  |  |  |  |  |  | $6,633 | $15,187 | $12,548 | $13,646 | $48,014 |
| Trust\tpreferred\tcapital\tsecurities | Trust\tpreferred\tcapital\tsecurities | Trust\tpreferred\tcapital\tsecurities | Trust\tpreferred\tcapital\tsecurities |  |  |  | — | — | — | 6,768 | 6,768 |
| FIN\t46\tlong-term\tbeneficial\tinterests | FIN\t46\tlong-term\tbeneficial\tinterests | FIN\t46\tlong-term\tbeneficial\tinterests | FIN\t46\tlong-term\tbeneficial\tinterests | (c) |  |  | 17 | 726 | 34 | 1,652 | 2,429 |
| Operating\tleases | Operating\tleases | (d) |  |  |  |  | 805 | 1,467 | 1,189 | 4,772 | 8,233 |
| Contractual\tpurchases\tand\tcapital\texpenditures | Contractual\tpurchases\tand\tcapital\texpenditures | Contractual\tpurchases\tand\tcapital\texpenditures | Contractual\tpurchases\tand\tcapital\texpenditures | Contractual\tpurchases\tand\tcapital\texpenditures | Contractual\tpurchases\tand\tcapital\texpenditures |  | 11,920 | 298 | 120 | 69 | 12,407 |
| Other\tliabilities | (e) |  |  |  |  |  | 428 | 163 | 286 | 4,069(f) | 4,946 |
| Total |  |  |  |  |  |  | $19,803 | $17,841 | $14,177 | $30,976 | $82,797 |

(a) Net	of	risk	participations	totaling	$16.5	billion	at	December	31,	2003.

(b) Includes	unused	advised	lines	of	credit	totaling	$19	billion	at	December	31,	2003,	which	are	not	legally	binding.	In	regulatory	filings	with	the	Federal	Reserve	Board,	unused	advised	lines	are	not	reportable.

(c) Included	on	the	Consolidated	balance	sheet	in	Beneficial	interests	issued	by	consolidated	variable	interest	entities.

(d) Excludes	benefit	of	noncancelable	sublease	rentals	of	$283	million	at	December	31,	2003.

(e) Includes	deferred	annuity	contracts	and	expected	funding	for	pension	and	other	postretirement	benefits	for	2004.	Funding	requirements	for	pension	and	postretirement	benefits	after	2004	are	excluded	due	to	the significant	variability	in	the	assumptions	required	to	project	the	timing	of	future	cash	payments.

(f) Certain	deferred	compensation	obligations	amounting	to	$3.5	billion	are	reported	in	the	"After	5	years"	column	because	the	actual	payment	date	cannot	be	specifically	determined	due	to	the	significant	variability	in	the assumptions	required	to	project	the	timing	of	future	cash	payments.

Credit	risk	is	the	risk	of	loss	from	obligor	or	counterparty	default.	The	Firm	is	exposed	to credit	risk	through	its	lending	(e.g.,	loans	and	lending-related	commitments),	trading and	capital	markets	activities.	Credit	risk	management	practices	are	designed	to preserve	the	independence	and	integrity	of	the	risk-assessment	process.	Processes	in place	are	intended	to	ensure	that	credit	risks	are	adequately	assessed,	properly approved,	continually	monitored	and	actively	managed.	Risk	is	managed	at	both	the individual	transaction	and	portfolio	levels.	The	Firm

assesses	and	manages	all	credit	exposures,	whether	they	arise	from	transactions recorded	on-	or	off–balance	sheet.

# Credit	risk	organization

In	early	2003,	the	Credit	Risk	Policy	and	Global	Credit	Management	functions	were combined	to	form	Global	Credit	Risk	Management	consisting	of	the	five	primary functions	listed	in	the	organizational	chart	below.

Credit	risk	organization	Chief	Risk	Officer 	Oversees	risk	management	Global	Credit	Risk	Management 	Chief	Credit	Risk	Officer	Commercial												Consumer	Credit	Risk	Credit												Policy	and												Special	Credits												CFS	Consumer	Management	Portfolio	Group												Strategy	Group												Group												Credit	Risk	Management •	Approves	all	credit	expo-	•	Actively	manages	the	•	Formulates	credit	policies,	•	Actively	manages	•	Approves	and	sure;	approval	authority	risk	in	the	Firm's	credit												limits,	allowance	appropri-	criticized	commercial												monitors	credit	risk	varies	based	on	aggregate	positions	from	traditional												ateness	and	guidelines												exposures	in	workouts

•	Monitors	external	economic	size	of	client's	credit	lending	and	derivative												and	restructurings

•	Independently	audits,	trends	to	predict	emerging	exposure	and	the	size,	trading	activities,	through	monitors	and	assesses												risks	in	the	consumer	maturity	and	risk	level	the	purchase	or	sale	of	risk	ratings	and	risk												portfolio	of	a	transaction	credit	derivative	hedges,	management	processes	other	market	instruments	•	Formulates	credit	policies,

•	Assigns	risk	ratings	and	secondary	market	•	Addresses	country	risk,	limits,	allowance	appropri-

•	Collaborates	with	client	loan	sales												counterparty	risk	and												ateness	and	guidelines	executives	to	monitor												capital	allocation	method-	credit	quality	via	ongoing	•	Manages	derivatives	ologies	with	Market	Risk	and	periodic	reviews	collateral	risk	Management	of	client	documentation,	financial	data	and	industry	trends

# Business	strategy	and	risk	management

# Commercial

The	Firm's	business	strategy	for	its	large	corporate	commercial	portfolio	remains primarily	one	of	origination	for	distribution.	The	majority	of	the	Firm's	wholesale	loan originations	in	IB	continue	to	be	distributed	into	the	marketplace,	with	residual	holds	by the	Firm	averaging	less	than	10%.	The	commercial	loan	port-

folio	declined	by	9%	in	2003,	reflecting	a	combination	of	continued	weak	loan	demand, the	Firm's	ongoing	goal	of	reducing	commercial	credit	concentrations	and	refinancings into	more	liquid	capital	markets.	The	Firm's	SVA	discipline	discourages	the	retention	of loan	assets	that	do	not	generate	a	positive	return	above	the	cost	of	risk-adjusted capital.	SVA	remains	a	critical	discipline	in	making	loans	and	commitments,	particularly when	combined	with	other	credit	and	capital	management	disciplines.

To	measure	commercial	credit	risk,	the	Firm	estimates	the	likelihood	of	obligor	or counterparty	default;	the	amount	of	exposure	should	the	obligor	or	the	counterparty default;	and	the	loss	severity	given	a	default	event.	Based	on	these	factors	and	related market-based	inputs,	the	Firm	estimates	both	expected	and	unexpected	losses	for	each segment	of	the	portfolio.	Expected	losses	are	statistically-based	estimates	of	credit losses	over	time,	anticipated	as	a	result	of	obligor	or	counterparty	default.	They	are used	to	set	risk-adjusted	credit	loss	provisions.	However,	expected	credit	losses	are not	the	sole	indicators	of	risk.	If	losses	were	entirely	predictable,	the	expected	loss	rate could	be	factored	into	pricing	and	covered	as	a	normal	and	recurring	cost	of	doing business.	Unexpected	losses	represent	the	potential	volatility	of	actual	losses	relative	to the	expected	level	of	losses	and	are	the	basis	for	the	Firm's	credit	risk	capital-allocation process.

In	2003,	the	Firm	significantly	modified	its	approach	to	commercial	credit	risk management	to	further	enhance	risk	management	discipline,	improve	returns	and liquidity	and	use	capital	more	efficiently.	Three	primary	initiatives	were	launched	during the	year:	improved	single-name	and	industry	concentration	management,	through	a revised	threshold	and	limit	structure;	a	revised	capital	methodology;	and	increased portfolio	management	activity	utilizing	credit	derivatives	and	loan	sales.	The	Firm manages	capital	and	exposure	concentrations	by	obligor,	risk	rating,	industry	and geography.	The	Firm	has	reduced	by	one-half	the	number	of	clients	whose	credit exposure	exceeded	the	narrowest	definition	of	concentration	limits	during	2003, through	focused	client	planning	and	portfolio	management	activities.

A	comprehensive	review	of	the	Firm's	wholesale	credit	risk	management	infrastructure was	completed	in	2003.	As	a	result,	the	Firm	has	commenced	a	multi-year	initiative	to reengineer	specific	components	of	the	credit	risk	infrastructure,	including	creation	of	a simpler	infrastructure	with	more	standardized	hardware	and	software	platforms.	The goal	of	the	initiative	is	to	enhance	the	Firm's	ability	to	provide	immediate	and	accurate risk	and	exposure	information;	actively	manage	credit	risk	in	the	residual	portfolio; support	client	relationships;	manage	more	quickly	the	allocation	of	economic	capital; and	support	compliance	with	Basel	II	initiatives.

# Consumer

Consumer	credit	risks	are	monitored	at	the	aggregate	CFS	level	and	within	each	line	of business	(mortgages,	credit	cards,	automobile	finance,	small	business	and	consumer banking).	Consumer	credit	risk	management	uses	sophisticated	portfolio	modeling, credit	scoring	and	decision-support	tools	to	project	credit	risks	and	establish underwriting	standards.	Risk	parameters	are	established	in	the	early	stages	of	product development,	and	the	cost	of	credit	risk	is	an	integral	part	of	product	pricing	and evaluating	profit	dynamics.	Losses	generated	by	consumer	loans	are	more	predictable than	for	commercial	loans,	but	are	subject	to	cyclical	and	seasonal	factors.	The frequency	of	loss	is	higher	on	consumer	loans	than	on	corporate	loans	but	the	severity of	losses	is	typically	lower	and	more	manageable,	depending	on	whether	loans	are secured	or	not.	In	addition,	common	measures	of	credit	quality	derived	from	historical loss	experience	can	be	used	to	predict	con-

sumer	losses.	Likewise,	underwriting	principles	and	philosophies	are	common	among lenders	focusing	on	borrowers	of	similar	credit	quality.	For	these	reasons,	Consumer Credit	Risk	Management	focuses	on	trends	and	concentrations	at	the	portfolio	level, where	problems	can	be	remedied	through	changes	in	underwriting	policies	and adherence	to	portfolio	guidelines.	Consumer	Credit	Risk	Management	also	monitors key	risk	attributes,	including	borrower	credit	quality,	loan	performance	(as	measured	by delinquency)	and	losses	(expected	versus	actual).	The	monthly	and	quarterly	analysis of	trends	around	these	attributes	is	monitored	against	business	expectations	and industry	benchmarks.

# Capital	allocation	for	credit	risk

Unexpected	credit	losses	drive	the	allocation	of	credit	risk	capital	by	portfolio	segment.

In	the	commercial	portfolio,	capital	allocations	are	differentiated	by	risk	rating,	loss severity,	maturity,	correlations	and	assumed	exposure	at	default.	In	2003,	the	Firm revised	its	methodology	for	the	assessment	of	credit	risk	capital	allocated	to	the commercial	credit	portfolio,	more	closely	aligning	capital	with	current	market	conditions. Specifically,	the	new	approach	employs	estimates	of	default	likelihood	that	are	derived from	current	market	parameters	and	is	intended	to	capture	the	impact	of	both	defaults and	declines	in	market	value	due	to	credit	deterioration.	This	approach	is	intended	to reflect	more	accurately	current	risk	conditions,	as	well	as	to	enhance	the	management of	commercial	credit	risk	by	encouraging	the	utilization	of	the	growing	market	in	credit derivatives	and	secondary	market	loan	sales.	See	the	Capital	management	section	on pages	46–47	of	this	Annual	Report.

Within	the	consumer	businesses,	capital	allocations	are	differentiated	by	product	and product	segment.	For	the	consumer	portfolio,	consumer	products	are	placed	into categories	with	homogenous	credit	characteristics,	from	which	default	rates	and charge-offs	can	be	estimated.	Credit	risk	capital	is	allocated	based	on	the	unexpected loss	inherent	in	those	categories.

# Commercial	and	consumer	credit	portfolio

JPMorgan	Chase's	total	credit	exposure	(which	includes	$34.9	billion	of	securitized credit	cards)	was	$730.9	billion	at	December	31,	2003,	a	2%	increase	from	year-end 2002.	The	increase	reflected	a	change	in	the	portfolio's	composition:	a	$41.5	billion increase	in	consumer	exposure,	partially	offset	by	a	$30.2	billion	decrease	in commercial	exposure.

Managed	consumer	loans	increased	by	$15.7	billion,	primarily	resulting	from	higher levels	of	residential	mortgage	and	automobile	originations,	while	lending-related commitments	increased	by	$25.8	billion,	primarily	in	the	home	finance	and	credit	card businesses.

Commercial	exposure	decreased	by	7%	to	$382.7	billion	as	of	year-end	2003,	the result	of	an	$8.5	billion	decrease	in	loans	and	a	$22.4	billion	decrease	in	lending- related	commitments.	The	decrease	in	loans	outstanding	reflected	weaker	demand,	as well	as	the	Firm's	ongoing	credit	management	activities,	including	$5.2	billion	in	loan and	commitment	sales.	This	was	partially	offset

by	a	$5.8	billion	increase	related	to	VIEs	consolidated	in	accordance	with	FIN	46.	The decrease	in	lending-related	commitments	was	due	to	an	overall	contraction	in	lending demand	and	reflected	a	$6.3	billion	decline	due	to	the	adoption	of	FIN	46.	For	further discussion	of	FIN	46,	see	Note	14	on	pages	103–106	of	this	Annual	Report.

The	Firm	also	views	its	credit	exposure	on	an	"Economic"	basis,	which	is	the	basis upon	which	it	allocates	credit	capital	to	the	lines	of	business.	The	principal	difference between	the	Firm's	credit	exposure	on	a	reported	basis	and	Economic	credit	exposure relates	to	the	way	the	Firm	views	its	credit	exposure	to	derivative	receivables	and lending-related	commitments.

For	derivative	receivables,	the	Firm	measures	its	Economic	credit	exposure	using	the Average	exposure	("AVG")	metric.	This	is	a	measure	of	the	expected	MTM	value	of	the Firm's	derivative	receivables	at	future	time	periods,	including	the	benefit	of	collateral. The	three-year	average	of	the	AVG	metric	is	the	Firm's	Economic	measure	of	derivative risk	since	three	years	is	the	average	remaining	life	of	the	derivatives	portfolio;	it	was $34	billion	as	of	December	31,	2003.	For	more	information,	see	the	Derivative contracts	section	of	this	Annual	Report.

The	following	table	reconciles	Derivative	receivables	on	a	MTM	basis	with	the	Firm's Economic	credit	exposure	basis,	a	non-GAAP	financial	measure.

# Reconciliation	of	Derivative	Receivables	to	Economic Credit	Exposure

| As	of	December	31,	(in	billions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Derivative\treceivables: |  |  |
| Derivative\treceivables\tMTM | $84 | $83 |
| Collateral\theld\tagainst\tderivatives | (36) | (30) |
| Derivative\treceivables\t–\tnet\tcurrent\texposure | 48 | 53 |
| Reduction\tin\texposure\tto\t3-year\taverage\texposure | (14) | (19) |
| Economic\tcredit\texposure | $34 | $34 |

For	commercial	lending-related	commitments,	the	Firm	measures	its	Economic	credit exposure	using	a	"loan	equivalent"	amount	for	each	commitment,	rather	than	the contractual	amount	of	the	lending-related	commitment.	The	contractual	amount represents	the	maximum	possible	credit	risk	should	the	counterparty	draw	down	the commitment	and	subsequently	default.	However,	most	of	these	commitments	expire without	a	default	occurring	or	without	being	drawn.	As	a	result,	the	total	contractual amount	of	these	instruments	is	not,	in	the	Firm's	view,	representative	of	the	Firm's actual	future	credit	exposure	or	funding	requirements.	In	determining	the	Firm's Economic	credit	exposure	to	commercial	lending-related	commitments,	the	Firm	has established	a	"loan-equivalent"	amount	for	each	commitment.	The	loan-equivalent amount	represents	the	portion	of	the	unused	commitment	or	other	contingent	exposure that	is	likely,	based	on	average	portfolio	historical	experience,	to	become	outstanding	in the	event	of	a	default	by	the	obligor.	It	is	this	amount	that,	in	management's	view, represents	the	Firm's	Economic	credit	exposure	to	the	obligor.	The	aggregate	amount of	its	Economic	credit	exposure	associated	with	commercial	lending-related commitments	was	$106.9	billion	in	2003,	compared	with	$115.5	billion	in	2002.

The	following	table	reconciles	commercial	lending–related	commitments	on	a	GAAP basis	with	the	Firm's	Economic	credit	exposure	basis,	a	non-GAAP	financial	measure.

# Reconciliation	of	Commercial	Lending-Related	Commitments	to Economic	Credit	Exposure

| As	of	December	31,	(in	billions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Commercial\tlending-related\tcommitments: |  |  |
| Reported\tamount | $216 | $238 |
| Loan\tequivalent\t("LEQ")\tadjustment | (109) | (123) |
| Economic\tcredit\texposure | $107 | $115 |

The	following	table	presents	JPMorgan	Chase's	credit	portfolio	as	of	December	31,	2003	and	2002:

| As	of	December	31, |  | Credit	exposure | Credit	exposure | Economic	credit	exposure | Economic	credit	exposure | allocated	credit	capital | allocated	credit	capital |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) |  | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 |
| COMMERCIAL |  |  |  |  |  |  |  |
| (a)(b) |  |  |  |  |  |  |  |
| Loans |  | $83,097(i) | $91,548 | $83,097 | $91,548 |  |  |
| (b) |  |  |  |  |  |  |  |
| Derivative\treceivables |  | 83,751 | 83,102 | 34,130 | 34,189 |  |  |
| Other\treceivables |  | 108 | 108 | 108 | 108 |  |  |
| Total\tcommercial\tcredit-related\tassets |  | 166,956 | 174,758 | 117,335 | 125,845 |  |  |
| (a)(c)\nLending-related\tcommitments |  | 215,758(j) | 238,120 | 106,872 | 115,495 |  |  |
| Total\tcommercial\tcredit\texposure |  | $382,714 | $412,878 | $224,207 | $241,340 | $8,200 | $13,300 |
| CONSUMER |  |  |  |  |  |  |  |
| \t(a)(d) |  |  |  |  |  |  |  |
| Loans\t–\treported |  | $136,421 | $124,816 | $136,421 | $124,816 |  |  |
| \t(d)(e) |  |  |  |  |  |  |  |
| Loans\tsecuritized |  | 34,856 | 30,722 | 34,856 | 30,722 |  |  |
| Total\tmanaged\tconsumer\tloans |  | 171,277 | 155,538 | 171,277 | 155,538 |  |  |
| \t(f) |  |  |  |  |  |  |  |
| Lending-related\tcommitments |  | 176,923 | 151,138 | 176,923 | 151,138 |  |  |
| Total\tconsumer\tcredit\texposure |  | $348,200 | $306,676 | $348,200 | $306,676 | $3,400 | $3,300 |
| TOTAL\tCREDIT\tPORTFOLIO |  |  |  |  |  |  |  |
| Managed\tloans |  | $254,374 | $247,086 | $254,374 | $247,086 |  |  |
| Derivative\treceivables |  | 83,751 | 83,102 | 34,130 | 34,189 |  |  |
| Other\treceivables |  | 108 | 108 | 108 | 108 |  |  |
| Total\tmanaged\tcredit-related\tassets |  | 338,233 | 330,296 | 288,612 | 281,383 |  |  |
| Total\tlending-related\tcommitments |  | 392,681 | 389,258 | 283,795 | 266,633 |  |  |
| Total\tcredit\tportfolio |  | $730,914 | $719,554 | $572,407 | $548,016 | $11,600 | $16,600 |
| \t(g) |  |  |  |  |  |  |  |
| Credit\tderivative\thedges\tnotional |  | $(37,282) | $(33,767) | $(37,282) | $(33,767) | $(1,300) | $(1,200) |
| Collateral\theld\tagainst\tderivative\treceivables | \t(h) | (36,214) | (30,410) | NA | NA |  |  |
| (a)\nAmounts\tare\tpresented\tgross\tof\tthe\tallowance\tfor\tcredit\tlosses. |  |  |  |  |  |  |  |

(a) Amounts	are	presented	gross	of	the	allowance	for	credit	losses.

(b) Loans	are	presented	gross	of	collateral	held.	Derivative	receivables	Credit	exposure	is	presented	gross	of	collateral	held.

(c) Includes	unused	advised	lines	of	credit	totaling	$19	billion	at	December	31,	2003,	and	$22	billion	at	December	31,	2002,	which	are	not	legally	binding.	In	regulatory	filings	with	the	Board	of	Governors	of	the	Federal Reserve	System,	unused	advised	lines	are	not	reportable.

(d) At	December	31,	2003,	credit	card	securitizations	included	$1.1	billion	of	accrued	interest	and	fees	on	securitized	credit	card	loans	that	were	classified	in	Other	assets,	consistent	with	the	FASB	Staff	Position, Accounting	for	Accrued	Interest	Receivable	Related	to	Securitized	and	Sold	Receivables	under	SFAS	140.	Prior	to	March	31,	2003,	this	balance	was	classified	in	credit	card	loans.

(e) Represents	securitized	credit	cards.	For	a	further	discussion	of	credit	card	securitizations,	see	page	41	of	this	Annual	Report.

(f) Credit	exposure	and	Economic	credit	exposure	to	consumer	lending–related	commitments	are	presented	on	the	same	basis;	in	the	Firm's	view,	this	is	a	conservative	measure	as	it	represents	the	Firm's	maximum exposure.

(g) Represents	hedges	of	commercial	credit	exposure	that	do	not	qualify	for	hedge	accounting	under	SFAS	133.

(h) On	an	Economic	credit	exposure	basis,	collateral	is	considered	"NA,"	as	it	is	already	accounted	for	in	Derivative	receivables.

(i) Includes	$5.8	billion	of	exposure	related	to	consolidated	VIEs	in	accordance	with	FIN	46,	of	which	$4.8	billion	is	associated	with	multi-seller	asset-backed	commercial	paper	conduits.

(j) Total	commitments	related	to	asset-backed	commercial	paper	conduits	consolidated	in	accordance	with	FIN	46	are	$9.8	billion,	of	which	$3.5	billion	is	included	in	Lending-related	commitments.	The	remaining $6.3	billion	of	commitments	to	these	VIEs	is	excluded,	as	the	underlying	assets	of	the	vehicles	are	reported	as	follows:	$4.8	billion	in	Loans	and	$1.5	billion	in	Available-for-sale	securities.

The	Firm's	allocated	credit	capital	(including	the	benefit	from	credit	derivative	hedges) decreased	significantly	during	2003,	to	$10.3	billion	at	December	31,	2003,	from $15.4	billion	at	year-end	2002.	The	$5.1	billion	decrease	was	related	to	lower	exposure in	the	commercial	portfolio,	hedging	and	loan	sale	activities,	and	significantly	improved credit	quality	in	the	loan	portfolio.

# Commercial	credit	portfolio

The	following	table	summarizes	the	maturity	and	ratings	profiles	of	the	commercial portfolio	as	of	December	31,	2003	and	2002.	The	ratings	scale	is	based	on	the	Firm's internal	risk	ratings,	and	is	presented	on	an	S&P–equivalent	basis.

At	December	31,	2003,	83%	of	the	total	commercial	credit	exposure	of	$383	billion	was considered	investment-grade,	an	improvement	from	80%	at	year-end	2002.	There	was improvement	across	all	components	of	credit	exposure,	most	significantly

in	loans,	as	commercial	criticized	exposure	declined	by	47%,	while	the	total	commercial loan	balance	declined	by	9%.

Under	the	Firm's	Economic	view	of	credit	exposure,	the	portion	of	the	portfolio	that	was deemed	investment-grade	improved	to	80%	as	of	December	31,	2003,	from	74%	at year-end	2002.	In	addition	to	the	improved	credit	quality	of	loans	and	lending-related commitments,	the	investment-grade	component	of	Derivative	receivables	improved	to 91%	at	year-end	2003	from	85%	at	the	end	of	2002.

# Commercial	exposure

|  |  | Maturity	profile | Maturity	profile | (a) |  | Ratings	profile | Ratings	profile | Ratings	profile | Ratings	profile | Ratings	profile | Ratings	profile | Ratings	profile | Ratings	profile |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total\t%\tof\tIG- |
|  |  |  |  |  |  | Investment-grade\t("IG") | Investment-grade\t("IG") | Investment-grade\t("IG") | Noninvestment-grade | Noninvestment-grade |  |  | Economic |
| As\tof\tDecember\t31,\t2003 |  |  |  |  |  | AAA | A+ | BBB+ | BB+ | CCC+ |  | Total\t% | credit |
| (in\tbillions,\texcept\tratios) |  | &lt;1\tyear | 1–5\tyears | &gt;\t5\tyears | Total | to\tAA- | to\tA- | to\tBBB- | to\tB- | &amp;\tbelow | Total | of\tIG | exposure |
| \t(b) |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Loans |  | 49% | 37% | 14% | 100% | $20 | $13 | $21 | $23 | $6 | $83 | 65% | 65% |
| Derivative\treceivables |  | 20 | 41 | 39 | 100 | 47 | 15 | 12 | 9 | 1 | 84 | 88 | 91 |
| Lending-related\tcommitments | \t(c)(d) | 52 | 45 | 3 | 100 | 80 | 57 | 52 | 25 | 2 | 216 | 88 | 88 |
| (e) |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total\texposure |  | 44% | 43% | 13% | 100 | $147 | $85 | $85 | $57 | $9 | $383 | 83% | 80% |
| Credit\tderivative\thedges\tnotional | \t(f) | 16% | 74% | 10% | 100% | $(10) | $(12) | $(12) | $(2) | $(1) | $(37) | 92% | 92% |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total\t%\tof\tIG- |
|  |  |  |  |  |  | Investment-grade\t("IG") | Investment-grade\t("IG") | Investment-grade\t("IG") | Noninvestment-grade | Noninvestment-grade |  |  | Economic |
| As\tof\tDecember\t31,\t2002 |  |  |  |  |  | AAA | A+ | BBB+ | BB+ | CCC+ |  | Total\t% | credit |
| (in\tbillions,\texcept\tratios) |  | &lt;1\tyear | 1–5\tyears | &gt;\t5\tyears | Total | to\tAA- | to\tA- | to\tBBB- | to\tB- | &amp;\tbelow | Total | of\tIG | exposure |
| Loans |  | 45% | 39% | 16% | 100% | $18 | $10 | $23 | $30 | $11 | $92 | 55% | 55% |
| Derivative\treceivables |  | 29 | 40 | 31 | 100 | 42 | 16 | 14 | 9 | 2 | 83 | 87 | 85 |
| Lending-related\tcommitments |  | 62 | 34 | 4 | 100 | 82 | 80 | 46 | 26 | 4 | 238 | 87 | 86 |
| Total\texposure |  | 52% | 36% | 12% | 100% | $142 | $106 | $83 | $65 | $17 | $413 | 80% | 74% |
| Credit\tderivative\thedges\tnotional | \t(f) | 39% | 55% | 6% | 100% | $(9) | $(10) | $(10) | $(4) | $(1) | $(34) | 85% | 85% |
| (a) |  |  |  |  |  |  |  |  |  |  |  |  |  |

(a) The	maturity	profile	of	loans	and	lending-related	commitments	is	based	upon	remaining	contractual	maturity.	The	maturity	profile	of	derivative	receivables	is	based	upon	the	maturity	profile	of	Average	exposure.	See page	59	of	this	Annual	Report	for	a	further	discussion.

(b) Includes	$5.8	billion	of	exposure	related	to	consolidated	VIEs	in	accordance	with	FIN	46,	of	which	$4.8	billion	is	associated	with	multi-seller	asset-backed	commercial	paper	conduits.	Excluding	the	impact	of	FIN	46,	the total	percentage	of	investment-grade	would	have	been	62%.

(c) Based	on	Economic	credit	exposure,	the	maturity	profile	for	the	<1	year,	1–5	years	and	>5	years	would	have	been	38%,	58%	and	4%,	respectively.	See	page	53	of	this	Annual	Report	for	a	further	discussion	of Economic	credit	exposure.

(d) Total	commitments	related	to	asset-backed	commercial	paper	conduits	consolidated	in	accordance	with	FIN	46	are	$9.8	billion,	of	which	$3.5	billion	is	included	in	Lending-related	commitments.	The	remaining $6.3	billion	of	commitments	to	these	VIEs	is	excluded,	as	the	underlying	assets	of	the	vehicles	are	reported	as	follows:	$4.8	billion	in	Loans	and	$1.5	billion	in	Available-for-sale	securities.

(e) Based	on	Economic	credit	exposure,	the	maturity	profile	for	<1	year,	1–5	years	and	>5	years	would	have	been	36%,	46%	and	18%,	respectively.	See	page	53	of	this	Annual	Report	for	a	further	discussion. (f) Ratings	are	based	on	the	underlying	referenced	assets.

# Commercial	exposure	–	selected	industry	concentrations

During	2003,	the	Firm	undertook	a	thorough	analysis	of	industry	risk	correlations.	As	a result,	the	Firm	developed	a	new	industry	structure,	intended	to	provide	stronger linkages	between	exposures	with	common	risk	attributes.	The	Firm	expects	these changes	to	enhance	its	ability	to	manage	industry	risks	consistently	across	regions	and lines	of	business.	The	implementation

of	the	new	industry	structure	resulted	in	shifts	in	credit	exposure,	with	increases	in some	industries	due	to	consolidation	and	decreases	in	others	as	a	result	of realignments.	In	managing	industry	risk,	the	Firm	recognizes	customers	that	have multiple	industry	affiliations	in	each	industry	category.	However,	the	following	table ranks	exposures	only	by	a	customer's	primary	industry	affiliation	to	prevent	double counting.

The	industry	distribution	of	the	Firm's	commercial	credit	exposure	(loans,	derivative	receivables	and	lending-related	commitments)	under	the	new	industry	structure,	as	of December	31,	2003	and	2002,	was	as	follows:

|  |  |  |  |  |  |  |  | Collateral |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Ratings\tprofile\tof\tcredit\texposure | Ratings\tprofile\tof\tcredit\texposure | Ratings\tprofile\tof\tcredit\texposure | Ratings\tprofile\tof\tcredit\texposure |  |  | held |
|  |  |  | Noninvestment-grade | Noninvestment-grade | Noninvestment-grade |  | Credit | against |
| As\tof\tDecember\t31,\t2003 | Credit | Investment- |  | Criticized | Criticized | Net | derivative | derivative |
|  | (a) |  |  |  | (b) | (c) | (d) |  |
| (in\tmillions,\texcept\tratios) | exposure | grade | Noncriticized | performing | nonperforming | charge-offs | hedges | receivables |
| Top\t10\tindustries |  |  |  |  |  |  |  |  |
| Commercial\tbanks | $47,063 | 96% | $1,786 | $8 | $20 | $9 | $(10,231) | $(24,740) |
| Asset\tmanagers | 21,794 | 82 | 3,899 | 76 | 13 | 14 | (245) | (1,133) |
| Securities\tfirms\tand\texchanges | 15,599 | 83 | 2,582 | 9 | 13 | 4 | (1,369) | (4,168) |
| Finance\tcompanies\tand\tlessors | 15,589 | 94 | 846 | 99 | 3 | 6 | (2,307) | (82) |
| Utilities | 15,296 | 82 | 1,714 | 415 | 583 | 129 | (1,960) | (176) |
| Real\testate | 14,544 | 70 | 4,058 | 232 | 49 | 29 | (718) | (182) |
| State\tand\tmunicipal\tgovernments | 14,354 | 100 | 36 | 14 | 1 | — | (405) | (12) |
| Media | 14,075 | 65 | 3,285 | 1,307 | 358 | 151 | (1,678) | (186) |
| Consumer\tproducts | 13,774 | 71 | 3,628 | 313 | 103 | 6 | (1,104) | (122) |
| Insurance | 12,756 | 95 | 550 | 83 | — | — | (2,149) | (854) |
| Other\tselected\tindustries |  |  |  |  |  |  |  |  |
| Telecom\tservices | 10,924 | 75 | 2,204 | 340 | 227 | 127 | (2,941) | (402) |
| Automotive | 7,268 | 76 | 1,536 | 150 | 82 | 14 | (2,313) | — |
| All\tother | 179,678 | 80 | 31,658 | 3,441 | 918 | 327 | (9,862) | (4,157) |
| Total | $382,714 | 83% | $57,782 | $6,487 | $2,370 | $816 | $(37,282) | $(36,214) |

|  |  |  |  |  |  |  |  |  | Collateral |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Ratings\tprofile\tof\tcredit\texposure | Ratings\tprofile\tof\tcredit\texposure | Ratings\tprofile\tof\tcredit\texposure | Ratings\tprofile\tof\tcredit\texposure |  |  | held |
|  |  |  |  | Noninvestment-grade | Noninvestment-grade | Noninvestment-grade |  | Credit | against |
| As\tof\tDecember\t31,\t2002 | As\tof\tDecember\t31,\t2002 | Credit | Investment- |  | Criticized | Criticized | Net | derivative | derivative |
|  |  | \t(a) |  |  |  | (b) | (c) | (d) |  |
| (in\tmillions,\texcept\tratios) | (in\tmillions,\texcept\tratios) | exposure | grade | Noncriticized | performing | nonperforming | charge-offs | hedges | receivables |
| Top\t10\tindustries | (e) |  |  |  |  |  |  |  |  |
| Commercial\tbanks | Commercial\tbanks | $42,247 | 95% | $2,188 | $2 | $44 | $43 | $(8,370) | $(18,212) |
| Asset\tmanagers |  | 24,867 | 78 | 5,328 | 172 | 52 | 11 | (276) | (1,153) |
| Securities\tfirms\tand\texchanges | Securities\tfirms\tand\texchanges | 17,512 | 90 | 1,667 | 16 | — | 3 | (551) | (3,680) |
| Finance\tcompanies\tand\tlessors | Finance\tcompanies\tand\tlessors | 18,977 | 93 | 1,220 | 99 | 15 | 1 | (2,322) | (133) |
| Utilities |  | 17,717 | 72 | 2,096 | 2,146 | 746 | 170 | (2,708) | (33) |
| Real\testate |  | 11,614 | 63 | 3,611 | 633 | 71 | 87 | (692) | (115) |
| State\tand\tmunicipal\tgovernments | State\tand\tmunicipal\tgovernments | 11,973 | 99 | 106 | — | — | — | (1,273) | (8) |
| Media |  | 17,566 | 58 | 4,680 | 1,918 | 701 | 161 | (1,178) | (611) |
| Consumer\tproducts | Consumer\tproducts | 12,376 | 72 | 3,157 | 223 | 70 | 29 | (1,179) | (85) |
| Insurance |  | 14,800 | 92 | 768 | 220 | 258 | 18 | (2,478) | (778) |
| Other\tselected\tindustries |  |  |  |  |  |  |  |  |  |
| Telecom\tservices | Telecom\tservices | 15,604 | 59 | 5,077 | 687 | 706 | 759 | (436) | — |
| Automotive |  | 8,192 | 71 | 2,055 | 298 | 22 | (2) | (1,148) | — |
| All\tother |  | 199,433 | 80 | 33,028 | 6,095 | 1,384 | 813 | (11,156) | (5,602) |
| Total |  | $412,878 | 80% | $64,981 | $12,509 | $4,069 | $2,093 | $(33,767) | $(30,410) |
| (a) |  |  |  |  |  |  |  |  |  |

(a) Credit	exposure	is	net	of	risk	participations,	and	excludes	the	benefit	of	credit	derivative	hedges	and	collateral	held	against	derivative	receivables	or	loans.

(b) Nonperforming	assets	exclude	nonaccrual	loans	held	for	sale	("HFS")	of	$52	million	and	$18	million	at	December	31,	2003	and	2002,	respectively.	HFS	loans	are	carried	at	the	lower	of	cost	or	market,	and	declines	in value	are	recorded	in	Other	revenue.

(c) Represents	net	charge-offs	on	loans	and	lending-related	commitments.	Amounts	in	parentheses	represent	net	recoveries.

(d) Represents	notional	amounts	only;	these	hedges	do	not	qualify	for	hedge	accounting	under	SFAS	133.

(e) Based	on	the	2003	determination	of	Top	10	industries.

# Selected	industry	discussion

Presented	below	is	a	discussion	of	several	industries	to	which	the	Firm	has	significant exposure	and	which	it	continues	to	monitor	because	of	actual	or	potential	credit concerns.

•	 Commercial	banks:	The	industry	represents	the	largest	segment	of	the	Firm's commercial	credit	exposure,	and	96%	of	the	credit	exposure	is	rated	investment- grade.	Collateral	held	against	$33.3	billion	in	derivative	receivables	is	valued	at $24.7	billion.

•	 Utilities:	The	Firm	significantly	reduced	its	credit	exposure	to	this	segment	over	the last	twelve	months,	from	$17.7	billion	to	$15.3	billion,	a	14%	decline.	This	reduction was	achieved	by	significant	refinancing	activity	in	nonbank	capital	markets, restructurings	in	the	industry	and	a	decline	in	client	demand	for	lending	activity. Criticized	credit	exposures,	primarily	related	to	U.S.	customers,	were	reduced	by 65%,	to	$998	million.	Utilities	became	a	top-10	industry	as	a	result	of	the	new industry	structure,	which	consolidated	several	related	sectors.

•	 Media:	Total	credit	exposure	declined	by	20%	to	$14.1	billion.	The	quality	of	the portfolio	was	enhanced	by	a	reduction	in	criticized	exposures,	primarily	in	the European	cable	sector,	which	increased	the	proportion	of	investment-grade exposures	from	58%	to	65%	of	the	portfolio.	Overall,	criticized	exposures	were reduced	by	36%,	to	$1.7	billion.	Media	became	a	top-10	industry	as	a	result	of	the new	industry	structure,	which	consolidated	several	related	sectors.

•	 Telecom	services:	In	2003,	the	telecommunications	industry	worldwide	improved its	financial	picture	significantly	after	severe	capital	and	liquidity	constraints	in	2002. Overall,	credit	exposures	declined	by	30%	to	$10.9	billion	during	the	year;	75%	of the	credit	exposure	is	considered	investment-grade	compared	with	59%	in	2002. Criticized	exposures	were	reduced	by	59%	during	the	year,	the	result	of	capital markets	refinancings,	other	restructurings	and	acquisitions	of	weaker	market participants	by	stronger	companies.

•	 Automotive:	In	2003,	automotive	companies	accessed	nonbank	capital	markets, reducing	the	Firm's	credit	exposure	by	$924	million.	While	total	credit	exposure	to this	industry	is	significant,	more	than	half	of	the	exposure	is	undrawn.	At December	31,	2003,	76%	of	this	portfolio	was	rated	investment-grade,	an	increase from	2002.

•	 All	other:	All	other	at	December	31,	2003	included	$180	billion	of	credit	exposure to	21	industry	segments.	Exposures	related	to	special-purpose	entities	and	high	net worth	individuals	totaled	38%	of	this	category.	Special-purpose	entities	provide secured	financing	(generally	backed	by	receivables,	loans	or	bonds)	originated	by companies	in	a	diverse	group	of	industries	which	are	not	highly	correlated.	The remaining	All	other	exposure	is	well	diversified	across	other	industries,	none	of which	comprise	more	than	3%	of	total	exposure.

# Commercial	criticized	exposure

Exposures	deemed	criticized	generally	represent	a	ratings	profile	similar	to	a	rating	of CCC+/Caa1	and	lower,	as	defined	by	Standard	&	Poor's/Moody's.	As	of	year-end 2003,	the	total	$8.9	billion	in	criticized	exposure	represented	2%	of	total	commercial credit	exposure	and	was	down	$7.7	billion,	or	47%,	from	December	31,	2002.	The significant	decrease	was	due	to	improved	economic	conditions,	restructurings	and capital	markets	refinancings	during	the	year,	in	particular	in	the	Telecom	services, Media	and	Utilities	industries.

Commercial	criticized	exposure	trends(a)	(in	billions)	Chemicals/plastics	Telecom	services												All	other	Metals/mining												Media	Technology												Utilities

The	top	five	industries	shown	above	total	50%	of	the	total	commercial	criticized exposure	at	December	31,	2003.	No	industry	below	the	top	five	is	larger	than	5%	of	the total.

# Enron-related	exposure

The	Firm's	exposure	to	Enron	and	Enron-related	entities	was	reduced	by	11%	during the	year,	from	$688	million	at	December	31,	2002,	to	$609	million	at	December	31, 2003.	The	reduction	was	primarily	due	to	the	maturation	of	$50	million	of	debtor-in- possession	financing	and	repayments	on	secured	exposures.	At	December	31,	2003, secured	exposure	of	$270	million	is	performing	and	is	reported	on	an	amortized	cost basis.

# Country	exposure

The	Firm	has	a	comprehensive	process	for	measuring	and	managing	its	country exposures	and	risk.	Exposures	to	a	country	include	all	credit-related	lending,	trading and	investment	activities,	whether	cross-border	or	locally	funded.	In	addition	to monitoring	country	exposures,	the	Firm	uses	stress	tests	to	measure	and	manage	the risk	of	extreme	loss	associated	with	sovereign	crises.

The	table	below	presents	the	Firm's	exposure	to	selected	countries.	The	selection	of countries	is	based	on	the	materiality	of	the	Firm's	exposure	and	its	view	of	actual	or potentially	adverse	credit	conditions.	Exposure	amounts	are	adjusted	for	credit enhancements	(e.g.,	guarantees	and	letters	of	credit)	provided	by	third	parties	located outside	the	country	if	the	enhancements	fully	cover	the	country	risk,	as	well	as	the commercial	risk.	In

addition,	the	benefit	of	collateral,	credit	derivative	hedges	and	other	short	credit	or equity	trading	positions	are	reflected.	Total	exposure	includes	exposure	to	both government	and	private-sector	entities	in	a	country.

The	slight	decrease	in	exposure	to	Brazil	over	the	prior	year-end	was	due	to	reductions in	loans.	The	decline	in	Mexican	exposure	when	compared	with	the	prior	year	was primarily	due	to	loan	maturities	and	reductions	in	counterparty	exposure	on	derivatives. The	reduction	in	South	Korea	was	due	to	a	combination	of	loan	maturities	and	trading activities.	Hong	Kong's	exposure	declined	due	to	lower	counterparty	exposure	on derivatives.	The	increase	in	Russian	exposure	was	due	to	cross-border	and	local trading	positions	and	short-term	lending.

# Selected	country	exposure

|  |  |  |  |  |  |  | At	December	31, |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | At\tDecember\t31,\t2003 | At\tDecember\t31,\t2003 | At\tDecember\t31,\t2003 | At\tDecember\t31,\t2003 | At\tDecember\t31,\t2003 | At\tDecember\t31,\t2003 | 2002 |
|  | Cross-border | Cross-border | Cross-border |  |  | Total | total |
|  | (a) | (b) | (c) |  | (d) |  |  |
| (in\tbillions) | Lending | Trading | Other | Total | Local | exposure | exposure |
| Brazil | $0.2 | $0.4 | $0.6 | $1.2 | $0.8 | $2.0 | $2.1 |
| Mexico | 0.6 | 0.5 | 0.2 | 1.3 | 0.2 | 1.5 | 2.2 |
| South\tKorea | 0.6 | 0.4 | 0.3 | 1.3 | 0.9 | 2.2 | 2.7 |
| Hong\tKong | 0.7 | 0.1 | 0.9 | 1.7 | — | 1.7 | 2.2 |
| Russia | 0.1 | 0.5 | — | 0.6 | 0.1 | 0.7 | 0.5 |
| (a) |  |  |  |  |  |  |  |

(a) Lending	includes	loans	and	accrued	interest	receivable,	interest-bearing	deposits	with	banks,	acceptances,	other	monetary	assets,	issued	letters	of	credit	and	undrawn	commitments	to	extend	credit.

(b) Trading	includes	(1)	issuer	exposure	on	cross-border	debt	and	equity	instruments,	held	in	both	trading	and	investment	accounts,	adjusted	for	the	impact	of	issuer	hedges,	including	credit	derivatives;	and (2)	counterparty	exposure	on	derivative	and	foreign	exchange	contracts	as	well	as	security	financing	trades	(resale	agreements	and	securities	borrowed).

(c) Other	represents	mainly	local	exposure	funded	cross-border.

(d) Local	exposure	is	defined	as	exposure	to	a	country	denominated	in	local	currency,	booked	and	funded	locally.

# Derivative	contracts

In	the	normal	course	of	business,	the	Firm	utilizes	derivative	instruments	to	meet	the needs	of	customers,	to	generate	revenues	through	trading	activities,	to	manage exposure	to	fluctuations	in	interest	rates,	currencies	and	other	markets	and	to	manage its	own	credit	risk.	The	Firm	uses	the	same	credit	risk	management	procedures	to assess	and	approve	potential	credit

exposures	when	entering	into	derivative	transactions	as	those	used	for	traditional lending.

The	following	table	summarizes	the	aggregate	notional	amounts	and	the	reported derivative	receivables	(i.e.,	the	MTM	or	fair	value	of	derivative	contracts	after	taking	into account	the	effects	of	legally	enforceable	master	netting	agreements)	at	each	of	the dates	indicated:

# Notional	amounts	and	derivative	receivables	MTM

|  | Notional	amounts | (a) | Derivative	receivables	MTM | Derivative	receivables	MTM |
| :--- | :--- | :--- | :--- | :--- |
| As\tof\tDecember\t31,\t(in\tbillions) | 2003 | 2002 | 2003 | 2002 |
| Interest\trate\tcontracts | $31,252 | $23,591 | $60 | $55 |
| Foreign\texchange\tcontracts | 1,582 | 1,505 | 10 | 7 |
| Equity | 328 | 307 | 9 | 13 |
| Credit\tderivatives | 578 | 366 | 3 | 6 |
| Commodity | 24 | 36 | 2 | 2 |
| Total\tnotional\tand\tcredit\texposure | 33,764 | 25,805 | 84 | 83 |
| Collateral\theld\tagainst\tderivative\treceivables | NA | NA | (36) | (30) |
| Exposure\tnet\tof\tcollateral | $33,764 | $25,805 | $48 | $53 |
| (a) |  |  |  |  |

(a) The	notional	amounts	represent	the	gross	sum	of	long	and	short	third-party	notional	derivative	contracts,	excluding	written	options	and	foreign	exchange	spot	contracts.

The	$34	trillion	of	notional	principal	of	the	Firm's	derivative	contracts	outstanding	at December	31,	2003,	significantly	exceeds	the	possible	credit	losses	that	could	arise from	such	transactions.	For	most	derivative	transactions,	the	notional	principal	amount does	not	change	hands;	it	is	simply	used	as	a	reference	to	calculate	payments.	In terms	of	current	credit	risk	exposure,	the	appropriate	measure	of	risk	is	the	MTM	value of	the	contract.	The	MTM	exposure	represents	the	cost	to	replace	the	contracts	at current	market	rates	should	the	counterparty	default.	When	JPMorgan	Chase	has	more than	one	transaction	outstanding	with	a	counterparty,	and	a	legally	enforceable	master netting	agreement	exists	with	the	counterparty,	the	MTM	exposure,	less	collateral	held, represents,	in	the	Firm's	view,	the	appropriate	measure	of	current	credit	risk	with	that counterparty	as	of	the	reporting	date.	At	December	31,	2003,	the	MTM	value	of derivative	receivables	(after	taking	into	account	the	effects	of	legally	enforceable master	netting	agreements)	was	$84	billion.	Further,	after	taking	into	account $36	billion	of	collateral	held	by	the	Firm,	the	net	current	MTM	credit	exposure	was $48	billion.

While	useful	as	a	current	view	of	credit	exposure,	the	net	MTM	value	of	the	derivative receivables	does	not	capture	the	potential	future	variability	of	that	credit	exposure.	To capture	the	potential	future	variability	of	credit	exposure,	the	Firm	calculates,	on	a client-by-client	basis,	three	measures	of	potential	derivatives-related	credit	loss:	Peak,

Derivative	Risk	Equivalent	("DRE")	and	Average	exposure	("AVG").	This	last measure	is	used	as	the	basis	for	the	Firm's	Economic	credit	exposure	as	defined	on page	53	of	this	Annual	Report.	These	measures	all	incorporate	netting	and	collateral benefits	where	applicable.

Peak	exposure	to	a	counterparty	is	an	extreme	measure	of	exposure	calculated	at	a 97.5%	confidence	level.	However,	the	total	potential	future	credit	risk	embedded	in	the Firm's	derivatives	portfolio	is	not	the	simple	sum	of	all	Peak	client	credit	risks.	This	is because,	at	the	portfolio	level,	credit	risk	is	reduced	by	the	fact	that	when	offsetting transactions	are	done	with	separate	counterparties,	only	one	of	the	two	trades	can generate	a	credit	loss	even	if	both	counterparties	were	to	default	simultaneously.	The Firm	refers	to	this	effect	as	market	diversification,	and	the	Market-Diversified	Peak ("MDP")	measure	is	a	portfolio	aggregation	of	counterparty	Peak	measures, representing	the	maximum	losses	at	the	97.5%	confidence	level	that	would	occur	if	all counterparties	defaulted	under	any	one	given	market	scenario	and	timeframe.

Derivative	Risk	Equivalent	exposure	is	a	measure	that	expresses	the	riskiness	of derivative	exposure	on	a	basis	intended	to	be	equivalent	to	the	riskiness	of	loan exposures.	This	is	done	by	equating	the	unexpected	loss	in	a	derivative	counterparty exposure	(which	takes	into	consideration	both	the	loss	volatility	and	the	credit	rating	of the	counterparty)	with	the	unexpected	loss	in	a	loan	exposure	(which	takes	into consideration	only	the	credit	rating	of	the	counterparty).	DRE	is	a	less	extreme measure	of	the	potential	credit	loss	than	Peak,	and	is	the	primary	measure	used	by	the Firm	for	credit	approval	of	derivative	transactions.

Finally,	as	described	on	page	53	of	this	Annual	Report,	Average	exposure	is	a	measure of	the	expected	MTM	value	of	the	Firm's	derivative	receivables	at	future	time	periods. The	three-year	average	of	the	AVG	is	the	basis	of	the	Firm's	Economic	credit	exposure, while	AVG	exposure	over	the	total	life	of	the	derivative	contract	is	used	as	the	primary metric	for	pricing	purposes	and	is	used	to	calculate	credit	capital	and	the	Credit Valuation	Adjustment	("CVA").

The	chart	below	shows	the	exposure	profiles	to	derivatives	over	the	next	10	years	as calculated	by	the	MDP,	DRE	and	AVG	metrics.	All	three	measures	generally	show declining	exposure	after	the	first	year,	if	no	new	trades	were	added	to	the	portfolio.

The	MTM	value	of	the	Firm's	derivative	receivables	incorporates	an	adjustment	to reflect	the	credit	quality	of	counterparties.	This	is	called	CVA	and	was	$635	million	as of	December	31,	2003,	compared	with	$1.3	billion	at	December	31,	2002.	The	CVA	is based	on	the	Firm's	AVG	to	a	counterparty,	and	on	the	counterparty's	credit	spread	in the	credit	derivatives	market.	The	primary	components	of	changes	in	CVA	are	credit spreads,	new	deal	activity	or	unwinds,	and	changes	in	the	underlying	market environment.	The	CVA	decrease	in	2003	was	primarily	due	to	the	dramatic	reduction	in credit	spreads	during	the	year.	For	a	discussion	of	the	impact	of	CVA	on	Trading revenue,	see	portfolio	management	activity	on	pages	60-61	of	this	Annual	Report.

The	Firm	believes	that	active	risk	management	is	essential	to	controlling	the	dynamic credit	risk	in	the	derivatives	portfolio.	The	Firm	hedges	its	exposure	to	changes	in	CVA by	entering	into	credit	derivative	transactions,	as	well	as	interest	rate,	foreign exchange,	equity	and	commodity	derivatives	transactions.

The	table	below	summarizes	the	ratings	profile,	as	of	December	31,	2003,	of	the	Firm's balance	sheet	derivative	receivables	MTM,	net	of	cash	and	other	highly	liquid	collateral:

# Ratings	profile	of	derivative	receivables	MTM

# Use	of	credit	derivatives

The	following	table	presents	the	notional	amounts	of	credit	derivatives	protection bought	and	sold	at	December	31,	2003	and	2002:

# Credit	derivative	positions

| Rating	equivalent | Exposure	net | Exposure	net | %	of	exposure |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | of\tcollateral | (a) | net\tof\tcollateral |
| AAA\tto\tAA- | $24,697 | $24,697 | 52% |
| A+\tto\tA- | 7,677 | 7,677 | 16 |
| BBB+\tto\tBBB- | 7,564 | 7,564 | 16 |
| BB+\tto\tB- | 6,777 | 6,777 | 14 |
| CCC+\tand\tbelow |  | 822 | 2 |
| Total | $47,537 | $47,537 | 100% |
| (a) | Total\tderivative\treceivables\texposure\tand\tcollateral\theld\tby\tthe\tFirm\tagainst\tthis\texposure\twere | Total\tderivative\treceivables\texposure\tand\tcollateral\theld\tby\tthe\tFirm\tagainst\tthis\texposure\twere |  |

(a) Total	derivative	receivables	exposure	and	collateral	held	by	the	Firm	against	this	exposure	were $84	billion	and	$36	billion,	respectively.	The	$36	billion	excludes	$8	billion	of	collateral	delivered	by clients	at	the	initiation	of	transactions;	this	collateral	secures	exposure	that	could	arise	in	the	existing portfolio	of	derivatives	should	the	MTM	of	the	clients'	transactions	move	in	the	Firm's	favor.	The $36	billion	also	excludes	credit	enhancements	in	the	form	of	letters	of	credit	and	surety	receivables.

The	Firm	actively	pursues	the	use	of	collateral	agreements	to	mitigate	counterparty credit	risk	in	derivatives.	The	percentage	of	the	Firm's	derivatives	transactions	subject to	collateral	agreements	increased	to	78%	on	December	31,	2003,	from	67%	on December	31,	2002.	The	increase	of	collateralized	transactions	was	driven	largely	by new	collateral	agreements.	The	Firm	held	$36	billion	of	collateral	as	of	December	31, 2003,	compared	with	$30	billion	as	of	December	31,	2002.	The	Firm	posted	$27	billion of	collateral	at	year-end	2003,	compared	with	$19	billion	at	the	end	of	2002.

Certain	derivative	and	collateral	agreements	include	provisions	that	require	both	the Firm	and	the	counterparty,	upon	specified	downgrades	in	their	respective	credit	ratings, to	post	collateral	for	the	benefit	of	the	other	party.	The	impact	on	required	collateral	of	a single-notch	ratings	downgrade	to	JPMorgan	Chase	Bank,	from	its	current	rating	of	AA- to	A+,	would	have	been	an	additional	$1.3	billion	of	collateral	as	of	December	31,	2003. The	impact	of	a	six-notch	ratings	downgrade	to	JPMorgan	Chase	Bank	(from	AA-	to BBB-)	would	have	been	$3.7	billion	of	additional	collateral	from	levels	as	of December	31,	2003.	The	amount	of	additional	collateral	required	upon	downgrade moves	in	tandem	with	the	mark-to-market	value	of	the	derivatives	portfolio	and	ranged (with	respect	to	a	six-notch	downgrade)	from	$3.4	billion	to	$4.2	billion	throughout 2003,	as	the	level	of	U.S.	interest	rates	changed.	Certain	derivatives	contracts	also provide	for	termination	of	the	contract,	generally	upon	JPMorgan	Chase	Bank	being downgraded,	at	the	then-existing	MTM	value	of	the	derivative	receivables.

|  | Portfolio	management | Portfolio	management | Dealer/Client | Dealer/Client |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Notional\tamount | Notional\tamount | Notional\tamount | Notional\tamount |  |
| December\t31, | Protection | Protection | Protection | Protection |  |
|  | \t(a) |  |  |  |  |
| (in\tmillions) | bought | sold | bought | sold | Total |
| 2003 | $37,349 | $67 | $ 264,389 | $ 275,888 | $577,693 |
| 2002 | $34,262 | $495 | $ 158,794 | $ 172,494 | $366,045 |
| (a) |  |  |  |  |  |

(a) Includes	$2.2	billion	and	$10.1	billion	at	2003	and	2002,	respectively,	of	portfolio	credit	derivatives.

JPMorgan	Chase	has	limited	counterparty	exposure	as	a	result	of	credit	derivatives transactions.	Of	the	$84	billion	of	total	derivative	receivables	at	December	31,	2003, approximately	$3	billion,	or	4%,	was	associated	with	credit	derivatives,	before	the benefit	of	collateral.	The	use	of	credit	derivatives	to	manage	exposures	does	not reduce	the	reported	level	of	assets	on	the	balance	sheet	or	the	level	of	reported	off– balance	sheet	commitments.

# Portfolio	management	activity

In	managing	its	commercial	credit	exposure,	the	Firm	purchases	single-name	and portfolio	credit	derivatives	to	hedge	its	exposures.	As	of	December	31,	2003,	the notional	outstanding	amount	of	protection	purchased	via	single-name	and	portfolio credit	derivatives	was	$35	billion	and	$2	billion,	respectively.	The	Firm	also	diversifies its	exposures	by	providing	(i.e.,	selling)	small	amounts	of	credit	protection,	which increases	exposure	to	industries	or	clients	where	the	Firm	has	little	or	no	client-related exposure.	This	activity	is	not	material	to	the	Firm's	overall	credit	exposure;	credit protection	sold	totaled	$67	million	in	notional	exposure	at	December	31,	2003.

# Use	of	single-name	and	portfolio	credit	derivatives

|  | Notional	amount	of	protection	bought | Notional	amount	of	protection	bought |
| :--- | :--- | :--- |
| December\t31,\t(in\tmillions) | 2003 | 2002 |
| Credit\tderivative\thedges\tof: |  |  |
| Loans\tand\tlending-related\tcommitments | $22,471 | $25,222 |
| Derivative\treceivables | 14,878 | 9,040 |
| Total | $37,349 | $34,262 |

The	credit	derivatives	used	by	JPMorgan	Chase	for	its	portfolio	management	activities do	not	qualify	for	hedge	accounting	under	SFAS	133.	These	derivatives	are	marked	to market	in	Trading	revenue.	The	MTM	value	incorporates	both	the	cost	of	hedge premiums	and	changes	in	value	due	to	movement	in	spreads	and	credit	events, whereas	the	loans	and	lending-related	commitments	being	hedged	are	accounted	for on	an	accrual	basis	in	Net	interest	income	and	assessed	for	impairment	in	the	Provision for	credit

losses.	This	asymmetry	in	accounting	treatment	between	loans	and	lending-related commitments	and	the	credit	derivatives	utilized	in	the	portfolio	management	activities causes	earnings	volatility	that	is	not	representative	of	the	true	changes	in	value	of	the Firm's	overall	credit	exposure.	The	MTM	treatment	of	both	the	Firm's	credit	derivative hedges	("short"	credit	positions)	and	the	CVA,	which	reflects	the	credit	quality	of derivatives	counterparty	exposure	("long"	credit	positions),	provides	some	natural offset.	Additionally,	the	Firm	actively	manages	its	commercial	credit	exposure	through loan	sales.	During	2003,	the	Firm	sold	$5.2	billion	of	loans	and	commitments,	of	which $1.3	billion	was	criticized.

The	2003	portfolio	management	activity	resulted	in	$191	million	of	losses	included	in Trading	revenue.	These	losses	included	$746	million	related	to	credit	derivatives	that were	used	to	hedge	the	Firm's	credit	exposure,	of	which	approximately	$504	million was	associated	with	credit	derivatives	used	to	hedge	accrual	lending	activities	and	the remainder	primarily	hedged	the	credit	risk	of	MTM	derivative	receivables.	The	losses were	generally	driven	by	an	overall	global	tightening	of	credit	spreads.	The	$746	million loss	was	largely	offset	by	$555	million	of	trading	revenue	gains	primarily	related	to	the decrease	in	the	MTM	value	of	the	CVA	due	to	credit	spread	tightening.	During	2003, the	quarterly	portfolio	management	Trading	revenue	results	ranged	from	a	net	loss	of $12	million	in	the	third	quarter	to	a	net	loss	of	$119	million	in	the	second	quarter.

# Dealer/client	activity

JPMorgan	Chase's	dealer	activity	in	credit	derivatives	is	client-driven.	The	business acts	as	a	market-maker	in	single-name	credit	derivatives	and	also	structures	more complex	transactions	for	clients'	investment	or	risk	management	purposes.	The	credit derivatives	trading	function	operates	within	the	same	framework	as	other	market- making	desks.	Risk	limits	are	established	and	closely	monitored.

As	of	December	31,	2003,	the	total	notional	amounts	of	protection	purchased	and	sold by	the	dealer	business	were	$264	billion	and	$276	billion,	respectively.	The	mismatch between	these	notional	amounts	is	attributable	to	the	Firm	selling	protection	on	large, diversified,	predominantly	investment-grade	portfolios	(including	the	most	senior tranches)	and	then	hedging	these	positions	by	buying	protection	on	the	more subordinated	tranches	of	the	same	portfolios.	In	addition,	the	Firm	may	use	securities to	hedge	certain	derivative	positions.	Consequently,	while	there	is	a	mismatch	in notional	amounts	of	credit	derivatives,	the	Firm	believes	the	risk	positions	are	largely matched.

# Consumer	credit	portfolio

The	Firm's	managed	consumer	loan	portfolio	totaled	$171.3	billion	at	December	31, 2003,	an	increase	of	10%	from	2002.	Consumer	lending–related	commitments increased	by	17%	to	$176.9	billion	at	December	31,	2003.	The	following	table	presents a	summary	of	consumer	credit	exposure	on	a	managed	basis:

# Consumer	portfolio

| As	of	December	31,	(in	millions) | 2003 | 2002 |
| :--- | :--- | :--- |
| U.S.\tconsumer: |  |  |
| 1–4\tfamily\tresidential |  |  |
| mortgages\t—\tfirst\tliens | $54,460 | $49,357 |
| Home\tequity | 19,252 | 14,643 |
| 1–4\tfamily\tresidential\tmortgages | 73,712 | 64,000 |
| (a) |  |  |
| Credit\tcard\t–\treported | 16,793 | 19,677 |
| (a)(b) |  |  |
| Credit\tcard\tsecuritizations | 34,856 | 30,722 |
| Credit\tcard\t–\tmanaged | 51,649 | 50,399 |
| Automobile\tfinancings | 38,695 | 33,615 |
| (c) |  |  |
| Other\tconsumer | 7,221 | 7,524 |
| Total\tmanaged\tconsumer\tloans | $171,277 | $155,538 |
| Lending-related\tcommitments: |  |  |
| 1–4\tfamily\tresidential\tmortgages | 28,846 | 20,016 |
| Credit\tcards | \t 141,143 | \t 123,461 |
| Automobile\tfinancings | 2,603 | 1,795 |
| Other\tconsumer | 4,331 | 5,866 |
| Total\tlending-related\tcommitments | $176,923 | $151,138 |
| Total\tconsumer\tcredit\texposure | $348,200 | $306,676 |

(a) At	December	31,	2003,	credit	card	securitizations	included	$1.1	billion	of	accrued	interest	and	fees	on securitized	credit	card	loans	that	were	classified	in	Other	assets,	consistent	with	FASB	Staff	Position, Accounting	for	Accrued	Interest	Receivable	Related	to	Securitized	and	Sold	Receivables	under	SFAS 140.	Prior	to	March	31,	2003,	this	balance	was	classified	in	credit	card	loans. (b)	 Represents	the	portion	of	JPMorgan	Chase's	credit	card	receivables	that	have	been	securitized. (c)	 Consists	of	installment	loans	(direct	and	indirect	types	of	consumer	finance),	student	loans,	unsecured revolving	lines	of	credit	and	non-U.S.	consumer	loans.

JPMorgan	Chase's	consumer	portfolio	consists	primarily	of	1–4	family	residential mortgages,	credit	cards	and	automobile	financings.	The	consumer	portfolio	is predominantly	U.S.-based.	The	following	pie	graph	provides	a	summary	of	the consumer	portfolio	by	loan	type	at	year-end	2003	and	each	loan	type's	net	charge-off rate.

The	Firm's	largest	component,	1–4	family	residential	mortgage	loans	is	primarily secured	by	first	mortgages,	and	at	December	31,	2003	comprised	43%	of	the	total consumer	portfolio.	The	risk	of	these	loans	is	the	probability	the	consumer	will	default and	that	the	value	of	the	home	will	be	insufficient	to	cover	the	mortgage	plus	carrying costs.	Mortgage	loans	for	1–4	family	residences	at	December	31,	2003,	increased	by 10%	compared	with	last	year	to	$54.5	billion.	Home	equity	loans	and	home	equity	lines of	credit	totaled	$19.3	billion	at	December	31,	2003,	an	increase

of	$4.6	billion,	or	31%,	from	2002.	These	loans	and	lines	are	secured	by	first	and second	mortgages.	The	risks	are	similar	to	those	of	first	mortgages;	however,	loss severity	can	increase	when	the	Firm	is	in	a	second-lien	position.	As	of	December	31, 2003,	88%	of	home	equity	loans	and	lines	of	credit	were	secured	by	second	liens. Borrowers	with	home	equity	lines	of	credit	are	approved	for	a	line	of	credit	for	up	to 10	years.	The	Firm	has	a	future	funding	liability	in	situations	where	the	borrower	does not	make	use	of	the	line	of	credit	immediately	but	has	the	right	to	draw	down	the commitment	at	any	time.	As	of	December	31,	2003,	outstandings	under	home	equity lines	were	$16.6	billion	and	unused	commitments	were	$23.4	billion	(included	in	the $28.8	billion	of	1–4	family	residential	mortgage	lending-related	commitments).	The business	actively	manages	the	unused	portion	of	these	commitments	and	freezes	a commitment	when	the	borrower	becomes	delinquent.	These	accounts	are	then	subject to	proactive	default	management,	with	the	objective	of	minimizing	potential	losses.

The	Firm	analyzes	its	credit	card	portfolio	on	a	managed	basis,	which	includes	credit card	receivables	on	the	Consolidated	balance	sheet	and	those	that	have	been securitized.	Credit	card	customers	are	initially	approved	for	a	specific	revolving	credit line.	For	open	accounts	(those	in	good	standing	and	able	to	transact),	the	difference between	the	approved	line	and	the	balance	outstanding	in	the	customer's	account	is referred	to	as	"open-to-buy."	The	Firm	is	exposed	to	changes	in	the	customer's	credit standing	and	therefore	must	calculate	the	aggregate	size	of	this	unused	exposure	and manage	the	potential	credit	risk.	The	size	of	the	credit	line	and	resulting	open-to-buy balance	is	adjusted	by	the	Firm	based	on	the	borrower's	payment	and	general	credit performance.	Managed	credit	card	receivables	increased	by	$1.3	billion,	or	2%,	during 2003.	The	managed	net	charge-off	rate	of	5.87%	was	unchanged	from	2002.

The	following	chart	presents	the	geographical	concentration	of	the	U.S.	consumer	loans	by	region	for	the	years	ended	December	31,	2003	and	2002.

The	following	table	presents	the	geographical	concentration	of	consumer	loans	by	product	for	the	years	ended	December	31,	2003	and	2002.

# Consumer	loans	by	geographic	region

|  | 1–4	family	residential<br>mortgages | 1–4	family	residential<br>mortgages | Managed	credit<br>card	loans | Managed	credit<br>card	loans | Automobile<br>financings |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| As\tof\tDecember\t31,\t(in\tmillions) | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 |
| New\tYork\tCity | $14,624 | $12,026 | $3,058 | $3,007 | $2,904 | $2,801 |
| New\tYork\t(excluding\tNew\tYork\tCity) | 1,863 | 2,452 | 3,045 | 3,002 | 1,013 | 936 |
| Remaining\tNortheast | 11,474 | 10,053 | 8,971 | 8,817 | 8,308 | 7,206 |
| Total\tNortheast | 27,961 | 24,531 | 15,074 | 14,826 | 12,225 | 10,943 |
| Southeast | 10,343 | 9,531 | 9,922 | 9,589 | 5,827 | 5,467 |
| Midwest | 5,349 | 4,834 | 9,976 | 9,654 | 7,862 | 5,839 |
| Texas | 3,776 | 3,978 | 4,535 | 4,336 | 3,780 | 3,877 |
| Southwest\t(excluding\tTexas) | 1,551 | 1,661 | 2,482 | 2,399 | 1,384 | 1,181 |
| California | 19,786 | 14,501 | 6,177 | 6,229 | 5,486 | 4,748 |
| West\t(excluding\tCalifornia) | 4,946 | 4,964 | 3,483 | 3,366 | 2,131 | 1,560 |
| Non-U.S. | — | 12 | — | — | — | — |
| Total | $73,712 | $64,012 | $51,649 | $50,399 | $38,695 | $33,615 |
| (a) |  |  |  |  |  |  |

(a) This	table	excludes	other	consumer	loans	of	$7.2	billion	and	$7.5	billion	at	December	31,	2003	and	2002,	respectively.

# Commercial	and	consumer	nonperforming	exposure	and	net	charge-offs

The	following	table	presents	a	summary	of	credit-related	nonperforming,	past	due	and	net	charge-off	information	for	the	dates	indicated:

| As	of	or	for	the	year	ended |  | Nonperforming | Nonperforming | Nonperforming | Nonperforming	assets | Nonperforming	assets | Past	due	90	days	and | Past	due	90	days	and |  |  | Average	annual | Average	annual |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| December\t31, |  | assets | (i) |  | as\ta\t%\tof\ttotal | as\ta\t%\tof\ttotal | over\tand\taccruing | over\tand\taccruing | Net\tcharge-offs | Net\tcharge-offs | net\tcharge-off\trate | net\tcharge-off\trate |
| (in\tmillions,\texcept\tratios) |  | 2003 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 |
| COMMERCIAL |  |  |  |  |  |  |  |  |  |  |  |  |
| \t(a) |  |  |  |  |  |  |  |  |  |  |  |  |
| Loans |  | $ 2,009 | $ 2,009 | $ 3,672 | 2.42% | 4.01% | $46 | $57 | $816 | $ 1,881 | 0.91% | 1.93% |
| Derivative\treceivables |  | 253 | 253 | 289 | 0.30 | 0.35 | — | — | NA | NA | NA | NA |
| Other\treceivables |  | 108 | 108 | 108 | 100 | 100 | NA | NA | NA | NA | NA | NA |
| Total\tcommercial\tcredit-related\tassets | Total\tcommercial\tcredit-related\tassets | 2,370 | 2,370 | 4,069 | 1.42 | 2.33 | 46 | 57 | 816 | 1,881 | 0.91 | 1.93 |
| Lending-related\tcommitments |  | NA | NA | NA | NA | NA | NA | NA | — | 212 | — | 0.09 |
| Total\tcommercial\tcredit\texposure |  | $ 2,370 | $ 2,370 | $ 4,069 | 0.62% | 0.99% | $46 | $57 | $816 | $ 2,093 | 0.26% | 0.62% |
| CONSUMER |  |  |  |  |  |  |  |  |  |  |  |  |
| U.S.\tconsumer: |  |  |  |  |  |  |  |  |  |  |  |  |
| 1–4\tfamily\tresidential\tmortgages\t—\tfirst\tliens | 1–4\tfamily\tresidential\tmortgages\t—\tfirst\tliens | $249 | $249 | $259 | 0.46% | 0.52% | $— | $— | $23 | $49 | 0.04% | 0.11% |
| Home\tequity |  | 55 | 55 | 53 | 0.29 | 0.36 | — | — | 10 | 7 | 0.06 | 0.05 |
| 1–4\tfamily\tresidential\tmortgages |  | 304 | 304 | 312 | 0.41 | 0.49 | — | — | 33 | 56 | 0.04 | 0.10 |
| (b)(c) |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit\tcard\t–\treported |  | 11 | 11 | 15 | 0.07 | 0.08 | 248 | 451 | 1,072 | 1,389 | 6.32 | 6.42 |
| (b)(d) |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit\tcard\tsecuritizations |  | — | — | — | — | — | 879 | 630 | 1,870 | 1,439 | 5.64 | 5.43 |
| Credit\tcard\t–\tmanaged |  | 11 | 11 | 15 | 0.02 | 0.03 | 1,127 | 1,081 | 2,942 | 2,828 | 5.87 | 5.87 |
| Automobile\tfinancings |  | 119 | 119 | 118 | 0.31 | 0.35 | — | — | 171 | 161 | 0.45 | 0.57 |
| (e) |  |  |  |  |  |  |  |  |  |  |  |  |
| Other\tconsumer |  | 66 | 66 | 76 | 0.91 | 1.01 | 21 | 22 | 180 | 189 | 2.45 | 2.41 |
| Total\tmanaged\tconsumer\tloans |  | 500 | 500 | 521 | 0.29 | 0.33 | 1,148 | 1,103 | 3,326 | 3,234 | 1.96 | 2.30 |
| Lending-related\tcommitments |  | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA |
| Total\tconsumer\tcredit\texposure |  | $500 | $500 | $521 | 0.14% | 0.17% | $1,148 | $1,103 | $ 3,326 | $ 3,234 | 1.00% | 1.15% |
| TOTAL\tCREDIT\tPORTFOLIO |  |  |  |  |  |  |  |  |  |  |  |  |
| Managed\tloans |  | $ 2,509 | $ 2,509 | $ 4,193 | 0.99% | 1.70% | $1,194 | $1,160 | $ 4,142 | $ 5,115 | 1.60% | 2.15% |
| Derivative\treceivables |  | 253 | 253 | 289 | 0.30 | 0.35 | — | — | NA | NA | NA | NA |
| Other\treceivables |  | 108 | 108 | 108 | 100 | 100 | NA | NA | NA | NA | NA | NA |
| Total\tmanaged\tcredit-related\tassets |  | 2,870 | 2,870 | 4,590 | 0.85 | 1.39 | 1,194 | 1,160 | 4,142 | 5,115 | 1.60 | 2.15 |
| Total\tlending-related\tcommitments |  | NA | NA | NA | NA | NA | NA | NA | — | 212 | — | 0.06 |
| Assets\tacquired\tin\tloan\tsatisfactions | (f) | 216 | 216 | 190 | NA | NA | NA | NA | NA | NA | NA | NA |
| \t(g) |  |  |  |  |  |  |  |  |  |  |  |  |
| Total\tcredit\tportfolio |  | $ 3,086 | $ 3,086 | $ 4,780 | 0.42% | 0.66% | $1,194 | $1,160 | $ 4,142 | $ 5,327 | 0.64% | 0.86% |
| Credit\tderivatives\thedges\tnotional | \t(h) | $(123) | $(123) | $(66) | NA | NA | NA | NA | NA | NA | NA | NA |

(a) Average	annual	net	charge-off	rate	would	have	been	0.97%	for	the	year	ended	December	31,	2003,	excluding	the	impact	of	the	adoption	of	FIN	46.

(b) At	December	31,	2003,	credit	card	securitizations	included	$166	million	of	accrued	interest	and	fees	on	securitized	credit	card	loans	past	due	90	days	and	over	and	accruing	that	were	classified	in	Other	assets,

consistent	with	the	FASB	Staff	Position,	Accounting	for	Accrued	Interest	Receivable	Related	to	Securitized	and	Sold	Receivables	under	SFAS	140.	Prior	to	March	31,	2003,	this	balance	was	classified	in	credit	card loans.	At	December	31,	2003,	none	was	nonperforming.

(c) In	connection	with	charge-offs,	during	2003	and	2002,	$372	million	and	$387	million,	respectively,	of	accrued	credit	card	interest	and	fees	were	reversed	and	recorded	as	a	reduction	of	interest	income	and	fee revenue.

(d) Represents	securitized	credit	cards.	For	a	further	discussion	of	credit	card	securitizations,	see	page	41	of	this	Annual	Report.

(e) Consists	of	installment	loans	(direct	and	indirect	types	of	consumer	finance),	student	loans,	unsecured	revolving	lines	of	credit	and	non-U.S.	consumer	loans.

(f) Includes	$9	million	and	$14	million	of	commercial	assets	acquired	in	loan	satisfactions,	and	$207	million	and	$176	million	of	consumer	assets	acquired	in	loan	satisfactions	at	December	31,	2003	and	2002, respectively.

(g) At	December	31,	2003	and	2002,	excludes	$2.3	billion	and	$3.1	billion,	respectively,	of	residential	mortgage	receivables	in	foreclosure	status	that	are	insured	by	government	agencies.	These	amounts	are	excluded	as reimbursement	is	proceeding	normally,	and	are	recorded	in	Other	assets.

(h) Represents	single	name	credit	derivative	hedges	of	commercial	credit	exposure	that	do	not	qualify	for	hedge	accounting	under	SFAS	133.

(i) Nonperforming	assets	exclude	nonaccrual	HFS	loans	of	$97	million	and	$43	million	at	December	31,	2003	and	2002,	respectively.	Nonaccrual	commercial	HFS	loans	were	$52	million	and	$18	million,	and	nonaccrual consumer	HFS	loans	were	$45	million	and	$25	million	at	December	31,	2003	and	2002,	respectively.

Nonperforming	assets	decreased	by	$1.7	billion,	or	35%,	during	the	year	ended December	31,	2003,	to	$3.1	billion.	The	decrease	was	due	to	activity	in	the	commercial portfolio:	total	reductions,	including	repayments,	loan	sales	and	net	charge-offs exceeded	new	additions,	resulting	in	net	reductions	of	$1.7	billion.	By	contrast,	there were	commercial	net	additions	during	2002.	A	decline	in	exposure	to	the	Telecom services,	Utilities	and	Media	industries	accounted	for	more	than	half	of	the	overall $1.7	billion	decrease.

Commercial	nonperforming	loans	decreased	by	45%,	to	$2.0	billion	as	of	December 31,	2003,	from	$3.7	billion	at	year-end	2002.	Over	the	same	period,	nonperforming commercial	loans	as	a	percentage	of	total	commercial	loans	fell	to	2.42%	from	4.01%. Commercial	loan	net	charge-offs	in	2003	were	$816	million,	compared	with	$1.9	billion in	2002,	the	result	of	improved	credit	quality	in	the	portfolio	and	increased	recoveries resulting	from	restructurings.	There	were	no	net	charge-offs	of	commercial	lending– related	commitments	in	2003,	compared	with	$212	million	in	2002.	The	average	annual net	charge-off	rate	for	commercial	loans	improved	significantly,	to	0.91%	in	2003	from 1.93%	in	2002.

Commercial	net	charge-offs	in	2004	are	expected	to	decline,	but	at	a	slower	pace	than in	the	second	half	of	2003.

The	$21	million	decrease	in	consumer	nonperforming	loans	reflected	improved	credit quality	in	the	portfolio.	While	net	charge-offs	increased	by	$92	million	during	the	year reflecting	a	10%	growth	in	the	portfolio,	the	average	annual	net	charge-off	rate	declined to	1.96%	from	2.30%	during	2002.

In	2004,	the	amount	of	gross	charge-offs	is	expected	to	increase	due	to	growth	in outstandings,	but	net	charge-off	rates	are	expected	to	remain	stable.

# Allowance	for	credit	losses

JPMorgan	Chase's	Allowance	for	credit	losses	is	intended	to	cover	probable	credit losses,	including	losses	where	the	asset	is	not	specifically	identified	or	the	size	of	the loss	has	not	been	determined.	At	least	quarterly,	the	Firm's	Risk	Management Committee	reviews	the	Allowance	for	credit	losses	relative	to	the	risk	profile	of	the Firm's	credit	portfolio	and	current	economic	conditions.	The	allowance	is	adjusted based	on	that	review	if,	in	management's	judgment,	changes	are	warranted.	The allowance	includes	specific	and	expected	loss	components	and	a	residual	component. For	further	discussion	of	the	components	of	the	Allowance	for	credit	losses,	see	Critical accounting	estimates	used	by	the	Firm	on	pages	75–76	and	Note	12	on	page	100	of this	Annual	Report.	At	December	31,	2003,	management	deemed	the	allowance	for credit	losses	to	be	appropriate	to	absorb	losses	that	currently	may	exist	but	are	not	yet identifiable.

# Summary	of	changes	in	the	allowance

|  | 2003 | 2003 | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | Commercial | Consumer |  | Residual | Total | Commercial | Consumer | Residual | Total |
| Loans: |  |  |  |  |  |  |  |  |  |
| Beginning\tbalance\tat\tJanuary\t1 | $2,216 | $2,360 |  | $774 | $5,350 | $1,724 | $2,105 | $695 | $4,524 |
| Net\tcharge-offs | (816) | (1,456) |  | — | (2,272) | (1,881) | (1,795) | — | (3,676) |
| Provision\tfor\tloan\tlosses | (30) | 1,491 |  | 118 | 1,579 | 2,371 | 1,589 | 79 | 4,039 |
| Other | 1 | (138) | (c) | 3 | (134) | 2 | 461 | — | 463 |
| Ending\tbalance\tat\tDecember\t31 | $1,371(a) | $2,257 |  | $895 | $4,523 | $2,216(a) | $2,360 | $774 | $5,350 |
| Lending-related\tcommitments: |  |  |  |  |  |  |  |  |  |
| Beginning\tbalance\tat\tJanuary\t1 | $324 | $— |  | $39 | $363 | $226 | $— | $56 | $282 |
| Net\tcharge-offs | — | — |  | — | — | (212) | — | — | (212) |
| Provision\tfor\tlending-related\tcommitments | (47) | — |  | 8 | (39) | 309 | — | (17) | 292 |
| Other | — | — |  | — | — | 1 | — | — | 1 |
| Ending\tbalance\tat\tDecember\t31 | $277(b) | $— |  | $47 | $324 | $324(b) | $— | $39 | $363 |
| (a) |  |  |  |  |  |  |  |  |  |

(a) Includes	$917	million	and	$454	million	of	commercial	specific	and	commercial	expected	loss	components,	respectively,	at	December	31,	2003.	Includes	$1.6	billion	and	$613	million	of	commercial	specific	and commercial	expected	loss	components,	respectively,	at	December	31,	2002.

(b) Includes	$172	million	and	$105	million	of	commercial	specific	and	commercial	expected	loss	components,	respectively,	at	December	31,	2003.	Includes	$237	million	and	$87	million	of	commercial	specific	and commercial	expected	loss	components,	respectively,	at	December	31,	2002.

(c) Includes	$138	million	related	to	the	transfer	of	the	allowance	for	accrued	interest	and	fees	on	securitized	credit	card	loans.

# Credit	costs

| For	the	year	ended	December	31 | 2003 | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | Commercial | Consumer | Residual | Total | Commercial | Consumer | Residual | Total |
| Provision\tfor\tloan\tlosses | $(30) | $1,491 | $118 | $1,579 | $2,371 | $1,589 | $79 | $4,039 |
| Provision\tfor\tlending-related\tcommitments | (47) | — | 8 | (39) | 309 | — | (17) | 292 |
| Securitized\tcredit\tlosses | — | 1,870 | — | 1,870 | — | 1,439 | — | 1,439 |
| Total\tmanaged\tcredit\tcosts | $(77) | $3,361 | $126 | $3,410 | $2,680 | $3,028 | $62 | $5,770 |

# Loans

The	commercial	specific	loss	component	of	the	allowance	was	$917	million	at December	31,	2003,	a	decrease	of	43%	from	year-end	2002.	The	decrease	was attributable	to	the	improvement	in	the	credit	quality	of	the	commercial	loan	portfolio,	as well	as	the	reduction	in	the	size	of	the	portfolio.

The	commercial	expected	loss	component	of	the	allowance	was	$454	million	at December	31,	2003,	a	decrease	of	26%	from	year-end	2002.	The	decrease	reflected an	improvement	in	the	average	quality	of	the	loan	portfolio,	as	well	as	the	improving credit	environment,	which	affected	inputs	to	the	expected	loss	model.

The	consumer	expected	loss	component	of	the	allowance	was	$2.3	billion	at	December 31,	2003,	a	decrease	of	4%	from	year-end	2002.	Although	the	consumer	managed	loan portfolio	increased	by	10%,	the	businesses	that	drove	the	increase,	Home	Finance	and Auto	Finance,	have	collateralized	products	with	lower	expected	loss	rates.

The	residual	component	of	the	allowance	was	$895	million	at	December	31,	2003.	The residual	component,	which	incorporates	management's	judgment,	addresses uncertainties	that	are	not	considered	in	the	formula-based	commercial	specific	and expected	components	of	the	allowance	for	credit	losses.

The	$121	million	increase	addressed	uncertainties	in	the	economic	environment	and concentrations	in	the	commercial	loan	portfolio	that	existed	during	the	first	half	of	2003. In	the	second	half	of	the	year,	as	commercial	credit	quality	continued	to	improve	and the	commercial	allowance	declined	further,	the	residual	component	was	reduced	as well.	At	December	31,	2003,	the	residual	component	represented	approximately	20%	of the	total	allowance	for	loan	losses,	within	the	Firm's	target	range	of	between	10%	and 20%.	The	Firm	anticipates	that	if	the	current	positive	trend	in	economic	conditions	and credit	quality	continues,	the	commercial	and	residual	components	will	continue	to	be reduced.

# Lending-related	commitments

To	provide	for	the	risk	of	loss	inherent	in	the	credit-extension	process,	management also	computes	specific	and	expected	loss	components	as	well	as	a	residual component	for	commercial	lending–related	commitments.	This	is	computed	using	a methodology	similar	to	that	used	for	the	commercial	loan	portfolio,	modified	for expected	maturities	and	probabilities	of	drawdown.	The	allowance	decreased	by	11% to	$324	million	as	of	December	31,	2003,	due	to	improvement	in	the	criticized	portion	of the	Firm's	lending-related	commitments.

Market	risk	represents	the	potential	loss	in	value	of	portfolios	and	financial instruments	caused	by	adverse	movements	in	market	variables,	such	as	interest and	foreign	exchange	rates,	credit	spreads,	and	equity	and	commodity	prices. JPMorgan	Chase	employs	comprehensive	and	rigorous	processes	intended	to measure,	monitor	and	control	market	risk.

# Market	risk	organization

Market	Risk	Management	("MRM")	is	an	independent	function	that	identifies,	measures, monitors	and	controls	market	risk.	It	seeks	to	facilitate	efficient	risk/return	decisions	and to	reduce	volatility	in	operating	performance.	It	strives	to	make	the	Firm's	market	risk profile	transparent	to	senior	management,	the	Board	of	Directors	and	regulators.

The	chart	below	depicts	the	MRM	organizational	structure	and	describes	the responsibilities	of	the	groups	within	MRM.

MRM	works	in	partnership	with	the	business	segments,	which	are	expected	to	maintain strong	risk	discipline	at	all	levels.	For	example,	risk-taking	businesses	have	Middle Office	functions	that	act	independently	from	trading	personnel	and	are	responsible	for

verifying	risk	exposures	they	take.	Weekly	meetings	are	held	between	MRM	and	the heads	of	risk-taking	businesses,	to	discuss	and	decide	on	risk	exposures	in	the	context of	the	market	environment	and	client	flows.

# Key	terms:

•	VAR:	Worst-case	loss	expected	within	the	confidence	level;	while	larger	losses	are	possible,	they	have	a	correspondingly	lower	probability	of	actually	occurring

•	Full-revaluation	VAR:	Method	that	prices	each	financial	instrument	separately,	based	on	the	actual	pricing	models	used	by	the	lines	of	business;	compared	with	sensitivity-based	VAR,	which	only	approximates	the	impact of	market	moves	on	financial	instrument	prices

•	Backtesting:	Validating	a	model	by	comparing	its	predictions	with	actual	results

•	Confidence	level:	The	probability	that	actual	losses	will	not	exceed	estimated	VAR;	the	greater	the	confidence	level,	the	higher	the	VAR

There	are	also	groups	that	report	to	the	Chief	Financial	Officer	with	some	responsibility for	market	risk-related	activities.	For	example,	within	the	Finance	area,	the	valuation control	functions	are	responsible	for	ensuring	the	accuracy	of	the	valuations	of	positions that	expose	the	Firm	to	market	risk.

Positions	that	expose	the	Firm	to	market	risk	are	classified	into	two	categories.	Trading risk	includes	positions	held	as	part	of	a	business	whose	strategy	is	to	trade,	make markets	or	take	positions	for	the	Firm's	own	trading	account;	gains	and	losses	in	these positions	are	reported	in	Trading	revenue.	Nontrading	risk	includes	mortgage	banking positions	held	for	longer-term	investment	and	positions	used	to	manage	the	Firm's asset/liability	exposures.	In	most	cases,	unrealized	gains	and	losses	in	these	positions are	accounted	for	at	fair	value,	with	the	gains	and	losses	reported	in	Net	income	or Other	comprehensive	income.

# Tools	used	to	measure	risks

Because	no	single	measure	can	reflect	all	aspects	of	market	risk,	the	Firm	uses	several measures,	both	statistical	and	nonstatistical,	including:

# •	Statistical	risk	measures

-	Risk	identification	for	large	exposures	("RIFLE")

# •	Nonstatistical	risk	measures

# -	Economic-value	stress	tests

# -	Net	interest	income	stress	tests

-	Other	measures	of	position	size	and	sensitivity	to	market	moves

# Value-at-Risk

JPMorgan	Chase's	statistical	risk	measure,	VAR,	gauges	the	potential	loss	from adverse	market	moves	in	an	ordinary	market	environment	and	provides	a	consistent cross-business	measure	of	risk	profiles	and	levels	of	risk	diversification.	VAR	is	used	to compare	risks	across	businesses,	to	monitor	limits	and	to	allocate	economic	capital	to the	business	segments.	VAR	provides	risk	transparency	in	a	normal	trading environment.

Each	business	day,	the	Firm	undertakes	a	comprehensive	VAR	calculation	that includes	both	trading	and	nontrading	activities.	JPMorgan	Chase's	VAR	calculation	is highly	granular,	comprising	more	than	1.5	million	positions	and	240,000	pricing	series (e.g.,	securities	prices,	interest	rates,	foreign	exchange	rates).	For	a	substantial	portion of	its	exposure,	the	Firm	has	implemented	full-revaluation	VAR,	which,	management believes,	generates	the	most	accurate	results.

To	calculate	VAR,	the	Firm	uses	historical	simulation,	which	measures	risk	across instruments	and	portfolios	in	a	consistent,	comparable	way.	This	approach	assumes that	historical	changes	in	market	value	are	representative	of	future	changes.	The simulation	is	based	on	market	data	for	the	previous	12	months.

The	Firm	calculates	VAR	using	a	one-day	time	horizon	and	a	99%	confidence	level. This	means	the	Firm	would	expect	to	incur	losses	greater	than	that	predicted	by	VAR estimates	only	once	in	every	100	trading	days,	or	about	2.5	times	a	year.

All	statistical	models	involve	a	degree	of	uncertainty,	depending	on	the	assumptions they	employ.	The	Firm	prefers	historical	simulation,	because	it	involves	fewer assumptions	about	the	distribution	of	portfolio	losses	than	parameter-based methodologies.	In	addition,	the	Firm	regularly	assesses	the	quality	of	the	market	data, since	their	accuracy	is	critical	to	computing	VAR.	Nevertheless,	because	VAR	is	based on	historical	market	data,	it	may	not	accurately	reflect	future	risk	during	environments	in which	market	volatility	is	changing.	In	addition,	the	VAR	measure	on	any	particular	day may	not	be	indicative	of	future	risk	levels,	since	positions	and	market	conditions	may both	change	over	time.

While	VAR	is	a	valuable	tool	for	evaluating	relative	risks	and	aggregating	risks	across businesses,	it	only	measures	the	potential	volatility	of	daily	revenues.	Profitability	and risk	levels	over	longer	time	periods	–	a	fiscal	quarter	or	a	year	–	may	be	only	loosely related	to	the	average	value	of	VAR	over	those	periods.	First,	while	VAR	measures potential	fluctuations	around	average	daily	revenue,	the	average	itself	could	reflect significant	gains	or	losses;	for	example,	from	client	revenues	that	accompany	risk- taking	activities.	Second,	large	trading	revenues	may	result	from	positions	taken	over longer	periods	of	time.	For	example,	a	business	may	maintain	an	exposure	to	rising	or falling	interest	rates	over	a	period	of	weeks	or	months.	If	the	market	exhibits	a	long-term trend	over	that	time,	the	business	could	experience	large	gains	or	losses,	even	though revenue	volatility	on	each	individual	day	may	have	been	small.

# VAR	Backtesting

To	evaluate	the	soundness	of	its	VAR	model,	the	Firm	conducts	daily	backtesting	of VAR	against	actual	financial	results,	based	on	daily	market	risk–related	revenue. Market	risk–related	revenue	is	defined	as	the	daily	change	in	value	of	the	mark-to- market	trading	portfolios	plus	any	trading-related	net	interest	income,	brokerage commissions,	underwriting	fees	or	other	revenue.	The	Firm's	definition	of	market	risk– related	revenue	is	consistent	with	the	Federal	Reserve	Board's	implementation	of	the Basel	Committee's	market	risk	capital	rules.	The	histogram	below	illustrates	the	Firm's daily	market	risk–related	revenue	for	trading	businesses	for	2003.	The	chart	shows	that the	Firm	posted	positive	daily	market	risk–related	revenue	on	235	out	of	260	days	in 2003,	with	170	days	exceeding	$25	million.	Losses	were	sustained	on	25	days;	nine	of those	days	were	in	the	third	quarter,	primarily	driven	by	poor	overall	trading	results.	The largest	daily	trading	loss	during	the	year	was	$100	million.

The	inset	in	the	histogram	examines	the	25	days	on	which	the	Firm	posted	trading losses	and	depicts	the	amount	by	which	VAR	was	greater	than	the	actual	loss	on	each day.	There	was	one	day	on	which	trading	losses	exceeded	VAR	by	approximately 10%,	a	performance	statistically	consistent	with	the	Firm's	99%	confidence	level. During	the	third	quarter,	there	was	an	additional	day

on	which	the	Firm's	losses	exceeded	VAR;	these	losses	were	attributable	to	certain positions	in	the	mortgage	banking	business,	which	were	then	included	in	the	Firm's trading	portfolio,	but	which	are	now	included	in	the	nontrading	portfolio	with	other mortgage	banking	positions.

# Economic-value	stress	testing

While	VAR	reflects	the	risk	of	loss	due	to	unlikely	events	in	normal	markets,	stress testing	captures	the	Firm's	exposure	to	unlikely	but	plausible	events	in	abnormal markets.	Stress	testing	is	equally	important	as	VAR	in	measuring	and	controlling	risk. Stress	testing	enhances	the	understanding	of	the	Firm's	risk	profile	and	loss	potential and	is	used	for	monitoring	limits,	cross-business	risk	measurement	and	economic capital	allocation.

Economic-value	stress	tests	measure	the	potential	change	in	the	value	of	the	Firm's portfolios.	Applying	economic-value	stress	tests	helps	the	Firm	understand	how	the economic	value	of	its	balance	sheet	(not	the	amounts	reported	under	GAAP)	would change	under	certain	scenarios.	The	Firm	conducts	economic-value	stress	tests	for both	its	trading	and	its	nontrading	activities,	using	the	same	scenarios	for	both.

The	Firm	stress	tests	its	portfolios	at	least	once	a	month	using	multiple	scenarios. Several	macroeconomic	event-related	scenarios	are	evaluated	across	the	Firm,	with shocks	to	roughly	10,000	market

prices	specified	for	each	scenario.	Additional	scenarios	focus	on	the	risks	predominant in	individual	business	segments	and	include	scenarios	that	focus	on	the	potential	for adverse	moves	in	complex	portfolios.

Scenarios	are	continually	reviewed	and	updated	to	reflect	changes	in	the	Firm's	risk profile	and	economic	events.	Stress-test	results,	trends	and	explanations	are	provided each	month	to	the	Firm's	senior	management	and	to	the	lines	of	business,	to	help	them better	measure	and	manage	risks	and	to	understand	event	risk-sensitive	positions.

The	Firm's	stress-test	methodology	assumes	that,	during	an	actual	stress	event,	no management	action	would	be	taken	to	change	the	risk	profile	of	portfolios.	This assumption	captures	the	decreased	liquidity	that	often	occurs	with	abnormal	markets and	results,	in	the	Firm's	view,	in	a	conservative	stress-test	result.

It	is	important	to	note	that	VAR	results	cannot	be	directly	correlated	to	stress-test	loss results	for	three	reasons.	First,	stress-test	losses	are	calculated	at	varying	dates	each month,	while	VAR	is

performed	daily	and	disclosed	at	the	period-end	date.	Second,	VAR	and	stress	tests	are two	distinct	risk	measurements	yielding	very	different	loss	potentials.	Thus,	although the	same	trading	portfolios	are	used	for	both	tests,	VAR	is	based	on	a	distribution	of one-day	historical	losses	measured	over	the	most	recent	one	year;	by	contrast,	stress testing	subjects	the	portfolio	to	more	extreme,	larger	moves	over	a	longer	time	horizon (e.g.,	2-3	weeks).	Third,	as	VAR	and	stress	tests	are	distinct	risk	measurements,	the impact	of	portfolio	diversification	can	vary	greatly.	For	VAR,	markets	can	change	in patterns	over	a	one-year	time	horizon,	moving	from	highly	correlated	to	less	so;	in stress	testing,	the	focus	is	on	a	single	event	and	the	associated	correlations	in	an extreme	market	situation.	As	a	result,	while	VAR	over	a	given	time	horizon	can	be lowered	by	a	diversification	benefit	in	the	portfolio,	this	benefit	would	not	necessarily manifest	itself	in	stress-test	scenarios,	which	assume	large,	coherent	moves	across	all markets.

# Net	interest	income	stress	testing

The	VAR	and	stress-test	measures	described	above	illustrate	the	total	economic sensitivity	of	the	Firm's	balance	sheet	to	changes	in	market	variables.	The	effect	of interest	rate	exposure	on	reported	Net	income	is	also	critical.	The	Firm	conducts simulations	of	Net	interest	income	for	its	nontrading	activities	under	a	variety	of	interest rate	scenarios,	which	are	consistent	with	the	scenarios	used	for	economic-value	stress testing.

Net	interest	income	stress	tests	measure	the	potential	change	in	the	Firm's	NII	over	the next	12	months.	These	stress	tests	highlight	exposures	to	various	interest	rate- sensitive	factors,	such	as	rates

(e.g.,	the	prime	lending	rate),	pricing	strategies	on	deposits	and	changes	in	product mix.	These	stress	tests	also	take	into	account	forecasted	balance	sheet	changes,	such as	asset	sales	and	securitizations,	as	well	as	prepayment	and	reinvestment	behavior.

# RIFLE

In	addition	to	VAR,	JPMorgan	Chase	employs	the	Risk	identification	for	large exposures	("RIFLE")	methodology	as	another	statistical	risk	measure.	The	Firm requires	that	all	market	risk-taking	businesses	self-assess	their	risks	to	unusual	and specific	events.	Individuals	who	manage	risk	positions,	particularly	complex	positions, identify	potential	worst-case	losses	that	could	arise	from	an	unusual	or	specific	event, such	as	a	potential	tax	change,	and	estimate	the	probabilities	of	such	losses.	Through the	Firm's	RIFLE	system,	this	information	is	then	directed	to	the	appropriate	level	of management,	thereby	permitting	the	Firm	to	identify	further	earnings	vulnerabilities	not adequately	covered	by	VAR	and	stress	testing.

Nonstatistical	risk	measures	other	than	stress	testing	include	net	open	positions,	basis point	values,	option	sensitivities,	position	concentrations	and	position	turnover.	These measures	provide	additional	information	on	an	exposure's	size	and	the	direction	in which	it	is	moving.	Nonstatistical	measures	are	used	for	monitoring	limits,	one-off approvals	and	tactical	controls.

The	table	below	shows	both	trading	and	nontrading	VAR	by	risk	type,	together	with	the	Corporate	total.	Details	of	the	VAR	exposures	are	discussed	in	the	Trading	Risk	and Nontrading	Risk	sections	below.

# VAR	by	risk	type

|  | 2003 | 2003 | 2003 | 2003 | 2002 | 2002 | (b) |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| As\tof\tor\tfor\tthe\tyear\nended\tDecember\t31,\t(in\tmillions) | Average\nVAR | Minimum\nVAR | Maximum\nVAR | At\nDecember\t31 | Average\nVAR | Minimum\nVAR | Maximum\nVAR | At\nDecember\t31 |
| By\trisk\ttype: |  |  |  |  |  |  |  |  |
| Interest\trate | $63.9 | $43.1 | $109.9 | $83.7 | $67.6 | $50.1 | $94.7 | $59.6 |
| Foreign\texchange | 16.8 | 11.0 | 30.2 | 23.5 | 11.6 | 4.4 | 21.2 | 18.4 |
| Equities | 18.2 | 6.7 | 51.6 | 45.6 | 14.4 | 5.4 | 32.7 | 8.4 |
| Commodities | 2.9 | 1.7 | 4.9 | 3.3 | 3.6 | 1.6 | 13.3 | 1.9 |
| Hedge\tfund\tinvestments | 4.8 | 3.2 | 8.7 | 5.5 | 3.2 | 2.5 | 3.6 | 3.2 |
| Less:\tportfolio\tdiversification | (38.0) | NM | NM | (58.4) | (28.8) | NM | NM | (26.9) |
| (a)\nTotal\tTrading\tVAR | $68.6 | $43.2 | $114.7 | $103.2 | $71.6 | $57.0 | $102.8 | $64.6 |
| Nontrading\tactivities | 151.8 | 81.5 | 286.0 | 203.8 | 97.3 | 68.9 | 139.3 | 107.7 |
| Less:\tportfolio\tdiversification | (45.5) | NM | NM | (25.7) | (48.6) | NM | NM | (61.0) |
| Total\tVAR | $174.9 | $83.7 | $331.4 | $281.3 | $120.3 | $87.6 | $160.2 | $111.3 |
| (a) |  |  |  |  |  |  |  |  |

(a) Amounts	exclude	VAR	related	to	the	Firm's	private	equity	business.	For	a	discussion	of	Private	equity	risk	management,	see	page	74	of	this	Annual	Report.

(b) Amounts	have	been	revised	to	reflect	the	reclassification	of	certain	mortgage	banking	positions	from	the	trading	portfolio	to	the	nontrading	portfolio.

NM- Because	the	minimum	and	maximum	may	occur	on	different	days	for	different	risk	components,	it	is	not	meaningful	to	compute	a	portfolio	diversification	effect.	In	addition,	JPMorgan	Chase's	average	and	period-end VARs	are	less	than	the	sum	of	the	VARs	of	its	market	risk	components,	due	to	risk	offsets	resulting	from	portfolio	diversification.

# Trading	Risk

# Major	risks

Interest	rates:	Interest	rate	risk	(which	includes	credit	spread	risk)	involves	the potential	decline	in	net	income	or	financial	condition	due	to	adverse	changes	in	market interest	rates,	which	may	result	in	changes	to	NII,	securities	valuations,	and	other interest-sensitive	revenues	and	expenses.

Foreign	exchange,	equities	and	commodities:	These	risks	involve	the	potential decline	in	net	income	or	financial	condition	due	to	adverse	changes	in	foreign exchange,	equities	or	commodities	markets,	whether	due	to	proprietary	positions	taken by	the	Firm,	or	due	to	a	decrease	in	the	level	of	client	activity.

Hedge	fund	investments:	The	Firm	invests	in	numerous	hedge	funds	that	have various	strategic	goals,	investment	strategies,	industry	concentrations,	portfolio	sizes and	management	styles.	Fund	investments	are	passive	long-term	investments. Individual	hedge	funds	may	have	exposure	to	interest	rate,	foreign	exchange,	equity and	commodity	risk	within	their	portfolio	risk	structures.

# Trading	VAR

The	largest	contributor	to	trading	VAR	was	interest	rate	risk.	Before	portfolio diversification,	interest	rate	risk	accounted	for	roughly	60%	of	the	average	Trading Portfolio	VAR.	The	diversification	effect,	which	on	average	reduced	the	daily	average Trading	Portfolio	VAR	by	$38	million	in	2003,	reflects	the	fact	that	the	largest	losses	for different	positions	and	risks	do	not	typically	occur	at	the	same	time.	The	risk	of	a portfolio	of	positions	is	therefore	usually	less	than	the	sum	of	the	risks	of	the	positions themselves.	The	degree	of	diversification	is	determined	both	by	the	extent	to	which different	market	variables	tend	to	move	together,	and	by	the	extent	to	which	different businesses	have	similar	positions.

The	increase	in	year-end	VAR	was	driven	by	an	increase	in	the	VAR	for	equities	risk, which	was	attributable	to	a	significant	increase	in	customer-driven	business	in	equity options.	In	general,	over	the	course	of	a	year,	VAR	exposures	can	vary	significantly	as trading	positions	change	and	market	volatility	fluctuates.

The	following	table	represents	the	worst-case	potential	economic-value	stress-test	loss (pre-tax)	in	the	Firm's	trading	portfolio	as	predicted	by	stress-test	scenarios:

# Trading	economic	value	stress-test	loss	results	—	pre-tax

| As	of	or	for |  |  |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| the\tyear\tended | 2003 | 2003 | 2003 | 2003 | 2002 | 2002 | (a) |  |
| December\t31,\n(in\tmillions) | Avg. | Min. | Max. | At\nDec.\t4 | Avg. | Min. | Max. | At\nDec.\t5 |
| Stress-test\tloss\n—\tpre-tax | $(508) | $(255) | $(888) | $(436) | $(405) | $(103) | $(715) | $(219) |

(a) Amounts	have	been	revised	to	reflect	the	reclassification	of	certain	mortgage	banking	positions	from the	trading	portfolio	to	the	nontrading	portfolio.

The	potential	stress-test	loss	as	of	December	4,	2003,	is	the	result	of	the	"Equity Market	Collapse"	stress	scenario,	which	is	broadly	modeled	on	the	events	of October	1987.	Under	this	scenario,	global	equity	markets	suffer	a	sharp	reversal	after	a long	sustained	rally;	equity	prices	decline	globally;	volatilities	for	equities,	interest	rates and	credit	products	increase	dramatically	for	short	maturities	and	less	so	for	longer maturities;	sovereign	bond	yields	decline	moderately;	and	swap	spreads	and	credit spreads	widen	moderately.

# Nontrading	Risk

# Major	risk	—	Interest	rates

The	execution	of	the	Firm's	core	business	strategies,	the	delivery	of	products	and services	to	its	customers,	and	the	discretionary	positions	the	Firm	undertakes	to	risk- manage	structural	exposures	give	rise	to	interest	rate	risk	in	its	nontrading	activities.

This	exposure	can	result	from	a	variety	of	factors,	including	differences	in	the	timing between	the	maturity	or	repricing	of	assets,	liabilities	and	off-balance	sheet instruments.	Changes	in	the	level	and	shape	of	interest	rate	curves	may	also	create interest	rate	risk,	since	the	repricing	characteristics	of	the	Firm's	assets	do	not necessarily	match	those	of	its	liabilities.	The	Firm	is	also	exposed	to	basis	risk,	which	is the	difference	in	the	repricing	characteristics	of	two	floating-rate	indices,	such	as	the prime	rate	and	3-month	LIBOR.	In	addition,	some	of	the	Firm's	products	have embedded	optionality	that	may	have	an	impact	on	pricing	and	balance	levels.

The	Firm	manages	exposure	in	its	structural	interest	rate	activities	on	a	consolidated, corporate-wide	basis.	Business	units	transfer	their	interest	rate	risk	to	Global	Treasury through	a	transfer	pricing	system,	which	takes	into	account	the	elements	of	interest	rate exposure	that	can	be	hedged	in	financial	markets.	These	elements	include	current balance	and	contractual	rates	of	interest,	contractual	principal	payment	schedules, expected	prepayment	experience,	interest	rate	reset	dates	and	maturities	and	rate indices	used	for	re-pricing.	All	transfer	pricing	assumptions	are	reviewed	on	a semiannual	basis	and	must	be	approved	by	the	Firm's	Capital	Committee.

The	Firm's	mortgage	banking	activities	also	give	rise	to	complex	interest	rate	risks.	The interest	rate	exposure	from	the	Firm's	mortgage	banking	activities	is	a	result	of	option and	basis	risks.	Option	risk	arises	from	prepayment	features	in	mortgages	and	MSRs, and	from	the	probability	of	newly	originated	mortgage	commitments	actually	closing. Basis	risk	results	from	different	relative	movements	between	mortgage	rates	and	other interest	rates.	These	risks	are	managed	through	hedging	programs	specific	to	the different	mortgage	banking	activities.	Potential	changes	in	the	market	value	of	MSRs and	increased	amortization	levels	of	MSRs	are	managed	via	a	risk	management program	that	attempts	to	offset	changes	in	the	market	value	of	MSRs	with	changes	in the	market	value	of	derivatives	and	investment	securities.	A	similar	approach	is implemented	to	manage	the	interest	rate	and	option	risks	associated	with	the	Firm's mortgage	origination	business.

# Nontrading	VAR

For	nontrading	activities	that	involve	market	risk,	VAR	measures	the	amount	of potential	change	in	their	economic	value;	however,	it	is	not	a	measure	of	reported revenues,	since	those	activities	are	not	marked	to	market	through	earnings.

The	increase	in	average,	maximum	and	December	31	nontrading	portfolio	VAR	was primarily	attributable	to	the	increase	in	market	volatility	during	the	2003	third	quarter, and	to	the	rise	in	interest	rates	in	the	second	half	of	2003,	which	increased	the sensitivity	of	mortgage	instruments	to	the	basis	risk	between	mortgage	rates	and	other interest	rates.

The	Firm	conducts	both	economic-value	and	NII	stress	tests	on	its	nontrading	activities. Economic-value	stress	tests	measure	the	potential	change	in	the	value	of	these portfolios	under	the	same	scenarios	used	to	evaluate	the	trading	portfolios.

The	following	table	represents	the	potential	worst-case	economic-value	stress-test	loss (pre-tax)	in	the	Firm's	nontrading	portfolio	as	predicted	by	stress-test	scenarios:

# Nontrading	economic-value	stress-test	loss	results	—	pre-tax

| As	of	or	for |  |  |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| the\tyear\tended | 2003 | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 | 2002 |
| December\t31,\n(in\tmillions) | Avg. | Min. | Max. | At\nDec.\t4 | Avg. | Min. | Max. | At\nDec.\t5 |
| Stress-test\tloss\n—\tpre-tax | $(637) | $(392) | $(1,130) | $(665) | $(967) | $(523) | $(1,566) | $(556) |

The	potential	stress-test	loss	as	of	December	4,	2003,	is	the	result	of	the	"Credit Crunch"	stress	scenario,	which	is	broadly	based	on	the	events	of	1997-98.	Under	that scenario,	political	instability	in	emerging	markets	leads	to	a	flight	to	quality;	sovereign bond	yields	decline	moderately;	the	U.S.	dollar	declines	against	the	euro	and	Japanese yen;	credit	spreads	widen	sharply;	mortgage	spreads	widen;	and	equity	prices	decline moderately.

The	following	table	shows	the	change	in	the	Firm's	NII	over	the	next	12	months	that would	result	from	uniform	increases	or	decreases	of	100	basis	points	in	all	interest rates.	It	also	shows	the	largest	decline	in	the	Firm's	NII	under	the	same	stress-test scenarios	utilized	for	the	trading	portfolio.	At	year-end	2003,	JPMorgan	Chase's	largest potential	NII	stress-test	loss	was	estimated	at	$160	million,	primarily	the	result	of increased	funding	costs.

# Nontrading	NII	stress-test	loss	results	—	pre-tax

| December	31,	(in	millions) | 2003 | 2002 |
| :--- | :--- | :--- |
| +/-\t100bp\tparallel\tchange | $ (160) | $(277) |
| Other\tstress-test\tscenarios | (88) | (133) |

# Nonstatistical	measures

The	Firm	also	calculates	exposures	to	directional	interest	rate	changes	and	to	changes in	the	spread	between	the	swap	curve	and	other	basis	risks.	At	year-end,	the	market value	of	the	Firm's	nontrading	positions	did	not	have	a	significant	exposure	to	increases or	decreases	in	interest	rates.	However,	the	Firm's	non-trading	positions	maintain	an exposure	to	the	spread	between	mortgage	rates	and	swap	rates;	at	year-end	the	Firm was	exposed	to	a	widening	of	this	spread.

# Capital	allocation	for	market	risk

The	Firm	allocates	market	risk	capital	guided	by	the	principle	that	capital	should	reflect the	extent	to	which	risks	are	present	in	businesses.	Daily	VAR,	monthly	stress-test results	and	other	factors	determine	appropriate	capital	charges	for	major	business segments.	The	VAR	measure	captures	a	large	number	of	one-day	price	moves,	while stress	tests	capture	a	smaller	number	of	very	large	price	moves.	The	Firm	allocates market	risk	capital	to	each	business	segment	according	to	a	formula	that	weights	that segment's	VAR	and	stress-test	exposures.

# Risk	monitoring	and	control

# Limits

Market	risk	is	primarily	controlled	through	a	series	of	limits.	The	sizes	of	the	limits reflect	the	Firm's	risk	appetite	after	extensive	analyses	of	the	market	environment	and business	strategy.	The	analyses	examine	factors	such	as	market	volatility,	product liquidity,	business	track	record,	and	management	experience	and	depth.

The	Firm	maintains	different	levels	of	limits.	Corporate-level	limits	encompass	VAR calculations	and	stress-test	loss	advisories.	Similarly,	business-segment	levels	include limits	on	VAR	calculations,	nonstatistical	measurements	and	P&L	loss	advisories. Businesses	are	responsible	for	adhering	to	established	limits,	against	which	exposures are	monitored	and	reported	daily.	An	exceeded	limit	is	reported	immediately	to	senior management,	and	the	affected	business	unit	must	take	appropriate	action	to	comply with	the	limit.	If	the	business	cannot	do	this	within	an	acceptable	timeframe,	senior management	is	consulted	on	the	appropriate	action.

MRM	regularly	reviews	and	updates	risk	limits,	and	the	Firm's	Risk	Management Committee	reviews	and	approves	risk	limits	at	least	twice	a	year.	MRM	further	controls the	Firm's	exposure	by	specifically	designating	approved	financial	instruments	for	each business	unit.

# Qualitative	review

MRM	also	performs	periodic	reviews	of	both	businesses	and	products	with	exposure	to market	risk	in	order	to	assess	the	ability	of	the	businesses	to	control	market	risk.	The business	management's	strategy,	market	conditions,	product	details	and	effectiveness of	risk	controls	are	reviewed.	Specific	recommendations	for	improvements	are	made	to management.

# Model	review

Many	of	the	Firm's	financial	instruments	cannot	be	valued	based	on	quoted	market prices	but	are	instead	valued	using	pricing	models.	Such	models	are	used	for management	of	risk	positions,	such	as	reporting	risk	against	limits,	and	for	valuation. The	Firm	reviews	the	models	it	uses	to	assess	model	appropriateness	and	consistency across	businesses.	The	model	reviews	consider	a

number	of	issues:	appropriateness	of	the	model,	assessing	the	extent	to	which	it accurately	reflects	the	characteristics	of	the	transaction	and	captures	its	significant risks;	independence	and	reliability	of	data	sources;	appropriateness	and	adequacy	of numerical	algorithms;	and	sensitivity	to	input	parameters	or	other	assumptions	which cannot	be	priced	from	the	market.

Reviews	are	conducted	for	new	or	changed	models,	as	well	as	previously	accepted models.	Re-reviews	assess	whether	there	have	been	any	material	changes	to	the accepted	models;	whether	there	have	been	any	changes	in	the	product	or	market	that may	impact	the	model's	validity;	and	whether	there	are	theoretical	or	competitive developments	that	may	require	reassessment	of	the	model's	adequacy.	For	a	summary of	valuations	based	on	models,	see	Critical	accounting	estimates	used	by	the	Firm	on pages	76-77	of	this	Annual	Report.

# Operational	risk	management

# Operational	risk	is	the	risk	of	loss	resulting	from	inadequate	or	failed	processes or	systems,	human	factors,	or	external	events.

Operational	risk	is	inherent	in	each	of	the	Firm's	businesses	and	support	activities. Operational	risk	can	manifest	itself	in	various	ways,	including	errors,	business interruptions,	inappropriate	behavior	of	employees	and	vendors	that	do	not	perform	in accordance	with	outsourcing	arrangements.	These	events	can	potentially	result	in financial	losses	and	other	damage	to	the	Firm,	including	reputational	harm.

To	monitor	and	control	operational	risk,	the	Firm	maintains	a	system	of	comprehensive policies	and	a	control	framework	designed	to	provide	a	sound	and	well	controlled operational	environment.	The	goal	is	to	keep	operational	risk	at	appropriate	levels,	in light	of	the	Firm's	financial	strength,	the	characteristics	of	its	businesses,	the	markets	in which	it	operates,	and	the	competitive	and	regulatory	environment	to	which	it	is	subject.

Notwithstanding	these	control	measures,	the	Firm	incurs	operational	losses.	The	Firm's approach	to	operational	risk	management	is	intended	to	mitigate	such	losses.

# Operational	risk	management	practices

Throughout	2003,	JPMorgan	Chase	continued	to	execute	a	multi-year	plan,	begun	in 2001,	for	an	integrated	approach	that	emphasizes	active	management	of	operational risk	throughout	the	Firm.	The	objective	of	this	effort	is	to	supplement	the	traditional control-based	approach	to	operational	risk	with	risk	measures,	tools	and	disciplines	that are	risk-specific,	consistently	applied	and	utilized	Firm-wide.	Key	themes	for	this	effort are	transparency	of	information,	escalation	of	key	issues	and	accountability	for	issue resolution.	Ultimate	responsibility	for	the	Firm's	operational	risk	management	practices resides	with	the	Chief	Risk	Officer.	The	components	are:

Governance	structure:	The	governance	structure	provides	the	framework	for	the Firm's	operational	risk	management	activities.	Primary	responsibility	for	managing operational	risk	rests	with	business	managers.	These	individuals	are	responsible	for establishing	and	maintaining	appropriate	internal	control	procedures	for	their	respective businesses.

The	Operational	Risk	Committee,	which	meets	quarterly,	is	composed	of	senior operational	risk	and	finance	managers	from	each	of	the	businesses.	In	addition,	each	of the	businesses	must	maintain	business	control	committees	to	oversee	their	operational risk	management	practices.

Self-assessment	process:	In	2003,	JPMorgan	Chase	continued	to	refine	its	Firm- wide	self-assessment	process.	The	goal	of	the	process	was	for	each	business	to identify	the	key	operational	risks	specific	to	its	environment	and	assess	the	degree	to which	it	maintained	appropriate	controls.	Action	plans	were	developed	for	control issues	identified,	and	businesses	are	to	be	held	accountable	for	tracking	and	resolving these	issues	on	a	timely	basis.

Self-assessments	were	completed	by	the	businesses	through	the	use	of	Horizon,	a software	application	developed	by	the	Firm.	With	the	aid	of	Horizon,	all	businesses were	required	to	perform	semiannual	self-assessments	in	2003.	Going	forward,	the Firm	will	utilize	the	self-assessment	process	as	a	dynamic	risk	management	tool.

Operational	risk-event	monitoring:	The	Firm	has	a	process	for	reporting	operational risk-event	data,	permitting	analyses	of	errors	and	losses	as	well	as	trends.	Such analyses,	performed	both	at	a	line-of-business	level	and	by	risk	event	type,	enable identification	of	root	causes	associated	with	risk	events	faced	by	the	businesses. Where	available,	the	internal	data	can	be	supplemented	with	external	data	for comparative	analysis	with	industry	patterns.	The	data	reported	will	enable	the	Firm	to back-test	against	self-assessment	results.

Integrated	reporting:	The	Firm	is	presently	designing	an	operational	risk	architecture model	to	integrate	the	above	individual	components	into	a	unified,	web-based	tool. When	fully	implemented,	this	model	will	enable	the	Firm	to	enhance	its	reporting	and analysis	of	operational	risk	data,	leading	to	improved	risk	management	and	financial performance.

Audit	alignment:	In	addition	to	conducting	independent	internal	audits,	the	Firm's internal	audit	group	provided	guidance	on	the	design	and	implementation	of	the operational	risk	framework.	This	guidance	has	helped	further	the	Firm-wide implementation	of	the	framework,	which	in	turn	has	led	to	a	stronger	overall	control environment.	The	internal	audit	group	utilizes	the	business	self-assessment	results	to help	focus	its	internal	audits	on	operational	control	issues.	The	group	also	reviews	the effectiveness	and	accuracy	of	the	business	self-assessment	process	during	the conduct	of	its	audits.

# Operational	Risk	Categories

For	purposes	of	analysis	and	aggregation,	the	Firm	breaks	operational	risk	events	down into	five	primary	categories:

•	 Clients,	products	and	business	practices •	 Fraud,	theft	and	unauthorized	activity •	 Execution	and	processing	errors •	 Employment	practices	and	workplace	safety •	 Physical	asset	and	infrastructure	damage

# Compliance	with	Sarbanes-Oxley	Section	404

The	Firm	intends	to	use,	as	much	as	possible,	its	existing	corporate	governance	and operational	risk	management	practices	to	satisfy	the	requirements	of	Section	404	of	the Sarbanes-Oxley	Act	regarding	internal	control	over	financial	reporting.	The	Firm	is currently	in	the	process	of	evaluating	the	requirements	of	Section	404	and	of implementing	additional	procedures	into	its	existing	practices.	The	Firm	intends	to	be	in full	compliance	with	the	requirements	of	the	Act	when	they	become	effective	in	2004. For	a	further	discussion	on	the	Act,	see	page	79	of	this	Annual	Report.

# Capital	allocation	for	operational	and	business	risk

During	2003,	the	Firm	implemented	a	new	risk-based	capital	allocation	methodology which	estimates	operational	and	business	risk	independently,	on	a	bottoms-up	basis, and	allocates	capital	to	each	component.	Implementation	of	the	new	methodology	in 2003	resulted	in	an	overall	lower	amount	of	capital	allocated	to	the	lines	of	business with	respect	to	operational	and	business	risks.

The	operational	risk	capital	model	is	based	on	actual	losses	and	potential	scenario- based	stress	losses,	with	adjustments	to	the	capital	calculation	to	reflect	changes	in	the quality	of	the	control	environment	and	with	a	potential	offset	for	the	use	of	risk-transfer products.	The	Firm	believes	the	model	is	consistent	with	the	proposed	Basel	II	Accord and	expects	to	propose	it	eventually

for	qualification	under	the	Advanced	Measurement	Approach	for	operational	risk.

Business	risk	is	defined	as	the	risk	associated	with	volatility	in	the	Firm's	earnings	due to	factors	not	captured	by	other	parts	of	its	economic-capital	framework.	Such	volatility can	arise	from	ineffective	design	or	execution	of	business	strategies,	volatile	economic or	financial	market	activity,	changing	client	expectations	and	demands,	and restructuring	to	adjust	for	changes	in	the	competitive	environment.	For	business	risk, capital	is	allocated	to	each	business	based	on	historical	revenue	volatility	and measures	of	fixed	and	variable	expenses.	Earnings	volatility	arising	from	other	risk factors,	such	as	credit,	market,	or	operational	risk,	is	excluded	from	the	measurement of	business	risk	capital,	as	those	factors	are	captured	under	their	respective	risk	capital models.

# Reputation	and	Fiduciary	risk

A	firm's	success	depends	not	only	on	its	prudent	management	of	credit,	market, operational	and	business	risks,	but	equally	on	the	maintenance	of	its	reputation	among many	constituents	—	clients,	investors,	regulators,	as	well	as	the	general	public	—	for business	practices	of	the	highest	quality.

Attention	to	its	reputation	has	always	been	a	key	aspect	of	the	Firm's	practices,	and maintenance	of	reputation	is	the	responsibility	of	everyone	at	the	Firm.	JPMorgan Chase	bolsters	this	individual	responsibility	in	many	ways:	the	Worldwide	Rules	of Conduct,	training,	policies	and	oversight	functions	that	approve	transactions.	These oversight	functions	include	a	Conflicts	Office,	which	examines	transactions	with	the potential	to	create	conflicts	of	interest	or	role	for	the	Firm.

In	addition,	the	Firm	maintains	a	Fiduciary	Risk	Management	Committee	("FRMC")	to oversee	fiduciary-related	risks	that	may	produce	significant	losses	or	reputational damage,	and	that	are	not	covered	elsewhere	by	the	corporate	risk	management oversight	structure.	The	primary	goal	of	the	fiduciary	risk	management	function	is	to ensure	that	a	business,	in	providing	investment	or	risk	management	products	or services,	performs	at	the	appropriate	standard	relative	to	its	relationship	with	a	client, whether	it	be	fiduciary	or	nonfiduciary	in	nature.	A	particular	focus	of	the	FRMC	is	the policies	and	practices	that	address	a	business's	responsibilities	to	a	client,	including	the policies	and	practices	that	address	client	suitability	determination,	disclosure obligations	and	performance	expectations	with	respect	to	the	investment	and	risk management	products	or	services	being	provided.	In	this	way,	the	FRMC	provides oversight	of	the	Firm's	efforts	to	measure,	monitor	and	control	the	risks	that	may	arise in	the	delivery	of	such	products	or	services	to	clients,	as	well	as	those	stemming	from its	fiduciary	responsibilities	undertaken	on	behalf	of	employees.

The	Firm	has	an	additional	structure	to	account	for	potential	adverse	effects	on	its reputation	from	transactions	with	clients,	especially	complex	derivatives	and	structured finance	transactions.	This	structure,	implemented	in	2002,	reinforces	the	Firm's procedures	for	examining	transactions	in	terms	of	appropriateness,	ethical	issues	and reputational	risk,	and	it	intensifies	the	Firm's

scrutiny	of	the	purpose	and	effect	of	its	transactions	from	the	client's	point	of	view,	with the	goal	that	these	transactions	are	not	used	to	mislead	investors	or	others.	The structure	operates	at	three	levels:	as	part	of	every	business's	transaction	approval process;	through	review	by	regional	Policy	Review	Committees;	and	through	oversight by	the	Policy	Review	Office.

# Business	transaction	approval

Primary	responsibility	for	adherence	to	the	policies	and	procedures	designed	to address	reputation	risk	lies	with	the	business	units	conducting	the	transactions	in question.	The	Firm's	transaction	approval	process	requires	review	and	sign-off	from, among	others,	internal	legal/compliance,	conflicts,	tax	and	accounting	policy	groups. Transactions	involving	an	SPE	established	by	the	Firm	receive	particular	scrutiny	and must	comply	with	a	Special-Purpose	Vehicle	Policy,	designed	to	ensure	that	every such	entity	is	properly	approved,	documented,	monitored	and	controlled.

# Regional	policy	review	committees

Business	units	are	also	required	to	submit	to	regional	Policy	Review	Committees proposed	transactions	that	may	heighten	reputation

JPMP	employs	processes	for	risk	measurement	and	control	of	private	equity	risk	that are	similar	to	those	used	for	other	businesses	within	the	Firm.	The	processes	are coordinated	with	the	Firm's	overall	approach	to	market	and	concentration	risk.	Private equity	risk	is	initially	monitored	through	the	use	of	industry	and	geographic	limits. Additionally,	to	manage	the	pace	of	new	investments,	a	ceiling	on	the	amount	of	annual private	equity	investment	activity	has	been	established.

JPMP's	public	equity	holdings	create	a	significant	exposure	to	general	declines	in	the equity	markets.	To	gauge	that	risk,	VAR	and	stress-test	exposures	are	calculated	in	the same	way	as	they	are	for	the	Firm's	trading	and	nontrading	portfolios.	JPMP management	undertakes	frequent	reviews	of	its	public	security	holdings	as	part	of	a disciplined	approach	to	sales	and	hedging	issues.	Hedging	programs	are	limited	but	are considered	when

The	Firm's	accounting	policies	and	use	of	estimates	are	integral	to	understanding	the reported	results.	The	Firm's	most	complex	accounting	estimates	require	management's judgment	to	ascertain	the	valuation	of	assets	and	liabilities.	The	Firm	has	established detailed	policies	and	control	procedures	intended	to	ensure	valuation	methods, including	any	judgments	made	as	part	of	such	methods,	are	well	controlled, independently	reviewed	and	applied	consistently	from	period	to	period.

risk	—	particularly	a	client's	motivation	and	its	intended	financial	disclosure	of	the transaction.	The	committees	approve,	reject	or	require	further	clarification	on	or changes	to	the	transactions.	The	members	of	these	committees	are	senior representatives	of	the	business	and	support	units	in	the	region.	The	committees	may escalate	transaction	review	to	the	Policy	Review	Office.

# Policy	Review	Office

The	Policy	Review	Office	is	the	most	senior	approval	level	for	client	transactions involving	reputation	risk	issues.	The	mandate	of	the	Office	is	to	opine	on	specific transactions	brought	by	the	Regional	Committees	and	consider	changes	in	policies	or practices	relating	to	reputation	risk.	The	head	of	the	office	consults	with	the	Firm's	most senior	executives	on	specific	topics	and	provides	regular	updates.	Aside	from governance	and	guidance	on	specific	transactions,	the	objective	of	the	policy	review process	is	to	reinforce	a	culture,	through	a	"case	study"	approach,	that	ensures	that	all employees,	regardless	of	seniority,	understand	the	basic	principles	of	reputation	risk control	and	can	recognize	and	address	issues	as	they	arise.

practical	and	as	circumstances	dictate.	Over	time,	the	Firm	may	change	the	nature	and type	of	hedges	it	enters	into,	as	well	as	close	hedging	positions	altogether.

# Capital	allocation	for	private	equity	risk

Internal	capital	is	allocated	to	JPMP's	public	equities	portfolio	based	on	stress scenarios	which	reflect	the	potential	loss	inherent	in	the	portfolio	in	the	event	of	a	large equity	market	decline.	Capital	is	also	allocated	for	liquidity	risk,	which	results	from	the contractual	sales	restrictions	to	which	some	holdings	are	subject.	For	private	equities, capital	is	allocated	based	on	a	long-term	equity	market	stress	scenario	that	is consistent	with	the	investment	time	horizons	associated	with	these	holdings.	For	these investments,	additional	capital	is	allocated	against	the	risk	of	an	unexpectedly	large number	of	write-offs	or	write-downs.	The	Firm	refined	its	methodology	for	measuring private	equity	risk	during	the	second	quarter	of	2003.	It	now	assigns	a	moderately higher	amount	of	capital	for	the	risk	in	the	private	equity	portfolio,	most	of	which	is assigned	to	JPMP.

In	addition,	the	policies	and	procedures	are	intended	to	ensure	that	the	process	for changing	methodologies	occurs	in	an	appropriate	manner.	The	Firm	believes	its estimates	for	determining	the	valuation	of	its	assets	and	liabilities	are	appropriate.

The	following	is	a	brief	description	of	the	Firm's	critical	accounting	estimates	involving significant	management	valuation	judgments.

JPMorgan	Chase's	Allowance	for	credit	losses	covers	the	commercial	and	consumer loan	portfolios	as	well	as	the	Firm's	portfolio	of	commercial	lending-related commitments.	The	allowance	for	loan	losses	is	intended	to	adjust	the	value	of	the Firm's	loan	assets	for	probable	credit	losses	as	of	the	balance	sheet	date	in accordance	with	generally	accepted	accounting	principles.	Management	also computes	an	allowance	for	lending-related	commercial	commitments	using	a methodology	similar	to	that	used	for	the	commercial	loan	portfolio.	For	a	further discussion	of	the	methodologies	used	in	establishing	the	Firm's	Allowance	for	credit losses,	see	Note	12	on	page	100	of	this	Annual	Report.

# Commercial	loans	and	lending-related	commitments

The	methodology	for	calculating	both	the	Allowance	for	loan	losses	and	the	Allowance for	lending-related	commitments	involves	significant	judgment.	First	and	foremost,	it involves	the	early	identification	of	credits	that	are	deteriorating.	Second,	it	involves management	judgment	to	derive	loss	factors.

The	Firm	uses	a	risk	rating	system	to	determine	the	credit	quality	of	its	loans. Commercial	loans	are	reviewed	for	information	affecting	the	obligor's	ability	to	fulfill	its obligations.	In	assessing	the	risk	rating	of	a	particular	loan,	among	the	factors considered	include	the	obligor's	debt	capacity	and	financial	flexibility,	the	level	of	the obligor's	earnings,	the	amount	and	sources	of	repayment,	the	level	and	nature	of contingencies,	management	strength,	and	the	industry	and	geography	in	which	the obligor	operates.	These	factors	are	based	on	an	evaluation	of	historical	information	and current	information	as	well	as	subjective	assessment	and	interpretation.	Emphasizing one	factor	over	another	or	considering	additional	factors	that	may	be	relevant	in determining	the	risk	rating	of	a	particular	loan,	but	which	are	not	currently	an	explicit part	of	the	Firm's	methodology,	could	impact	the	risk	rating	assigned	by	the	Firm	to	that loan.

Management	also	applies	its	judgment	to	derive	loss	factors	associated	with	each credit	facility.	These	loss	factors	are	determined	by	facility	structure,	collateral	and	type of	obligor.	Wherever	possible,	the	Firm	uses	independent,	verifiable	data	or	the	Firm's own	historical	loss	experience	in	its	models	for	estimating	these	loss	factors.	Many factors	can	affect	management's	estimates	of	specific	loss	and	expected	loss,	including volatility	of	default	probabilities,	rating	migrations	and	loss	severity.	For	example, judgment	is	required	to	determine	how	many	years	of	data	to	include	when	estimating the	possible	severity	of	the	loss.	If	a	full	credit	cycle	is	not	captured	in	the	data,	then estimates	may	be	inaccurate.	Likewise,	judgment	is	applied	to	determine	whether	the loss-severity	factor	should	be	calculated	as	an	average	over	the	entire	credit	cycle	or whether	to	apply	the	loss-severity	factor	implied	at	a	particular	point	in	the	credit	cycle. The	application	of	different	loss-severity	factors	would	change	the	amount	of	the allowance	for	credit	losses

determined	appropriate	by	the	Firm.	Similarly,	there	are	judgments	as	to	which	external data	on	default	probabilities	should	be	used,	and	when	they	should	be	used.	Choosing data	that	are	not	reflective	of	the	Firm's	specific	loan	portfolio	characteristics	could affect	loss	estimates.

As	noted	above,	the	Firm's	allowance	for	loan	losses	is	sensitive	to	the	risk	rating assigned	to	a	loan.	Assuming	a	one-notch	downgrade	in	the	Firm's	internal	risk	ratings for	all	its	commercial	loans,	the	allowance	for	loan	losses	for	the	commercial	portfolio would	increase	by	approximately	$470	million	at	December	31,	2003.	Furthermore, assuming	a	10%	increase	in	the	loss	severity	on	all	downgraded	non-criticized	loans, the	allowance	for	commercial	loans	would	increase	by	approximately	$50	million	at December	31,	2003.	These	sensitivity	analyses	are	hypothetical	and	should	be	used with	caution.	The	purpose	of	these	analyses	is	to	provide	an	indication	of	the	impact risk	ratings	and	loss	severity	have	on	the	estimate	of	the	allowance	for	loan	losses	for commercial	loans.	It	is	not	intended	to	imply	management's	expectation	of	future deterioration	in	risk	ratings	or	changes	in	loss	severity.	Given	the	process	the	Firm follows	in	determining	the	risk	ratings	of	its	loans	and	assessing	loss	severity, management	believes	the	risk	ratings	and	loss	severities	currently	assigned	to commercial	loans	are	appropriate.	Furthermore,	the	likelihood	of	a	one-notch downgrade	for	all	commercial	loans	within	a	short	timeframe	is	remote.

# Consumer	loans

The	consumer	portfolio	is	segmented	into	three	main	business	lines:	Chase	Home Finance,	Chase	Cardmember	Services	and	Chase	Auto	Finance.	For	each	major portfolio	segment	within	each	line	of	business,	there	are	three	primary	factors	that	are considered	in	determining	the	expected	loss	component	of	the	allowance	for	loan losses:	period-end	outstandings,	expected	loss	factor	and	average	life.	The	various components	of	these	factors,	such	as	collateral,	prepayment	rates,	credit	score distributions,	collections	and	the	historical	loss	experience	of	a	business	segment,	differ across	business	lines.	For	example,	credit	card	revolving	credit	has	significantly	higher charge-off	ratios	than	fixed	mortgage	credit.	Determination	of	each	factor	is	based primarily	on	statistical	data	and	macroeconomic	assumptions.

# Residual	component

Management's	judgments	are	also	applied	when	considering	uncertainties	that	relate	to current	macroeconomic	and	political	conditions,	the	impact	of	currency	devaluation	on cross-border	exposures,	changes	in	underwriting	standards,	unexpected	correlations within	the	portfolio	or	other	factors.	For	example,	judgment	as	to	political	developments in	a	particular	country	will	affect	management's	assessment	of	potential	loss	in	the credits	that	have	exposure	to	that	country.	A	separate	allowance	component,	the residual	component,	is	maintained	to	cover	these	uncertainties,	at	December	31,	2003, in	the

commercial	portfolio.	It	is	anticipated	that	the	residual	component	will	range	between 10%	and	20%	of	the	total	allowance	for	credit	losses.

# Fair	value	of	financial	instruments

A	portion	of	JPMorgan	Chase's	assets	and	liabilities	are	carried	at	fair	value,	including trading	assets	and	liabilities,	AFS	securities	and	private	equity	investments.	Held-for- sale	loans	and	mortgage	servicing	rights	are	carried	at	the	lower	of	fair	value	or	cost.	At December	31,	2003,	approximately	$346	billion	of	the	Firm's	assets	were	recorded	at fair	value.

Fair	value	of	a	financial	instrument	is	defined	as	the	amount	at	which	the	instrument could	be	exchanged	in	a	current	transaction	between	willing	parties,	other	than	in	a forced	or	liquidation	sale.	The	majority	of	the	Firm's	assets	reported	at	fair	value	are based	on	quoted	market	prices	or	on	internally	developed	models	that	are	based	on independently	sourced	market	parameters,	including	interest	rate	yield	curves,	option volatilities	and	currency	rates.

The	valuation	process	takes	into	consideration	factors	such	as	liquidity	and concentration	concerns	and,	for	the	derivative	portfolio,	counterparty	credit	risk.	See	the discussion	of	CVA	on	page	59	of	this	Annual	Report.	Management	applies	judgment	in determining	the	factors	used	in	the	valuation	process.	For	example,	there	is	often limited	market	data	to	rely	on	when	estimating	the	fair	value	of	a	large	or	aged	position. Similarly,	judgment	must	be	applied	in	estimating	prices	for	less	readily	observable external	parameters.	Finally,	other	factors	such	as	model	assumptions,	market dislocations	and	unexpected	correlations	can	affect	estimates	of	fair	value.	Imprecision in	estimating	these	factors	can	impact	the	amount	of	revenue	or	loss	recorded	for	a particular	position.

# Trading	and	available-for-sale	portfolios

Substantially	all	of	the	Firm's	securities	held	for	trading	and	investment	purposes	("long" positions)	and	securities	that	the	Firm	has	sold	to	other	parties	but	does	not	own	("short" positions)	are	valued	based	on	quoted	market	prices.	However,	certain	securities	are less	actively	traded	and,	therefore,	are	not	always	able	to	be	valued	based	on	quoted market	prices.	The	determination	of	their	fair	value	requires	management	judgment,	as this	determination	may	require	benchmarking	to	similar	instruments	or	analyzing	default and	recovery	rates.

As	few	derivative	contracts	are	listed	on	an	exchange,	the	majority	of	the	Firm's derivative	positions	are	valued	using	internally	developed	models	that	use	as	their	basis readily	observable	market	parameters	—	that	is,	parameters	that	are	actively	quoted and	can	be	validated	to	external	sources,	including	industry-pricing	services.	Certain derivatives,	however,	are	valued	based	on	models	with	significant	unobservable	market parameters	—	that	is,	parameters	that	may	be	estimated	and	are,	therefore,	subject	to management	judgment	to	substantiate	the	model	valuation.	These	instruments	are normally	either	less	actively	traded	or	trade	activity	is	one-way.	Examples	include	long- dated	interest	rate	or	currency	swaps,	where	swap	rates	may	be	unobservable	for longer	maturities;	and	certain	credit	products,	where	correlation	and	recovery	rates	are unobservable.

Management	judgment	includes	recording	fair	value	adjustments	(i.e.,	reductions)	to model	valuations	to	account	for	parameter	uncertainty	when	valuing	complex	or	less actively	traded	derivative	transactions.

The	table	below	summarizes	the	Firm's	trading	and	AFS	portfolios	by	valuation methodology	at	December	31,	2003:

|  | Trading	assets | Trading	assets | Trading	assets | Trading	liabilities | Trading	liabilities | Trading	liabilities | Trading	liabilities |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Securities |  |  | Securities | Securities |  |  | AFS |
|  | (a)\npurchased | Derivatives | (b) | sold | (a) | Derivatives | (b) | securities |
| Fair\tvalue\tbased\ton: |  |  |  |  |  |  |  |  |
| Quoted\tmarket\tprices | 92% |  | 3% |  | 94% |  | 2% | 92% |
| Internal\tmodels\twith\tsignificant\tobservable\tmarket\tparameters | 7 |  | 95 |  | 4 |  | 96 | 3 |
| Internal\tmodels\twith\tsignificant\tunobservable\tmarket\tparameters | 1 |  | 2 |  | 2 |  | 2 | 5 |
| Total | 100% |  | 100% | 100% | 100% |  | 100% | 100% |
| (a) |  |  |  |  |  |  |  |  |

(a) Reflected	as	Debt	and	equity	instruments	on	the	Firm's	Consolidated	balance	sheet.

(b) Based	on	gross	MTM	values	of	the	Firm's	derivatives	portfolio	(i.e.,	prior	to	netting	positions	pursuant	to	FIN	39),	as	cross-product	netting	is	not	relevant	to	an	analysis	based	on	valuation	methodologies.

To	ensure	that	the	valuations	are	appropriate,	the	Firm	has	various	controls	in	place. These	include:	an	independent	review	and	approval	of	valuation	models;	detailed review	and	explanation	for	profit	and	loss	analyzed	daily	and	over	time;	decomposing the	model	valuations	for	certain	structured	derivative	instruments	into	their	components and	benchmarking	valuations,	where	possible,	to	similar	products;	and	validating valuation	estimates	through	actual	cash	settlement.	As	markets	and	products	develop and	the	pricing	for	certain	derivative	products	becomes

more	transparent,	the	Firm	refines	its	valuation	methodologies.	The	Valuation	Control Group	within	the	Finance	area	is	responsible	for	reviewing	the	accuracy	of	the valuations	of	positions	taken	within	the	Investment	Bank.

For	a	discussion	of	market	risk	management,	including	the	model	review	process,	see Market	Risk	Management	on	pages	66-72	of	this	Annual	Report.	For	further	details regarding	the	Firm's	valuation	methodologies,	see	Note	31	on	pages	120-123	of	this Annual	Report.

# Loans	held-for-sale

The	fair	value	of	loans	in	the	held-for-sale	portfolio	is	generally	based	on	observable market	prices	of	similar	instruments,	including	bonds,	credit	derivatives	and	loans	with similar	characteristics.	If	market	prices	are	not	available,	fair	value	is	based	on	the estimated	cash	flows,	adjusted	for	credit	risk	that	is	discounted	using	a	rate	appropriate for	each	maturity	that	incorporates	the	effects	of	interest	rate	changes.

# Private	equity	investments

Valuation	of	private	investments	held	by	JPMP	requires	significant	management judgment	due	to	the	absence	of	quoted	market	prices,	inherent	lack	of	liquidity	and long-term	nature	of	such	assets.	Private	investments	are	initially	valued	based	on	cost. The	carrying	values	of	private	investments	are	adjusted	from	cost	to	reflect	both positive	and	negative	changes	evidenced	by	financing	events	with	third-party	capital providers.	In	addition,	these	investments	are	subject	to	ongoing	impairment	reviews	by JPMP's	senior	investment	professionals.	A	variety	of	factors	are	reviewed	and monitored	to	assess	impairment	including,	but	not	limited	to,	operating	performance	and future	expectations,	industry	valuations	of	comparable	public	companies,	changes	in market	outlook	and	the	third-party	financing	environment	over	time.	The	Valuation Control	Group	within	the	Finance	area	is	responsible	for	reviewing	the	accuracy	of	the

carrying	values	of	private	investments	held	by	JPMP.	For	additional	information	about private	equity	investments,	see	the	Private	equity	risk	management	discussion	on	page 74	and	Note	15	on	page	106	of	this	Annual	Report.

# MSRs	and	certain	other	retained	interests

MSRs	and	certain	other	retained	interests	from	securitization	activities	do	not	trade	in an	active,	open	market	with	readily	observable	prices.	For	example,	sales	of	MSRs	do occur,	but	the	precise	terms	and	conditions	are	typically	not	readily	available. Accordingly,	the	Firm	estimates	the	fair	value	of	MSRs	and	certain	other	retained interests	using	a	discounted	future	cash	flow	model.	The	model	considers	portfolio characteristics,	contractually	specified	servicing	fees	and	prepayment	assumptions, delinquency	rates,	late	charges,	other	ancillary	revenues,	costs	to	service	and	other economic	factors.	The	Firm	compares	its	fair	value	estimates	and	assumptions	to observable	market	data	where	available,	to	recent	market	activity	and	to	actual	portfolio experience.	Management	believes	that	the	fair	values	and	related	assumptions	are comparable	to	those	used	by	other	market	participants.	For	a	further	discussion	of	the most	significant	assumptions	used	to	value	these	retained	interests,	as	well	as	the applicable	stress	tests	for	those	assumptions,	see	Notes	13	and	16	on	pages	100-103 and	107-109,	respectively,	of	this	Annual	Report.

# Nonexchange-traded	commodity	contracts	at	fair	value

In	the	normal	course	of	business,	JPMorgan	Chase	trades	nonex-change-traded commodity	contracts.	To	determine	the	fair	value	of	these	contracts,	the	Firm	uses various	fair	value	estimation	techniques,	which	are	primarily	based	on	internal	models with	significant	observable	market	parameters.	The	Firm's	nonex-

change-traded	commodity	contracts	are	primarily	energy-related	contracts.	The following	table	summarizes	the	changes	in	fair	value	for	nonexchange-traded commodity	contracts	for	the	year	ended	December	31,	2003:

| For	the	year	ended	December	31,	2003	(in	millions) | Asset	position | Liability	position |
| :--- | :--- | :--- |
| Net\tfair\tvalue\tof\tcontracts\toutstanding\tat\tJanuary\t1,\t2003 | $1,938 | $839 |
| Effect\tof\tlegally\tenforceable\tmaster\tnetting\tagreements | 1,279 | 1,289 |
| Gross\tfair\tvalue\tof\tcontracts\toutstanding\tat\tJanuary\t1,\t2003 | 3,217 | 2,128 |
| Contracts\trealized\tor\totherwise\tsettled\tduring\tthe\tperiod | (2,559) | (2,465) |
| Fair\tvalue\tof\tnew\tcontracts | 303 | 291 |
| Changes\tin\tfair\tvalues\tattributable\tto\tchanges\tin\tvaluation\ttechniques\tand\tassumptions | — | — |
| Other\tchanges\tin\tfair\tvalue | 1,370 | 1,716 |
| Gross\tfair\tvalue\tof\tcontracts\toutstanding\tat\tDecember\t31,\t2003 | 2,331 | 1,670 |
| Effect\tof\tlegally\tenforceable\tmaster\tnetting\tagreements | (834) | (919) |
| Net\tfair\tvalue\tof\tcontracts\toutstanding\tat\tDecember\t31,\t2003 | $1,497 | $751 |

The	following	table	indicates	the	schedule	of	maturities	of	nonexchange-traded	commodity	contracts	at	December	31,	2003:

| At	December	31,	2003	(in	millions) | Asset	position | Liability	position |
| :--- | :--- | :--- |
| Maturity\tless\tthan\t1\tyear | $842 | $901 |
| Maturity\t1-3\tyears | 1,128 | 550 |
| Maturity\t4-5\tyears | 356 | 212 |
| Maturity\tin\texcess\tof\t5\tyears | 5 | 7 |
| Gross\tfair\tvalue\tof\tcontracts\toutstanding\tat\tDecember\t31,\t2003 | 2,331 | 1,670 |
| Effects\tof\tlegally\tenforceable\tmaster\tnetting\tagreements | (834) | (919) |
| Net\tfair\tvalue\tof\tcontracts\toutstanding\tat\tDecember\t31,\t2003 | $1,497 | $751 |

# Accounting	for	stock-based	compensation

Effective	January	1,	2003,	JPMorgan	Chase	adopted	SFAS	123,	which	establishes	the accounting	for	stock-based	compensation	and	requires	that	all	such	transactions, including	stock	options,	be	accounted	for	at	fair	value	and	be	recognized	in	earnings. Awards	outstanding	as	of	December	31,	2002,	if	not	subsequently	modified,	continue to	be	accounted	for	under	APB	25.	For	a	further	discussion	on	the	adoption	of	SFAS 123,	see	Note	7	on	pages	93-95	of	this	Annual	Report.

# Consolidation	of	variable	interest	entities

In	January	2003,	the	FASB	issued	FIN	46.	Entities	that	would	be	assessed	for consolidation	under	FIN	46	are	typically	referred	to	as	Special-Purpose	Entities ("SPEs"),	although	non-SPE-type	entities	may	also	be	subject	to	the	guidance.	FIN	46 requires	a	variable	interest	entity	("VIE")	to	be	consolidated	by	a	company	if	that company	is	subject	to	a	majority	of	the	risk	of	loss	from	the	variable	interest	entity's activities	or	entitled	to	receive	a	majority	of	the	entity's	residual	returns,	or	both. Effective	February	1,	2003,	the	Firm	implemented	FIN	46	for	VIEs	created	or	modified after	January	31,	2003,	in	which	the	Firm	has	an	interest.

Effective	July	1,	2003,	the	Firm	adopted	the	provisions	of	FIN	46	for	all	VIEs	originated prior	to	February	1,	2003,	excluding	certain	investments	made	by	JPMP.	The	FASB provided	a	specific	deferral	for	nonregistered	investment	companies	until	the	proposed Statement	of	Position	on	the	clarification	of	the	scope	of	the	Investment	Company	Audit Guide	is	finalized,	which	is	expected	to	occur	in	mid-2004.	The	Firm	has	deferred consolidation	of	$2.7	billion	of	additional	assets	related	to	JPMP	as	of	December	31, 2003.	For	further	details	regarding	FIN	46,	refer	to	Note	14	on	pages	103-106	of	this Annual	Report.

In	December	2003,	the	FASB	issued	a	revision	to	FIN	46	("FIN	46R")	to	address various	technical	corrections	and	implementation	issues	that	have	arisen	since	its issuance.	The	provisions	of	FIN	46R	are	effective	for	financial	periods	ending	after March	15,	2004,	thus	the	Firm	will	implement	the	new	provisions	effective	March	31, 2004.	As	FIN	46R	was	recently	issued	and	contains	provisions	that	the	accounting profession	continues	to	analyze,	the	Firm's	assessment	of	the	impact	of	FIN	46R	on	all VIEs	with	which	it	is	involved	is	ongoing.	However,	at	this	time	and	based	on management's	current	interpretation,	the	Firm	does	not	believe	that	the	implementation of	FIN	46R	will	have	a	material	impact	on	the	Firm's	Consolidated	financial	statements, earnings	or	capital	resources.

# Accounting	for	certain	financial	instruments	with characteristics	of	both	liabilities	and	equity

In	May	2003,	the	FASB	issued	SFAS	150,	which	establishes	standards	for	how	an issuer	classifies	and	measures	in	its	statement	of	financial	position	certain	financial instruments	with	characteristics	of	both	liabilities	and	equity.	It	requires	that	an	issuer classi-

fy	a	financial	instrument	that	is	within	its	scope	as	a	liability	(or	an	asset	in	some circumstances),	because	that	financial	instrument	embodies	an	obligation	of	the	issuer. Initially,	SFAS	150	was	effective	for	all	financial	instruments	entered	into	or	modified after	May	31,	2003,	and	was	otherwise	effective	beginning	July	1,	2003.	In November	2003,	the	FASB	deferred	the	effective	date	of	the	statement	with	respect	to mandatorily	redeemable	financial	instruments	of	certain	nonpublic	entities	and	for certain	mandatorily	redeemable	noncontrolling	interests.	The	implementation	of	SFAS 150	did	not	have	a	material	impact	on	the	Firm's	Consolidated	financial	statements.

# Derivative	instruments	and	hedging	activities

In	April	2003,	the	FASB	issued	SFAS	149,	which	amends	and	clarifies	the	accounting for	derivative	instruments,	including	certain	derivative	instruments	embedded	in	other contracts,	and	for	hedging	activities	under	SFAS	133.	Specifically,	SFAS	149	clarifies the	circumstances	under	which	a	contract	with	an	initial	net	investment	meets	the characteristics	of	a	derivative,	and	when	a	derivative	contains	a	financing	component that	warrants	special	reporting	in	the	Consolidated	statement	of	cash	flows.	SFAS	149 is	generally	effective	for	contracts	entered	into	or	modified	after	June	30,	2003; implementation	did	not	have	a	material	effect	on	the	Firm's	Consolidated	financial statements	in	2003.

# Accounting	for	costs	associated	with	exit	or	disposal activities

In	June	2002,	the	FASB	issued	SFAS	146,	which	establishes	new	accounting	for	costs associated	with	exit	or	disposal	activities	initiated	after	December	31,	2002.	SFAS	146 requires	a	liability	for	a	cost	associated	with	an	exit	or	disposal	activity	to	be	recorded when	that	liability	is	incurred	and	can	be	measured	at	fair	value.	Under	the	previous rules,	if	management	approved	an	exit	plan	in	one	quarter,	the	costs	of	that	plan generally	would	have	been	recorded	in	the	same	quarter	even	if	the	costs	were	not incurred	until	a	later	quarter.	In	contrast,	under	SFAS	146,	some	costs	may	qualify	for immediate	recognition,	while	other	costs	may	be	incurred	over	one	or	more	quarters. The	impact	of	SFAS	146	will	generally	be	to	spread	out	the	timing	of	the	recognition	of costs	associated	with	exit	or	disposal	activities.

# Impairment	of	available-for-sale	and	held-to-maturity securities

In	November	2003,	the	Emerging	Issues	Task	Force	("EITF")	reached	a	consensus	on certain	additional	quantitative	and	qualitative	disclosure	requirements	in	connection with	its	deliberations	of	Issue	03-1,	the	impairment	model	for	available-for-sale	and held-to-maturity	securities	under	SFAS	115.	See	Note	9	on	page	97	of	this	Annual Report	which	sets	forth	the	disclosures	now	required.

# Goodwill	and	other	intangible	assets

Effective	January	1,	2002,	the	Firm	adopted	SFAS	142	which	establishes	the accounting	for	intangible	assets	(other	than	those	acquired	in	a	business	combination). It	also	addresses	the	accounting	for	goodwill	and	other	intangible	assets	subsequent	to an	acquisition.	For	a	further	discussion	on	the	adoption	of	SFAS	142,	see	Note	16	on page	107	of	this	Annual	Report.

# Accounting	for	certain	loans	or	debt	securities	acquired in	a	transfer

In	December	2003,	the	AICPA	issued	Statement	of	Position	03-3	("SOP	03-3"), Accounting	for	Certain	Loans	or	Debt	Securities	Acquired	in	a	Transfer.	SOP	03-3 provides	guidance	on	the	accounting	for	differences	between	contractual	and	expected cash	flows	from	the	purchaser's	initial	investment	in	loans	or	debt	securities	acquired	in a	transfer,	if	those	differences	are	attributable,	at	least	in	part,	to	credit	quality.	Among other	things,	SOP	03-3:	(1)	prohibits	the	recognition	of	the	excess	of	contractual	cash flows	over	expected	cash	flows	as	an	adjustment	of	yield,	loss	accrual	or	valuation allowance	at	the	time	of	purchase;	(2)	requires	that	subsequent	increases	in	expected cash	flows	be	recognized	prospectively	through	an	adjustment	of	yield;	and	(3)	requires that	subsequent	decreases	in	expected	cash	flows	be	recognized	as	an	impairment.	In addition,	SOP	03-3	prohibits	the	creation	or	carrying	over	of	a	valuation	allowance	in the	initial	accounting	of	all	loans	within	its	scope	that	are	acquired	in	a	transfer.	SOP	03- 3	becomes	effective	for	loans	or	debt	securities	acquired	in	fiscal	years	beginning	after December	15,	2004.

# Accounting	for	trading	derivatives

In	October	2002,	the	EITF	concluded	on	Issue	02-3,	which,	effective	January	1,	2003, precludes	mark-to-market	accounting	for	energy-related	contracts	that	do	not	meet	the definition	of	a	derivative	under	SFAS	133	(i.e.,	transportation,	storage	or	capacity contracts).	The	Firm	implemented	this	provision	of	Issue	02-3	effective	January	1, 2003;	implementation	did	not	have	a	material	effect	on	the	Firm's	Consolidated statement	of	income.	In	November	2002,	as	part	of	the	discussion	of	Issue	02-3,	the FASB	staff	further	confirmed	their	view	that	an	entity	should	not	recognize	profit	at	the inception	of	a	trade	involving	a	derivative	financial	instrument	in	the	absence	of: (a)	quoted	market	prices	in	an	active	market,	(b)	observable	prices	of	other	current market	transactions	or	(c)	other	observable	data	supporting	a	valuation	technique.	This clarification	did	not	have	a	material	impact	on	the	Firm's	Consolidated	statements	of income	in	2002	and	2003.	The	FASB	intends	in	2004	to	continue	to	focus	on	issues relating	to	the	fair	value	of	financial	instruments.

# Accounting	for	interest	rate	lock	commitments ("IRLCs")

IRLCs	associated	with	mortgages	(commitments	to	extend	credit	at	specified	interest rates)	are	currently	accounted	for	as	derivative	instruments	in	accordance	with	SFAS 149.	IRLCs	are	recorded	at	fair	value,	with	changes	in	fair	value	recorded	in	the	income statement.

In	October	2003,	the	FASB	added	a	new	project	to	its	agenda	to	clarify	SFAS	133,	with respect	to	the	information	that	should	be	used	to	determine	the	fair	value	of	IRLCs	that are	accounted	for	as	derivatives,	and	whether	loan	commitments	should	be	reported	as assets	by	the	issuer	of	that	commitment	(i.e.,	the	lender).	In	December	2003,	the	SEC prescribed	guidance	that	IRLCs	were	deemed	to	be	written	options	from	the	standpoint of	the	mortgage	lender	and,	as	a	result,	should	be	recorded	as	a	liability	at	inception and	remain	a	liability	until	the	loan	is	funded.	This	guidance	will	be	effective	for	IRLCs entered	into	with	potential	borrowers	after	March	31,	2004.	This	guidance	will	impact the	timing	of	revenue	recognition	related	to	IRLCs.	Further,	the	impact	of	this	guidance on	the	Firm's	current	practice	will	be	influenced	by	the	volume	of	new	IRLCs,	the volume	of	loan	sales	and	the	changes	in	market	interest	rates	during	the	period.	The Firm	is	currently	assessing	the	impact	of	this	guidance	on	its	results	of	operations	and hedging	strategies.

# Management's	Report	on	Internal	Control	over Financial	Reporting

In	June	2003,	the	Securities	and	Exchange	Commission	adopted	final	rules	under Section	404	of	the	Sarbanes-Oxley	Act	of	2002	("Section	404").	Commencing	with	its 2004	annual	report,	JPMorgan	Chase	will	be	required	to	include	a	report	of management	on	the	Firm's	internal	control	over	financial	reporting.	The	internal	control report	must	include	a	statement	of	management's	responsibility	for	establishing	and maintaining	adequate	internal	control	over	financial	reporting	for	the	Firm;	of management's	assessment	of	the	effectiveness	of	the	Firm's	internal	control	over financial	reporting	as	of	year-end;	of	the	framework	used	by	management	to	evaluate the	effectiveness	of	the	Firm's	internal	control	over	financial	reporting;	and	that	the Firm's	independent	accounting	firm	has	issued	an	attestation	report	on	management's assessment	of	the	Firm's	internal	control	over	financial	reporting,	which	report	is	also required	to	be	filed	as	part	of	the	Annual	Report.

JPMorgan	Chase's	2002	net	income	was	$1.7	billion,	relatively	flat	when	compared	with the	prior	year.	Net	income	per	diluted	share	was	$0.80	in	2002,	unchanged	from	2001.

Total	revenues	for	2002	of	$29.6	billion	were	up	by	only	1%	from	2001.	The	consumer businesses	of	the	Firm	contributed	to	the	higher	revenue,	benefiting	primarily	from	the gradual	reduction	in	interest	rates	in	2002.	Mortgage	originations	at	Chase	Home Finance	in	high-margin	sectors	like	retail,	wholesale,	telephone-based	and	e-commerce reached	$113	billion,	30%	above	the	level	reached	in	2001.	This	exceptional	growth, however,	was	partly	offset	by	the	sluggishness	in	the	wholesale	businesses,	primarily IB,	due	to	the	continued	slowdown	in	market	activities,	a	reflection	of	the	weak economic	environment	and	diminished	investor	confidence.

From	a	business-segment	point	of	view,	the	revenue	results	were	mixed	in	2002.	CFS revenue	of	$13.4	billion	grew	by	24%	over	2001,	reflecting	high	volumes	across	all consumer	credit	businesses	and	significant	gains	in	Chase	Home	Finance	from	the hedging	of	MSRs,	partially	offset	by	the	negative	impact	of	lower	interest	rates	on deposits.	TSS	reported	modest	revenue	growth,	as	strong	gains	in	Treasury	Services and	Institutional	Trust	Services,	attributable	mostly	to	new	businesses,	were	offset	by	a decline	in	Investor	Services,	which	suffered	from	the	lower	value	of	assets	held	under custody.	These	increases	were	offset	by	declines	in	the	Firm's	wholesale	businesses. In	IB,	revenue	declined	15%,	driven	by	the	reduction	in	capital	markets	and	lending revenue,	as	well	as	in	Investment	banking	fees.	The	reduction	in	capital	markets revenue	was	primarily	attributable	to	lower	portfolio	management	revenue	related	to both	fixed	income	and	equities	transactions.	IMPB's	revenue	in	2002	declined	11% from	2001,	reflecting	the	depreciation	in	the	equities	market	and	institutional	outflows across	all	asset	classes.	JPMP	recognized	private	equity	losses	of	$733	million	in 2002,	compared	with	losses	of	$1.2	billion	in	2001,	as	a	result	of	lower	levels	of	write- downs	and	write-offs,	particularly	in	the	Technology	and	Telecommunications	sectors.

The	Firm's	total	noninterest	expense	was	$22.8	billion	in	2002,	down	4%	from	2001, with	both	years	incurring	several	large	charges.	In	2002,	the	costs	associated	with merger	and	restructuring	initiatives	were	$1.2	billion,	versus	$2.5	billion	in	2001.	In addition,	in	2002,	the	Firm	recorded	a	$1.3	billion	charge	in	connection	with	the settlement	of	its	Enron-related	surety	litigation	and	the	establishment	of	a	reserve related	to	certain	material	litigation,	proceedings	and	investigations,	as	well	as	a	$98 million	charge	for	unoccupied	excess	real	estate.	Excluding	the	impact	of	these	charges in	both	years,	the	Firm's	full-year	2002	noninterest	expense	of	$20.2	billion	was	lower than	that	of	2001.	Severance	and	related	costs	from	expense	management	initiatives, approximately	70%	of	which	were	in	IB,	added	$890	million	to	noninterest	expense	for 2002.	These	charges	were	more	than	offset	by	the	continued	focus	on	expenses,	which kept	spending	levels	low,	and	by	the	adoption	in	2002	of	SFAS	142,	which	eliminated the	amortization	of	goodwill.

All	business	segments	reported	lower-to-flat	noninterest	expenses,	except	CFS,	where higher	business	volumes	resulted	in	expense	growth.	IB	and	IMPB	reduced	headcount in	response	to	lower	market	activity	levels.	At	TSS,	tight	expense	management	in	2002 allowed	for	investments	while	keeping	expense	levels	essentially	flat	with	2001.

The	Provision	for	credit	losses	increased	to	$4.3	billion	in	2002,	up	36%	from	the	prior year.	This	was	principally	attributable	to	troubled	commercial	credits	in	the Telecommunications	and	Cable	sectors	and	the	impact	of	the	Providian	acquisition	in 2002,	partially	offset	by	a	decrease	in	the	consumer	provision,	reflecting	the	effect	of credit	card	securitizations.

Income	tax	expense	in	2002	was	$856	million,	compared	with	$847	million	in	2001. The	effective	tax	rate	was	34%	in	2002,	versus	33%	in	2001.	The	increase	in	the effective	tax	rate	was	principally	attributable	to	the	level	of	income	earned	in	certain state	and	local	tax	jurisdictions	in	2002.

# and	Report	of	independent	auditors	J.P.	Morgan	Chase	&	Co.

# To	our	stockholders:

The	management	of	J.P.	Morgan	Chase	&	Co.	has	the	responsibility	for	preparing	the accompanying	consolidated	financial	statements	and	for	their	integrity	and	objectivity. The	statements	were	prepared	in	accordance	with	accounting	principles	generally accepted	in	the	United	States	of	America.	The	consolidated	financial	statements include	amounts	that	are	based	on	management's	best	estimates	and	judgments. Management	also	prepared	the	other	information	in	the	Annual	Report	and	is responsible	for	its	accuracy	and	consistency	with	the	consolidated	financial	statements.

Management	maintains	a	comprehensive	system	of	internal	control	to	provide reasonable	assurance	of	the	proper	authorization	of	transactions,	the	safeguarding	of assets	and	the	reliability	of	the	financial	records.	The	system	of	internal	control	provides for	appropriate	division	of	responsibility	and	is	documented	by	written	policies	and procedures	that	are	communicated	to	employees.	J.P.	Morgan	Chase	&	Co.	maintains a	strong	internal	auditing	program	that	independently	assesses	the	effectiveness	of	the system	of	internal	control	and	recommends	possible	improvements.	Management believes	that	at	December	31,	2003,	J.P.	Morgan	Chase	&	Co.	maintained	an	effective system	of	internal	control.

The	Audit	Committee	of	the	Board	of	Directors	reviews	the	systems	of	internal	control and	financial	reporting.	The	Committee,	which	is	comprised	of	directors	who	are independent	from	J.P.	Morgan	Chase	&	Co.,	meets	and	consults	regularly	with management,	the	internal	auditors	and	the	independent	accountants	to	review	the scope	and	results	of	their	work.

# To	the	Board	of	Directors	and	stockholders	of J.P.	Morgan	Chase	&	Co.:

In	our	opinion,	the	accompanying	consolidated	balance	sheets	and	the	related consolidated	statements	of	income,	of	changes	in	stockholders'	equity	and	of	cash flows	present	fairly,	in	all	material	respects,	the	financial	position	of	J.P.	Morgan	Chase &	Co.	and	its	subsidiaries	at	December	31,	2003	and	December	31,	2002,	and	the results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period ended	December	31,	2003,	in	conformity	with	accounting	principles	generally	accepted in	the	United	States	of	America.	These	financial	statements	are	the	responsibility	of J.P.	Morgan	Chase	&	Co.'s	management;	our	responsibility	is	to	express	an	opinion	on these	financial	statements	based	on	our	audits.	We	conducted	our	audits	of	these statements	in	accordance	with	auditing	standards	generally	accepted	in	the	United States	of	America,	which	require	that	we	plan	and	perform	the	audit	to	obtain reasonable	assurance	about	whether	the	financial	statements	are	free	of	material misstatement.	An	audit	includes	examining,	on	a	test	basis,

The	accounting	firm	of	PricewaterhouseCoopers	LLP	has	performed	an	independent audit	of	J.P.	Morgan	Chase	&	Co.'s	financial	statements.	Management	has	made available	to	PricewaterhouseCoopers	LLP	all	of	J.P.	Morgan	Chase	&	Co.'s	financial records	and	related	data,	as	well	as	the	minutes	of	stockholders'	and	directors' meetings.	Furthermore,	management	believes	that	all	representations	made	to PricewaterhouseCoopers	LLP	during	its	audit	were	valid	and	appropriate.	The accounting	firm's	report	appears	below.

# William	B.	Harrison,	Jr.

Chairman	and	Chief	Executive	Officer

# Dina	Dublon

Executive	Vice	President	and	Chief	Financial	Officer

evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements,	assessing the	accounting	principles	used	and	significant	estimates	made	by	management,	and evaluating	the	overall	financial	statement	presentation.	We	believe	that	our	audits provide	a	reasonable	basis	for	our	opinion.

As	discussed	in	Note	16	to	the	financial	statements,	J.P.	Morgan	Chase	&	Co.	adopted, as	of	January	1,	2002,	Statement	of	Financial	Accounting	Standards	No.	142,	Goodwill and	Other	Intangible	Assets.

# Consolidated	statement	of	income

| Year	ended	December	31,	(in	millions,	except	per	share	data) | Year	ended	December	31,	(in	millions,	except	per	share	data) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- |
| Revenue |  |  |  |  |
| Investment\tbanking\tfees |  | $2,890 | $2,763 | $3,612 |
| Trading\trevenue |  | 4,427 | 2,675 | 4,972 |
| Fees\tand\tcommissions |  | 10,652 | 10,387 | 9,655 |
| Private\tequity\tgains\t(losses) |  | 33 | (746) | (1,233) |
| Securities\tgains |  | 1,446 | 1,563 | 866 |
| Mortgage\tfees\tand\trelated\tincome | Mortgage\tfees\tand\trelated\tincome | 892 | 988 | 386 |
| Other\trevenue |  | 579 | 458 | 284 |
| Total\tnoninterest\trevenue |  | 20,919 | 18,088 | 18,542 |
| Interest\tincome |  | 23,444 | 25,284 | 32,181 |
| Interest\texpense |  | 11,107 | 13,758 | 21,379 |
| Net\tinterest\tincome |  | 12,337 | 11,526 | 10,802 |
| Revenue\tbefore\tprovision\tfor\tcredit\tlosses | Revenue\tbefore\tprovision\tfor\tcredit\tlosses | 33,256 | 29,614 | 29,344 |
| Provision\tfor\tcredit\tlosses |  | 1,540 | 4,331 | 3,182 |
| Total\tnet\trevenue |  | 31,716 | 25,283 | 26,162 |
| Noninterest\texpense |  |  |  |  |
| Compensation\texpense |  | 11,695 | 10,983 | 11,844 |
| Occupancy\texpense |  | 1,912 | 1,606 | 1,348 |
| Technology\tand\tcommunications\texpense | Technology\tand\tcommunications\texpense | 2,844 | 2,554 | 2,631 |
| Other\texpense |  | 5,137 | 5,111 | 5,250 |
| Surety\tsettlement\tand\tlitigation\treserve | Surety\tsettlement\tand\tlitigation\treserve | 100 | 1,300 | — |
| Merger\tand\trestructuring\tcosts |  | — | 1,210 | 2,523 |
| Total\tnoninterest\texpense |  | 21,688 | 22,764 | 23,596 |
| Income\tbefore\tincome\ttax\texpense\tand\tcumulative\teffect\tof\taccounting\tchange | Income\tbefore\tincome\ttax\texpense\tand\tcumulative\teffect\tof\taccounting\tchange | 10,028 | 2,519 | 2,566 |
| Income\ttax\texpense |  | 3,309 | 856 | 847 |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange | Income\tbefore\tcumulative\teffect\tof\taccounting\tchange | 6,719 | 1,663 | 1,719 |
| Cumulative\teffect\tof\tchange\tin\taccounting\tprinciple\t(net\tof\ttax) | Cumulative\teffect\tof\tchange\tin\taccounting\tprinciple\t(net\tof\ttax) | — | — | (25) |
| Net\tincome |  | $6,719 | $1,663 | $1,694 |
| Net\tincome\tapplicable\tto\tcommon\tstock | Net\tincome\tapplicable\tto\tcommon\tstock | $6,668 | $1,612 | $1,628 |
| Average\tcommon\tshares\toutstanding |  |  |  |  |
| Basic |  | 2,009 | 1,984 | 1,972 |
| Diluted |  | 2,055 | 2,009 | 2,024 |
| Net\tincome\tper\tcommon\tshare | (a) |  |  |  |
| Basic |  | $3.32 | $0.81 | $0.83 |
| Diluted |  | 3.24 | 0.80 | 0.80 |
| Cash\tdividends\tper\tcommon\tshare | Cash\tdividends\tper\tcommon\tshare | 1.36 | 1.36 | 1.36 |
| (a) |  |  |  |  |

(a) Basic	and	diluted	earnings	per	share	have	been	reduced	by	$0.01	in	2001	because	of	the	impact	of	the	adoption	of	SFAS	133	relating	to	the	accounting	for	derivative	instruments	and	hedging	activities. The	Notes	to	consolidated	financial	statements	are	an	integral	part	of	these	statements.

# Consolidated	balance	sheet

| December	31,	(in	millions,	except	share	data) | 2003 | 2002 |
| :--- | :--- | :--- |
| Assets |  |  |
| Cash\tand\tdue\tfrom\tbanks | $20,268 | $19,218 |
| Deposits\twith\tbanks | 10,175 | 8,942 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tresale\tagreements | 76,868 | 65,809 |
| Securities\tborrowed | 41,834 | 34,143 |
| Trading\tassets: |  |  |
| Debt\tand\tequity\tinstruments\t(including\tassets\tpledged\tof\t$81,312\tin\t2003\tand\t$88,900\tin\t2002) | 169,120 | 165,199 |
| Derivative\treceivables | 83,751 | 83,102 |
| Securities: |  |  |
| Available-for-sale\t(including\tassets\tpledged\tof\t$31,639\tin\t2003\tand\t$50,468\tin\t2002) | 60,068 | 84,032 |
| Held-to-maturity\t(fair\tvalue:\t$186\tin\t2003\tand\t$455\tin\t2002) | 176 | 431 |
| Loans\t(net\tof\tAllowance\tfor\tloan\tlosses\tof\t$4,523\tin\t2003\tand\t$5,350\tin\t2002) | 214,995 | 211,014 |
| Private\tequity\tinvestments | 7,250 | 8,228 |
| Accrued\tinterest\tand\taccounts\treceivable | 12,356 | 14,137 |
| Premises\tand\tequipment | 6,487 | 6,829 |
| Goodwill | 8,511 | 8,096 |
| Other\tintangible\tassets | 6,480 | 4,806 |
| Other\tassets | 52,573 | 44,814 |
| Total\tassets | $770,912 | $758,800 |
| Liabilities |  |  |
| Deposits: |  |  |
| U.S.: |  |  |
| Noninterest-bearing | $73,154 | $74,664 |
| Interest-bearing | 125,855 | 109,743 |
| Non-U.S.: |  |  |
| Noninterest-bearing | 6,311 | 7,365 |
| Interest-bearing | 121,172 | 112,981 |
| Total\tdeposits | 326,492 | 304,753 |
| Federal\tfunds\tpurchased\tand\tsecurities\tsold\tunder\trepurchase\tagreements | 113,466 | 169,483 |
| Commercial\tpaper | 14,284 | 16,591 |
| Other\tborrowed\tfunds | 8,925 | 8,946 |
| Trading\tliabilities: |  |  |
| Debt\tand\tequity\tinstruments | 78,222 | 66,864 |
| Derivative\tpayables | 71,226 | 66,227 |
| Accounts\tpayable,\taccrued\texpenses\tand\tother\tliabilities\t(including\tthe\tAllowance\tfor\tlending-related\tcommitments\tof\t$324\tin\t2003\tand\t$363\tin |  |  |
| 2002) | 45,066 | 38,440 |
| Beneficial\tinterests\tissued\tby\tconsolidated\tvariable\tinterest\tentities | 12,295 | — |
| Long-term\tdebt | 48,014 | 39,751 |
| Junior\tsubordinated\tdeferrable\tinterest\tdebentures\theld\tby\ttrusts\tthat\tissued\tguaranteed\tcapital\tdebt\tsecurities | 6,768 | — |
| Guaranteed\tpreferred\tbeneficial\tinterests\tin\tcapital\tdebt\tsecurities\tissued\tby\tconsolidated\ttrusts | — | 5,439 |
| Total\tliabilities | 724,758 | 716,494 |
| Commitments\tand\tcontingencies\t(see\tNote\t27) |  |  |
| Stockholders'\tequity |  |  |
| Preferred\tstock | 1,009 | 1,009 |
| Common\tstock\t(authorized\t4,500,000,000\tshares,\tissued\t2,044,436,509\tshares\tin\t2003\tand\t2,023,566,387\tshares\tin\t2002) | 2,044 | 2,024 |
| Capital\tsurplus | 13,512 | 13,222 |
| Retained\tearnings | 29,681 | 25,851 |
| Accumulated\tother\tcomprehensive\tincome\t(loss) | (30) | 1,227 |
| Treasury\tstock,\tat\tcost\t(1,816,495\tshares\tin\t2003\tand\t24,859,844\tshares\tin\t2002) | (62) | (1,027) |
| Total\tstockholders'\tequity | 46,154 | 42,306 |
| Total\tliabilities\tand\tstockholders'\tequity | $770,912 | $758,800 |

# Consolidated	statement	of	changes	in	stockholders'	equity

| Year	ended	December	31,	(in	millions,	except	per	share	data) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Preferred\tstock |  |  |  |
| Balance\tat\tbeginning\tof\tyear | $1,009 | $1,009 | $1,520 |
| Redemption\tof\tpreferred\tstock | — | — | (450) |
| Purchase\tof\ttreasury\tstock | — | — | (61) |
| Balance\tat\tend\tof\tyear | 1,009 | 1,009 | 1,009 |
| Common\tstock |  |  |  |
| Balance\tat\tbeginning\tof\tyear | 2,024 | 1,997 | 1,940 |
| Issuance\tof\tcommon\tstock | 20 | 27 | 55 |
| Issuance\tof\tcommon\tstock\tfor\tpurchase\taccounting\tacquisitions | — | — | 2 |
| Balance\tat\tend\tof\tyear | 2,044 | 2,024 | 1,997 |
| Capital\tsurplus |  |  |  |
| Balance\tat\tbeginning\tof\tyear | 13,222 | 12,495 | 11,598 |
| Issuance\tof\tcommon\tstock\tand\toptions\tfor\tpurchase\taccounting\tacquisitions | — | — | 79 |
| Shares\tissued\tand\tcommitments\tto\tissue\tcommon\tstock\tfor\temployee\tstock-based\tawards\tand\trelated\ttax\teffects | 290 | 727 | 818 |
| Balance\tat\tend\tof\tyear | 13,512 | 13,222 | 12,495 |
| Retained\tearnings |  |  |  |
| Balance\tat\tbeginning\tof\tyear | 25,851 | 26,993 | 28,096 |
| Net\tincome | 6,719 | 1,663 | 1,694 |
| Cash\tdividends\tdeclared: |  |  |  |
| Preferred\tstock | (51) | (51) | (66) |
| Common\tstock\t($1.36\tper\tshare\teach\tyear) | (2,838) | (2,754) | (2,731) |
| Balance\tat\tend\tof\tyear | 29,681 | 25,851 | 26,993 |
| Accumulated\tother\tcomprehensive\tincome\t(loss) |  |  |  |
| Balance\tat\tbeginning\tof\tyear | 1,227 | (442) | (241) |
| Other\tcomprehensive\tincome\t(loss) | (1,257) | 1,669 | (201) |
| Balance\tat\tend\tof\tyear | (30) | 1,227 | (442) |
| Treasury\tstock,\tat\tcost |  |  |  |
| Balance\tat\tbeginning\tof\tyear | (1,027) | (953) | (575) |
| Purchase\tof\ttreasury\tstock | — | — | (871) |
| Reissuance\tfrom\ttreasury\tstock | 1,082 | 107 | 710 |
| Forfeitures\tto\ttreasury\tstock | (117) | (181) | (217) |
| Balance\tat\tend\tof\tyear | (62) | (1,027) | (953) |
| Total\tstockholders'\tequity | $46,154 | $42,306 | $41,099 |
| Comprehensive\tincome |  |  |  |
| Net\tincome | $6,719 | $1,663 | $1,694 |
| Other\tcomprehensive\tincome\t(loss) | (1,257) | 1,669 | (201) |
| Comprehensive\tincome | $5,462 | $3,332 | $1,493 |

The	Notes	to	consolidated	financial	statements	are	an	integral	part	of	these	statements.

# Consolidated	statement	of	cash	flows

| Year	ended	December	31,	(in	millions) |  | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- |
| Operating\tactivities |  |  |  |  |
| Net\tincome |  | $6,719 | $1,663 | $1,694 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\t(used\tin)\toperating\tactivities: |  |  |  |  |
| Provision\tfor\tcredit\tlosses |  | 1,540 | 4,331 | 3,182 |
| Surety\tsettlement\tand\tlitigation\treserve | Surety\tsettlement\tand\tlitigation\treserve | 100 | 1,300 | — |
| Depreciation\tand\tamortization |  | 3,101 | 2,979 | 2,891 |
| Deferred\ttax\tprovision\t(benefit) |  | 1,428 | 1,636 | (638) |
| Private\tequity\tunrealized\t(gains)\tlosses | Private\tequity\tunrealized\t(gains)\tlosses | (77) | 641 | 1,884 |
| Net\tchange\tin: |  |  |  |  |
| Trading\tassets |  | (2,671) | (58,183) | 26,217 |
| Securities\tborrowed |  | (7,691) | 2,437 | (4,209) |
| Accrued\tinterest\tand\taccounts\treceivable | Accrued\tinterest\tand\taccounts\treceivable | 1,809 | 677 | 5,819 |
| Other\tassets |  | (9,916) | 6,182 | (26,756) |
| Trading\tliabilities |  | 15,769 | 25,402 | (20,143) |
| Accounts\tpayable,\taccrued\texpenses\tand\tother\tliabilities | Accounts\tpayable,\taccrued\texpenses\tand\tother\tliabilities | 5,873 | (12,964) | 7,472 |
| Other,\tnet |  | (1,383) | (1,235) | (520) |
| Net\tcash\tprovided\tby\t(used\tin)\toperating\tactivities | Net\tcash\tprovided\tby\t(used\tin)\toperating\tactivities | 14,601 | (25,134) | (3,107) |
| Investing\tactivities |  |  |  |  |
| Net\tchange\tin: |  |  |  |  |
| Deposits\twith\tbanks |  | (1,233) | 3,801 | (4,410) |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tresale\tagreements | Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tresale\tagreements | (11,059) | (2,082) | 5,747 |
| Loans\tdue\tto\tsales |  | 138,881 | 72,742 | 47,687 |
| Loans\tdue\tto\tsecuritizations |  | 31,989 | 24,262 | 21,888 |
| Other\tloans,\tnet |  | (171,779) | (98,695) | (72,149) |
| Other,\tnet |  | 1,541 | (3,398) | 3,431 |
| Held-to-maturity\tsecurities: | Proceeds | 221 | 85 | 113 |
|  | Purchases | — | (40) | (2) |
| Available-for-sale\tsecurities: | Proceeds\tfrom\tmaturities | 10,548 | 5,094 | 7,980 |
|  | Proceeds\tfrom\tsales | 315,738 | 219,385 | 186,434 |
|  | Purchases | (301,854) | (244,547) | (182,920) |
| Cash\tused\tin\tacquisitions |  | (669) | (72) | (1,677) |
| Proceeds\tfrom\tdivestitures\tof\tnonstrategic\tbusinesses\tand\tassets | Proceeds\tfrom\tdivestitures\tof\tnonstrategic\tbusinesses\tand\tassets | 94 | 121 | 196 |
| Net\tcash\tprovided\tby\t(used\tin)\tinvesting\tactivities | Net\tcash\tprovided\tby\t(used\tin)\tinvesting\tactivities | 12,418 | (23,344) | 12,318 |
| Financing\tactivities |  |  |  |  |
| Net\tchange\tin: |  |  |  |  |
| U.S.\tdeposits |  | 14,602 | 9,985 | 29,119 |
| Non-U.S.\tdeposits |  | 7,249 | 1,118 | (14,834) |
| Federal\tfunds\tpurchased\tand\tsecurities\tsold\tunder\trepurchase\tagreements | Federal\tfunds\tpurchased\tand\tsecurities\tsold\tunder\trepurchase\tagreements | (56,017) | 41,038 | (3,293) |
| Commercial\tpaper\tand\tother\tborrowed\tfunds | Commercial\tpaper\tand\tother\tborrowed\tfunds | 555 | (4,675) | (15,346) |
| Other,\tnet |  | 133 | — | (91) |
| Proceeds\tfrom\tthe\tissuance\tof\tlong-term\tdebt\tand\tcapital\tsecurities | Proceeds\tfrom\tthe\tissuance\tof\tlong-term\tdebt\tand\tcapital\tsecurities | 17,195 | 11,971 | 8,986 |
| Repayments\tof\tlong-term\tdebt\tand\tcapital\tsecurities | Repayments\tof\tlong-term\tdebt\tand\tcapital\tsecurities | (8,316) | (12,185) | (12,574) |
| Proceeds\tfrom\tthe\tnet\tissuance\tof\tstock\tand\tstock-related\tawards | Proceeds\tfrom\tthe\tnet\tissuance\tof\tstock\tand\tstock-related\tawards | 1,213 | 725 | 1,429 |
| Redemption\tof\tpreferred\tstock |  | — | — | (511) |
| Redemption\tof\tpreferred\tstock\tof\tsubsidiary | Redemption\tof\tpreferred\tstock\tof\tsubsidiary | — | (550) | — |
| Treasury\tstock\tpurchased |  | — | — | (871) |
| Cash\tdividends\tpaid |  | (2,865) | (2,784) | (2,697) |
| Net\tcash\t(used\tin)\tprovided\tby\tfinancing\tactivities | Net\tcash\t(used\tin)\tprovided\tby\tfinancing\tactivities | (26,251) | 44,643 | (10,683) |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tdue\tfrom\tbanks | Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tdue\tfrom\tbanks | 282 | 453 | 100 |
| Net\tincrease\t(decrease)\tin\tcash\tand\tdue\tfrom\tbanks | Net\tincrease\t(decrease)\tin\tcash\tand\tdue\tfrom\tbanks | 1,050 | (3,382) | (1,372) |
| Cash\tand\tdue\tfrom\tbanks\tat\tthe\tbeginning\tof\tthe\tyear | Cash\tand\tdue\tfrom\tbanks\tat\tthe\tbeginning\tof\tthe\tyear | 19,218 | 22,600 | 23,972 |
| Cash\tand\tdue\tfrom\tbanks\tat\tthe\tend\tof\tthe\tyear | Cash\tand\tdue\tfrom\tbanks\tat\tthe\tend\tof\tthe\tyear | $20,268 | $19,218 | $22,600 |
| Cash\tinterest\tpaid |  | $10,976 | $13,534 | $22,987 |
| Cash\tincome\ttaxes\tpaid |  | $1,337 | $1,253 | $479 |

# Note	1 Basis	of	Presentation

J.P.	Morgan	Chase	&	Co.	("JPMorgan	Chase"	or	the	"Firm")	is	a	financial	holding company	for	a	group	of	subsidiaries	that	provide	a	wide	range	of	services	to	a	global client	base	that	includes	corporations,	governments,	institutions	and	individuals.	For	a discussion	of	the	Firm's	business	segment	information,	see	Note	34	on	pages	126-127 of	this	Annual	Report.

The	accounting	and	financial	reporting	policies	of	JPMorgan	Chase	and	its	subsidiaries conform	to	accounting	principles	generally	accepted	in	the	United	States	of	America ("GAAP")	and	prevailing	industry	practices.	Additionally,	where	applicable,	the	policies conform	to	the	accounting	and	reporting	guidelines	prescribed	by	bank	regulatory authorities.

# Consolidation

The	consolidated	financial	statements	include	accounts	of	JPMorgan	Chase	and	other entities	in	which	the	Firm	has	a	controlling	financial	interest.	All	material	intercompany balances	and	transactions	have	been	eliminated.

The	usual	condition	for	a	controlling	financial	interest	is	ownership	of	a	majority	of	the voting	interests	of	an	entity.	However,	a	controlling	financial	interest	may	also	exist	in entities,	such	as	special	purpose	entities	("SPEs"),	through	arrangements	that	do	not involve	voting	interests.

SPEs	are	an	important	part	of	the	financial	markets,	providing	market	liquidity	by facilitating	investors'	access	to	specific	portfolios	of	assets	and	risks.	They	are,	for example,	critical	to	the	functioning	of	the	mortgage-	and	asset-backed	securities	and commercial	paper	markets.	SPEs	may	be	organized	as	trusts,	partnerships	or corporations	and	are	typically	set	up	for	a	single,	discrete	purpose.	SPEs	are	not operating	entities	and	usually	have	no	employees	and	a	limited	life.	The	basic	SPE structure	involves	a	company	selling	assets	to	the	SPE.	The	SPE	funds	the	purchase	of those	assets	by	issuing	securities	to	investors.	The	legal	documents	that	govern	the transaction	describe	how	the	cash	earned	on	the	assets	must	be	allocated	to	the	SPE's investors	and	other	parties	that	have	rights	to	those	cash	flows.	SPEs	can	be	structured to	be	bankruptcy-remote,	thereby	insulating	investors	from	the	impact	of	the	creditors	of other	entities,	including	the	seller	of	the	assets.

There	are	two	different	accounting	frameworks	applicable	to	SPEs,	depending	on	the nature	of	the	entity	and	the	Firm's	relation	to	that	entity;	the	qualifying	SPE	("QSPE") framework	under	SFAS	140	and	the	variable	interest	entity	("VIE")	framework	under	FIN 46.	The	QSPE	framework	is	applicable	when	an	entity	transfers	(sells)	financial	assets to	an	SPE	meeting	certain	criteria.	These	criteria	are	designed	to	ensure	that	the

activities	of	the	SPE	are	essentially	predetermined	in	their	entirety	at	the	inception	of the	vehicle	and	that	the	transferor	cannot	exercise	control	over	the	entity.	Entities meeting	these	criteria	are	not	consolidated	by	the	transferors.	The	Firm	primarily follows	the	QSPE	model	for	the	securitizations	of	its	residential	and	commercial mortgages,	credit	card	loans	and	automobile	loans.	For	further	details,	see	Note	13	on pages	100-103	of	this	Annual	Report.

When	the	SPE	does	not	meet	the	QSPE	criteria,	consolidation	is	assessed	pursuant	to FIN	46.	A	VIE	is	defined	as	an	entity	that:	lacks	enough	equity	investment	at	risk	to permit	the	entity	to	finance	its	activities	without	additional	subordinated	financial	support from	other	parties;	has	equity	owners	who	are	unable	to	make	decisions,	and/or;	has equity	owners	that	do	not	absorb	or	receive	the	entity's	losses	and	returns.	VIEs encompass	vehicles	traditionally	viewed	as	SPEs	and	may	also	include	other	entities or	legal	structures,	such	as	certain	limited-purpose	subsidiaries,	trusts	or	investment funds.	Entities	excluded	from	the	scope	of	FIN	46	include	all	QSPEs,	regardless	of whether	the	Firm	was	the	transferor,	as	long	as	the	Firm	does	not	have	the	unilateral ability	to	liquidate	the	vehicle	or	cause	it	to	no	longer	meet	the	QSPE	criteria,	and	other entities	that	meet	certain	criteria	specified	in	FIN	46.

FIN	46	requires	a	variable	interest	holder	(counterparty	to	a	VIE)	to	consolidate	the	VIE if	that	party	will	absorb	a	majority	of	the	expected	losses	of	the	VIE,	receive	a	majority of	the	residual	returns	of	the	VIE,	or	both.	This	party	is	considered	the	primary beneficiary	of	the	entity.	The	determination	of	whether	the	Firm	meets	the	criteria	to	be considered	the	primary	beneficiary	of	a	VIE	requires	an	evaluation	of	all	transactions (such	as	investments,	liquidity	commitments,	derivatives	and	fee	arrangements)	with the	entity.	The	foundation	for	this	evaluation	is	an	expected-loss	calculation	prescribed by	FIN	46.	For	further	details,	see	Note	14	on	pages	103-106	of	this	Annual	Report.

Prior	to	the	Firm's	adoption	of	FIN	46,	the	decision	of	whether	or	not	to	consolidate depended	on	the	applicable	accounting	principles	for	non-QSPEs,	including	a determination	regarding	the	nature	and	amount	of	investment	made	by	third	parties	in the	SPE.	Consideration	was	given	to,	among	other	factors,	whether	a	third	party	had made	a	substantive	equity	investment	in	the	SPE;	which	party	had	voting	rights,	if	any; who	made	decisions	about	the	assets	in	the	SPE;	and	who	was	at	risk	of	loss.	The SPE	was	consolidated	if	JPMorgan	Chase	retained	or	acquired	control	over	the	risks and	rewards	of	the	assets	in	the	SPE.

Financial	assets	sold	to	an	SPE	or	a	VIE	are	derecognized	when:	(1)	the	assets	are legally	isolated	from	the	Firm's	creditors,	(2)	the	accounting	criteria	for	a	sale	are	met and	(3)	the	SPE	is	a	QSPE	under	SFAS	140,	or	the	SPE	can	pledge	or	exchange	the financial	assets.	All	significant	transactions	and	retained	interests

between	the	Firm,	QSPEs	and	nonconsolidated	VIEs	are	reflected	on	JPMorgan Chase's	Consolidated	balance	sheet	or	in	the	Notes	to	consolidated	financial statements.

Investments	in	companies	that	are	considered	to	be	voting-interest	entities	under	FIN 46,	in	which	the	Firm	has	significant	influence	over	operating	and	financing	decisions (generally	defined	as	owning	a	voting	or	economic	interest	of	20%	to	50%),	are accounted	for	in	accordance	with	the	equity	method	of	accounting.	These	investments are	generally	included	in	Other	assets,	and	the	Firm's	share	of	income	or	loss	is included	in	Other	revenue.	For	a	discussion	of	private	equity	investments,	see	Note	15 on	page	106	of	this	Annual	Report.

Assets	held	for	clients	in	an	agency	or	fiduciary	capacity	by	the	Firm	are	not	assets	of JPMorgan	Chase	and	are	not	included	in	the	Consolidated	balance	sheet.

Certain	amounts	in	prior	periods	have	been	reclassified	to	conform	to	the	current presentation.

# Use	of	estimates	in	the	preparation	of	consolidated	financial	statements

The	preparation	of	consolidated	financial	statements	requires	management	to	make estimates	and	assumptions	that	affect	the	reported	amounts	of	assets,	liabilities, revenue,	expense	and	disclosures	of	contingent	assets	and	liabilities.	Actual	results could	be	different	from	these	estimates.

# Foreign	currency	translation

Assets	and	liabilities	denominated	in	foreign	currencies	are	translated	into	U.S.	dollars using	applicable	rates	of	exchange.	JPMorgan	Chase	translates	revenues	and expenses	using	exchange	rates	at	the	transaction	date.

Gains	and	losses	relating	to	translating	functional	currency	financial	statements	for	U.S. reporting	are	included	in	Other	comprehensive	income	(loss)	within	Stockholders' equity.	Gains	and	losses	relating	to	nonfunctional	currency	transactions,	including	non- U.S.	operations	where	the	functional	currency	is	the	U.S.	dollar	and	operations	in	highly inflationary	environments,	are	reported	in	the	Consolidated	statement	of	income.

# Statement	of	cash	flows

For	JPMorgan	Chase's	Consolidated	statement	of	cash	flows,	cash	and	cash equivalents	are	defined	as	those	amounts	included	in	Cash	and	due	from	banks.

# Significant	accounting	policies

The	following	table	identifies	JPMorgan	Chase's	significant	accounting	policies	and	the Note	and	page	where	a	detailed	description	of	each	policy	can	be	found:

| Trading	activities | Note			3 | Page			87 |
| :--- | :--- | :--- |
| Other\tnoninterest\trevenue | Note\t\t\t4 | Page\t\t\t88 |
| Postretirement\temployee\tbenefit\tplans | Note\t\t\t6 | Page\t\t\t89 |
| Employee\tstock-based\tincentives | Note\t\t\t7 | Page\t\t\t93 |
| Securities | Note\t\t\t9 | Page\t\t\t96 |
| Securities\tfinancing\tactivities | Note\t10 | Page\t\t\t98 |
| Loans | Note\t11 | Page\t\t\t98 |
| Allowance\tfor\tcredit\tlosses | Note\t12 | Page\t100 |
| Loan\tsecuritizations | Note\t13 | Page\t100 |
| Variable\tinterest\tentities | Note\t14 | Page\t103 |
| Private\tequity\tinvestments | Note\t15 | Page\t106 |
| Goodwill\tand\tother\tintangibles | Note\t16 | Page\t107 |
| Premises\tand\tequipment | Note\t17 | Page\t109 |
| Income\ttaxes | Note\t24 | Page\t113 |
| Derivative\tinstruments\tand\thedging\tactivities | Note\t28 | Page\t116 |
| Off-balance\tsheet\tlending-related\tfinancial\tinstruments |  |  |
| and\tguarantees | Note\t29 | Page\t117 |
| Fair\tvalue\tof\tfinancial\tinstruments | Note\t31 | Page\t120 |

# Note	2 Business	changes	and	developments

On	January	14,	2004,	JPMorgan	Chase	and	Bank	One	Corporation	("Bank	One") announced	an	agreement	to	merge.	The	merger	agreement,	which	has	been	approved by	the	boards	of	directors	of	both	companies,	provides	for	a	stock-for-stock	merger	in which	1.32	shares	of	JPMorgan	Chase	common	stock	will	be	exchanged,	on	a	tax-free basis,	for	each	share	of	Bank	One	common	stock.	The	merged	company, headquartered	in	New	York,	will	be	known	as	J.P.	Morgan	Chase	&	Co.	and	will continue	to	trade	on	the	New	York	Stock	Exchange	under	the	symbol	JPM.

The	merger	is	subject	to	approval	by	the	shareholders	of	both	institutions	as	well	as U.S.	federal	and	state	and	non-U.S.	regulatory	authorities.	Completion	of	the transaction	is	expected	to	occur	in	mid-2004.

# Acquisition	of	the	Providian	Master	Trust

On	February	5,	2002,	JPMorgan	Chase	acquired	the	Providian	Master	Trust	from Providian	National	Bank.	The	acquisition	consisted	of	credit	card	receivables	of approximately	$7.9	billion	and	related	relationships.	The	acquired	portfolio	consisted	of approximately	3.3	million	credit	card	accounts.

# Note	3 Trading	activities

Trading	assets	include	debt	and	equity	securities	held	for	trading	purposes	that JPMorgan	Chase	owns	("long"	positions).	Trading	liabilities	include	debt	and	equity securities	that	the	Firm	has	sold	to	other	parties	but	does	not	own	("short"	positions). The	Firm	is	obligated	to	purchase	securities	at	a	future	date	to	cover	the	short	positions. Included	in	Trading	assets	and	Trading	liabilities

are	the	reported	receivables	(unrealized	gains)	and	payables	(unrealized	losses) related	to	derivatives.	These	amounts	include	the	effect	of	master	netting	agreements as	permitted	under	FIN	39.	Trading	positions	are	carried	at	fair	value	on	the Consolidated	balance	sheet.

| Year	ended	December	31,	(in	millions) | Year	ended	December	31,	(in	millions) | Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Equities | (a) |  | $764 | $331 | $1,541 |
| Fixed\tincome\tand\tother | Fixed\tincome\tand\tother | (b) | 3,663 | 2,344 | 3,431 |
| Total |  |  | $4,427 | $2,675 | $4,972 |

(a)	 Includes	equity	securities	and	equity	derivatives.

(b)	 Includes	bonds	and	commercial	paper,	various	types	of	interest	rate	derivatives	(including	credit derivatives),	as	well	as	foreign	exchange	and	commodities.

# Trading	assets	and	liabilities

The	following	table	presents	the	fair	value	of	Trading	assets	and	Trading	liabilities	for the	dates	indicated:

| December	31,	(in	millions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Trading\tassets |  |  |
| Debt\tand\tequity\tinstruments: |  |  |
| U.S.\tgovernment,\tfederal\tagencies\tand\tmunicipal\tsecurities | $62,381 | $68,906 |
| Certificates\tof\tdeposit,\tbankers'\tacceptances\tand |  |  |
| commercial\tpaper | 5,233 | 4,545 |
| Debt\tsecurities\tissued\tby\tnon-U.S.\tgovernments | 22,654 | 29,709 |
| Corporate\tsecurities\tand\tother | 78,852 | 62,039 |
| Total\tdebt\tand\tequity\tinstruments | $169,120 | $165,199 |
| Derivative\treceivables: |  |  |
| Interest\trate | $60,176 | $55,260 |
| Foreign\texchange | 9,760 | 7,487 |
| Equity | 8,863 | 12,846 |
| Credit\tderivatives | 3,025 | 5,511 |
| Commodity | 1,927 | 1,998 |
| Total\tderivative\treceivables | $83,751 | $83,102 |
| Total\ttrading\tassets | $252,871 | $248,301 |
| Trading\tliabilities |  |  |
| (a) |  |  |
| Debt\tand\tequity\tinstruments | $78,222 | $66,864 |
| Derivative\tpayables: |  |  |
| Interest\trate | $49,189 | $43,584 |
| Foreign\texchange | 10,129 | 8,036 |
| Equity | 8,203 | 10,644 |
| Credit\tderivatives | 2,672 | 3,055 |
| Commodity | 1,033 | 908 |
| Total\tderivative\tpayables | $71,226 | $66,227 |
| Total\ttrading\tliabilities | $149,448 | $133,091 |
| (a)\nPrimarily\trepresents\tsecurities\tsold,\tnot\tyet\tpurchased. |  |  |

(a) Primarily	represents	securities	sold,	not	yet	purchased.

Average	Trading	assets	and	liabilities	were	as	follows	for	the	periods	indicated:

| Year	ended	December	31,	(in	millions) |  | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Trading\tassets\t-\tdebt\tand\tequity\tinstruments |  | $154,597 | $149,173 |
| Trading\tassets\t-\tderivative\treceivables |  | 85,628 | 73,641 |
| Trading\tliabilities\t-\tdebt\tand\tequity\tinstruments | (a) | $72,877 | $64,725 |
| Trading\tliabilities\t-\tderivative\tpayables |  | 67,783 | 57,607 |
| (a)\nPrimarily\trepresents\tsecurities\tsold,\tnot\tyet\tpurchased. |  |  |  |

# Note	4 Other	noninterest	revenue

Investment	banking	fees	include	advisory	and	equity	and	debt	underwriting	fees. Advisory	fees	are	recognized	as	revenue	when	related	services	are	performed. Underwriting	fees	are	recognized	as	revenue	when	the	Firm	has	rendered	all	services to	the	issuer	and	is	entitled	to	collect	the	fee	from	the	issuer,	as	long	as	there	are	no other	contingencies	associated	with	the	fee	(e.g.,	not	contingent	on	the	customer obtaining	financing).	Underwriting	fees	are	presented	net	of	syndicate	expenses.	In addition,	the	Firm	recognizes	credit	arrangement	and	syndication	fees	as	revenue	after satisfying	certain	retention,	timing	and	yield	criteria.

The	following	table	presents	the	components	of	Investment	banking	fees:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Underwriting |  |  |  |
| Equity | $699 | $464 | $525 |
| Debt | 1,549 | 1,543 | 1,839 |
| Total\tUnderwriting | 2,248 | 2,007 | 2,364 |
| Advisory | 642 | 756 | 1,248 |
| Total | $2,890 | $2,763 | $3,612 |

Fees	and	commissions	primarily	include	fees	from	investment	management,	custody and	institutional	trust	services,	deposit	accounts,	brokerage	services,	loan commitments,	standby	letters	of	credit	and	financial	guarantees,	compensating balances,	insurance	products	and	other	financial	service-related	products.	These	fees are	recognized	over	the	period	in	which	the	related	service	is	provided.	Also	included are	credit	card	fees,	which	primarily	include	interchange	income	(transaction- processing	fees),	late	fees,	cash	advance	fees,	annual	and	overlimit	fees,	and	servicing fees	earned	in	connection	with	securitization	activities.	Credit	card	fees	are	recognized as	billed,	except	for	annual	fees,	which	are	recognized	over	a	12-month	period.

Details	of	Fees	and	commissions	were	as	follows:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Investment\tmanagement\tand\tservice\tfees | $2,244 | $2,322 | $2,454 |
| Custody\tand\tinstitutional\ttrust\tservice\tfees | 1,601 | 1,529 | 1,611 |
| Credit\tcard\tfees | 2,971 | 2,869 | 2,108 |
| Brokerage\tcommissions | 1,181 | 1,139 | 1,130 |
| Lending-related\tservice\tfees | 580 | 546 | 495 |
| Deposit\tservice\tfees | 1,146 | 1,128 | 1,023 |
| Other\tfees | 929 | 854 | 834 |
| Total\tfees\tand\tcommissions | $10,652 | $10,387 | $9,655 |

Mortgage	fees	and	related	income	for	the	years	2003,	2002,	and	2001	amounted	to $892	million,	$988	million,	and	$386	million,	respectively.	Mortgage	fees	and	related income	primarily	includes	fees	from	mortgage	origination	and	servicing	activities, revenue	generated	through	loan	sales	and	securitization	activities,	including	related hedges,	as	well	as	the	impact	from	hedging	mortgage	servicing	rights	with	derivatives (both	those	designated	and	not	designated	under	SFAS	133).	Mortgage	servicing	fees are	recognized	over	the	period	that	the	related	service	is	provided	net	of	amortization. The	valuation	changes	of	mortgage	servicing	rights	and	the	corresponding	derivatives are	adjusted	through	earnings	in	the	same	period.	Gains	and	losses	on	loan	sales	and securitizations	are	recognized	in	income	upon	sale	or	securitization.	Net	interest income	and	securities	gains	and	losses	related	to	these	mortgage	banking	activities	are not	included	in	Mortgage	fees	and	related	income.

# Note	5 Interest	income	and	interest	expense

Details	of	Interest	income	and	expense	were	as	follows:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Interest\tincome |  |  |  |
| Loans | $11,276 | $12,057 | $15,544 |
| Securities | 3,542 | 3,367 | 3,647 |
| Trading\tassets | 6,592 | 6,798 | 7,390 |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased |  |  |  |
| under\tresale\tagreements | 1,497 | 2,061 | 3,805 |
| Securities\tborrowed | 323 | 698 | 1,343 |
| Deposits\twith\tbanks | 214 | 303 | 452 |
| Total\tinterest\tincome | $23,444 | $25,284 | $32,181 |
| Interest\texpense |  |  |  |
| Deposits | $3,604 | $5,253 | $7,998 |
| Short-term\tand\tother\tliabilities | 5,899 | 7,038 | 11,098 |
| Long-term\tdebt | 1,498 | 1,467 | 2,283 |
| Beneficial\tinterests\tissued\tby\tconsolidated |  |  |  |
| variable\tinterest\tentities | 106 | — | — |
| Total\tinterest\texpense | $11,107 | $13,758 | $21,379 |
| Net\tinterest\tincome | $12,337 | $11,526 | $10,802 |
| Provision\tfor\tcredit\tlosses | 1,540 | 4,331 | 3,182 |
| Net\tinterest\tincome\tafter\tprovision\tfor\tcredit\nlosses | $10,797 | $7,195 | $7,620 |

# Note	6 Postretirement	employee	benefit	plans

The	Firm's	defined	benefit	pension	plans	are	accounted	for	in	accordance	with	SFAS 87	and	SFAS	88.	Its	postretirement	medical	and	life	insurance	plans	are	accounted	for in	accordance	with	SFAS	106.

JPMorgan	Chase	uses	a	measurement	date	of	December	31	for	its	postretirement employee	benefit	plans.	The	fair	value	of	plan	assets	is	used	to	determine	the	expected return	on	plan	assets	for	its	U.S.	and	non-U.S.	defined	benefit	pension	plans.	For	the U.S.	postretirement	benefit	plan,	the	market-related	value,	which	recognizes	changes	in fair	value	over	a	five-year	period,	is	used	to	determine	the	expected	return	on	plan assets.	Unrecognized	net	actuarial	gains	and	losses	are	amortized	over	the	average remaining	service	period	of	active	plan	participants,	if	required.

The	Medicare	Prescription	Drug,	Improvement	and	Modernization	Act	of	2003	(the "Act")	was	signed	into	law	on	December	8,	2003.	As	permitted	under	FSP	SFAS	106-1, JPMorgan	Chase	elected	to	defer	accounting	for	certain	of	the	effects	of	the	Act pending	issuance	of	final	guidance	and	transition	rules.	The	Firm	is	currently	reviewing the	Act	and	the	potential	impact	on	its	U.S.	postretirement	medical	plan.	Accordingly, the	accumulated	postretirement	benefit	obligation	and	net	periodic	benefit	costs	related to	this	plan	do	not	reflect	the	effects	of	the	Act.	Once	final	guidance	is	issued, previously	reported	information	is	subject	to	change.

# Defined	benefit	pension	plans

JPMorgan	Chase	has	a	qualified	noncontributory	U.S.	defined	benefit	pension	plan	that provides	benefits	to	substantially	all	U.S.	employees.	The	U.S.	plan	employs	a	cash balance	formula,	in	the	form	of	service	and	interest	credits,	to	determine	the	benefits	to be	provided	at	retirement,	based	on	eligible	compensation	and	years	of	service. Employees	begin	to	accrue	plan	benefits	after	completing	one	year	of	service,	and benefits	vest	after	five	years	of	service.	The	Firm	also	offers	benefits	through	defined benefit	pension	plans	to	qualifying	employees	in	certain	non-U.S.	locations	based	on eligible	compensation	and	years	of	service.

It	is	JPMorgan	Chase's	policy	to	fund	its	pension	plans	in	amounts	sufficient	to	meet	the requirements	under	applicable	employee	benefit	and	local	tax	laws.	In	2003,	the	Firm made	two	cash	contributions	to	its	U.S.	defined	benefit	pension	plan:	$127	million	on February	10	to	fully	fund	the	plan's	projected	benefit	obligation	as	of	December	31, 2002,	and	$200	million	on	December	29	to	fully	fund	the	plan's	projected	benefit obligation	as	of	December	31,	2003.	Additionally,	the	Firm	made	cash	contributions totaling	$87	million	to	fund	fully	the	accumulated	benefit	obligations	of	certain	non-U.S. defined	benefit	pension	plans	as	of	December	31,	2003.	Based	on	the	current	funded status	of	the	U.S.	and	non-U.S.	pension	plans,	the	Firm	does	not	expect	to	make significant	fundings	in	2004.

# Postretirement	medical	and	life	insurance

JPMorgan	Chase	offers	postretirement	medical	and	life	insurance	benefits	to	qualifying U.S.	employees.	These	benefits	vary	with	length	of	service	and	date	of	hire	and	provide for	limits	on	the	Firm's	share	of	covered	medical	benefits.	The	medical	benefits	are contributory,	while	the	life	insurance	benefits	are	noncontributory.	Postretirement medical	benefits	are	also	offered	to	qualifying	U.K.	employees.

JPMorgan	Chase's	U.S.	postretirement	benefit	obligation	is	partially	funded	with corporate-owned	life	insurance	("COLI")	purchased	on	the	lives	of	eligible	employees and	retirees.

While	the	Firm	owns	the	COLI	policies,	COLI	proceeds	(death	benefits,	withdrawals and	other	distributions)	may	be	used	only	to	reimburse	the	Firm	for	its	net postretirement	benefit	claim	payments	and	related	administrative	expenses.	The	U.K. postretirement	benefit	plan	is	unfunded.

The	following	tables	present	the	funded	status	and	amounts	reported	on	the Consolidated	balance	sheet,	the	accumulated	benefit	obligation	and	the	components	of net	periodic	benefit	costs	reported	in	the	Consolidated	statement	of	income	for	the Firm's	U.S.	and	non-U.S.	defined	benefit	pension	and	postretirement	benefit	plans.

|  | Defined	benefit	pension	plans | Defined	benefit	pension	plans | Defined	benefit	pension	plans | Defined	benefit	pension	plans | Postretirement |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | U.S. | U.S. | Non-U.S. | Non-U.S. | benefit\tplans | (a) |
| As\tof\tDecember\t31,\t(in\tmillions) | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 |
| Change\tin\tbenefit\tobligation |  |  |  |  |  |  |
| Benefit\tobligation\tat\tbeginning\tof\tyear | $(4,241) | $(4,007) | $(1,329) | $(1,100) | $(1,126) | $(1,056) |
| Benefits\tearned\tduring\tthe\tyear | (180) | (174) | (16) | (16) | (15) | (12) |
| Interest\tcost\ton\tbenefit\tobligations | (262) | (275) | (74) | (62) | (73) | (69) |
| Plan\tamendments | (89) | — | (1) | — | — | 10 |
| Employee\tcontributions | — | — | (1) | (1) | (11) | (14) |
| Actuarial\tgain\t(loss) | (262) | (226) | (125) | (92) | (134) | (50) |
| Benefits\tpaid | 386 | 377 | 55 | 47 | 113 | 99 |
| Curtailment\tgain | 15 | 64 | — | 22 | (2) | 27 |
| Settlement\tgain | — | — | — | 6 | — | — |
| Special\ttermination\tbenefits | — | — | (1) | (3) | — | (57) |
| Foreign\texchange\timpact\tand\tother | — | — | (167) | (130) | (4) | (4) |
| Benefit\tobligation\tat\tend\tof\tyear | $(4,633) | $(4,241) | $(1,659) | $(1,329) | $(1,252) | $(1,126) |
| Change\tin\tplan\tassets |  |  |  |  |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | $4,114 | $4,048 | $1,281 | $1,058 | $1,020 | $1,089 |
| Actual\treturn\ton\tplan\tassets | 811 | (406) | 133 | (150) | 154 | (74) |
| Firm\tcontributions | 327 | 849 | 87 | 304 | 2 | 16 |
| Settlement\tpayments | — | — | (12) | (6) | — | — |
| Benefits\tpaid | (386) | (377) | (43) | (47) | (27) | (11) |
| Foreign\texchange\timpact\tand\tother | — | — | 157 | 122 | — | — |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | $4,866(b) | $4,114(b) | $1,603 | $1,281 | $1,149 | $1,020 |
| Reconciliation\tof\tfunded\tstatus |  |  |  |  |  |  |
| Funded\tstatus | $233 | $(127) | $(56) | $(48) | $(103) | $(106) |
| Unrecognized\tamounts: |  |  |  |  |  |  |
| Net\ttransition\tasset | — | — | (1) | (1) | — | — |
| Prior\tservice\tcost | 137 | 56 | 5 | 4 | 8 | 10 |
| Net\tactuarial\t(gain)\tloss | 920 | 1,224 | 564 | 477 | 156 | 86 |
| Prepaid\t(accrued)\tbenefit\tcost\treported\tin\tOther\tassets\t(Accrued\nexpenses),\trespectively | $1,290 | $1,153 | $512(c) | $432(c) | $61 | $(10) |
| Accumulated\tbenefit\tobligation | $(4,312) | $(3,949) | $(1,626) | $(1,295) | NA | NA |
| (a) | Includes\tpostretirement\tbenefit\tobligation\tof\t$36\tmillion\tand\t$38\tmillion\tand\tpostretirement\tbenefit\tliability\t(included\tin\tAccrued\texpenses)\tof\t$54\tmillion\tand\t$49\tmillion\tat\tDecember\t31,\t2003\tand\t2002,\trespectively, | Includes\tpostretirement\tbenefit\tobligation\tof\t$36\tmillion\tand\t$38\tmillion\tand\tpostretirement\tbenefit\tliability\t(included\tin\tAccrued\texpenses)\tof\t$54\tmillion\tand\t$49\tmillion\tat\tDecember\t31,\t2003\tand\t2002,\trespectively, | Includes\tpostretirement\tbenefit\tobligation\tof\t$36\tmillion\tand\t$38\tmillion\tand\tpostretirement\tbenefit\tliability\t(included\tin\tAccrued\texpenses)\tof\t$54\tmillion\tand\t$49\tmillion\tat\tDecember\t31,\t2003\tand\t2002,\trespectively, | Includes\tpostretirement\tbenefit\tobligation\tof\t$36\tmillion\tand\t$38\tmillion\tand\tpostretirement\tbenefit\tliability\t(included\tin\tAccrued\texpenses)\tof\t$54\tmillion\tand\t$49\tmillion\tat\tDecember\t31,\t2003\tand\t2002,\trespectively, | Includes\tpostretirement\tbenefit\tobligation\tof\t$36\tmillion\tand\t$38\tmillion\tand\tpostretirement\tbenefit\tliability\t(included\tin\tAccrued\texpenses)\tof\t$54\tmillion\tand\t$49\tmillion\tat\tDecember\t31,\t2003\tand\t2002,\trespectively, | Includes\tpostretirement\tbenefit\tobligation\tof\t$36\tmillion\tand\t$38\tmillion\tand\tpostretirement\tbenefit\tliability\t(included\tin\tAccrued\texpenses)\tof\t$54\tmillion\tand\t$49\tmillion\tat\tDecember\t31,\t2003\tand\t2002,\trespectively, |

(a) Includes	postretirement	benefit	obligation	of	$36	million	and	$38	million	and	postretirement	benefit	liability	(included	in	Accrued	expenses)	of	$54	million	and	$49	million	at	December	31,	2003	and	2002,	respectively, for	the	U.K.	plan,	which	is	unfunded.

(b) At	December	31,	2003	and	2002,	approximately	$315	million	and	$295	million,	respectively,	of	U.S.	plan	assets	relate	to	surplus	assets	of	group	annuity	contracts.

(c) At	December	31,	2003	and	2002,	Accrued	expenses	related	to	non-U.S.	defined	benefit	pension	plans	that	JPMorgan	Chase	elected	not	to	prefund	fully	totaled	$99	million	and	$81	million,	respectively.

|  | U.S. | U.S. | U.S. | Non-U.S. | Non-U.S. | Non-U.S. | benefit	plans | benefit	plans | (a) |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| For\tthe\tyear\tended\tDecember\t31,\t(in\tmillions) | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | 2003 | 2002 |  | 2001 |
| Components\tof\tnet\tperiodic\tbenefit\tcosts |  |  |  |  |  |  |  |  |  |  |
| Benefits\tearned\tduring\tthe\tyear | $180 | $174 | $202 | $16 | $16 | $46 | $15 | $12 |  | $16 |
| Interest\tcost\ton\tbenefit\tobligations | 262 | 275 | 285 | 73 | 62 | 65 | 73 | 69 |  | 71 |
| Expected\treturn\ton\tplan\tassets | (322) | (358) | (379) | (83) | (76) | (78) | (92) | (98) |  | (48) |
| Amortization\tof\tunrecognized\tamounts: |  |  |  |  |  |  |  |  |  |  |
| Prior\tservice\tcost | 6 | 7 | 10 | — | — | — | 1 | 2 |  | — |
| Net\tactuarial\t(gain)\tloss | 62 | — | (5) | 36 | 6 | (1) | — | (10) |  | (12) |
| (b) |  |  |  |  |  |  |  |  |  |  |
| Curtailment\t(gain)\tloss | 2 | 15 | — | 8 | (3) | — | 2 | (8) |  | — |
| Settlement\tgain | — | — | — | — | (2) | — | — | — |  | — |
| (b) |  |  |  |  |  |  |  |  |  |  |
| Special\ttermination\tbenefits | — | — | — | — | 3 | — | — | 57 |  | — |
| Net\tperiodic\tbenefit\tcosts\treported\tin\tCompensation\texpense | $190(c) | $113 | $113 | $50(c) | $6(d) | $32 | $(1)(e) | $24 |  | $27 |
| (a) |  |  |  |  |  |  |  |  |  |  |

(a) Includes	net	periodic	postretirement	benefit	costs	of	$2	million	in	2003,	2002	and	2001	for	the	U.K.	plan.

(b) Reflects	expense	recognized	in	2002	due	to	management-initiated	and	outsourcing-related	employee	terminations.

(c) Increase	in	net	periodic	benefit	costs	resulted	from	changes	in	actuarial	assumptions	and	amortization	of	unrecognized	losses.

(d) Decrease	in	net	periodic	benefit	costs	resulted	from	conversion	of	certain	non-U.S.	defined	benefit	pension	plans	to	defined	contribution	plans.

(e) Decrease	in	net	periodic	benefit	costs	reflects	nonrecurring	costs	in	2002.

JPMorgan	Chase	has	a	number	of	other	defined	benefit	pension	plans	(i.e.,	U.S.	plans not	subject	to	Title	IV	of	the	Employee	Retirement	Income	Security	Act).	The	most significant	of	these	plans	is	the	Excess	Retirement	Plan,	pursuant	to	which	certain employees	earn	service	credits	on	compensation	amounts	above	the	maximum stipulated	by	law.	This	plan	is	a	nonqualified	noncontributory	U.S.	pension	plan	with	an unfunded	liability	at	each	of	December	31,	2003	and	2002,	in	the	amount	of $178	million.	Compensation	expense	related	to	the	Firm's	other	defined	benefit pension	plans	totaled	$19	million	in	2003,	$15	million	in	2002	and	$22	million	in	2001.

# Plan	assumptions

JPMorgan	Chase's	expected	long-term	rate	of	return	for	U.S.	defined	benefit	pension plan	assets	is	a	blended	average	of	its	investment	advisor's	projected	long-term (10	years	or	more)	returns	for	the	various	asset	classes,	weighted	by	the	portfolio allocation.	Asset-class	returns	are	developed	using	a	forward-looking	building-block approach	and	are	not	based	strictly	on	historical	returns.	Equity	returns	are	generally developed	as	the	sum	of	inflation,	expected	real	earnings	growth	and	expected	long- term	dividend	yield.	Bond	returns	are	generally	developed	as	the	sum	of	inflation,	real bond	yield	and	risk	spread	(as	appropriate),	adjusted	for	the	expected	effect	on	returns from

changing	yields.	Other	asset-class	returns	are	derived	from	their	relationship	to	equity and	bond	markets.

In	the	United	Kingdom,	which	represents	the	most	significant	of	the	non-U.S.	pension plans,	procedures	similar	to	those	in	the	United	States	are	used	to	develop	the expected	long-term	rate	of	return	on	pension	plan	assets,	taking	into	consideration local	market	conditions	and	the	specific	allocation	of	plan	assets.	The	expected	long- term	rate	of	return	on	U.K.	plan	assets	is	an	average	of	projected	long-term	returns	for each	asset	class,	selected	by	reference	to	the	yield	on	long-term	U.K.	government bonds	and	AA-rated	long-term	corporate	bonds,	plus	an	equity	risk	premium	above	the risk-free	rate.

The	expected	long-term	rate	of	return	for	the	U.S.	postretirement	medical	and	life insurance	plans	is	computed	using	procedures	similar	to	those	used	for	the	U.S. defined	benefit	pension	plan.

The	discount	rate	used	in	determining	the	benefit	obligation	under	the	U.S. postretirement	employee	benefit	plans	is	selected	by	reference	to	the	year-end	Moody's corporate	AA	rate,	as	well	as	other	high-quality	indices	with	similar	duration	to	that	of the	respective	plan's	benefit	obligations.	The	discount	rate	for	the	U.K.	postretirement plans	is	selected	by	reference	to	the	year-end	iBoxx	£	corporate	AA	15-year-plus	bond rate.

The	following	tables	present	the	weighted-average	annualized	actuarial	assumptions	for	the	projected	and	accumulated	benefit	obligations,	and	the	components	of	net	periodic	benefit costs	for	the	Firm's	U.S.	and	non-U.S.	defined	benefit	pension	and	postretirement	benefit	plans,	as	of	year-end.

|  | U.S. | U.S. | Non-U.S. | Non-U.S. |
| :--- | :--- | :--- | :--- | :--- |
| For\tthe\tyear\tended\tDecember\t31, | 2003 | 2002 | 2003 | 2002 |
| Weighted-average\tassumptions\tused\tto\tdetermine\tbenefit\tobligations |  |  |  |  |
| Discount\trate | 6.00% | 6.50% | 2.00-5.40% | 1.50-5.60% |
| Rate\tof\tcompensation\tincrease | 4.50 | 4.50 | 1.75-3.75 | 1.25-3.00 |

|  | U.S. | U.S. | U.S. | Non-U.S. | Non-U.S. | Non-U.S. |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| For\tthe\tyear\tended\tDecember\t31, | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 |
| Weighted-average\tassumptions\tused\tto\tdetermine\tnet\tperiodic\tbenefit\tcosts |  |  |  |  |  |  |
| Discount\trate | 6.50% | 7.25% | 7.50-7.75% | 1.50-5.60% | 2.50-6.00% | 2.75-6.25% |
| Expected\tlong-term\trate\tof\treturn\ton\tplan\tassets: |  |  |  |  |  |  |
| Pension | 8.00 | 9.25 | 9.00-9.50 | 2.70-6.50 | 3.25-7.25 | 3.25-8.00 |
| Postretirement\tbenefit | 8.00 | 9.00 | 9.00-9.50 | NA | NA | NA |
| Rate\tof\tcompensation\tincrease | 4.50 | 4.50 | 3.00-4.50 | 1.25-3.00 | 2.00-4.00 | 2.00-4.00 |

The	following	tables	present	JPMorgan	Chase's	assumed	weighted-average	medical	benefits	cost	trend	rate,	which	is	used	to	measure	the	expected	cost	of	benefits	at	year-end,	and the	effect	of	a	one-percentage-point	change	in	the	assumed	medical	benefits	cost	trend	rate:

At	December	31,	2003,	the	Firm	reduced	the	discount	rate	used	to	determine	its	U.S. benefit	obligations	to	6.00%.	The	Firm	also	reduced	the	2004	expected	long-term	rate of	return	on	U.S.	plan	assets	to	7.75%	and	7.00%,	respectively,	for	its	pension	and other	postretirement	benefit	expenses.	The	impact	of	the	changes	as	of	December	31, 2003,	to	the	expected	long-term	rate	of	return	on	plan	assets	and	the	discount	rate	is expected	to	increase	2004	U.S.	pension	and	other	postretirement	benefit	expenses	by approximately	$35	million.	The	impact	of	the	changes	to	the	expected	long-term	rate	of return	on	plan	assets	and	the	discount	rate	on	non-U.S.	pension	and	other postretirement	benefit	expenses	is	not	expected	to	be	material.

JPMorgan	Chase's	U.S.	pension	and	other	postretirement	benefit	expenses	are	most sensitive	to	the	expected	long-term	rate	of	return	on	plan	assets.	With	all	other assumptions	held	constant,	a	25-basis	point	decline	in	the	expected	long-term	rate	of return	on	U.S.	plan	assets	would	result	in	an	increase	of	approximately	$15	million	in 2004	U.S.	pension	and	other	postretirement	benefit	expenses.	Additionally,	a	25-basis point	decline	in	the	discount	rate	for	the	U.S.	plans	would	result	in	an	increase	in	2004 U.S.	pension	and	other	postretirement	benefit	expenses	of	approximately	$12	million and	an	increase	in	the	related	benefit	obligation	of	approximately	$143	million.	The impact	of	a	decline	in	the	discount	rate	related	to	the	U.S.	pension	plan	would	be significantly	offset	by	the	effect	of	a	similar	reduction	in	the	assumed	interest	rate	used for	crediting	participant	balances.

# Investment	strategy	and	asset	allocation

The	investment	policy	for	postretirement	employee	benefit	plan	assets	is	to	optimize the	risk-return	relationship	as	appropriate	to	the	respective	plan's	needs	and	goals, using	a	global	portfolio	of	various	asset	classes	diversified	by	market	segment, economic	sector	and	issuer.	Specifically,	the	goal	is	to	optimize	the	asset	mix	for	future benefit	obligations,	while	managing	various	risk	factors	and	each	plan's	investment return	objectives.	For	example,	long-duration	fixed	income	securities	are	included	in	the U.S.	qualified	pension	plan's	asset	allocation,	in	recognition	of	its	long-duration obligations.	Plan	assets	are	managed	by	a	combination	of	internal	and	external investment	managers	and,	on	a	quarterly	basis,	are	rebalanced	to	target,	to	the	extent economically	practical.

The	Firm's	U.S.	pension	plan	assets	are	held	in	various	trusts	and	are	invested	in	well diversified	portfolios	of	equity	(including	U.S.	large	and	small	capitalization	and international	equities),	fixed	income	(including	corporate	and	government	bonds), Treasury	inflation-indexed	and	high-yield	securities,	cash	equivalents	and	other securities.	Non-U.S.	pension	plan	assets	are	similarly	invested	in	well-diversified portfolios	of	equity,	fixed	income	and	other	securities.	Assets	of	the	Firm's	COLI policies,	which	are	used	to	fund	partially	the	U.S.	postretirement	benefit	plan,	are	held in	separate	accounts	with	an	insurance	company	and	are	invested	in	equity	and	fixed income	index	funds.	Assets	used	to	fund	the	Firm's	U.S.	and	non-U.S.	defined	benefit pension	and	postretirement	benefit	plans	do	not	include	JPMorgan	Chase	common stock,	except	in	connection	with	investments	in	third-party	stock-index	funds.

The	following	table	presents	the	weighted-average	asset	allocation	at	December	31	and	the	respective	target	allocation	by	asset	category	for	the	Firm's	U.S.	and	non-U.S.	defined benefit	pension	and	postretirement	benefit	plans:

|  | U.S. | U.S. | U.S. | Non-U.S. | (a)(b) |  | benefit	plans | (c) |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Target | %\tof\tplan\tassets | %\tof\tplan\tassets | Target | %\tof\tplan\tassets | %\tof\tplan\tassets | Target | %\tof\tplan\tassets | %\tof\tplan\tassets |
|  | Allocation | 2003 | 2002 | Allocation | 2003 | 2002 | Allocation | 2003 | 2002 |
| Asset\tClass |  |  |  |  |  |  |  |  |  |
| Debt\tsecurities | 40% | 41% | 45% | 74% | 76% | 51% | 50% | 50% | 50% |
| Equity\tsecurities | 50 | 53 | 50 | 26 | 24 | 49 | 50 | 50 | 50 |
| Real\testate | 5 | 5 | 4 | — | — | — | — | — | — |
| Other | 5 | 1 | 1 | — | — | — | — | — | — |
| Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |
| (a) |  |  |  |  |  |  |  |  |  |

(a) Primarily	represents	the	U.K.	plan	which	accounts	for	approximately	90%	of	the	non-U.S.	plan	assets.

(b) The	target	allocation	for	U.K.	plan	assets	was	revised	in	2003	to	reduce	the	volatility	of	funding	levels,	given	that	the	plan	is	now	closed	to	future	participants.

(c) Represents	the	U.S.	postretirement	benefit	plan	only,	as	the	U.K.	plan	is	unfunded.

# Estimated	future	benefit	payments

The	following	table	presents	benefit	payments	expected	to	be	paid,	which	include	the effect	of	expected	future	service	for	the	years	indicated.	The	postretirement	medical and	life	insurance	payments	are	net	of	expected	retiree	contributions.

| (in	millions) | U.S.	Pension<br>Benefits | Non-<br>U.S.	Pension<br>Benefits | U.S.	and	U.K.<br>Postretirement<br>Benefits |
| :--- | :--- | :--- | :--- |
| 2004 | $326 | $52 | $108 |
| 2005 | 340 | 53 | 111 |
| 2006 | 358 | 55 | 114 |
| 2007 | 377 | 57 | 117 |
| 2008 | 399 | 61 | 118 |
| Years\t2009-2013 | 2,177 | 351 | 603 |

# Defined	contribution	plans

JPMorgan	Chase	offers	several	defined	contribution	plans	in	the	U.S.	and	certain	non- U.S.	locations.	The	most	significant	of	these	plans	is	the	JPMorgan	Chase	401(k) Savings	Plan,	covering	substantially	all	U.S.	employees.	This	plan	allows	employees	to make	pre-tax	contributions	to	tax-deferred	investment	portfolios.	For	most	employees, the	Firm	matches	employee	contributions	dollar-for-dollar	up	to	a	certain	percentage	of eligible	compensation	per	pay	period,	subject	to	plan	and	legal	limits.	Employees	begin to	receive	matching	contributions	after	completing	one	year	of	service;	benefits	vest after	three	years	of	service.	The	Firm's	defined	contribution	plans	are	administered	in accordance	with	applicable	local	laws	and	regulations.	Compensation	expense	related to	these	plans	totaled	$240	million	in	2003,	$251	million	in	2002	and	$208	million	in 2001.

# Note	7 Employee	stock-based	incentives

Effective	January	1,	2003,	JPMorgan	Chase	adopted	SFAS	123	using	the	prospective transition	method.	SFAS	123	requires	all	stock-based	compensation	awards,	including stock	options,	to	be	accounted	for	at	fair	value.	Fair	value	is	based	on	a	Black-Scholes valuation	model,	with	compensation	expense	recognized	in	earnings	over	the	required service	period.	Under

the	prospective	transition	method,	all	new	awards	granted	to	employees	on	or	after January	1,	2003,	are	accounted	for	under	SFAS	123.	In	connection	with	the	adoption	of SFAS	123,	the	Firm	decided	to	provide	key	employees,	excluding	members	of	the Executive	Committee,	with	the	ability	to	elect	to	receive	the	value	of	their	stock-based compensation	awards	as	stock	options,	restricted	stock	or	any	combination	thereof. The	net	effect	was	to	reduce	net	income	by	$0.08	per	share	in	2003.	Awards	that	were outstanding	as	of	December	31,	2002,	if	not	subsequently	modified,	continue	to	be accounted	for	under	APB	25.	Through	December	31,	2002,	JPMorgan	Chase accounted	for	its	employee	stock-based	compensation	plans	under	the	intrinsic-value method	in	accordance	with	APB	25.	Under	this	method,	no	expense	is	recognized	for stock	options	granted	at	the	stock	price	on	the	grant	date,	since	such	options	have	no intrinsic	value.	Compensation	expense	for	restricted	stock	and	restricted	stock	units ("RSUs")	is	measured	based	on	the	number	of	shares	granted	and	the	stock	price	at	the grant	date	and	is	recognized	over	the	required	service	period.

# Key	employee	stock-based	awards

JPMorgan	Chase	grants	long-term	stock-based	incentive	awards	to	certain	key employees	under	two	plans	(the	"LTI	Plans").	The	Long-Term	Incentive	Plan,	approved by	shareholders	in	May	2000,	provides	for	grants	of	stock	options,	stock	appreciation rights	("SARs"),	restricted	stock	and	RSU	awards,	and	the	Stock	Option	Plan,	a nonshareholder-approved	plan,	provides	for	grants	of	stock	options	and	SARs. Through	December	31,	2003,	SARs	have	not	been	granted	under	either	of	these	plans.

Under	the	LTI	Plans,	stock	options	are	granted	with	an	exercise	price	equal	to JPMorgan	Chase's	common	stock	price	on	the	grant	date.	Generally,	options	cannot	be exercised	until	at	least	one	year	after	the	grant	date	and	become	exercisable	over various	periods	as	determined	at	the	time	of	the	grant.	Options	generally	expire 10	years	after	the	grant	date.	In	January	2001,	JPMorgan	Chase	granted	82.2	million options	under	the	LTI	Plans,	pursuant	to	a	growth	performance	incentive	program ("GPIP").	Forfeitures	of	GPIP	options	aggregated	23.7	million	shares	through December	31,	2003.

The	following	table	presents	a	summary	of	JPMorgan	Chase's	option	activity	under	the	LTI	Plans	during	the	last	three	years:

| Year	ended	December	31, | 2003 | 2003 | 2002 | 2002 | 2001 | 2001 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (Options\tin\tthousands) | Number\tof\noptions | Weighted-average\nexercise\tprice | Number\tof\noptions | Weighted-average\nexercise\tprice | Number\tof\noptions | Weighted-average\nexercise\tprice |
| Options\toutstanding,\tJanuary\t1 | 298,731 | $40.84 | 272,304 | $41.23 | 175,232 | $31.52 |
| Granted | 26,751 | 22.15 | 53,230 | 36.41 | 136,863 | 51.07 |
| Exercised | (14,574) | 17.47 | (9,285) | 16.85 | (28,954) | 25.69 |
| Canceled | (16,882) | 47.57 | (17,518) | 45.59 | (10,837) | 49.94 |
| Options\toutstanding,\tDecember\t31 | 294,026 | $39.88 | 298,731 | $40.84 | 272,304 | $41.23 |
| Options\texercisable,\tDecember\t31 | 176,163 | $37.88 | 144,421 | $34.91 | 123,045 | $30.34 |

The	following	table	details	the	distribution	of	options	outstanding	under	the	LTI	Plans	at	December	31,	2003:

|  | Options	outstanding | Options	outstanding | Options	outstanding | Options	exercisable | Options	exercisable |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (Options\tin\tthousands)\nRange\tof\texercise\tprices | Options\noutstanding | Weighted-average\nexercise\tprice | Weighted-average\tremaining\ncontractual\tlife\t(in\tyears) | Options\nexercisable | Weighted-average\nexercise\tprice |
| $3.41\t\t–\t\t$20.00 | 16,409 | $16.63 | 1.3 | 16,387 | $16.63 |
| $20.01\t\t–\t\t$35.00 | 55,671 | 25.23 | 5.9 | 28,664 | 27.75 |
| $35.01\t\t–\t\t$50.00 | 119,717 | 40.15 | 5.9 | 101,858 | 40.29 |
| $50.01\t\t–\t\t$65.58 | 102,229 | 51.27 | 6.7 | 29,254 | 51.32 |
| Total | 294,026 | $39.88 | 5.9 | 176,163 | $37.88 |

Restricted	stock	and	RSUs	are	granted	by	JPMorgan	Chase	under	the	LTI	Plans	at	no cost	to	the	recipient.	Restricted	stock/	RSUs	are	subject	to	forfeiture	until	certain restrictions	have	lapsed,	including	continued	employment	for	a	specified	period.	The recipient	of	a	share	of	restricted	stock	is	entitled	to	voting	rights	and	dividends	on	the common	stock.	An	RSU	entitles	the	recipient	to	receive	a	share	of	common	stock	after the	applicable	restrictions	lapse;	the	recipient	is	entitled	to	receive	cash	payments equivalent	to	dividends	on	the	underlying	common	stock	during	the	period	the	RSU	is outstanding.

During	2003,	43.5	million	restricted	stock/RSU	awards	were	granted	by	JPMorgan Chase	under	the	LTI	Plans.	In	2002	and	2001,	24.0	million	and	25.9	million	awards, respectively,	were	granted	under	these	plans.	All	these	awards	are	payable	solely	in stock.	The	2001	grants	included	1.3	million	restricted	stock/	RSU	awards	that	are forfeitable	if	certain	target	prices	are	not	achieved.	The	vesting	of	these	awards	is conditioned	upon	certain	service	requirements	being	met	and	JPMorgan	Chase's common	stock	price	reaching	and	sustaining	target	prices	within	a	five-year performance	period.	During	2002,	it	was	determined	that	it	was	no	longer	probable	that the	target	stock	prices	related	to	forfeitable	awards	granted	in	1999,	2000	and	2001 would	be	achieved	within	their	respective	performance	periods,	and	accordingly, previously	accrued	expenses	were

reversed.	The	target	stock	prices	for	these	awards	ranged	from	$73.33	to	$85.00. These	awards	will	be	forfeited	in	2004	through	2006	if	the	target	stock	prices	are	not achieved.

A	portion	of	certain	employees'	cash	incentive	compensation	that	exceeded	specified levels	was	awarded	in	restricted	stock/	RSU	awards	or	other	deferred	investments	(the "required	deferral	plan")	issued	under	the	LTI	Plans.	These	restricted	stock/RSU	and other	deferred	awards	vest	based	solely	on	continued	employment.	During	2001, 137,500	of	such	restricted	stock/units	were	granted.	The	required	deferral	plan	was discontinued	in	2002.

# Broad-based	employee	stock	options

In	January	2003,	JPMorgan	Chase	granted	12.8	million	options	to	all	eligible	full-time (150	options	each)	and	part-time	(75	options	each)	employees	under	the	Value	Sharing Plan,	a	nonshareholder-approved	plan.	The	exercise	price	is	equal	to	JPMorgan Chase's	common	stock	price	on	the	grant	date.	The	options	become	exercisable	over various	periods	and	generally	expire	10	years	after	the	grant	date.

The	following	table	presents	a	summary	of	JPMorgan	Chase's	broad-based	employee stock	option	plan	activity	during	the	past	three	years:

| Year	ended	December	31, | 2003 | 2003 | 2002 | 2002 | 2001 | 2001 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (Options\tin\tthousands) | Number\tof\noptions | Weighted-average\nexercise\tprice | Number\tof\noptions | Weighted-average\nexercise\tprice | Number\tof\noptions | Weighted-average\nexercise\tprice |
| Options\toutstanding,\tJanuary\t1 | 113,155 | $40.62 | 87,393 | $41.86 | 67,237 | $38.17 |
| Granted | 12,846 | 21.87 | 32,550 | 36.85 | 26,042 | 51.22 |
| Exercised | (2,007) | 13.67 | (674) | 15.01 | (2,267) | 27.65 |
| Canceled | (6,172) | 37.80 | (6,114) | 41.14 | (3,619) | 49.54 |
| Options\toutstanding,\tDecember\t31 | 117,822 | $39.11 | 113,155 | $40.62 | 87,393 | $41.86 |
| Options\texercisable,\tDecember\t31 | 36,396 | $32.88 | 38,864 | $31.95 | 40,390 | $31.76 |

The	following	table	details	the	distribution	of	broad-based	employee	stock	options	outstanding	at	December	31,	2003:

|  | Options	outstanding | Options	outstanding | Options	outstanding | Options	exercisable | Options	exercisable |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (Options\tin\tthousands)\nRange\tof\texercise\tprices | Options\noutstanding | Weighted-average\nexercise\tprice | Weighted-average\tremaining\ncontractual\tlife\t(in\tyears) | Options\nexercisable | Weighted-average\nexercise\tprice |
| $10.26\t\t–\t\t$20.00 | 5,317 | $13.01 | 0.4 | 5,317 | $13.01 |
| $20.01\t\t–\t\t$35.00 | 19,155 | 24.66 | 6.6 | 7,725 | 28.79 |
| $35.01\t\t–\t\t$50.00 | 71,048 | 41.16 | 6.3 | 23,354 | 38.76 |
| $50.01\t\t–\t\t$65.58 | 22,302 | 51.22 | 7.1 | — | — |
| Total | 117,822 | $39.11 | 6.2 | 36,396 | $32.88 |

# Comparison	of	the	fair	and

# intrinsic	value	measurement	methods

Pre-tax	employee	stock-based	compensation	expense	related	to	these	plans	totaled $919	million	in	2003	(which	includes	the	$266	million	impact	of	adopting	SFAS	123), $590	million	in	2002	and	$798	million	in	2001.	Compensation	expense	for	2002 included	the	reversal	of	previously	accrued	expense	of	$120	million	related	to forfeitable	key	employee	awards	granted	in	1999,	2000	and	2001,	as	discussed	above.

The	following	table	presents	net	income	and	basic	and	diluted	earnings	per	share	as reported,	and	as	if	all	outstanding	awards	were	accounted	for	at	fair	value.	The	lower expense	from	applying	SFAS	123	in	2003	compared	with	2002	resulted	from	a decrease	in	the	number	of	outstanding	stock-based	compensation	awards,	a	lower common	stock	price,	lower	Black-Scholes	option	fair	values	and	longer	vesting	periods. The	increase	in	compensation	expense	after	applying	SFAS	123	in	2002	compared with	2001	reflects	a	higher	level	of	options	granted	in	prior	years	that	were	not	fully vested.	This	increase	is	partially	offset	by	a	decline	in	the	weighted-average	grant-date fair	value	of	options	granted	in	2002.

| (in	millions,	except	per	share	data) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Net\tincome\tas\treported | $6,719 | $ 1,663 | $ 1,694 |
| Add:\t\t\t\t\t\t\tEmployee\tstock-based\tcompensation\texpense |  |  |  |
| originally\tincluded\tin\treported\tnet\tincome,\tnet\tof\ttax | 551 | 354 | 479 |
| Deduct:\t\tEmployee\tstock-based\tcompensation\texpense |  |  |  |
| determined\tunder\tthe\tfair\tvalue\tmethod\tfor\tall |  |  |  |
| awards,\tnet\tof\ttax | (863) | (1,232) | (1,101) |
| Pro\tForma\tnet\tincome | $6,407 | $785 | $ 1,072 |
| Earnings\tper\tshare: |  |  |  |
| Basic:\t\t\t\t\tAs\treported | $3.32 | $0.81 | $0.83 |
| Pro\tForma | 3.16 | 0.37 | 0.51 |
| Diluted:\t\tAs\treported | $3.24 | $0.80 | $0.80 |
| Pro\tForma | 3.09 | 0.37 | 0.50 |

The	following	table	presents	JPMorgan	Chase's	weighted-average	grant-date	fair values	for	the	employee	stock-based	compensation	awards	granted,	and	the assumptions	used	to	value	stock	options	under	a	Black-Scholes	valuation	model:

| Year	ended	December	31, | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Weighted-average\tgrant-date\tfair\tvalue |  |  |  |
| Stock\toptions: |  |  |  |
| Key\temployee | $5.60 | $11.57 | $18.39 |
| Broad-based\temployee | 4.98 | 9.49 | \t 14.60 |
| Restricted\tstock\tand\tRSUs\t(all\tpayable\tsolely\tin\tstock) | \t 22.03 | \t 36.28 | \t 49.21 |
| Weighted-average\tannualized\tstock\toption\tvaluation |  |  |  |
| assumptions |  |  |  |
| Risk-free\tinterest\trate | 3.19% | 4.61% | 5.08% |
| (a) |  |  |  |
| Expected\tdividend\tyield | 5.99 | 3.72 | 2.51 |
| Expected\tcommon\tstock\tprice\tvolatility | 44 | 39 | 37 |
| Assumed\tweighted-average\texpected\tlife\tof\tstock |  |  |  |
| options\t(in\tyears) |  |  |  |
| Key\temployee | 6.8 | 6.8 | 6.8 |
| Broad-based\temployee | 3.8 | 3.8 | 3.8 |

(a) Based	primarily	on	historical	data	at	the	grant	date.

# Note	8 Noninterest	expense

Merger	and	restructuring	costs	associated	with	various	programs	announced	prior	to January	1,	2002,	were	reflected	in	the	Merger	and	restructuring	costs	caption	of	the Consolidated	statement	of	income	and	had	been	incurred	as	of	December	31,	2002. Additionally,	all	previously	recorded	liabilities	for	merger	charges	had	been	fully	utilized as	of	year-end	2002:	$1.25	billion	in	connection	with	the	merger	of	J.P.	Morgan	and Chase,	and	$300	million	in	connection	with	the	right-sizing	of	employee	levels	beyond that	planned	at	the	time	of	the	merger.

Restructuring	costs	associated	with	programs	announced	after	January	1,	2002,	are reflected	in	the	related	expense	category	of

the	Consolidated	statement	of	income.	A	summary	of	such	costs,	by	expense	category and	segment,	are	shown	in	the	following	table	for	2003	and	2002.

| Year	ended	December	31,	(in	millions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Expense\tcategory |  |  |
| Compensation | $294 | $746 |
| Occupancy | 270 | 22(b) |
| Technology\tand\tcommunications | 47 | 30 |
| Other | 19 | 92 |
| (a) |  |  |
| Total | $630 | $890 |
| Segment |  |  |
| Investment\tBank | $347 | $587 |
| Treasury\t&amp;\tSecurities\tServices | 61 | 17 |
| Investment\tManagement\t&amp;\tPrivate\tBanking | 44 | 47 |
| JPMorgan\tPartners | 2 | — |
| Chase\tFinancial\tServices | 95 | 99 |
| Support\tUnits\tand\tCorporate | 81 | 140 |
| \t(a) |  |  |
| Total | $630 | $890 |

(a)	 With	the	exception	of	occupancy-related	write-offs,	all	of	the	costs	in	the	table	required	the	expenditure of	cash.

(b) Excludes	a	$98	million	charge	for	unoccupied	excess	real	estate	in	2002.

Details	of	Other	expense	were	as	follows:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Other\texpense |  |  |  |
| Professional\tservices | $1,368 | $1,303 | $1,139 |
| Outside\tservices | \t 1,187 | 994 | 888 |
| Marketing | 710 | 689 | 601 |
| Travel\tand\tentertainment | 422 | 411 | 453 |
| Amortization\tof\tintangibles | 294 | 323 | 729 |
| All\tother | \t 1,156 | \t 1,391 | \t 1,440 |
| Total\tother\texpense | $5,137 | $5,111 | $5,250 |

# Note	9 Securities

Securities	are	classified	as	Available-for-sale	("AFS"),	Held-to-maturity	("HTM")	or Trading.	Trading	securities	are	discussed	in	Note	3	on	pages	87–88.	Securities	are classified	as	AFS	when,	in	management's	judgment,	they	may	be	sold	in	response	to	or in	anticipation	of	changes	in	market	conditions.	AFS	securities	are	carried	at	fair	value on	the	Consolidated	balance	sheet.	Unrealized	gains	and	losses	after	SFAS	133 valuation	adjustments	are	reported	as	net	increases	or	decreases	to	Accumulated other	comprehensive	income	(loss).	Impairment	is	evaluated	considering	numerous factors,	and	their	relative	significance	varies	from	case	to	case.	Factors	considered	in the	analysis	include	the	length	of	time	and	extent	to	which	the	market	value	has	been less	than	cost;	the	financial	condition	and	near-term	prospects	of	the	issuer;	and	the intent	and	ability	to	retain	the	security	in	order	to	allow	for	an	anticipated	recovery	in market	value.	If,	based	on	the	analysis,	it	is	determined	that	the	impairment	is	other- than-temporary,	the	security	is	written	down	and	a	loss	is	recognized.	The	specific identification	method	is	used	to	determine	realized	gains	and	losses	on	AFS	securities, which	are	included	in	Securities	gains	(losses)	on	the	Consolidated	statement	of income.	Securities	that	the	Firm	has	the	positive	intent	and	ability	to	hold	to	maturity	are classified	as	HTM	and	are	carried	at	amortized	cost	on	the	Consolidated	balance	sheet.

The	following	table	presents	realized	gains	and	losses	from	AFS	securities:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Realized\tgains | $2,123 | $1,904 | $1,438 |
| Realized\tlosses | (677) | (341) | (572) |
| Net\trealized\tgains\t(losses) | $1,446 | $1,563 | $866 |

The	amortized	cost	and	estimated	fair	value	of	AFS	and	HTM	securities	were	as	follows	for	the	dates	indicated:

|  | 2003 | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| December\t31,\t(in\tmillions) | Amortized\ncost | Gross\nunrealized\ngains | Gross\nunrealized\nlosses | Fair\nvalue | Amortized\ncost | Gross\nunrealized\ngains | Gross\nunrealized\nlosses | Fair\nvalue |
| Available-for-sale\tsecurities |  |  |  |  |  |  |  |  |
| U.S.\tgovernment\tand\tfederal\tagencies/corporations\tobligations: |  |  |  |  |  |  |  |  |
| Mortgage-backed\tsecurities | $32,248 | $101 | $417 | $ 31,932 | $40,148 | $449 | $141 | $ 40,456 |
| Collateralized\tmortgage\tobligations | 1,825 | 3 | — | 1,828 | 3,271 | 63 | 21 | 3,313 |
| U.S.\ttreasuries | 11,617 | 15 | 168 | 11,464 | 22,870 | 531 | 24 | 23,377 |
| Obligations\tof\tstate\tand\tpolitical\tsubdivisions | 2,841 | 171 | 52 | 2,960 | 1,744 | 145 | 14 | 1,875 |
| Debt\tsecurities\tissued\tby\tnon-U.S.\tgovernments | 7,232 | 47 | 41 | 7,238 | 11,873 | 58 | 19 | 11,912 |
| Corporate\tdebt\tsecurities | 818 | 23 | 8 | 833 | 870 | 20 | 8 | 882 |
| Equity\tsecurities | 1,393 | 24 | 11 | 1,406 | 1,198 | 16 | 18 | 1,196 |
| \t(a) |  |  |  |  |  |  |  |  |
| Other,\tprimarily\tasset-backed\tsecurities | 2,448 | 61 | 102 | 2,407 | 978 | 113 | 70 | 1,021 |
| Total\tavailable-for-sale\tsecurities | $60,422 | $445 | $799 | $ 60,068 | $82,952 | $1,395 | $315 | $ 84,032 |
| Held-to-maturity\tsecurities |  |  |  |  |  |  |  |  |
| (b) |  |  |  |  |  |  |  |  |
| Total\theld-to-maturity\tsecurities | $176 | $10 | $— | $186 | $431 | $24 | $— | $455 |
| (a) |  |  |  |  |  |  |  |  |

(a) Includes	CMOs	of	private	issuers,	which	generally	have	underlying	collateral	consisting	of	obligations	of	U.S.	government	and	federal	agencies	and	corporations.

(b) Consists	primarily	of	mortgage-backed	securities.

Included	in	the	$799	million	of	unrealized	losses	on	available-for-sale	securities	at December	31,	2003	is	$46	million	of	unrealized	losses	that	have	existed	for	a	period greater	than	12	months.	These	losses	primarily	relate	to	$1.5	billion	of	asset-backed securities	held	by	commercial	paper	conduits	that	were	consolidated	by	the	Firm	in accordance	with	FIN	46	on	July	1,	2003.	The	securities	held	by	the	conduits	are	of	high credit	quality,	predominantly	rated	AA	or	better.	Upon	adoption	of	FIN	46,	the	securities were	measured	at	the	amounts	at	which	such	interests	would	have	been	carried	had the	Firm	consolidated	the	conduits	when	it	first	met	the	conditions	to	be	considered	the primary	beneficiary;	this	resulted	in	an	initial	transition	adjustment	to	Other comprehensive	income	as	described	in	Note	14	on	page	106.	The	overall	depreciation in	fair	value	is	attributable

to	the	illiquid	secondary	market	for	these	securities	and	is	considered	temporary,	as	the Firm	has	the	intent	and	ability	to	hold	these	investments	with	the	expectation	that	the unrealized	market	value	loss	will	be	recovered.

In	calculating	the	effective	yield	for	mortgage-backed	securities	("MBS")	and collateralized	mortgage	obligations	("CMO"),	JPMorgan	Chase	actively	monitors	the likelihood	of	principal	prepayment	through	its	portfolio	management	function. Management	regularly	performs	simulation	testing	to	determine	the	impact	that	market conditions	would	have	on	its	MBS	and	CMO	portfolios.	MBSs	and	CMOs	that management	believes	have	high	prepayment	risk	are	included	in	the	AFS	portfolio	and are	reported	at	fair	value.

The	following	table	presents	the	amortized	cost,	estimated	fair	value	and	average	yield	at	December	31,	2003,	of	JPMorgan	Chase's	AFS	and	HTM	securities	by	contractual	maturity:

|  | Available-for-sale	securities | Available-for-sale	securities | Available-for-sale	securities | Available-for-sale	securities | Held-to-maturity	securities | Held-to-maturity	securities | Held-to-maturity	securities | Held-to-maturity	securities |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Maturity\tschedule\tof\tsecurities | Amortized | Fair | Average | Average | Amortized | Fair | Average | Average |
| December\t31,\t2003\t(in\tmillions) | cost | value | yield | (a) | cost | value | yield | (a) |
| Due\tin\tone\tyear\tor\tless | $4,899 | $4,900 | 1.89% | 1.89% | $— | $— |  | —% |
| Due\tafter\tone\tyear\tthrough\tfive\tyears | 9,212 | 9,175 | 3.33 | 3.33 | — | — |  | — |
| Due\tafter\tfive\tyears\tthrough\t10\tyears | 7,839 | 7,815 | 4.20 | 4.20 | 2 | 2 | 7.32 | 7.32 |
| \t(b) |  |  |  |  |  |  |  |  |
| Due\tafter\t10\tyears | 38,472 | 38,178 | 4.83 | 4.83 | 174 | 184 | 6.91 | 6.91 |
| Total\tsecurities | $60,422 | $60,068 | 4.28% | 4.28% | $176 | $186 | 6.92% | 6.92% |
| (a) |  |  |  |  |  |  |  |  |

(a) The	average	yield	is	based	on	amortized	cost	balances	at	year-end.	Yields	are	derived	by	dividing	interest	income	(including	the	effect	of	related	derivatives	on	AFS	securities	and	the	amortization	of	premiums	and accretion	of	discounts)	by	total	amortized	cost.	Taxable-equivalent	yields	are	used	where	applicable.

(b) Includes	securities	with	no	stated	maturity.	Substantially	all	of	JPMorgan	Chase's	MBSs	and	CMOs	are	due	in	10	years	or	more	based	on	contractual	maturity.	The	estimated	duration,	which	reflects	anticipated	future prepayments	based	on	a	consensus	of	dealers	in	the	market,	is	approximately	five	years	for	MBSs	and	CMOs.

# Note	10 Securities	financing	activities

JPMorgan	Chase	enters	into	resale	agreements,	repurchase	agreements,	securities borrowed	transactions	and	securities	loaned	transactions	primarily	to	finance	the	Firm's inventory	positions,	acquire	securities	to	cover	short	positions	and	settle	other	securities obligations.	The	Firm	also	enters	into	these	transactions	to	accommodate	customers' needs.

Securities	purchased	under	resale	agreements	("resale	agreements")	and	securities sold	under	repurchase	agreements	("repurchase	agreements")	are	generally	treated	as collateralized	financing	transactions	and	are	carried	on	the	Consolidated	balance	sheet at	the	amounts	the	securities	will	be	subsequently	sold	or	repurchased,	plus	accrued interest.	Where	appropriate,	resale	and	repurchase	agreements	with	the	same counterparty	are	reported	on	a	net	basis	in	accordance	with	FIN	41.	JPMorgan	Chase takes	possession	of	securities	purchased	under	resale	agreements.	On	a	daily	basis, JPMorgan	Chase	monitors	the	market	value	of	the	underlying	collateral	received	from its	counterparties,	consisting	primarily	of	U.S.	and	non-U.S.	government	and	agency securities,	and	requests	additional	collateral	from	its	counterparties	when	necessary.

Similar	transactions	that	do	not	meet	the	SFAS	140	definition	of	a	repurchase agreement	are	accounted	for	as	"buys"	and	"sells"	rather	than	financing	transactions. These	transactions	are	accounted	for	as	a	purchase	(sale)	of	the	underlying	securities with	a	forward	obligation	to	sell	(purchase)	the	securities.	The	forward	purchase (sale)	obligation,	a	derivative,	is	recorded	on	the	Consolidated	balance	sheet	at	its	fair value,	with	changes	in	fair	value	recorded	in	Trading	revenue.	Notional	amounts	of these	transactions	accounted	for	as	purchases	under	SFAS	140	were	$15	billion	and $8	billion	at	December	31,	2003	and	2002,	respectively.	Notional	amounts	of	these transactions	accounted	for	as	sales	under	SFAS	140	were	$8	billion	and	$13	billion	at December	31,	2003	and	2002,	respectively.	Based	on	the	short-term	duration	of	these contracts,	the	unrealized	gain	or	loss	is	insignificant.

Securities	borrowed	and	securities	lent	are	recorded	at	the	amount	of	cash	collateral advanced	or	received.	Securities	borrowed	consist	primarily	of	government	and	equity securities.	JPMorgan	Chase	monitors	the	market	value	of	the	securities	borrowed	and lent	on	a	daily	basis	and	calls	for	additional	collateral	when	appropriate.	Fees	received or	paid	are	recorded	in	Interest	income	or	Interest	expense.

| December	31,	(in	millions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Securities\tpurchased\tunder\tresale\tagreements | $62,801 | $57,645 |
| Securities\tborrowed | 41,834 | 34,143 |
| Securities\tsold\tunder\trepurchase\tagreements | $105,409 | $161,394 |
| Securities\tloaned | 2,461 | 1,661 |

JPMorgan	Chase	pledges	certain	financial	instruments	it	owns	to	collateralize repurchase	agreements	and	other	securities	financings.	Pledged	securities	that	can	be sold	or	repledged	by	the	secured	party	are	identified	as	financial	instruments	owned (pledged	to	various	parties)	on	the	Consolidated	balance	sheet.

At	December	31,	2003,	the	Firm	had	received	securities	as	collateral	that	can	be repledged,	delivered	or	otherwise	used	with	a	fair	value	of	approximately	$210	billion. This	collateral	was	generally	obtained	under	resale	or	securities-borrowing agreements.	Of	these	securities,	approximately	$197	billion	was	repledged,	delivered or	otherwise	used,	generally	as	collateral	under	repurchase	agreements,	securities- lending	agreements	or	to	cover	short	sales.

# Note	11 Loans

Loans	are	reported	at	the	principal	amount	outstanding,	net	of	the	allowance	for	loan losses,	unearned	income	and	any	net	deferred	loan	fees.	Loans	held	for	sale	are carried	at	the	lower	of	aggregate	cost	or	fair	value.	Loans	are	classified	as	"trading"	for secondary	market	trading	activities	where	positions	are	bought	and	sold	to	make	profits from	short-term	movements	in	price.	Loans	held	for	trading	purposes	are	included	in Trading	assets	and	are	carried	at	fair	value,	with	the	gains	and	losses	included	in Trading	revenue.	Interest	income	is	recognized	using	the	interest	method,	or	on	a	basis approximating	a	level	rate	of	return	over	the	term	of	the	loan.

Nonaccrual	loans	are	those	on	which	the	accrual	of	interest	is	discontinued.	Loans (other	than	certain	consumer	loans	discussed	below)	are	placed	on	nonaccrual	status immediately	if,	in	the	opinion	of	management,	full	payment	of	principal	or	interest	is	in doubt,	or	when	principal	or	interest	is	90	days	or	more	past	due	and	collateral,	if	any,	is insufficient	to	cover	principal	and	interest.	Interest	accrued	but	not	collected	at	the	date a	loan	is	placed	on	nonaccrual	status	is	reversed	against	Interest	income.	In	addition, the	amortization	of	net	deferred	loan	fees	is	suspended.	Interest	income	on	nonaccrual loans	is	recognized	only	to	the	extent	it	is	received	in	cash.	However,	where	there	is doubt	regarding	the	ultimate	collectibility	of	loan	principal,	all	cash	thereafter	received	is applied	to	reduce	the	carrying	value	of	the	loan.	Loans	are	restored	to	accrual	status only	when	interest	and	principal	payments	are	brought	current	and	future	payments	are reasonably	assured.

Consumer	loans	are	generally	charged	to	the	Allowance	for	loan	losses	upon	reaching specified	stages	of	delinquency,	in	accordance	with	the	Federal	Financial	Institutions Examination	Council	("FFIEC")	policy.	For	example,	credit	card	loans	are	charged	off	at the	earlier	of	180	days	past	due	or	within	60	days	from	receiving	notification	of	the	filing of	bankruptcy.	Residential	mortgage	products	are	generally	charged	off	to	net	realizable value	at	180	days	past	due.	Other	consumer	products	are	generally	charged	off	(to	net realizable	value	if	collateralized)	at	120	days	past	due.	Accrued	interest	on	residential mortgage	products,	automobile	financings	and	certain	other	consumer	loans	are accounted	for	in	accordance	with	the	nonaccrual	loan	policy

discussed	above.	Accrued	interest	on	all	other	loans	is	generally	reversed	against interest	income	when	the	consumer	loan	is	charged	off.

A	collateralized	loan	is	considered	an	in-substance	foreclosure	and	is	reclassified	to assets	acquired	in	loan	satisfactions,	within

Other	assets,	only	when	JPMorgan	Chase	has	taken	physical	possession	of	the collateral.	This	is	regardless	of	whether	formal	foreclosure	proceedings	have	taken place.

The	composition	of	the	loan	portfolio	at	each	of	the	dates	indicated	was	as	follows:

|  | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| December\t31,\t(in\tmillions) | U.S. | Non-U.S. | Total | U.S. | Non-U.S. | Total |
| Commercial\tloans: |  |  |  |  |  |  |
| Commercial\tand\tindustrial | $43,631 | $24,618 | $68,249 | $49,205 | $31,446 | $80,651 |
| Commercial\treal\testate: |  |  |  |  |  |  |
| Commercial\tmortgage | 3,182 | — | 3,182 | 3,176 | 2 | 3,178 |
| Construction | 589 | 79 | 668 | 516 | 379 | 895 |
| Financial\tinstitutions | 4,622 | 5,671 | 10,293 | 3,770 | 2,438 | 6,208 |
| Non-U.S.\tgovernments | — | 705 | 705 | — | 616 | 616 |
| Total\tcommercial\tloans | 52,024 | 31,073 | 83,097(d) | 56,667 | 34,881 | 91,548 |
| Consumer\tloans: |  |  |  |  |  |  |
| 1–4\tfamily\tresidential\tmortgages: |  |  |  |  |  |  |
| First\tliens | 54,460 | — | 54,460 | 49,357 | 12 | 49,369 |
| Home\tequity\tloans | 19,252 | — | 19,252 | 14,643 | — | 14,643 |
| \t(a) |  |  |  |  |  |  |
| Credit\tcard | 16,793 | — | 16,793 | 19,677 | — | 19,677 |
| Automobile\tfinancings | 38,695 | — | 38,695 | 33,615 | — | 33,615 |
| Other\tconsumer | 7,193 | 28 | 7,221 | 7,395 | 117 | 7,512 |
| Total\tconsumer\tloans | 136,393 | 28 | 136,421 | 124,687 | 129 | 124,816 |
| \t(b)(c) |  |  |  |  |  |  |
| Total\tloans | $188,417 | $31,101 | $219,518 | $181,354 | $35,010 | $216,364 |
| (a) |  |  |  |  |  |  |

(a) At	December	31,	2003,	excludes	$1.1	billion	of	accrued	interest	and	fees	on	securitized	credit	card	loans	that	were	classified	in	Other	assets,	consistent	with	the	FASB	Staff	Position,	Accounting	for	Accrued	Interest Receivable	Related	to	Securitized	and	Sold	Receivables	under	SFAS	140.

(c) Includes	loans	held	for	sale	(principally	mortgage-related	loans)	of	$20.8	billion	and	$25.0	billion	at	December	31,	2003	and	2002,	respectively.

(d) Includes	$5.8	billion	of	loans	held	by	VIEs	consolidated	under	FIN	46.

The	following	table	reflects	information	about	the	Firm's	loans	held	for	sale,	principally	mortgage-related:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Net\tgains\ton\tsales\tof\tloans\theld\tfor\tsale | $933 | $754 | $581 |
| Lower\tof\tcost\tor\tmarket\tadjustments | 26 | (36) | (177) |

# Impaired	loans

JPMorgan	Chase	accounts	for	and	discloses	nonaccrual	commercial	loans	as	impaired loans	and	recognizes	their	interest	income	as	discussed	previously	for	nonaccrual loans.	The	Firm	excludes	from	impaired	loans	its	small-balance,	homogeneous consumer	loans;	loans	carried	at	fair	value	or	the	lower	of	cost	or	fair	value;	debt securities;	and	leases.

The	table	below	sets	forth	information	about	JPMorgan	Chase's	impaired	loans.	The Firm	primarily	uses	the	discounted	cash	flow	method	for	valuing	impaired	loans:

| December	31,	(in	millions) |  |  | 2003 | 2002 |
| :--- | :--- | :--- | :--- | :--- |
| Impaired\tloans\twith\tan\tallowance |  |  | $1,597 | $3,250 |
| Impaired\tloans\twithout\tan\tallowance | \t(a) |  | 406 | 412 |
| Total\timpaired\tloans |  |  | $2,003 | $3,662 |
| Allowance\tfor\timpaired\tloans\tunder\tSFAS\t114 | Allowance\tfor\timpaired\tloans\tunder\tSFAS\t114 | \t(b) | $595 | $1,106 |
| Average\tbalance\tof\timpaired\tloans\tduring\tthe\tyear | Average\tbalance\tof\timpaired\tloans\tduring\tthe\tyear | Average\tbalance\tof\timpaired\tloans\tduring\tthe\tyear | \t 2,969 | \t 2,805 |
| Interest\tincome\trecognized\ton\timpaired\tloans\tduring\tthe\tyear | Interest\tincome\trecognized\ton\timpaired\tloans\tduring\tthe\tyear | Interest\tincome\trecognized\ton\timpaired\tloans\tduring\tthe\tyear | 4 | 14 |

(a)	 When	the	discounted	cash	flows,	collateral	value	or	market	price	equals	or	exceeds	the	carrying	value of	the	loan,	then	the	loan	does	not	require	an	allowance	under	SFAS	114.

(b) The	allowance	for	impaired	loans	under	SFAS	114	is	included	in	JPMorgan	Chase's	allowance	for	loan losses.

# Note	12 Allowance	for	credit	losses

JPMorgan	Chase's	Allowance	for	loan	losses	is	intended	to	cover	probable	credit losses	for	which	either	the	asset	is	not	specifically	identified	or	the	size	of	the	loss	has not	been	fully	determined.	Within	the	allowance,	there	are	specific	and	expected	loss components	and	a	residual	component.

The	specific	loss	component	covers	those	commercial	loans	deemed	by	the	Firm	to	be criticized.	The	Firm	internally	categorizes	its	criticized	commercial	loans	into	three groups:	doubtful,	substandard	and	special-mention.

Criticized	nonperforming	commercial	loans	(excluding	leases)	are	considered	to	be impaired	loans.	The	allowance	for	impaired	loans	is	computed	using	the	methodology under	SFAS	114.	An	allowance	is	established	when	the	discounted	cash	flows	(or collateral	value	or	observable	market	price)	of	an	impaired	loan	are	lower	than	the carrying	value	of	that	loan.	To	compute	the	specific	loss	component	of	the	allowance, larger	impaired	loans	are	evaluated	individually,	and	smaller	impaired	loans	are evaluated	as	a	pool	using	historical	loss	experience	for	the	respective	class	of	assets. Criticized	but	performing	loans	also	are	evaluated	as	a	pool,	using	historical	loss	rates.

The	expected	loss	component	covers	performing	commercial	loans	(except	criticized loans)	and	consumer	loans.	Expected	losses	are	the	product	of	default	probability	and loss	severity.	These	factors	are	differentiated	by	risk	rating	and	maturity	for	commercial loans.	The	expected	loss	estimates	for	each	consumer	loan	portfolio	are	based primarily	on	the	Firm's	historical	loss	experience	for	the	applicable	product	portfolio.

Finally,	a	residual	component	is	maintained	to	cover	uncertainties	that	could	affect management's	estimate	of	probable	losses.	The	residual	component	of	the	allowance reflects	the	margin	of	imprecision	in	the	underlying	assumptions	used	for	estimating specific	losses	and	expected	losses.	It	is	anticipated	that	the	residual	component	of	the allowance	will	range	between	10%	and	20%	of	the	total	Allowance	for	loan	losses.

JPMorgan	Chase's	Risk	Management	Committee	reviews,	at	least	quarterly,	the Allowance	for	credit	losses	relative	to	the	risk	profile	of	the	Firm's	credit	portfolio	and current	economic	conditions.	The	allowance	is	adjusted	based	on	that	review	if,	in management's	judgment,	changes	are	warranted.	As	of	December	31,	2003, JPMorgan	Chase	deemed	the	allowance	to	be	appropriate	(i.e.,	sufficient	to	absorb losses	that	are	inherent	in	the	portfolio	but	not	yet	identifiable).

To	provide	for	the	risk	of	loss	inherent	in	the	credit	extension	process,	management also	computes	specific	and	expected	loss	components,	as	well	as	a	residual component,	for	lending-related	commitments	using	a	methodology	similar	to	that	used for	the	loan	portfolio.

JPMorgan	Chase	maintains	an	Allowance	for	credit	losses	as	follows:

The	table	below	summarizes	the	changes	in	the	Allowance	for	loan	losses:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Allowance\tfor\tloan\tlosses\tat\tJanuary\t1 | $ 5,350 | $ 4,524 | $ 3,665 |
| Provision\tfor\tloan\tlosses | 1,579 | 4,039 | 3,185 |
| Charge-offs | (2,818) | (4,060) | (2,582) |
| Recoveries | 546 | 384 | 247 |
| Net\tcharge-offs | (2,272) | (3,676) | (2,335) |
| \t(a) |  |  |  |
| Transfer\tto\tOther\tassets | (138) | — | — |
| Allowance\trelated\tto\tpurchased\tportfolios | — | 460 | — |
| Other | 4 | 3 | 9 |
| Allowance\tfor\tloan\tlosses\tat\tDecember\t31 | $ 4,523 | $ 5,350 | $ 4,524 |
| (a)\nIncludes\t$138\tmillion\trelated\tto\tthe\ttransfer\tof\tthe\tallowance\tfor\taccrued\tinterest\tand\tfees\ton |  |  |  |

(a) Includes	$138	million	related	to	the	transfer	of	the	allowance	for	accrued	interest	and	fees	on securitized	credit	card	loans.

The	table	below	summarizes	the	changes	in	the	Allowance	for	lending-related commitments:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Allowance\tfor\tlending-related\tcommitments\tat\tJanuary\t1 | $363 | $282 | $283 |
| Provision\tfor\tlending-related\tcommitments | (39) | 292 | (3) |
| Charge-offs | — | (212) | — |
| Recoveries | — | — | 3 |
| Net\tcharge-offs | — | (212) | 3 |
| Other | — | 1 | (1) |
| Allowance\tfor\tlending-related\tcommitments\tat\tDecember\t31 | $324 | $363 | $282 |

# Note	13 Loan	securitizations

JPMorgan	Chase	securitizes,	sells	and	services	various	consumer	loans	originated	by Chase	Financial	Services	(residential	mortgage,	credit	card	and	automobile	loans),	as well	as	certain	commercial	loans	(primarily	real	estate)	originated	by	the	Investment Bank.	Interests	in	the	sold	and	securitized	loans	may	be	retained	as	described	below.

JPMorgan	Chase	records	a	loan	securitization	as	a	sale	when	the	transferred	loans	are legally	isolated	from	the	Firm's	creditors	and	the	accounting	criteria	for	a	sale	are	met. Gains	or	losses	recorded	on	loan	securitizations	depend,	in	part,	on	the	carrying amount	of	the	loans	sold	and	are	allocated	between	the	loans	sold	and	the	retained interests,	based	on	their	relative	fair	values	at	the	date	of	sale.	Since	quoted	market prices	are	generally	not

available,	the	Firm	usually	estimates	fair	value	of	these	retained	interests	by determining	the	present	value	of	future	expected	cash	flows	using	modeling	techniques. Such	models	incorporate	management's	best	estimates	of	key	variables,	such	as expected	credit	losses,	prepayment	speeds	and	discount	rates	appropriate	for	the	risks involved.	Gains	on	securitizations	are	reported	in	Other	revenue.	Retained	interests that	are	subject	to	prepayment	risk,	such	that	JPMorgan	Chase	may	not	recover substantially	all	of	its	investment,	are	recorded	at	fair	value,	with	subsequent adjustments	reflected	in	Other	comprehensive	income	or	in	earnings,	if	the	fair	value	of the	retained	interest	has	declined	below	its	carrying	amount	and	such	decline	has	been determined	to	be	other-than-temporary.

JPMorgan	Chase-sponsored	securitizations	utilize	SPEs	as	part	of	the	securitization process.	These	SPEs	are	structured	to	meet	the	definition	of	a	QSPE	(as	discussed	in Note	1);	accordingly,	the	assets	and	liabilities	of	securitization-related	SPEs	are	not reflected	in	the	Firm's	Consolidated	balance	sheet	(except	for	retained	interests	as described	below)	but	are	included	on	the	balance	sheet	of	the	SPE	purchasing	the assets.	Assets	held	by	securitization-related	SPEs	as	of	December	31,	2003	and	2002, were	as	follows:

| December	31,	(in	billions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Credit\tcard\treceivables | $42.6 | $ 40.2 |
| Residential\tmortgage\treceivables | 21.1 | 20.6 |
| Commercial\tloans | 33.8 | 25.2 |
| Automobile\tloans | 6.5 | 4.5 |
| Other\treceivables | — | 0.1 |
| Total | $104.0 | $ 90.6 |

Interests	in	the	securitized	loans	are	generally	retained	by	the	Firm	in	the	form	of	senior or	subordinated	interest-only	strips,	subordinated	tranches,	escrow	accounts	and servicing	rights,	and	they	are	primarily	recorded	in	Other	assets.	In	addition,	credit	card securitization	trusts	require	the	Firm	to	maintain	a	minimum	undivided	interest	in	the trusts,	representing	the	Firm's	interests	in	the	receivables	transferred	to	the	trust	that have	not	been	securitized.	These	interests	are	not	represented	by	security	certificates. The	Firm's	undivided	interests	are	carried	at	historical	cost	and	are	classified	in	Loans.

JPMorgan	Chase	retains	servicing	responsibilities	for	all	residential	mortgage,	credit card	and	automobile	loan	securitizations	and	for	certain	commercial	loan	securitizations it	establishes.	The	Firm	receives	annual	servicing	fees	based	on	the	securitized	loan balance	plus	certain	ancillary	fees.	It	also	retains	the	right	to	service	the	residential mortgage	loans	it	sells	in	connection	with	mortgage-backed	securities	transactions	with the	Government	National	Mortgage	Association	("GNMA"),	Federal	National	Mortgage Association	("FNMA")	and	Federal	Home	Loan	Mortgage	Corporation	("Freddie	Mac"). For	a	discussion	of	mortgage	servicing	rights,	see	Note	16	on	pages	107-109	of	this Annual	Report.

The	following	table	summarizes	new	securitization	transactions	that	were	completed during	2003	and	2002;	the	resulting	gains	arising	from	such	securitizations;	certain cash	flows	received	from	such	securitizations;	and	the	key	economic	assumptions	used in	measuring	the	retained	interests,	as	of	the	dates	of	such	sales:

| Year	ended	December	31,<br>($	in	millions) | 2003 | Mortgage | Credit	card | Automobile | Commercial | Commercial | 2002 | Mortgage | Credit	card | Automobile | Commercial | Commercial |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Principal\tSecuritized | $13,270 | $13,270 | $8,823 | $4,510 | $5,386 | $5,386 | $7,220 | $7,220 | $9,350 | $3,392 | $4,300 | $4,300 |
| Pre-tax\tgains |  | 168 | 44 | 13 |  | 107 |  | 214 | 45 | 6 |  | 53 |
| Cash\tflow\tinformation: |  |  |  |  |  |  |  |  |  |  |  |  |
| Proceeds\tfrom\tsecuritizations | $13,540 | $13,540 | $8,823 | $4,503 | $5,493 | $5,493 | $7,403 | $7,403 | $9,350 | $3,386 | $4,284 | $4,284 |
| Servicing\tfees\tcollected |  | 20 | 79 | 15 |  | 2 |  | 15 | 73 | 20 |  | — |
| Other\tcash\tflows\treceived |  | 2 | 216 | 12 |  | 8 |  | 11 | 211 | 27 |  | 2 |
| Proceeds\tfrom\tcollections\treinvested\tin\trevolving |  |  |  |  |  |  |  |  |  |  |  |  |
| securitizations |  | — | 58,199 | — |  | — |  | — | 44,645 | — |  | 334 |
| Key\tassumptions\t(rates\tper\tannum): |  |  |  |  |  |  |  |  |  |  |  |  |
| (a) |  |  |  |  |  |  |  |  |  |  |  | (b) |
| Prepayment\trate | 10.1-36.2%\tCPR | 10.1-36.2%\tCPR | 8.1-16.5% | 1.52-1.57% | 50.0% | 50.0% | 10.1-25.0%\tCPR | 10.1-25.0%\tCPR | 14.6-14.9% | 1.51-1.52% |  | NA |
|  |  |  |  | WAC/WAM |  |  |  |  |  | WAC/WAM |  |  |
| Weighted-average\tlife | 2.0-4.6\tyears | 2.0-4.6\tyears | 7-12\tmonths | 1.7-1.8\tyears | 1.3-5.2\tyears | 1.3-5.2\tyears | 3.0-7.7\tyears |  | 7\tmonths | 1.8\tyears | 7.3\tyears | 7.3\tyears |
| Expected\tcredit\tlosses | 0.0-2.5% | (c) | 5.5-8.0% | 0.5-0.6% | NA | (d) | 0-1.0% | (c) | 5.4-5.9% | 0.5% | NA | (d) |
| Discount\trate | 13.0-30.0% | 13.0-30.0% | 12.0% | 3.9-4.5% | 1.0-5.0% | 1.0-5.0% | 15.0-30.0% |  | 5.1-5.9% | 5.7-5.9% | 8.8% |  |
| (a) | CPR:\tConstant\tprepayment\trate;\tWAC/WAM:\tWeighted-average\tcoupon/weighted-average\tmaturity. | CPR:\tConstant\tprepayment\trate;\tWAC/WAM:\tWeighted-average\tcoupon/weighted-average\tmaturity. | CPR:\tConstant\tprepayment\trate;\tWAC/WAM:\tWeighted-average\tcoupon/weighted-average\tmaturity. |  |  |  |  |  |  |  |  |  |

(a) CPR:	Constant	prepayment	rate;	WAC/WAM:	Weighted-average	coupon/weighted-average	maturity.

(b) Not	applicable	since	these	retained	interests	are	not	subject	to	prepayment	risk.

(c) Expected	credit	losses	for	prime	mortgage	securitizations	are	minimal	and	are	incorporated	into	other	assumptions.

(d) Not	applicable	due	to	collateral	coverage	on	loans	in	commercial	securitizations.

In	addition,	the	Firm	sold	residential	mortgage	loans	totaling	$123	billion	and $62.2	billion	during	2003	and	2002,	respectively,	primarily	as	GNMA,	FNMA	and Freddie	Mac	mortgage-backed	securities;	these	sales	resulted	in	gains	of	$564	million in	2003	and	$388	million	in	2002.

At	December	31,	2003	and	2002,	the	Firm	had,	with	respect	to	its	credit	card	master trusts,	$7.3	billion	related	to	its	undivided	interest,	and	$1.1	billion	and	$978	million, respectively,	related	to	its	subordinated	interest	in	accrued	interest	and	fees	on	the securitized	receivables.

The	Firm	also	maintains	escrow	accounts	up	to	predetermined	limits	for	some	of	its credit	card	and	automobile	securitizations,	in	the	unlikely	event	of	deficiencies	in	cash flows	owed	to	investors.	The	amounts	available	in	such	escrow	accounts	are	recorded in	Other	assets	and,	as	of	December	31,	2003,	amounted	to	$456	million	and $137	million	for	credit	card	and	automobile	securitizations,	respectively;	as	of December	31,

2002,	these	amounts	were	$510	million	and	$94	million	for	credit	card	and	automobile securitizations,	respectively.

The	table	below	summarizes	other	retained	securitization	interests,	primarily subordinated	or	residual	interests,	which	are	carried	at	fair	value	on	the	Firm's Consolidated	balance	sheets.

| December	31,	(in	millions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Loans |  |  |
| Residential\tmortgage | $570(a) | $684(a) |
| Credit\tcard | 193(a) | 92(a) |
| Automobile | 151(a) | 151(a) |
| Commercial | 34 | 94 |
| Total | $948 | $1,021 |
| (a) | Pre-tax\tunrealized\tgains\t(losses)\trecorded\tin\tStockholders'\tequity\tthat\trelate\tto\tretained\tsecuritization | Pre-tax\tunrealized\tgains\t(losses)\trecorded\tin\tStockholders'\tequity\tthat\trelate\tto\tretained\tsecuritization |

(a) Pre-tax	unrealized	gains	(losses)	recorded	in	Stockholders'	equity	that	relate	to	retained	securitization interests	totaled	$155	million	and	$156	million,	$11	million	and	$(1)	million,	and	$6	million	and	$21 million	for	residential	mortgage,	credit	card	and	automobile,	at	December	31,	2003	and	2002, respectively.

The	table	below	outlines	the	key	economic	assumptions	and	the	sensitivity	of	fair	values	at	December	31,	2003,	of	the	remaining	retained	interests	to	immediate	10%	and	20% adverse	changes	in	those	assumptions:

| December	31,	2003	(in	millions) | Mortgage |  | Credit	card | Automobile | Commercial | Commercial | Commercial |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Weighted-average\tlife | 1.4-2.7\tyears | 1.4-2.7\tyears | 5-15\tmonths | 1.5\tyears | 0.6-5.9\tyears | 0.6-5.9\tyears | 0.6-5.9\tyears |
| Prepayment\trate | 29.0-31.7%\tCPR | 29.0-31.7%\tCPR | 8.1-15.1% | 1.5%\tWAC/WAM | NA | (a) | ,50.0% |
| Impact\tof\t10%\tadverse\tchange | $(17) | $(17) | $(7) | $(10) | $(1) | $(1) | $(1) |
| Impact\tof\t20%\tadverse\tchange | (31) | (31) | (13) | (19) |  |  | (2) |
| Loss\tassumption | 0.0-4.0% | (b) | 5.5-8.0% | 0.6% |  | NA | (c) |
| Impact\tof\t10%\tadverse\tchange | $(28) | $(28) | $(21) | $(6) | $— | $— | $— |
| Impact\tof\t20%\tadverse\tchange | (57) | (57) | (41) | (12) |  |  | — |
| Discount\trate | 13.0-30.0% | (d) | 8.3-12.0% | 4.4% | 5.0-20.9% | 5.0-20.9% | 5.0-20.9% |
| Impact\tof\t10%\tadverse\tchange | $(14) | $(14) | $(1) | $(1) | $(1) | $(1) | $(1) |
| Impact\tof\t20%\tadverse\tchange | (27) | (27) | (3) | (2) |  |  | (2) |

(a) Prepayment	risk	on	certain	commercial	retained	interests	are	minimal	and	are	incorporated	into	other	assumptions.

(b) Expected	credit	losses	for	prime	mortgage	securitizations	are	minimal	and	are	incorporated	into	other	assumptions.

(c) Not	applicable,	as	modeling	assumptions	for	predominantly	all	of	the	commercial	retained	interests	consider	overcollateralization	coverage.

(d) During	2003,	the	Firm	sold	certain	residual	interests	of	approximately	$390.5	million	from	sub-prime	mortgage	securitizations	via	Net	Interest	Margin	("NIM")	securitizations.	The	Firm	retained	residual	interests	in	these and	prior	NIM	securitizations	of	approximately	$169.8	million,	which	are	valued	using	a	30%	discount	rate.

The	sensitivity	analysis	in	the	preceding	table	is	hypothetical.	Changes	in	fair	value based	on	a	10%	or	20%	variation	in	assumptions	generally	cannot	be	extrapolated easily,	because	the	relationship	of	the	change	in	the	assumptions	to	the	change	in	fair value	may	not	be	linear.	Also,	in	this	table,	the	effect	that	a	change	in	a	particular assumption	may	have	on	the	fair	value	is	calculated	without	changing	any	other assumption.	In	reality,	changes	in	one	factor	may	result	in	changes	in	another assumption,	which	might	counteract	or	magnify	the	sensitivities.

Expected	static-pool	net	credit	losses	include	actual	incurred	losses	plus	projected	net credit	losses,	divided	by	the	original	balance	of	the	outstandings	comprising	the securitization	pool.

The	table	below	displays	the	expected	static-pool	net	credit	losses	for	2003,	2002	and 2001,	based	on	securitizations	occurring	in	that	year:

|  | Loans	securitized	in: | Loans	securitized	in: | Loans	securitized	in: | (a)(b) |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2003 | 2003 | 2002 | 2002 | 2001 | 2001 |
|  | Mortgage | Auto | Mortgage | Auto | Mortgage | Auto |
| December\t31,\t2003 | 0.0–3.6% | 0.9% | 0.0–2.8% | 0.8% | 0.0–2.7% | 1.0% |
| December\t31,\t2002 | NA | NA | 0.1–3.7 | 0.9 | 0.1–3.8 | 0.9 |
| December\t31,\t2001 | NA | NA | NA | NA | 0.1–2.3 | 0.8 |
| (a) | No\texpected\tstatic-pool\tnet\tcredit\tlosses\ton\tcommercial\tsecuritizations\tdue\tto\tcollateral\tcoverage\ton | No\texpected\tstatic-pool\tnet\tcredit\tlosses\ton\tcommercial\tsecuritizations\tdue\tto\tcollateral\tcoverage\ton | No\texpected\tstatic-pool\tnet\tcredit\tlosses\ton\tcommercial\tsecuritizations\tdue\tto\tcollateral\tcoverage\ton | No\texpected\tstatic-pool\tnet\tcredit\tlosses\ton\tcommercial\tsecuritizations\tdue\tto\tcollateral\tcoverage\ton | No\texpected\tstatic-pool\tnet\tcredit\tlosses\ton\tcommercial\tsecuritizations\tdue\tto\tcollateral\tcoverage\ton | No\texpected\tstatic-pool\tnet\tcredit\tlosses\ton\tcommercial\tsecuritizations\tdue\tto\tcollateral\tcoverage\ton |

(a) No	expected	static-pool	net	credit	losses	on	commercial	securitizations	due	to	collateral	coverage	on loans	in	commercial	securitizations.

(b) Static-pool	losses	not	applicable	to	credit	card	securitizations	due	to	their	revolving	structure.

The	table	below	presents	information	about	delinquencies,	net	credit	losses	and components	of	reported	and	securitized	financial	assets	at	December	31,	2003	and 2002:

| Type	of	loan | Type	of	loan |  |  |  |  | Loans	90	days	or | Loans	90	days	or | Net |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | Total\tloans | Total\tloans | more\tpast\tdue | more\tpast\tdue | charge-offs | charge-offs |
| December\t31, | December\t31, | December\t31, |  |  |  |  |  | Year\tended | Year\tended |
| (in\tmillions) | (in\tmillions) |  |  | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 |
| Mortgage | \t(a) |  |  | $89,276 | $81,570 | $898 | $956 | $224 | $272 |
| Credit\tcard | Credit\tcard |  |  | 51,649 | 50,399 | 1,138 | 1,096 | 2,942 | 2,828 |
| Automobile | Automobile |  |  | 45,010 | 37,980 | 132 | 130 | 196 | 184 |
| Other | \t(b) |  |  | 7,221 | 7,524 | 87 | 98 | 180 | 189 |
| Consumer\tloans | Consumer\tloans | Consumer\tloans |  | \t 193,156 | \t 177,473 | 2,255 | 2,280 | 3,542 | 3,473 |
| Commercial\tloans | Commercial\tloans | Commercial\tloans |  | 85,205 | 92,866 | 2,064 | 3,749 | 816 | 1,881 |
| Total\tloans\treported\tand |  |  |  |  |  |  |  |  |  |
| securitized | securitized | \t(c) |  | \t 278,361 | \t 270,339 | 4,319 | 6,029 | 4,358 | 5,354 |
| Less:\tLoans\tsecuritized | Less:\tLoans\tsecuritized | Less:\tLoans\tsecuritized | \t(a) | (58,843) | (53,975) | (1,495) | (1,306) | (2,086) | (1,678) |
| Reported | Reported |  |  | $219,518 | $216,364 | $2,824 | $4,723 | $ 2,272 | $ 3,676 |
| (a) |  |  |  |  |  |  |  |  |  |

(a) Includes	$13.6	billion	of	outstanding	principal	balances	on	securitized	sub-prime	1-4	family	residential mortgage	loans	as	of	December	31,	2003.

(b)	 Includes	non-U.S.	consumer	loans.

(c)	 Represents	both	loans	on	the	Consolidated	balance	sheet	and	loans	that	have	been	securitized,	but excludes	loans	for	which	the	Firm's	only	continuing	involvement	is	servicing	of	the	assets.

Total	assets	held	in	securitization-related	SPEs,	as	of	December	31,	2003,	were $104.0	billion	(see	table	on	page	101	of	this	Annual	Report).	The	$58.8	billion	of	loans securitized	at	December	31,	2003,	shown	in	the	table	above	excludes:	$37.1	billion	of securitized	loans,	in	which	the	Firm's	only	continuing	involvement	is	the	servicing	of	the assets;	$7.3	billion	of	seller's	interests	in	credit	card	master	trusts	and	subordinated accrued	interest	and	fees;	and	$0.8	billion	of	escrow	accounts	and	other	assets.

# Note	14 Variable	interest	entities

JPMorgan	Chase's	business	segments	are	involved	with	VIEs	in	the	following	manner:

•Investment	Bank	—	Utilizes	VIEs,	such	as	multi-seller	conduits,	to	assist	clients	in accessing	the	financial	markets	in	a	cost-efficient	manner,	by	providing	clients	the structural	flexibility	to	meet	the	needs	of	investors	relating	to	factors	such	as	price, yield	and	desired	risks.	The	Firm	also	acts	as	a	financial	intermediary	to	tailor products	for	investors.	Finally,	the	IB	securitizes	commercial	mortgages	through QSPEs,	which	are	not	considered	VIEs,	to	create	commercial	mortgage-backed securities,	as	further	discussed	in	Note	13	on	pages	100-103	of	this	Annual	Report.

•	 Treasury	&	Securities	Services	—	Provides	trustee	and	custodial	services	to	a number	of	VIEs.	These	services	are	similar	to	those	provided	to	non-VIEs.	TSS earns	market-based	fees	for	services	provided.	Such	relationships	are	not considered	significant	interests	under	FIN	46	for	disclosure	purposes.

•Investment	Management	&	Private	Banking	—	Provides	investment	management services	to	a	limited	number	of	the	Firm's	mutual	funds	deemed	VIEs.	The	services provided	are	similar	to	the	services	provided	to	non-VIEs,	as	asset	manager	to	the Firm's	mutual	funds.	IMPB	earns	a	fixed	fee	based	on	assets	managed;	such	fee varies	with	each	fund's	investment	objective	and	is	industry-competitive.	The majority	of	the	residual	returns	and	expected	losses	are	for	the	account	of	the funds'	investors.	The	Firm	generally	does	not	hold	an	equity	interest	in	the	funds, although	in	certain	instances,	it	may	hold	a	nominal	interest.	For	the	limited	number of	funds	that	qualify	as	VIEs,	the	Firm's	interest	is	not	considered	significant	under FIN	46	for	disclosure	purposes.

•JPMorgan	Partners	—	JPMP,	the	Firm's	private	equity	business,	is	involved	with entities	that	may	be	deemed	VIEs.	JPMP	accounts	for	its	activities	in	accordance with	the	Investment	Company	Audit	Guide	("Audit	Guide").	The	FASB	deferred adoption	of	FIN	46	for	non-registered	investment	companies	that	apply	the	Audit Guide.	See	the	FIN	46	Transition	section	of	this	Note.

•	 Chase	Financial	Services	—	Primarily	utilizes	SPEs	to	securitize	consumer	assets; these	entities	meet	the	QSPE	criteria	as	discussed	in	Note	1	on	pages	86-87	and Note	13	on	pages	100-103	of	this	Annual	Report,	and	they	are	not	considered	VIEs. CFS	is	primarily	involved	with	VIEs	as	part	of	its	middle	market	business.	This involvement	includes:	(1)	synthetic	lease	transactions,	in	which	the	Firm	provides financing	to	a	VIE;	in	turn,	the	VIE	purchases	assets,	which	are	then	leased	by	the VIE	to	the	Firm's	customer;	and	(2)	structuring	and	administering	independent, member-owned	finance	entities	for	companies	with	dedicated	distribution	systems, where	the	Firm	may	also	provide	some	liquidity,	letters	of	credit	and/or	derivative instruments.	Chase	Middle	Market	earns	market-based	fees	for	providing	such services.	The	VIEs	that	the	Firm	either	has	an	investment	in	or	lends	to	neither meet	the	requirements	for	consolidation	nor	are	considered	significant	for disclosure	purposes,	since	the	significant	first-loss	position	is	held	by	third	parties.

As	noted	above,	there	are	two	broad	categories	of	transactions	involving	VIEs	with which	the	IB	is	involved:	multi-seller	conduits	and	client	intermediation.	These	are discussed	more	fully	below.

# Multi-seller	conduits

JPMorgan	Chase	serves	as	the	administrator,	and	provides	contingent	liquidity	support and	limited	credit	enhancement,	for	several	commercial	paper	conduits.	These	conduits give	clients	access	to	liquidity	in	the	commercial	paper	markets	by	allowing	them	to	sell assets	to	the	conduit,	which	then	issues	commercial	paper	to	investors	to	fund	the purchases.	The	Firm	does	not	sell	assets	to	or	service	the	assets	held	by	these commercial	paper

conduits.	Commercial	paper	issued	by	conduits	for	which	the	Firm	acts	as administrator	aggregated	$11.7	billion	at	December	31,	2003,	and	$17.5	billion	at December	31,	2002.	The	commercial	paper	issued	is	backed	by	sufficient	collateral, credit	enhancements	and	commitments	to	provide	liquidity	to	support	receiving	at	least an	A-1,	P-1	and,	in	certain	cases,	an	F1	rating.

The	Firm	had	commitments	to	provide	liquidity	on	an	asset-specific	basis	to	these vehicles	in	an	amount	up	to	$18.0	billion	at	December	31,	2003,	and	$23.5	billion	at December	31,	2002.	Third-party	banks	had	commitments	to	provide	liquidity	on	an asset-specific	basis	to	these	vehicles	in	an	amount	up	to	$700	million	at	December	31, 2003,	and	up	to	$900	million	at	December	31,	2002.	Asset-specific	liquidity	is	the primary	source	of	liquidity	support	for	the	conduits.	In	addition,	program-wide	liquidity	is provided	by	JPMorgan	Chase	to	these	vehicles	in	the	event	of	short-term	disruptions	in the	commercial	paper	market;	these	commitments	totaled	$2.6	billion	and	$2.7	billion	at December	31,	2003	and	2002,	respectively.	For	certain	multi-seller	conduits,	JPMorgan Chase	also	provides	limited	credit	enhancement,	primarily	through	the	issuance	of letters	of	credit.	Commitments	under	these	letters	of	credit	totaled	$1.9	billion	and $3.4	billion	at	December	31,	2003	and	2002,	respectively.	JPMorgan	Chase	applies	the same	underwriting	standards	in	making	liquidity	commitments	to	conduits	as	the	Firm would	with	other	extensions	of	credit.

If	JPMorgan	Chase	were	downgraded	below	A-1,	P-1	and,	in	certain	cases,	F1,	the Firm	could	also	be	required	to	provide	funding	under	these	liquidity	commitments,	since commercial	paper	rated	below	A-1,	P-1	or	F1	would	generally	not	be	issuable	by	the vehicle.	Under	these	circumstances,	the	Firm	could	either	replace	itself	as	liquidity provider	or	facilitate	the	sale	or	refinancing	of	the	assets	held	in	the	VIE	in	other markets.

JPMorgan	Chase's	maximum	credit	exposure	to	these	vehicles	at	December	31,	2003, is	$18.7	billion,	as	the	Firm	cannot	be	obligated	to	fund	the	entire	notional	amounts	of asset-specific	liquidity,	program-wide	liquidity	and	credit	enhancement	facilities	at	the same	time.	However,	the	Firm	views	its	credit	exposure	to	multi-seller	conduit transactions	as	limited.	This	is	because,	for	the	most	part,	the	Firm	is	not	required	to fund	under	the	liquidity	facilities	if	the	assets	in	the	VIE	are	in	default.	Additionally,	the Firm's	obligations	under	the	letters	of	credit	are	secondary	to	the	risk	of	first	loss provided	by	the	client	or	other	third	parties	—	for	example,	by	the	overcollateralization of	the	VIE	with	the	assets	sold	to	it.

JPMorgan	Chase	consolidated	these	asset-backed	commercial	paper	conduits	at July	1,	2003,	in	accordance	with	FIN	46	and	recorded	the	assets	and	liabilities	of	the conduits	on	its	Consolidated	balance	sheet.	In	December	2003,	one	of	the	multi-seller conduits	was	restructured	with	the	issuance	of	preferred	securities	acquired	by	an independent	third-party	investor,	who	will	absorb	the	majority	of	the	expected	losses

of	the	conduit.	In	determining	the	primary	beneficiary	of	the	conduit,	the	Firm	leveraged an	existing	rating	agency	model	that	is	an	independent	market	standard	to	size	the expected	losses	and	considered	the	relative	rights	and	obligations	of	each	of	the variable	interest	holders.	As	a	result	of	the	restructuring,	JPMorgan	Chase deconsolidated	approximately	$5.4	billion	of	the	vehicle's	assets	and	liabilities	as	of December	31,	2003.

The	remaining	conduits	continue	to	be	consolidated	on	the	Firm's	balance	sheet	at December	31,	2003:	$4.8	billion	of	assets	recorded	in	Loans,	and	$1.5	billion	of	assets recorded	in	Available-for-sale	securities.

# Client	intermediation

As	a	financial	intermediary,	the	Firm	is	involved	in	structuring	VIE	transactions	to	meet investor	and	client	needs.	The	Firm	intermediates	various	types	of	risks	(including,	for example,	fixed	income,	equity	and	credit),	typically	using	derivative	instruments.	In certain	circumstances,	the	Firm	also	provides	liquidity	and	other	support	to	the	VIEs	to facilitate	the	transaction.	The	Firm's	current	exposure	to	nonconsolidated	VIEs	is reflected	in	its	Consolidated	balance	sheet	or	in	the	Notes	to	consolidated	financial statements.	The	risks	inherent	in	derivative	instruments	or	liquidity	commitments	are managed	similarly	to	other	credit,	market	and	liquidity	risks	to	which	the	Firm	is exposed.

Assets	held	by	certain	client	intermediation-related	VIEs	at	December	31,	2003	and 2002,	were	as	follows:

| December	31,	(in	billions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Structured\tcommercial\tloan\tvehicles | $5.3 | $7.2 |
| Credit-linked\tnote\tvehicles | 17.7 | 9.2 |
| Municipal\tbond\tvehicles | 5.5 | 5.0 |
| Other\tclient\tintermediation\tvehicles | 5.8 | 7.4 |

The	Firm	has	created	structured	commercial	loan	vehicles	managed	by	third	parties,	in which	loans	are	purchased	from	third	parties	or	through	the	Firm's	syndication	and trading	functions	and	funded	by	issuing	commercial	paper.	Investors	provide	collateral and	have	a	first	risk	of	loss	up	to	the	amount	of	collateral	pledged.	The	Firm	retains	a second-risk-of-loss	position	for	these	vehicles	and	does	not	absorb	a	majority	of	the expected	losses	of	the	vehicles.	Documentation	includes	provisions	intended,	subject to	certain	conditions,	to	enable	JPMorgan	Chase	to	terminate	the	transactions	related to	a	particular	loan	vehicle	if	the	value	of	the	relevant	portfolio	declines	below	a specified	level.	The	amount	of	the	commercial	paper	issued	by	these	vehicles	totaled $5.3	billion	as	of	December	31,	2003,	and	$7.2	billion	as	of	December	31,	2002. JPMorgan	Chase	was	committed	to	provide	liquidity	to	these	VIEs	of	up	to	$8.0	billion at	December	31,	2003,	and	$12.0	billion	at	December	31,	2002.	The	Firm's	maximum exposure	to	loss	to	these	vehicles	at	December	31,	2003,	was	$5.5	billion,	which reflects	the	netting	of	collateral	and	other	program	limits.

The	Firm	structures	credit-linked	notes	in	which	the	VIE	purchases	highly-rated	assets (such	as	asset-backed	securities)	and	enters	into	a	credit	derivative	contract	with	the Firm	to	obtain	exposure	to	a	referenced	credit	not	held	by	the	VIE.	Credit-linked	notes are	issued	by	the	VIE	to	transfer	the	risk	of	the	referenced	credit	to	the	investors	in	the VIE.	Clients	and	investors	often	prefer	a	VIE	structure,	since	the	credit-linked	notes generally	carry	a	higher	credit	rating	than	they	would	if	issued	directly	by	JPMorgan Chase.	The	Firm's	derivative	contract	is	not	considered	a	significant	variable	interest	in the	VIE,	because	it	does	not	absorb	risk	but	rather	adds	risk	to	the	vehicle,	which	is ultimately	absorbed	by	the	investors.	The	fair	value	of	the	Firm's	derivative	contracts with	credit-linked	notes	vehicles	was	not	material	at	December	31,	2003.	Assets	of $2.1	billion	and	$1.3	billion	reported	in	the	table	above	were	recorded	on	the	Firm's Consolidated	balance	sheet	at	December	31,	2003	and	December	31,	2002, respectively,	due	to	other	contractual	relationships	held	by	the	Firm	that	relate	to	the collateral	held	by	the	VIE.

The	Firm	is	involved	with	municipal	bond	vehicles	for	the	purpose	of	creating	a	series	of secondary	market	trusts	that	allow	tax-exempt	investors	to	finance	their	investments	at short-term	tax-exempt	rates.	The	VIE	purchases	fixed-rate,	longer-term	highly	rated municipal	bonds	by	issuing	puttable	floating-rate	certificates	and	inverse	floating-rate certificates;	the	investors	in	the	inverse	floating-rate	certificates	are	exposed	to	the residual	losses	of	the	VIE	(the	"residual	interests").	The	Firm	often	serves	as remarketing	agent	for	the	VIE	and	provides	liquidity	to	support	the	remarketing;	total liquidity	commitments	were	$1.8	billion	and	$1.5	billion	at	December	31,	2003	and 2002,	respectively.	In	circumstances	where	the	Firm	owns	the	residual	interests,	the Firm	consolidates	the	VIE;	total	amounts	consolidated	were	$2.5	billion	and	$1.3	billion at	December	31,	2003	and	2002,	respectively,	which	are	reported	in	the	table	above.	In circumstances	where	third	party	investors	own	the	residual	interests,	the	Firm's exposure	is	limited	because	of	the	high	credit	quality	of	the	underlying	municipal	bonds, the	market-value	triggers	based	on	the	value	of	the	underlying	collateral	and	the residual	interests	held	by	third	parties.	The	Firm's	maximum	credit	exposure	to	all municipal	bond	vehicles	was	$4.3	billion	at	December	31,	2003.

Additionally,	JPMorgan	Chase	structures,	on	behalf	of	clients,	other	client intermediation	vehicles	in	which	the	Firm	transfers	the	risks	and	returns	of	the	assets held	by	the	VIE,	typically	debt	and	equity	instruments,	to	clients	through	derivative contracts.	The	Firm's	net	exposure	arising	from	these	intermediation	transactions	is	not significant.	The	Firm's	current	exposure	to	all	of	these	vehicles	is	reflected	in	its Consolidated	financial	statements,	as	the	fair	value	of	the	derivative	contracts	are recorded	in	Trading	assets	or	Trading	liabilities,	and	changes	in	fair	value	are recognized	in	Trading	revenue.

Finally,	the	Firm	may	enter	into	transactions	with	VIEs	structured	by	other	parties. These	transactions	can	include,	for	example,	acting	as	a	derivative	counterparty, liquidity	provider,	investor,	underwriter,	placement	agent,	trustee	or	custodian.	These transactions	are	conducted	at	arm's	length,	and	individual	credit	decisions	are	based upon	the	analysis	of	the	specific	VIE,	taking	into	consideration	the	quality	of	the underlying	assets.	JPMorgan	Chase	records	and	reports	these	positions	similarly	to any	other	third-party	transaction.	For	example,	derivative	contracts	are	recorded	at	fair value	and	reported	in	Note	31	on	pages	120-123	of	this	Annual	Report,	whereas liquidity	facilities	are	included	within	the	Firm's	lending-related	commitments,	described in	more	detail	in	Note	29	on	pages	117-119	of	this	Annual	Report.	Fees	received	when the	Firm	operates	in	an	administrative	capacity,	such	as	underwriter,	trustee	or custodian,	are	recorded	in	Fees	and	commissions.	These	activities	do	not	cause JPMorgan	Chase	to	absorb	a	majority	of	the	expected	losses	of	the	VIEs	or	receive	a majority	of	the	residual	returns	of	the	VIE,	and	they	are	not	considered	significant	for disclosure	purposes.

# FIN	46	Transition

Effective	February	1,	2003,	JPMorgan	Chase	implemented	FIN	46	for	VIEs	created	or modified	after	January	31,	2003,	in	which	the	Firm	has	an	interest.	Effective	July	1, 2003,	the	Firm	implemented	FIN	46	for	all	VIEs	originated	prior	to	February	1,	2003, excluding	certain	investments	made	by	its	private	equity	business,	as	discussed	below. The	effect	of	adoption	was	an	incremental	increase	in	the	Firm's	assets	and	liabilities	of approximately	$17	billion	at	July	1,	2003,	and	$10	billion	at	December	31,	2003.	The increase	primarily	related	to	Firm-sponsored	multi-seller	asset-backed	commercial paper	conduits	and	other	entities	in	which	the	Firm's	trading	and	investment	functions have	interests	that	absorb	a	majority	of	the	expected	losses	in	the	structures.	In addition,	certain	VIEs	with	assets	of	approximately	$2	billion	at	December	31,	2003	that had	been	consolidated	under	prior	accounting	literature	continue	to	be	consolidated	in accordance	with	FIN	46.	As	a	result	of	its	adoption	of	FIN	46,	the	Firm	also deconsolidated	certain	vehicles,	primarily	the	wholly-owned	Delaware	statutory business	trusts	further	discussed	in	Note	18	on	pages	110-111	of	this	Annual	Report.

The	Firm's	private	equity	business	is	involved	with	entities	that	may	be	deemed	VIEs. The	FASB	permitted	nonregistered	investment	companies	to	defer	consolidation	of VIEs	with	which	they	are	involved	until	the	proposed	Statement	of	Position	on	the clarification	of	the	scope	of	the	Investment	Company	Audit	Guide	is	finalized,	which	is expected	in	mid-2004.	Following	issuance	of	the	Statement	of	Position,	the	FASB	will consider	further	modification	to	FIN	46	to	provide	an	exception	for	companies	that qualify	to	apply	the	revised	Audit	Guide.	The	Firm	applied	this	deferral	provision	and	did not	consolidate	$2.7	billion	of

additional	assets	in	potential	VIEs	with	which	JPMP	is	involved	as	of	December	31, 2003.	Following	issuance	of	the	revised	Audit	Guide	and	further	modification,	if	any,	to FIN	46,	the	Firm	will	assess	the	effect	of	such	guidance	on	its	private	equity	business.

Upon	adoption	of	FIN	46,	the	assets,	liabilities	and	noncontrolling	interests	of	VIEs	were generally	measured	at	the	amounts	at	which	such	interests	would	have	been	carried had	FIN	46	been	effective	when	the	Firm	first	met	the	conditions	to	be	considered	the primary	beneficiary.	For	certain	VIEs,	the	initial	carrying	amount	of	the	assets	and liabilities	(approximately	$1.7	billion)	was	based	on	fair	value	at	July	1,	2003,	due	to limited	historical	information.	The	difference	between	the	net	amount	added	to	the balance	sheet	and	the	amount	of	any	previously	recognized	interest	in	the	newly consolidated	entity	was	recognized	as	a	cumulative	effect	of	an	accounting	change	at July	1,	2003,	which	resulted	in	a	$2	million	(after-tax)	reduction	to	the	Firm's consolidated	earnings.	The	Firm	also	recorded	a	$34	million	(after-tax)	reduction	in Other	comprehensive	income,	related	to	Available-for-sale	securities	and	derivative cash	flow	hedges;	these	were	related	to	entities	measured	at	the	amount	at	which	such interests	would	have	been	carried	had	FIN	46	been	effective	when	the	Firm	first	met	the conditions	of	being	the	primary	beneficiary.

The	following	table	summarizes	the	Firm's	total	consolidated	VIE	assets,	by classification	on	the	Consolidated	balance	sheet,	as	of	December	31,	2003.

(a) The	Firm	also	holds	$3	billion	of	assets,	primarily	as	a	seller's	interest,	in	certain	consumer securitizations	in	a	segregated	entity,	as	part	of	a	two-step	securitization	transaction.	This	interest	is included	in	the	securitization	activities	disclosed	in	Note	13	on	pages	100-103	of	this	Annual	Report and	is	not	included	herein.

(b)	 Primarily	relates	to	the	consolidated	multi-seller	asset-backed	commercial	paper	conduits. (c)	 Includes	securities	and	derivatives.

In	the	third	quarter	of	2003,	the	Firm	classified	the	interest-bearing	beneficial	interest liabilities	issued	by	consolidated	VIEs	in	a	new	line	item	titled	"Beneficial	interests issued	by	consolidated	variable	interest	entities."	The	holders	of	these	beneficial interests	do	not	have	recourse	to	the	general	credit	of	JPMorgan	Chase.	See	Note	18 on	page	110	of	this	Annual	Report	for	the	maturity	profile	of	the	FIN	46	long-term beneficial	interests.

In	December	2003,	the	FASB	issued	a	revision	to	FIN	46	("FIN	46R")	to	address various	technical	corrections	and	implementation	issues	that	have	arisen	since	the issuance	of	FIN	46.	The	provisions	of	FIN	46R	are	effective	for	financial	periods	ending after	March	15,	2004.	The	Firm	will	adopt	FIN	46R	at	the	effective	date	and	is	currently assessing	the	impact	of	FIN	46R	on	all	VIEs	with	which	it	is	involved.

# Note	15 Private	equity	investments

Private	equity	investments	are	primarily	held	by	JPMorgan	Partners	("JPMP"),	the Firm's	global	private	equity	investment	business	segment.	JPMP	invests	in	buyouts, growth	equity	and	venture	opportunities	in	the	normal	course	of	business.	These investments	are	accounted	for	under	investment	company	guidelines.	Accordingly, these	investments,	irrespective	of	the	percentage	of	equity	ownership	interest	held	by JPMP,	are	carried	on	the	Consolidated	balance	sheet	at	fair	value.	Realized	and unrealized	gains	and	losses	arising	from	changes	in	value	are	reported	in	Private	equity gains	(losses)	in	the	Consolidated	statement	of	income	in	the	period	that	the	gain	or loss	occurs.

Private	investments	are	initially	valued	based	on	cost.	The	carrying	values	of	private investments	are	adjusted	from	cost	to	reflect	both	positive	and	negative	changes evidenced	by	financing	events	with	third-party	capital	providers.	In	addition,	these investments	are	subject	to	ongoing	impairment	reviews	by	JPMP's	senior	investment professionals.	A	variety	of	factors	are	reviewed	and	monitored	to	assess	impairment	— including,	but	not	limited	to,	operating	performance	and	future	expectations, comparable	industry	valuations	of	public	companies,	changes	in	market	outlook	and changes	in	the	third-party	financing	environment.	The	Valuation	Control	Group	within the	Finance	area	is	responsible	for	reviewing	the	accuracy	of	the	carrying	values	of private	investments	held	by	JPMP.

JPMP	also	holds	public	equity	investments,	generally	obtained	through	the	initial	public offering	of	private	equity	investments.	These	investments	are	marked	to	market	at	the quoted	public	value.	To	determine	the	carrying	values	of	these	investments,	JPMP incorporates	the	use	of	discounts	to	take	into	account	the	fact	that	it	cannot immediately	realize	or	hedge	the	quoted	public	values	as	a	result	of	regulatory, corporate	and/or	contractual	sales	restrictions	imposed	on	these	holdings.

The	following	table	presents	the	carrying	value	and	cost	of	the	private	equity	investment portfolio	for	the	dates	indicated:

|  | 2003 | 2003 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- |
| December\t31,(in\tmillions) | Carrying\nvalue | Cost | Carrying\nvalue | Cost |
| Total\tinvestment\tportfolio | $7,250 | $9,147 | $8,228 | $10,312 |

The	following	table	presents	private	equity	investment	realized	and	unrealized	gains and	losses	for	the	periods	indicated:

| Year	ended	December	31,	(in	millions) | Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- |
| Realized\tgains\t(losses) |  | $(44) | $(105) | $651 |
| Unrealized\tgains\t(losses) |  | 77 | (641) | (1,884) |
| Private\tequity\tgains\t(losses) | \t(a) | $33 | $(746) | $(1,233) |
| (a)\nIncludes\tthe\timpact\tof\tportfolio\thedging\tactivities. |  |  |  |  |

(a) Includes	the	impact	of	portfolio	hedging	activities.

# Note	16 Goodwill	and	other	intangible	assets

Effective	January	1,	2002,	the	Firm	adopted	SFAS	142,	reclassifying	certain	intangible assets	from	Goodwill	to	Other	intangible	assets.	There	was	no	impairment	of	goodwill upon	adoption	of	SFAS	142.

Goodwill	is	not	amortized,	but	instead	tested	for	impairment	at	the	reporting-unit segment	(which	is	one	level	below	the	five	major	business	segments	as	described	in Note	34	on	pages	126-127	of	this	Annual	Report).	Goodwill	is	tested	annually	(during the	fourth	quarter)	or	more	often	if	events	or	circumstances,	such	as	adverse	changes in	the	business	climate,	indicate	there	may	be	impairment.	Other	acquired	intangible assets	determined	to	have	finite	lives,	such	as	core	deposits	and	credit	card relationships,	are	amortized	over	their	estimated	useful	lives	in	a	manner	that	best reflects	the	economic	benefits	of	the	intangible	asset.	In	addition,	impairment	testing	is performed	periodically	on	these	amortizing	intangible	assets.

The	following	table	presents	the	impact	of	SFAS	142	on	net	income	and	earnings	per share	had	the	accounting	standard	been	in	effect	for	2001:

| Year	ended	December	31,	(in	millions,<br>except	earnings	per	share) | 2003 | 2002 | Pro	Forma<br>2001 |
| :--- | :--- | :--- | :--- |
| Net\tIncome |  |  |  |
| Income\tbefore\teffect\tof\taccounting\tchange | $6,719 | $1,663 | $1,719 |
| Net\teffect\tof\tchange\tin\taccounting\tprinciple | — | — | (25) |
| Net\tincome | \t 6,719 | \t 1,663 | 1,694 |
| Goodwill\tamortization,\tnet\tof\ttaxes | — | — | 393 |
| Adjusted\tnet\tincome | $6,719 | $1,663 | $2,087 |
| Basic\tEarnings\tper\tShare |  |  |  |
| Reported\tbasic\tearnings\tper\tshare | $3.32 | $0.81 | $0.83 |
| Goodwill\tamortization | — | — | 0.19 |
| Adjusted\tbasic\tearnings\tper\tshare | $3.32 | $0.81 | $1.02 |
| Diluted\tEarnings\tper\tShare |  |  |  |
| Reported\tdiluted\tearnings\tper\tshare | $3.24 | $0.80 | $0.80 |
| Goodwill\tamortization | — | — | 0.19 |
| Adjusted\tdiluted\tearnings\tper\tshare | $3.24 | $0.80 | $0.99 |

Goodwill	and	Other	intangible	assets	consist	of	the	following:

| December	31,	(in	millions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Goodwill | $8,511 | \t$8,096 |
| Other\tintangible\tassets: |  |  |
| Mortgage\tservicing\trights | $4,781 | \t$3,230 |
| Purchased\tcredit\tcard\trelationships | \t 1,014 | 1,269 |
| All\tother\tintangibles | 685 | 307 |
| Total\tother\tintangible\tassets | $6,480 | \t$4,806 |

# Goodwill

Goodwill	increased	during	2003	by	$415	million,	principally	in	connection	with acquisitions	of	businesses	by	Treasury	&	Securities	Services,	and	purchase	accounting adjustments.	No	goodwill	was	written	off	during	2003	or	2002.

Goodwill	by	business	segment	is	as	follows:

| December	31,	(in	millions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Investment\tBank | $2,058 | $2,051 |
| Treasury\t&amp;\tSecurities\tServices | \t 1,390 | 996 |
| Investment\tManagement\t&amp;\tPrivate\tBanking | \t 4,179 | \t 4,165 |
| JPMorgan\tPartners | 377 | 377 |
| Chase\tFinancial\tServices | 507 | 507 |
| Total\tgoodwill | $8,511 | $8,096 |

# Mortgage	servicing	rights

JPMorgan	Chase	recognizes	as	intangible	assets	Mortgage	servicing	rights	("MSRs"), which	represent	the	right	to	perform	specified	residential	mortgage	servicing	activities for	others.	MSRs	are	either	purchased	from	third	parties	or	retained	upon	sale	or securitization	of	mortgage	loans.	Servicing	activities	include	collecting	principal, interest,	and	escrow	payments	from	borrowers;	making	tax	and	insurance	payments	on behalf	of	the	borrowers;	monitoring	delinquencies	and	executing	foreclosure proceedings;	and	accounting	for	and	remitting	principal	and	interest	payments	to	the investors	of	the	mortgage-backed	securities.

The	amount	capitalized	as	MSRs	represents	the	amount	paid	to	third	parties	to	acquire MSRs	or	is	based	on	fair	value	if	retained	upon	sale	or	securitization	of	mortgage	loans. The	Firm	estimates	the	fair	value	of	MSRs	using	a	discounted	future	cash	flow	model. The	model	considers	portfolio	characteristics,	contractually	specified	servicing	fees, prepayment	assumptions,	delinquency	rates,	late	charges,	other	ancillary	revenues, costs	to	service	and	other	economic	factors.	The	Firm	compares	its	fair	value	estimates and	assumptions	to	observable	market	data	where	available	and	to	recent	market activity	and	actual	portfolio	experience.	Management	believes	that	the	assumptions used	to	estimate	fair	values	are	supportable	and	reasonable.

The	Firm	accounts	for	its	MSRs	at	the	lower	of	cost	or	market,	in	accordance	with SFAS	140.	MSRs	are	amortized	as	a	reduction	of	the	actual	servicing	income	received in	proportion	to,	and	over	the	period	of	the	estimated	future	net	servicing	income	stream of,	the	underlying	mortgage	loans.	For	purposes

of	evaluating	and	measuring	impairment	of	MSRs,	the	Firm	stratifies	its	portfolio	on	the basis	of	the	predominant	risk	characteristics:	loan	type	and	interest	rate.	Any	indicated impairment	is	recognized	as	a	reduction	in	revenue	through	a	valuation	allowance	to the	extent	that	the	carrying	value	of	an	individual	stratum	exceeds	its	estimated	fair value.

The	Firm	evaluates	other-than-temporary	impairment	by	reviewing	changes	in mortgage	and	other	market	interest	rates	over	historical	periods	and	then	determines	an interest	rate	scenario	to	estimate	the	amounts	of	the	MSRs'	gross	carrying	value	and the	related	valuation	allowance	that	could	be	expected	to	be	recovered	in	the foreseeable	future.	Any	gross	carrying	value	and	related	valuation	allowance	amount that	are	not	expected	to	be	recovered	in	the	foreseeable	future,	based	upon	the	interest rate	scenario,	are	considered	to	be	other-than-temporary.

The	carrying	value	of	MSRs	is	sensitive	to	changes	in	interest	rates,	including	their effect	on	prepayment	speeds.	The	Firm	offsets	this	interest	rate	risk	by	designating certain	derivatives	(e.g.,	a	combination	of	swaps,	swaptions	and	floors	that	produces	an interest	rate	profile	opposite	to	the	designated	risk	of	the	hedged	MSRs)	as	fair	value hedges	of	specified	MSRs	under	SFAS	133.	SFAS	133	hedge	accounting	allows	the carrying	value	of	the	hedged	MSRs	to	be	adjusted	through	earnings	in	the	same	period that	the	change	in	value	of	the	hedging	derivatives	is	recognized	through	earnings. Both	of	these	valuation	adjustments	are	recorded	in	Mortgage	fees	and	related	income.

When	applying	SFAS	133,	the	loans	underlying	the	MSRs	being	hedged	are	stratified into	specific	SFAS	133	similar-asset	groupings	that	possess	similar	interest	rate	and prepayment	risk	exposures.	The	documented	hedge	period	for	the	Firm	is	daily.	Daily adjustments	are	performed	to	incorporate	new	or	terminated	derivative	contracts	and	to modify	the	amount	of	the	corresponding	similar	asset	grouping	that	is	being	hedged. The	Firm	has	designated	changes	in	the	benchmark	interest	rate	(LIBOR)	as	the hedged	risk.	In	designating	the	benchmark	interest	rate,	the	Firm	considers	the	impact that	the	change	in	the	benchmark	rate	has	on	the	prepayment	speed	estimates	in determining	the	fair	value	of	the	MSRs.	The	Firm	performs	both	prospective	and retrospective	hedge	effectiveness	evaluations,	using	a	regression	analysis,	to determine	whether	the	hedge	relationship	is	expected	to	be	highly	effective.	Hedge effectiveness	is	assessed	by

comparing	the	change	in	the	value	of	the	MSRs	as	a	result	of	changes	in	benchmark interest	rates	to	the	change	in	the	value	of	the	designated	derivatives.	For	a	further discussion	on	derivative	instruments	and	hedging	activities,	see	Note	28	on	pages	116- 117	of	this	Annual	Report.

AFS	securities	are	also	used	to	manage	the	risk	exposure	of	MSRs.	These	instruments are	accounted	for	as	stand-alone	instruments,	because	AFS	securities	do	not	qualify as	hedges	under	SFAS	133.	Accordingly,	the	securities	are	accounted	for	as	AFS securities	under	SFAS	115,	with	realized	gains	and	losses	recognized	in	earnings	in Securities	gains	(losses);	interest	income	on	the	AFS	securities	is	recognized	in earnings	in	Net	interest	income.	Unrealized	gains	and	losses	on	AFS	securities	are reported	in	Other	comprehensive	income.	In	addition,	certain	nonhedge	derivatives, which	have	not	been	designated	by	management	in	SFAS	133	hedge	relationships,	are used	to	manage	the	economic	risk	exposure	of	MSRs	and	are	recorded	in	Mortgage fees	and	related	income.

The	following	table	summarizes	MSR	activity	and	related	amortization	for	the	dates indicated.	It	also	includes	the	key	assumptions	and	the	sensitivity	of	the	fair	value	of MSRs	at	December	31,	2003,	to	immediate	10%	and	20%	adverse	changes	in	each	of those	assumptions:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tbeginning\tof\tyear | $ 4,864 | $ 7,749 | $ 6,461 |
| Additions | 3,201 | 2,071 | 3,394 |
| Sales | — | — | (103) |
| Other-than-temporary\timpairment | (283) | — | — |
| SFAS\t133\thedge\tvaluation\tadjustments | (226) | (3,589) | (880) |
| Amortization | (1,397) | (1,367) | (1,123) |
| Balance\tat\tend\tof\tyear | 6,159 | 4,864 | 7,749 |
| Less:\tValuation\tallowance | (1,378) | (1,634) | (1,170) |
| Balance\tat\tend\tof\tyear,\tafter\tvaluation\tallowance | $ 4,781 | $ 3,230 | $ 6,579 |
| Estimated\tfair\tvalue\tat\tyear-end | $ 4,781 | $ 3,230 | $ 6,579 |

|  | 2003 |
| :--- | :--- |
| Weighted-average\tprepayment\tspeed\tassumption\t(CPR) | 17.67% |
| Impact\ton\tfair\tvalue\twith\t10%\tadverse\tchange | $(287) |
| Impact\ton\tfair\tvalue\twith\t20%\tadverse\tchange | $(544) |
| Weighted-average\tdiscount\trate | 7.31% |
| Impact\ton\tfair\tvalue\twith\t10%\tadverse\tchange | $(114) |
| Impact\ton\tfair\tvalue\twith\t20%\tadverse\tchange | $(223) |

CPR:	Constant	prepayment	rate.

The	sensitivity	analysis	in	the	preceding	table	is	hypothetical	and	should	be	used	with caution.	As	the	figures	indicate,	changes	in	fair	value	based	on	a	10%	and	20% variation	in	assumptions	generally	cannot	be	easily	extrapolated	because	the relationship	of	the	change	in	the	assumptions	to	the	change	in	fair	value	may	not	be linear.	Also,	in	this	table,	the	effect	that	a	change	in	a	particular	assumption	may	have on	the	fair	value	is	calculated	without	changing	any	other	assumption.	In	reality, changes	in	one	factor	may	result	in	changes	in	another,	which	might	magnify	or counteract	the	sensitivities.

The	valuation	allowance	represents	the	extent	to	which	the	carrying	value	of	MSRs exceeds	its	estimated	fair	value.	Changes	in	the	valuation	allowance	are	the	result	of the	recognition	of	impairment	or	the	recovery	of	previously	recognized	impairment charges	due	to	changes	in	market	conditions	during	the	period.	The	changes	in	the valuation	allowance	for	MSRs	for	the	dates	indicated	were	as	follows:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tbeginning\tof\tyear | $1,634 | $1,170 | $99 |
| Other-than-temporary\timpairment | (283) | — | — |
| Impairment\tadjustment | 27 | 464 | \t 1,071 |
| Balance\tat\tend\tof\tyear | $1,378 | $1,634 | $1,170 |

During	2003,	the	Firm	recorded	an	other-than-temporary	impairment	of	its	MSRs	of $283	million,	which	permanently	reduced	the	gross	carrying	value	of	the	MSRs	and	the related	valuation	allowance.	The	permanent	reduction	precludes	subsequent	reversals. This	write-down	had	no	impact	on	the	results	of	operations	or	financial	condition	of	the Firm.

# Purchased	credit	card	relationships	and	other	intangible	assets

No	purchased	credit	card	relationships	were	acquired	during	2003.	Other	intangibles (primarily	customer	relationships)	increased	by	approximately	$428	million,	principally due	to	the	businesses	acquired	by	Treasury	&	Securities	Services.	All	of	the	Firm's acquired	intangible	assets	are	subject	to	amortization.	For	the	years	ended December	31,	2003	and	2002,	intangible	asset	amortization	expense	was	$294	million and	$323	million,	respectively.	Amortization	expense	for	2002	included	a	$12	million impairment	write-down	on	purchased	credit	card	relationships	related	to	a	small	credit card	portfolio	previously	acquired.

The	components	of	Other	intangible	assets	were	as	follows:

|  | December	31,	2003 | December	31,	2003 | December	31,	2003 | Amortization<br>expense | Amortization<br>expense |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | Gross\namount | Accumulated\namortization | Net\tcarrying\nvalue | 2003 | 2002 |
| Purchased\tcredit\tcard |  |  |  |  |  |
| relationships | $1,885 | $871 | $1,014 | $256 | $280 |
| All\tother\tintangibles | 1,093 | 408 | 685 | 38 | 43 |
| Total\tamortization\texpense |  |  |  | $294 | $323 |

# Future	amortization	expense

The	following	table	presents	estimated	amortization	expense	related	to	purchased credit	card	relationships	and	all	other	intangible	assets	at	December	31,	2003:

| (in	millions) | Purchased	credit<br>card	relationships | All	other<br>intangible	assets |
| :--- | :--- | :--- |
| Year\tended\tDecember\t31, |  |  |
| 2004 | $243 | $69 |
| 2005 | 235 | 61 |
| 2006 | 222 | 56 |
| 2007 | 187 | 49 |
| 2008 | 117 | 47 |

# Note	17 Premises	and	equipment

Premises	and	equipment,	including	leasehold	improvements,	are	carried	at	cost	less accumulated	depreciation	and	amortization.	JPMorgan	Chase	generally	computes depreciation	using	the	straight-line	method	over	the	estimated	useful	life	of	an	asset. For	leasehold	improvements,	the	Firm	uses	the	straight-line	method	over	the	lesser	of the	remaining	term	of	the	leased	facility	or	the	estimated	economic	life	of	the improvement.

JPMorgan	Chase	capitalizes	certain	costs	associated	with	the	acquisition	or development	of	internal-use	software.	Once	the	software	is	ready	for	its	intended	use, these	costs	are	amortized	on	a	straight-line	basis	over	the	software's	expected	useful life.

# Note	18 Long-term	debt

JPMorgan	Chase	issues	long-term	debt	denominated	in	various	currencies,	although predominantly	U.S.	dollars,	with	both	fixed	and	variable	interest	rates.	The	following table	is	a	summary	of	long-term	debt	(net	of	unamortized	original	issue	debt	discount and	SFAS	133	valuation	adjustments):

| By	remaining	contractual	maturity	at	December	31, | By	remaining	contractual	maturity	at	December	31, | By	remaining	contractual	maturity	at	December	31, | Under |  | After | 2003 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) |  |  | 1\tyear | 1-5\tyears | 5\tyears | total | total |
| Parent\tcompany |  |  |  |  |  |  |  |
| Senior\tdebt: | Fixed\trate |  | $2,525 | $11,205 | $1,314 | $15,044 | $11,516 |
|  | \t Variable\trate | (a) | 2,558 | 7,856 | 282 | 10,696 | 8,657 |
|  | Interest\trates | (b) | 1.29\t-\t6.75% | 0.96\t-\t7.50% | 1.06\t-\t6.00% | 0.96\t-\t7.50% | 0.96%\t-\t7.50% |
| Subordinated\tdebt: | Fixed\trate |  | $715 | $3,863 | $9,804 | $14,382 | $13,839 |
|  | \t Variable\trate | \t Variable\trate | — | 384 | 129 | 513 | 1,083 |
|  | Interest\trates | (b) | 6.88\t-\t7.63% | 4.78\t-\t7.88% | 5.00\t-\t8.25% | 4.78\t-\t8.25% | 4.35%\t-\t8.50% |
|  | \t Subtotal |  | $5,798 | $23,308 | $11,529 | $40,635 | $35,095 |
| Subsidiaries |  |  |  |  |  |  |  |
| Senior\tdebt: | Fixed\trate |  | $513 | $829 | $1,487 | $2,829 | $2,848 |
|  | \t Variable\trate | (a) | 322 | 2,890 | 630 | 3,842 | 725 |
|  | Interest\trates | (b) | 6.63\t-\t7.04% | 2.41\t-\t10.95% | 1.13\t-\t13.00% | 1.13\t-\t13.00% | 1.55%\t-\t13.00% |
| Subordinated\tdebt: | Fixed\trate |  | $— | $708 | $— | $708 | $805 |
|  | \t Variable\trate | \t Variable\trate | — | — | — | — | 278 |
|  | Interest\trates | (b) | —% | 6.13\t-\t7.00% | —% | 6.13\t-\t7.00% | 4.20%\t-\t7.00% |
|  | \t Subtotal |  | $835 | $4,427 | $2,117 | $7,379 | $4,656 |
| Total\tlong-term\tdebt |  |  | $6,633 | $27,735 | $13,646 | $48,014(e)(f)(g) | $39,751 |
| FIN\t46\tlong-term\tbeneficial\tinterests: | FIN\t46\tlong-term\tbeneficial\tinterests: | (c)(d) |  |  |  |  |  |
|  | Fixed\trate |  | $— | $249 | $104 | $353 | NA |
|  | \t Variable\trate | \t Variable\trate | 17 | 511 | 1,548 | 2,076 | NA |
|  | Interest\trates | (b) | 1.12% | 1.39\t-\t10.00% | 1.77\t-\t6.35% | 1.12\t-\t10.00% | NA |
| Total\tFIN\t46\tlong-term\tbeneficial\tinterests | Total\tFIN\t46\tlong-term\tbeneficial\tinterests | Total\tFIN\t46\tlong-term\tbeneficial\tinterests | $17 | $760 | $1,652 | $2,429 | NA |
| (a) |  |  |  |  |  |  |  |

(a) Included	are	various	equity-linked	or	other	indexed	instruments.	Embedded	derivatives	separated	from	hybrid	securities	in	accordance	with	SFAS	133	are	reported	at	fair	value	and	shown	net	with	the	host	contract	on the	balance	sheet.	Changes	in	fair	value	of	separated	derivatives	are	recorded	in	Trading	revenue.

(b) The	interest	rates	shown	are	the	range	of	contractual	rates	in	effect	at	year-end,	including	non-U.S.	dollar	fixed	and	variable	rate	issuances	which	excludes	the	effects	of	related	derivative	instruments.

The	use	of	these	derivative	instruments	modifies	JPMorgan	Chase's	exposure	to	the	contractual	interest	rates	disclosed	in	the	table	above.	Including	the	effects	of	derivatives,	the	range	of	modified	rates	in	effect	at December	31,	2003,	for	total	long-term	debt	was	0.14%	to	10.95%,	versus	the	contractual	range	of	0.96%	to	13.00%	presented	in	the	table	above.

(d) Not	applicable	for	years	prior	to	2003	since	the	Firm	adopted	FIN	46	during	2003.

(e) At	December	31,	2003,	long-term	debt	aggregating	$2.0	billion	was	redeemable	at	the	option	of	JPMorgan	Chase,	in	whole	or	in	part,	prior	to	maturity,	based	on	the	terms	specified	in	the	respective	notes.

(g) Includes	$1.1	billion	of	outstanding	zero-coupon	notes	at	December	31,	2003.	The	aggregate	principal	amount	of	these	notes	at	their	respective	maturities	is	$4.6	billion.

The	weighted-average	contractual	interest	rate	for	total	long-term	debt	was	4.71%	and 5.51%	as	of	December	31,	2003	and	2002,	respectively.	In	order	to	modify	exposure	to interest	rate	and	currency	exchange	rate	movements,	JPMorgan	Chase	utilizes derivative	instruments,	primarily	interest	rate	and	cross-currency	interest	rate	swaps,	in conjunction	with	some	of	its	debt	issues.	The	use	of	these	instruments	modifies	the Firm's	interest	expense	on	the	associated	debt.	The	modified	weighted-average interest	rate	for	total	long-term	debt,	including	the	effects	of	related	derivative instruments,	was	2.79%	and	3.42%	as	of	December	31,	2003	and	2002,	respectively.

JPMorgan	Chase	has	guaranteed	certain	debt	of	its	subsidiaries,	including	both	long- term	debt	and	structured	notes	sold	as	part	of	the	Firm's	trading	activities.	These guarantees	rank	on	a	parity	with	all	other	unsecured	and	unsubordinated	indebtedness of	JPMorgan	Chase.	Guaranteed	liabilities	totaled	$509	million	and	$1.5	billion	at December	31,	2003	and	2002,	respectively.

# Junior	subordinated	deferrable	interest	debentures	held	by	trusts	that	issued guaranteed	capital	debt	securities

At	December	31,	2003,	the	Firm	had	previously	established	wholly-owned	Delaware statutory	business	trusts	("issuer	trusts")	that	issued	guaranteed	preferred	beneficial interests	in	the	Firm's	junior	subordinated	deferrable	interest	debentures.	Prior	to	FIN 46,	these	issuer	trusts	were	consolidated	subsidiaries	of	JPMorgan	Chase;	the preferred	securities	were	included	in	JPMorgan	Chase's	Consolidated	balance	sheet	in the	Liabilities	section,	under	the	caption	"Guaranteed	preferred	beneficial	interests	in capital	debt	securities	issued	by	consolidated	trusts,"	and	the	retained	common	capital securities	of	the	issuer	trusts	were	eliminated	against	the	Firm's	investment	in	the	issuer trusts.	Distributions	on	the	preferred	securities	were	recorded	as	Interest	expense	on the	Consolidated	statement	of	income.

As	a	result	of	the	adoption	of	FIN	46,	JPMorgan	Chase	deconsolidated	all	the	issuer trusts.	As	a	result,	the	junior	subordinated	deferrable	interest	debentures	issued	by JPMorgan	Chase	to	the	issuer	trusts,	totaling	$6.8	billion,	are	reflected	in	the	Firm's Consolidated	balance	sheet	in	the	Liabilities	section	at

December	31,	2003,	under	the	caption	"Junior	subordinated	deferrable	interest debentures	held	by	trusts	that	issued	guaranteed	capital	debt	securities."	JPMorgan Chase	records	interest	expense	on	the	corresponding	junior	subordinated	debentures in	its	Consolidated	statements	of	income.	The	Firm	also	recorded	the	common	capital securities	issued	by	the	issuer	trusts	in	Other	assets	in	its	Consolidated	balance	sheet at	December	31,	2003.

The	debentures	issued	by	the	issuer	trusts	to	JPMorgan	Chase,	less	the	capital securities	of	the	issuer	trusts,	continue	to	qualify	as	Tier	1	capital	under	interim guidance	issued	by	the	Board	of	Governors	of	the	Federal	Reserve	System	(the "Federal	Reserve	Board").

The	following	is	a	summary	of	the	outstanding	capital	securities,	net	of	discount,	issued by	each	trust	and	the	junior	subordinated	deferrable	interest	debenture	issued	by JPMorgan	Chase	to	each	trust	as	of	December	31,	2003:

# ($	in	millions)

|  | Amount	of |  | Principal	amount | Principal	amount |  | Stated	maturity	of | Earliest | Interest	rate	of | Interest |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | capital\tsecurities, | capital\tsecurities, | of\tdebenture, | of\tdebenture, | Issue | capital\tsecurities | redemption | capital\tsecurities | payment/distribution |
| Name\tof\ttrust | issued\tby\ttrust | (a) | held\tby\ttrust | (b) | date | and\tdebentures | date | and\tdebentures | dates |
| Chase\tCapital\tI | $600 | $600 | $619 | $619 | 1996 | 2026 | 2006 | 7.67% | Semiannually |
| Chase\tCapital\tII | 495 | 495 | 511 | 511 | 1997 | 2027 | 2017 | LIBOR\t+\t0.50% | Quarterly |
| Chase\tCapital\tIII | 296 | 296 | 305 | 305 | 1997 | 2027 | 2012 | LIBOR\t+\t0.55% | Quarterly |
| Chase\tCapital\tV | 200 | 200 | 206 | 206 | 1998 | 2028 | Anytime | 7.03% | Quarterly |
| Chase\tCapital\tVI | 248 | 248 | 257 | 257 | 1998 | 2028 | Anytime | LIBOR\t+\t0.625% | Quarterly |
| Chase\tCapital\tVII | 350 | 350 | 361 | 361 | 1999 | 2029 | 2004 | 7.00% | Quarterly |
| Chase\tCapital\tVIII | 250 | 250 | 258 | 258 | 2000 | 2030 | 2005 | 8.25% | Quarterly |
| JPM\tCapital\tTrust\tI | 750 | 750 | 773 | 773 | 1996 | 2027 | 2007 | 7.54% | Semiannually |
| JPM\tCapital\tTrust\tII | 400 | 400 | 412 | 412 | 1997 | 2027 | 2007 | 7.95% | Semiannually |
| J.P.Morgan\tChase\tCapital\tIX | 500 | 500 | 515 | 515 | 2001 | 2031 | 2006 | 7.50% | Quarterly |
| J.P.Morgan\tChase\tCapital\tX | 1,000 | 1,000 | 1,031 | 1,031 | 2002 | 2032 | 2007 | 7.00% | Quarterly |
| J.P.Morgan\tChase\tCapital\tXI | 1,075 | 1,075 | 1,108 | 1,108 | 2003 | 2033 | 2008 | 5.88% | Quarterly |
| J.P.Morgan\tChase\tCapital\tXII | 400 | 400 | 412 | 412 | 2003 | 2033 | 2008 | 6.25% | Quarterly |
| Total | $6,564 | $6,564 | $6,768 | $6,768 |  |  |  |  |  |
| (a) |  |  |  |  |  |  |  |  |  |

(a) Represents	the	amount	of	capital	securities	issued	to	the	public	by	each	trust,	net	of	unamortized	discount.

(b) Represents	the	principal	amount	of	JPMorgan	Chase	debentures	held	as	assets	by	each	trust,	net	of	unamortized	discount.

# Note	19 Preferred	stock	of	subsidiary

Chase	Preferred	Capital	Corporation	("Chase	Preferred	Capital"),	a	wholly	owned subsidiary	of	JPMorgan	Chase	Bank,	a	bank	subsidiary	of	JPMorgan	Chase,	is	a	real estate	investment	trust	("REIT")	established	for	the	purpose	of	acquiring,	holding	and managing	real	estate	mortgage	assets.	On	February	28,	2002,	Chase	Preferred	Capital redeemed	all	22	million	outstanding	shares	of	its	8.10%	Cumulative	Preferred	Stock, Series	A,	at	a	redemption	price	of	$25	plus	accrued	and	unpaid	dividends.

# Note	20 Preferred	stock

JPMorgan	Chase	is	authorized	to	issue	200	million	shares	of	preferred	stock,	in	one	or more	series,	with	a	par	value	of	$1	per	share.	Outstanding	preferred	stock	at	both December	31,	2003	and	2002	was	17.8	million	shares.	The	Firm	did	not	issue,	redeem or	repurchase	any	preferred	stock	during	2003	or	2002.

Dividends	on	shares	of	each	outstanding	series	of	preferred	stock	are	payable quarterly.	All	the	preferred	stock	outstanding	have	preference	over	JPMorgan	Chase's common	stock	for	the	payment	of	dividends	and	the	distribution	of	assets	in	the	event	of a	liquidation	or	dissolution	of	JPMorgan	Chase.

The	following	is	a	summary	of	JPMorgan	Chase's	preferred	stock	outstanding:

(a) Redemption	price	includes	amount	shown	in	the	table	plus	any	accrued	but	unpaid	dividends.

(b) The	shares	are	redeemable	at	any	time	with	not	less	than	30	nor	more	than	60	days'	notice.

(c) Floating	rates	are	based	on	certain	U.S.	Treasury	rates.	The	minimum	and	maximum	rates	for	Series	A	are	5.00%	and	11.50%	and	for	Series	L	and	Series	N	are	4.50%	and	10.50%,	respectively.	The	fixed/adjustable rate	preferred	stock	remained	fixed	at	4.96%	through	June	30,	2003;	thereafter,	the	minimum	and	maximum	rates	are	5.46%	and	11.46%,	respectively.

(d) Represented	by	depositary	shares.

# Note	21 Common	stock

JPMorgan	Chase	is	authorized	to	issue	4.5	billion	shares	of	common	stock,	with	a	$1 par	value	per	share.	Common	shares	issued	(newly	issued	or	distributed	from	treasury) by	JPMorgan	Chase	during	2003,	2002	and	2001	were	as	follows:

| December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Issued\t—\tbalance\tat\tJanuary\t1 | \t2,023.6 | \t1,996.9 | \t1,940.1 |
| Newly\tissued: |  |  |  |
| Employee\tbenefits\tand\tcompensation\tplans | 20.9 | 25.9 | 55.0 |
| Employee\tstock\tpurchase\tplans | 0.7 | 0.8 | 0.5 |
| Purchase\taccounting\tacquisitions\tand\tother | — | — | 1.8 |
| Total\tnewly\tissued | 21.6 | 26.7 | 57.3 |
| Cancelled\tshares | (0.8) | — | (0.5) |
| Total\tissued\t—\tbalance\tat\tDecember\t31 | \t2,044.4 | \t2,023.6 | \t1,996.9 |
| Treasury\t—\tbalance\tat\tJanuary\t1 | (24.9) | (23.5) | (11.6) |
| Purchase\tof\ttreasury\tstock | — | — | (21.9) |
| Forfeitures\tto\ttreasury | (3.0) | (3.9) | (5.8) |
| Issued\tfrom\ttreasury: |  |  |  |
| Employee\tbenefits\tand\tcompensation\tplans | 25.8 | 2.1 | 15.6 |
| Employee\tstock\tpurchase\tplans | 0.3 | 0.4 | 0.2 |
| Total\tissued\tfrom\ttreasury | 26.1 | 2.5 | 15.8 |
| Total\ttreasury\t—\tbalance\tat\tDecember\t31 | (1.8) | (24.9) | (23.5) |
| Outstanding | \t2,042.6 | \t1,998.7 | \t1,973.4 |

The	Firm	did	not	repurchase	shares	of	its	common	stock	during	2003	or	2002.	During 2001,	the	Firm	repurchased	21.9	million	shares	of	common	stock	under	a	plan	which began	on	July	19,	2001.

As	of	December	31,	2003,	approximately	462	million	unissued	shares	of	common	stock were	reserved	for	issuance	under	various	employee	incentive,	option	and	stock purchase	plans.

# Note	22 Earnings	per	share

SFAS	128	requires	the	presentation	of	basic	and	diluted	earnings	per	share	("EPS")	in the	income	statement.	Basic	EPS	is	computed	by	dividing	net	income	applicable	to common	stock	by	the	weighted-average	number	of	common	shares	outstanding	for	the period.	Diluted	EPS	is	computed	using	the	same	method	as	basic	EPS,	but,	in	the denominator,	common	shares	outstanding	reflect	the	potential	dilution	that	could	occur if	convertible	securities	or	other	contracts	to	issue	common	stock	were	converted	or exercised	into	common	stock.	Net	income	available	for	common	stock	is	the	same computation	for	basic	EPS	and	diluted	EPS	as	JPMorgan	Chase	had	no	convertible securities,	and,	therefore,	no	adjustments	to	net	income	available	for	common	stock were	necessary.

Basic	and	diluted	earnings	per	share	were	as	follows	for	the	dates	indicated:

| (in	millions,	except	per	share	data) | (in	millions,	except	per	share	data) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- |
| Basic\tearnings\tper\tshare |  |  |  |  |
| Net\tincome | Net\tincome | $6,719 | $1,663 | $1,694 |
| Less:\tPreferred\tstock\tdividends | Less:\tPreferred\tstock\tdividends | 51 | 51 | 66 |
| Net\tincome\tapplicable\tto\tcommon\tstock | Net\tincome\tapplicable\tto\tcommon\tstock | $6,668 | $1,612 | $1,628 |
| Weighted-average\tbasic\tshares\toutstanding | Weighted-average\tbasic\tshares\toutstanding | \t 2,008.6 | \t 1,984.3 | \t 1,972.4 |
| Net\tincome\tper\tshare | Net\tincome\tper\tshare | $3.32 | $0.81 | $0.83 |
| Diluted\tearnings\tper\tshare |  |  |  |  |
| Net\tincome\tapplicable\tto\tcommon\tstock | Net\tincome\tapplicable\tto\tcommon\tstock | $6,668 | $1,612 | $1,628 |
| Weighted-average\tbasic\tshares\toutstanding | Weighted-average\tbasic\tshares\toutstanding | \t 2,008.6 | \t 1,984.3 | \t 1,972.4 |
| Add:\tBroad-based\toptions | Add:\tBroad-based\toptions | 4.1 | 2.8 | 6.6 |
| Key\temployee\toptions | Key\temployee\toptions | 42.4 | 22.0 | 44.6 |
| Weighted-average\tdiluted\tshares\toutstanding | Weighted-average\tdiluted\tshares\toutstanding | \t 2,055.1 | \t 2,009.1 | \t 2,023.6 |
| Net\tincome\tper\tshare | \t(a) | $3.24 | $0.80 | $0.80 |
| (a) | Options\tissued\tunder\temployee\tbenefit\tplans\tto\tpurchase\t335\tmillion,\t362\tmillion\tand\t190\tmillion | Options\tissued\tunder\temployee\tbenefit\tplans\tto\tpurchase\t335\tmillion,\t362\tmillion\tand\t190\tmillion | Options\tissued\tunder\temployee\tbenefit\tplans\tto\tpurchase\t335\tmillion,\t362\tmillion\tand\t190\tmillion | Options\tissued\tunder\temployee\tbenefit\tplans\tto\tpurchase\t335\tmillion,\t362\tmillion\tand\t190\tmillion |

(a) Options	issued	under	employee	benefit	plans	to	purchase	335	million,	362	million	and	190	million shares	of	common	stock	were	outstanding	for	the	years	ended	2003,	2002	and	2001,	respectively,	but were	not	included	in	the	computation	of	diluted	EPS	because	the	options'	exercise	prices	were	greater than	the	average	market	price	of	the	common	shares.

# Note	23 Comprehensive	income

Comprehensive	income	is	composed	of	Net	income	and	Other	comprehensive	income, which	includes	the	after-tax	change	in	unrealized	gains	and	losses	on	AFS	securities, cash	flow	hedging	activities	and	foreign	currency	translation	adjustments	(including	the impact	of	related	derivatives).

The	following	table	presents	Other	comprehensive	income	("OCI")	balances:

|  |  |  |  |  |  | Accumulated |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Year\tended\nDecember\t31, | Unrealized\ngains\t(losses) |  | Translation | Translation | Cash\nflow | other\ncomprehensive |
| (in\tmillions) | on\tAFS\tsecurities | (a) | adjustments | adjustments | hedges | income\t(loss) |
| Balance\tDecember\t31, |  |  |  |  |  |  |
| 2000 | $(244) |  | $3 |  | NA | \t $(241) |
| Net\tchange | 109 |  | (5) |  | $(305) | (201) |
| Balance\tDecember\t31, |  |  |  |  |  |  |
| 2001 | (135) |  | (2) |  | (305) | (442) |
| Net\tchange | 866 |  | (4) |  | 807 | 1,669 |
| Balance\tDecember\t31,\n2002 | 731 |  | (6) |  | 502 | 1,227 |
| Net\tchange | (b)\n(712) |  | —(c) | —(c) | (545) | (1,257) |
| Balance |  |  |  |  |  |  |
| December\t31,\t2003 | $19 |  | $(6) | (d) | $(43) | \t $(30) |

(a) Represents	the	after-tax	difference	between	the	fair	value	and	amortized	cost	of	the	AFS	securities portfolio	and	retained	interest	in	securitizations	recorded	in	Other	assets.

(b) The	net	change	during	2003	was	primarily	driven	by	increasing	rates	and	the	recognition	of	gains	on sales	of	AFS	securities.

(c) Includes	$580	million	of	after-tax	gains	on	foreign	currency	translation	from	operations	for	which	the functional	currency	is	other	than	the	U.S.	dollar,	which	were	offset	by	$580	million	of	after-tax	losses on	hedges.

(d) Includes	after-tax	gains	and	losses	on	foreign	currency	translation,	including	related	hedge	results from	operations	for	which	the	functional	currency	is	other	than	the	U.S.	dollar.

NA- Not	applicable	as	SFAS	133	was	adopted	effective	January	1,	2001.

The	following	table	presents	the	after-tax	changes	for	net	unrealized	holdings	gains (losses)	and	reclassification	adjustments	in	unrealized	gains	and	losses	on	AFS securities	and	cash	flow	hedges.	Reclassification	adjustments	include	amounts recognized	in	net	income	during	the	current	year	that	had	been	previously	recorded	in Other	comprehensive	income.

| Year	ended	December	31,	(in	millions) | Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- |
| Unrealized\tgains\t(losses)\ton\tAFS\tsecurities: |  |  |  |  |
| Net\tunrealized\tholdings\tgains\t(losses)\tarising\tduring\tthe\tperiod, |  |  |  |  |
| net\tof\ttaxes | \t(a) | $149 | $1,090 | $443 |
| Reclassification\tadjustment\tfor\tgains\tincluded\tin\tincome,\tnet\tof |  |  |  |  |
| \t(b) |  |  |  |  |
| taxes |  | (861) | (224) | (334) |
| Net\tchange |  | $(712) | $866 | $109 |
| Cash\tflow\thedges: |  |  |  |  |
| Net\tunrealized\tholdings\tgains\t(losses)\tarising\tduring\tthe\tperiod, |  |  |  |  |
| net\tof\ttaxes | \t(c) | $86 | $663 | $(356) |
| Reclassification\tadjustment\tfor\t(gains)\tlosses\tincluded\tin\tincome, |  |  |  |  |
| net\tof\ttaxes | \t(d) | (631) | 144 | 51 |
| Net\tchange |  | $(545) | $807 | $(305) |

# Note	24 Income	taxes

JPMorgan	Chase	and	its	eligible	subsidiaries	file	a	consolidated	U.S.	federal	income tax	return.	JPMorgan	Chase	uses	the	asset	and	liability	method	required	by	SFAS	109 to	provide	income	taxes	on	all	transactions	recorded	in	the	Consolidated	financial statements.	This	requires	that	income	taxes	reflect	the	expected	future	tax consequences	of	temporary	differences	between	the	carrying	amounts	of	assets	or liabilities	for	book	and	tax	purposes.	Accordingly,	a	deferred	tax	liability	or	asset	for each	temporary	difference	is	determined	based	on	the	tax	rates	that	JPMorgan	Chase expects	to	be	in	effect	when	the	underlying	items	of	income	and	expense	are	to	be realized.	JPMorgan	Chase's	expense	for	income	taxes	includes	the	current	and deferred	portions	of	that	expense.	A	valuation	allowance	is	established	to	reduce deferred	tax	assets	to	the	amount	JPMorgan	Chase	expects	to	be	realized.

Deferred	income	tax	expense	(benefit)	results	from	differences	between	assets	and liabilities	measured	for	financial	reporting	and	for	income	tax	return	purposes.	The significant	components	of	deferred	tax	assets	and	liabilities	are	reflected	in	the following	table:

| December	31,	(in	millions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Deferred\ttax\tassets |  |  |
| Employee\tbenefits | $ 2,245 | $1,621 |
| Allowance\tfor\tloan\tlosses | 1,410 | \t 1,675 |
| Allowance\tfor\tother\tthan\tloan\tlosses | 1,152 | \t 1,251 |
| Non-U.S.\toperations | 741 | \t 1,055 |
| Foreign\ttax\tcredit\tcarryforward | 23(a) | 25 |
| Gross\tdeferred\ttax\tassets | $ 5,571 | $5,627 |
| Deferred\ttax\tliabilities |  |  |
| Leasing\ttransactions | $ 3,703 | $3,175 |
| Depreciation\tand\tamortization | 1,037 | 857 |
| Fair\tvalue\tadjustments | 538 | \t 1,107 |
| Non-U.S.\toperations | 687 | 403 |
| Other,\tnet | 478 | 379 |
| Gross\tdeferred\ttax\tliabilities | $ 6,443 | $5,921 |
| Valuation\tallowance | $160 | $165 |
| Net\tdeferred\ttax\tasset\t(liability) | $(1,032) | $(459) |
| (a) |  |  |

A	valuation	allowance	has	been	recorded	in	accordance	with	SFAS	109,	primarily relating	to	deferred	tax	assets	associated	with	non-U.S.	operations.

The	components	of	income	tax	expense	included	in	the	Consolidated	statement	of income	were	as	follows:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Current\tincome\ttax\texpense\t(benefit) |  |  |  |
| U.S.\tfederal | $965 | $(1,334) | $598 |
| Non-U.S. | 741 | 461 | 822 |
| U.S.\tstate\tand\tlocal | 175 | 93 | 65 |
| Total\tcurrent\texpense\t(benefit) | \t 1,881 | (780) | \t 1,485 |
| Deferred\tincome\ttax\texpense\t(benefit) |  |  |  |
| U.S.\tfederal | \t 1,341 | 1,630 | (618) |
| Non-U.S. | 14 | (352) | (73) |
| U.S.\tstate\tand\tlocal | 73 | 358(a) | 53 |
| Total\tdeferred\texpense\t(benefit) | \t 1,428 | 1,636 | (638) |
| Total\tincome\ttax\texpense | $3,309 | $856 | $847 |
| (a)\nThe\tincrease\tin\t2002\tis\tprincipally\tattributable\tto\tthe\tlevel\tof\tincome\tin\tcertain\tstate\tand\tlocal\ttax |  |  |  |

(a) The	increase	in	2002	is	principally	attributable	to	the	level	of	income	in	certain	state	and	local	tax jurisdictions	in	2002.

The	preceding	table	does	not	reflect	the	tax	effects	of	unrealized	gains	and	losses	on AFS	securities,	SFAS	133	hedge	transactions	and	certain	tax	benefits	associated	with JPMorgan	Chase's	employee	stock	plans.	The	tax	effect	of	these	items	is	recorded directly	in	Stockholders'	equity.	Stockholders'	equity	increased	by	$898	million	and $541	million	in	2003	and	2001,	respectively,	and	decreased	by	$1.1	billion	in	2002	as	a result	of	these	tax	effects.

U.S.	federal	income	taxes	have	not	been	provided	on	the	undistributed	earnings	of certain	non-U.S.	subsidiaries	to	the	extent	such	earnings	have	been	reinvested	abroad for	an	indefinite	period	of	time.	For	2003,	such	earnings	approximated	$326	million	on a	pre-tax	basis.	At	December	31,	2003,	the	cumulative	amount	of	undistributed earnings	in	these	subsidiaries	approximated	$2.3	billion.	It	is	not	practicable	at	this	time to	determine	the	income	tax	liability	that	would	result	upon	repatriation	of	these earnings.

The	tax	expense	applicable	to	securities	gains	and	losses	for	the	years	2003,	2002	and 2001	was	$477	million,	$531	million	and	$286	million,	respectively.

A	reconciliation	of	the	applicable	statutory	U.S.	income	tax	rate	to	the	effective	tax	rate for	the	past	three	years	is	shown	in	the	following	table:

| Year	ended	December	31, | Year	ended	December	31, | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- |
| Statutory\tU.S.\tfederal\ttax\trate | Statutory\tU.S.\tfederal\ttax\trate | 35.0% | 35.0% | 35.0% |
| Increase\t(decrease)\tin\ttax\trate\tresulting\tfrom: |  |  |  |  |
| U.S.\tstate\tand\tlocal\tincome\ttaxes,\tnet\tof |  |  |  |  |
| federal\tincome\ttax\tbenefit | federal\tincome\ttax\tbenefit | 1.6 | 11.6(a) | 3.0 |
| Tax-exempt\tincome | Tax-exempt\tincome | (2.7) | (6.8) | (5.8) |
| Non-U.S.\tsubsidiary\tearnings | Non-U.S.\tsubsidiary\tearnings | (1.0) | (3.2) | (3.1) |
| General\tbusiness\tcredits | General\tbusiness\tcredits | (0.9) | (3.5) | (1.8) |
| Other,\tnet | Other,\tnet | 1.0 | 0.9 | 5.7 |
| Effective\ttax\trate | Effective\ttax\trate | 33.0% | 34.0% | 33.0% |
| (a) | The\tincrease\tin\t2002\twas\tprincipally\tattributable\tto\tthe\tlevel\tof\tincome\tin\tcertain\tstate\tand\tlocal\ttax | The\tincrease\tin\t2002\twas\tprincipally\tattributable\tto\tthe\tlevel\tof\tincome\tin\tcertain\tstate\tand\tlocal\ttax | The\tincrease\tin\t2002\twas\tprincipally\tattributable\tto\tthe\tlevel\tof\tincome\tin\tcertain\tstate\tand\tlocal\ttax | The\tincrease\tin\t2002\twas\tprincipally\tattributable\tto\tthe\tlevel\tof\tincome\tin\tcertain\tstate\tand\tlocal\ttax |

(a) The	increase	in	2002	was	principally	attributable	to	the	level	of	income	in	certain	state	and	local	tax jurisdictions	in	2002.

The	following	table	presents	the	U.S.	and	non-U.S.	components	of	income	before income	tax	expense:

| Year	ended	December	31,	(in	millions) | Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- |
| U.S. |  | $7,333 | $1,834 | $1,258 |
| Non-U.S. | (a) | 2,695 | 685 | 1,308 |
| Income\tbefore\tincome\ttax\texpense | Income\tbefore\tincome\ttax\texpense | $10,028 | $2,519 | $2,566 |
| (a) |  |  |  |  |

(a) For	purposes	of	this	table,	non-U.S.	income	is	defined	as	income	generated	from	operations	located outside	the	United	States.

# Note	25 Restrictions	on	cash	and intercompany	funds	transfers

The	Federal	Reserve	Board	requires	depository	institutions	to	maintain	cash	reserves with	a	Federal	Reserve	Bank.	The	average	amount	of	reserve	balances	deposited	by JPMorgan	Chase's	bank	subsidiaries	with	various	Federal	Reserve	Banks	was approximately	$2.6	billion	in	2003	and	$2.2	billion	in	2002.

Restrictions	imposed	by	federal	law	prohibit	JPMorgan	Chase	and	certain	other affiliates	from	borrowing	from	banking	subsidiaries	unless	the	loans	are	secured	in specified	amounts.	Such	secured	loans	to	JPMorgan	Chase	or	to	other	affiliates generally	are	limited	to	10%	of	the	banking	subsidiary's	total	capital,	as	determined	by the	risk-based	capital	guidelines;	the	aggregate	amount	of	all	such	loans	is	limited	to 20%	of	the	banking	sub-

sidiary's	total	capital.	JPMorgan	Chase	and	its	affiliates	were	well	within	these	limits throughout	the	year.

The	principal	sources	of	JPMorgan	Chase's	income	(on	a	parent	company-only	basis) are	dividends	and	interest	from	JPMorgan	Chase	Bank	and	the	other	banking	and nonbanking	subsidiaries	of	JPMorgan	Chase.	In	addition	to	dividend	restrictions	set forth	in	statutes	and	regulations,	the	Federal	Reserve	Board,	the	Office	of	the Comptroller	of	the	Currency	("OCC")	and	the	Federal	Deposit	Insurance	Corporation ("FDIC")	have	authority	under	the	Financial	Institutions	Supervisory	Act	to	prohibit	or	to limit	the	payment	of	dividends	by	the	banking	organizations	they	supervise,	including JPMorgan	Chase	and	its	subsidiaries	that	are	banks	or	bank	holding	companies,	if,	in the	banking	regulator's	opinion,	payment	of	a	dividend	would	constitute	an	unsafe	or unsound	practice	in	light	of	the	financial	condition	of	the	banking	organization.

At	January	1,	2004	and	2003,	JPMorgan	Chase's	bank	subsidiaries	could	pay,	in	the aggregate,	$4.4	billion	and	$1.3	billion,	respectively,	in	dividends	to	their	respective bank	holding	companies	without	prior	approval	of	their	relevant	banking	regulators. Dividend	capacity	in	2004	will	be	supplemented	by	the	banks'	earnings	during	the	year.

In	compliance	with	rules	and	regulations	established	by	U.S.	and	non-U.S.	regulators, as	of	December	31,	2003	and	2002,	cash	in	the	amount	of	$3.5	billion	and	$2.1	billion, respectively,	and	securities	with	a	market	value	of	$3.1	billion	and	$3.0	billion, respectively,	were	segregated	in	special	bank	accounts	for	the	benefit	of	securities	and futures	brokerage	customers.

# Note	26 Capital

There	are	two	categories	of	risk-based	capital:	core	capital	(referred	to	as	Tier	1 capital)	and	supplementary	capital	(referred	to	as	Tier	2	capital).	Tier	1	capital	includes common	stockholders'	equity,	qualifying	preferred	stock	and	minority	interest	less goodwill	and	other	adjustments.	Tier	2	capital	consists	of	preferred	stock	not	qualifying as	Tier	1,	long-term	debt	and	other	instruments	qualifying	as	Tier	2,	the	aggregate allowance	for	credit	losses	up	to	a	certain	percentage	of	risk-weighted	assets,	less investments	in	certain	subsidiaries.	Under	the	risk-based	capital	guidelines	of	the Federal	Reserve	Board,	JPMorgan	Chase	is	required	to	maintain	minimum	ratios	of Tier	1	and	total	(Tier	1	plus	Tier	2)	capital	to	risk-weighted	assets,	as	well	as	minimum leverage	ratios	(which	are	defined	as	Tier	1	capital	to	average	adjusted	on-balance sheet	assets).	Failure	to	meet	these	minimum	requirements	could	result	in	actions taken	by	the	Federal	Reserve	Board.	Bank	subsidiaries	also	are	subject	to	these	capital requirements	by	their	respective	primary	regulators.	Management	believes	that	as	of December	31,	2003,	JPMorgan	Chase	and	each	of	its	banking	subsidiaries	met	all capital	requirements	to	which	each	was	subject	and	is	not	aware	of	any	subsequent events	that	would	alter	this	classification.	The	Firm	revised	its	calculation	of	risk- weighted	assets	during	the	third-quarter	of	2003;	capital	ratios	for	periods	prior	to June	2003	have	not	been	recalculated.

The	following	table	presents	the	risk-based	capital	ratios	for	JPMorgan	Chase	and	its	significant	banking	subsidiaries:

|  |  |  |  | Risk- | Adjusted | Tier	1 | Total | Tier	1 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Tier\t1 | Total | weighted | average | (c)(e)\ncapital | (c)(e)\ncapital | leverage | (c)(f) |
|  |  | (b)(c) | (c) | (d) |  |  |  |  |  |
| December\t31,\t2003\t(in\tmillions) | December\t31,\t2003\t(in\tmillions) | capital | capital | assets | assets | ratio | ratio | ratio |  |
| J.P.\tMorgan\tChase\t&amp;\tCo. | (a) | $43,167 | $59,816 | $507,456 | $765,910 | 8.5% | 11.8% | 5.6% | 5.6% |
| JPMorgan\tChase\tBank |  | 34,972 | 45,290 | 434,218 | 628,076 | 8.1% | 10.4% | 5.6% | 5.6% |
| Chase\tManhattan\tBank\tUSA,\tN.A. | Chase\tManhattan\tBank\tUSA,\tN.A. | 4,950 | 6,939 | 48,030 | 34,565 | 10.3% | 14.4% | 14.3% | 14.3% |
| (g) |  |  |  |  |  |  |  |  | (h) |
| Well\tcapitalized\tratios |  |  |  |  |  | 6.00% | 10.00% | 5.00% | 5.00% |
| (g) |  |  |  |  |  |  |  |  |  |
| Minimum\tcapital\tratios |  |  |  |  |  | 4.00% | 8.00% | 3.00% | 3.00% |
| (a) |  |  |  |  |  |  |  |  |  |

(a) Assets	and	capital	amounts	for	JPMorgan	Chase's	banking	subsidiaries	reflect	intercompany	transactions,	whereas	the	respective	amounts	for	JPMorgan	Chase	reflect	the	elimination	of	intercompany	transactions.

(b) In	accordance	with	the	Federal	Reserve	Board	risk-based	capital	guidelines,	minority	interest	for	JPMorgan	Chase	includes	debentures	issued	to	JPMorgan	Chase	less	the	capital	securities	of	the	issuer	trusts.	For	a further	discussion,	see	Note	18	on	pages	110-111	of	this	Annual	Report.

(c) The	provisions	of	SFAS	115	do	not	apply	to	the	calculations	of	the	Tier	1	capital	and	Tier	1	leverage	ratios.	The	risk-based	capital	guidelines	permit	the	inclusion	of	45%	of	the	pre-tax	unrealized	gain	on	certain	equity securities	in	the	calculation	of	Tier	2	capital.

(d) Includes	off-balance	sheet	risk-weighted	assets	in	the	amounts	of	$174.2	billion,	$152.1	billion	and	$13.3	billion,	respectively,	at	December	31,	2003.

(e) Tier	1	capital	or	total	capital,	as	applicable,	divided	by	risk-weighted	assets.	Risk-weighted	assets	include	assets	and	off-balance	sheet	positions,	weighted	by	the	type	of	instruments	and	the	risk	weight	of	the counterparty,	collateral	or	guarantor.

(f) Tier	1	capital	divided	by	adjusted	average	assets	(net	of	allowance	for	loan	losses,	goodwill	and	certain	intangible	assets).

(g) As	defined	by	the	regulations	issued	by	the	Federal	Reserve	Board,	the	FDIC	and	the	OCC.

(h) Represents	requirements	for	bank	subsidiaries	pursuant	to	regulations	issued	under	the	Federal	Deposit	Insurance	Corporation	Improvement	Act.	There	is	no	Tier	1	leverage	component	in	the	definition	of	a	well- capitalized	bank	holding	company.

The	following	table	shows	the	components	of	the	Firm's	Tier	1	and	total	capital:

| December	31,	(in	millions) | December	31,	(in	millions) | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Tier\t1\tcapital |  |  |  |
| Common\tstockholders'\tequity | Common\tstockholders'\tequity | $45,168 | $40,065 |
| Nonredeemable\tpreferred\tstock | Nonredeemable\tpreferred\tstock | 1,009 | 1,009 |
| Minority\tinterest | (a) | 6,882 | 5,520 |
| Less: | Goodwill\tand\tinvestments\tin\tcertain\tsubsidiaries | 8,511 | 8,122 |
|  | Nonqualifying\tintangible\tassets\tand\tother | 1,381 | 902 |
| Tier\t1\tcapital | Tier\t1\tcapital | $43,167 | $37,570 |
| Tier\t2\tcapital |  |  |  |
| Long-term\tdebt\tand\tother\tinstruments\tqualifying\tas\tTier\t2 | Long-term\tdebt\tand\tother\tinstruments\tqualifying\tas\tTier\t2 | $12,128 | $11,801 |
| Qualifying\tallowance\tfor\tcredit\tlosses | Qualifying\tallowance\tfor\tcredit\tlosses | 4,777 | 5,458 |
| Less: | Investment\tin\tcertain\tsubsidiaries | 256 | 334 |
| Tier\t2\tcapital | Tier\t2\tcapital | $16,649 | $16,925 |
| Total\tqualifying\tcapital | Total\tqualifying\tcapital | $59,816 | $54,495 |

(a)	 Minority	interest	primarily	includes	trust	preferred	stocks	of	certain	business	trusts.

# Note	27 Commitments	and	contingencies

At	December	31,	2003,	JPMorgan	Chase	and	its	subsidiaries	were	obligated	under	a number	of	noncancelable	operating	leases	for	premises	and	equipment	used	primarily for	banking	purposes.	Certain	leases	contain	rent	escalation	clauses	for	real	estate taxes,	they	may	also	contain	other	operating	expenses	and	renewal	option	clauses calling	for	increased	rents.	No	lease	agreement	imposes	any	restrictions	on	the	Firm's ability	to	pay

dividends,	engage	in	debt	or	equity	financing	transactions,	or	enter	into	further	lease agreements.	Future	minimum	rental	payments	required,	under	operating	leases	with noncancelable	lease	terms	that	expire	after	December	31,	2003,	were	as	follows:

| Year	ended	December	31,	(in	millions) |  |
| :--- | :--- |
| 2004 | $805 |
| 2005 | 772 |
| 2006 | 695 |
| 2007 | 619 |
| 2008 | 570 |
| After | 4,772 |
| Total\tminimum\tpayments\trequired | 8,233 |
| Less:\tSublease\trentals\tunder\tnoncancelable\tsubleases | 283 |
| Net\tminimum\tpayment\trequired | $ 7,950 |

# Total	rental	expense	was	as	follows:

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Gross\trentals | $1,061 | $1,012 | $804 |
| Sublease\trentals | (106) | (134) | (135) |
| Net\trental\texpense | $955 | $878 | $669 |

At	December	31,	2003,	assets	were	pledged	to	secure	public	deposits	and	for	other purposes.	The	significant	components	of	the	assets	pledged	were	as	follows:

| December	31,	(in	billions) | 2003 | 2002 |
| :--- | :--- | :--- |
| Reverse\trepurchase/securities\tborrowing\tagreements | $197 | $199 |
| Securities | 45 | 73 |
| Loans | 48 | 40 |
| (a) |  |  |
| Other | 96 | 112 |
| Total\tassets\tpledged | $386 | $424 |
| (a)\nPrimarily\tcomposed\tof\ttrading\tassets. |  |  |

(a) Primarily	composed	of	trading	assets.

JPMorgan	Chase	and	its	subsidiaries	are	named	as	defendants	in	a	number	of	legal actions	and	governmental	proceedings	arising	in	connection	with	their	respective businesses.	Additional	actions,	investigations	or	proceedings	may	be	brought	from	time to	time	in	the	future.	In	view	of	the	inherent	difficulty	of	predicting	the	outcome	of	legal matters,	particularly	where	the	claimants	seek	very	large	or	indeterminate	damages	or where	the	cases	present	novel	legal	theories	or	involve	a	large	number	of	parties,	the Firm	cannot	state	with	confidence	what	the	eventual	outcome	of	the	pending	matters will	be,	what	the	timing	of	the	ultimate	resolution	of	these	matters	will	be	or	what	the eventual	loss	related	to	each	pending	matter	will	be.	Subject	to	the	foregoing	caveat, JPMorgan	Chase	anticipates,	based	upon	its	current	knowledge,	after	consultation	with counsel	and	after	taking	into	account	its	current	litigation	reserves,	that	the	outcome	of the	legal	actions,	proceedings	and	investigations	currently	pending	against	it	should	not have	a	material	adverse	effect	on	the	consolidated	financial	condition	of	the	Firm. However,	the	outcome	of	a	particular	proceeding	or	the	imposition	of	a	particular	fine	or penalty	may	be	material	to	the	Firm's	operating	results	for	a	particular	period	depending upon,	among	other	factors,	the	size	of	the	loss	or	liability	and	the	level	of	the	Firm's income	for	that	period.

# Note	28 Accounting	for	derivative	instruments and	hedging	activities

Derivative	instruments	enable	end-users	to	increase,	reduce	or	alter	exposure	to	credit or	market	risks.	The	value	of	a	derivative	is	derived	from	its	reference	to	an	underlying variable	or	combination	of	variables	such	as	equity,	foreign	exchange,	credit, commodity	or	interest	rate	prices	or	indices.	JPMorgan	Chase	makes	markets	in derivatives	for	its	customers,	and	also	is	an	end	user	of	derivatives	in	order	to	manage the	Firm's	exposure	to	credit	and	market	risks.

SFAS	133,	as	amended	by	SFAS	138	and	SFAS	149,	establishes	accounting	and reporting	standards	for	derivative	instruments,	including	derivative	instruments embedded	in	other	contracts	used	for	trading	and	hedging	activities.	All	derivatives, whether	designated	for	hedging	relationships	or	not,	are	required	to	be	recorded	on	the balance	sheet	at	fair	value.	The	accounting	for	changes	in	value	of	a	derivative depends	on	whether	the	contract	is	for	trading	purposes	or	has	been	designated	and qualifies	for	hedge	accounting.	In	order	to	qualify	for	hedge	accounting,	a	derivative must	be	highly	effective	at	reducing	the	risk	associated	with	the	exposure	being hedged.	The	majority	of	JPMorgan	Chase's	derivatives	are	entered	into	for	trading purposes.	The	Firm	also	uses	derivatives	as	an	end-user	to	hedge	market	exposures, modify	the	interest	rate	characteristics	of	related	balance	sheet	instruments	or	meet longer-term	investment	objectives.	Both	trading	and	end-user	derivatives	are	recorded at	fair	value	in	Trading	assets	and	Trading	liabilities.

Derivatives	designated	as	hedges	for	accounting	purposes	must	be	considered	highly effective	at	reducing	the	risk	associated	with	the	exposure	being	hedged.	Each derivative	must	be	designated	as	a	hedge,	with	documentation	of	the	risk	management objective	and	strategy,	including	identification	of	the	hedging	instrument,	the	hedged item	and	the	risk	exposure,	and	how	effectiveness	is	to	be	assessed	prospectively	and retrospectively.

For	qualifying	fair	value	hedges,	all	changes	in	the	fair	value	of	the	derivative	and changes	in	the	fair	value	of	the	hedged	item	for	the	risk	being	hedged	are	recognized	in earnings.	If	the	hedge	relationship	is	terminated,	then	the	fair	value	adjustment	to	the hedged	item	continues	to	be	reported	as	part	of	the	basis	of	the	item	and	is	amortized to	earnings	as	a	yield	adjustment.	For	qualifying	cash	flow	hedges,	the	effective	portion of	the	change	in	the	fair	value	of	the	derivative	is	recorded	in	Other	comprehensive income	and	recognized	in	the	income	statement	when	the	hedged	cash	flows	affect earnings.	The	ineffective	portions	of	cash	flow	hedges	are	immediately	recognized	in earnings.	If	the	hedge	relationship	is	terminated,	then	the	change	in	fair	value	of	the derivative	recorded	in	Other	comprehensive	income	is	recognized	when	the	cash	flows that	were	hedged	occur,	consistent	with	the	original	hedge	strategy.	For	hedge relationships	discontinued	because	the	forecasted	transaction	is	not	expected	to	occur according	to	the	original	strategy,	any	related	derivative	amounts	recorded	in	Other comprehensive	income	are	immediately	recognized	in	earnings.	For	qualifying	net investment	hedges,	changes	in	the	fair	value	of	the	derivative	or	the	revaluation	of	the foreign	currency-denominated	debt	instrument	are	recorded	in	the	translation adjustments	account	within	Other	comprehensive	income.

JPMorgan	Chase's	fair	value	hedges	primarily	include	hedges	of	fixed-rate	long-term debt,	loans,	AFS	securities	and	MSRs.	Interest	rate	swaps	are	the	most	common	type of	derivative	contract	used	to	modify	exposure	to	interest	rate	risk,	converting	fixed-rate assets	and	liabilities	to	a	floating	rate.	Interest	rate	options	and	swaptions	are	also	used in	combination	with	interest	rate	swaps	to	hedge	the	fair	value	of	the	Firm's	MSRs.	For a	further	discussion	of	hedging,	see	Note	16	on	page	108	of	this	Annual	Report.	All amounts	have	been	included	in	earnings	consistent	with	the	classification	of	the hedged	item,	primarily	Net	interest	income,	Mortgage	fees	and	related	income	and Other	revenue.	JPMorgan	Chase	did	not	recognize	any	gains	or	losses	during	2003	on firm	commitments	that	no	longer	qualify	as	fair	value	hedges.

JPMorgan	Chase	also	enters	into	derivative	contracts	to	hedge	exposure	to	variability in	cash	flows	from	floating-rate	financial	instruments	and	forecasted	transactions, primarily	the	rollover	of	short-term	assets	and	liabilities,	foreign	currency	denominated revenues	and	expenses	and	anticipated	securities	transactions.	Interest	rate	swaps, futures,	options	and	forward	contracts	are	the	most	common	instruments	used	to reduce	the	impact	of	interest	rate	and	foreign	exchange	rate	changes	on	future earnings.	All	amounts	have	been	included	in	earnings	consistent	with	the	classification of	the	hedged	item,	primarily	Net	interest	income.

JPMorgan	Chase	uses	forward	foreign	exchange	contracts	and	foreign	currency- denominated	debt	instruments	to	protect	the	value	of	its	net	investments	in	its	non-U.S. subsidiaries	in	foreign	currencies.	The	portion	of	the	hedging	instruments	excluded from	the	assessment	of	hedge	effectiveness	(forward	points)	is	recorded	in	Net	interest income.

The	following	table	presents	derivative	instrument-	and	hedging-related	activities	for	the period	indicated:

(a) Includes	ineffectiveness	and	the	components	of	hedging	instruments	that	have	been	excluded	from the	assessment	of	hedge	effectiveness.

Over	the	next	12	months,	it	is	expected	that	$124	million	(after-tax)	of	net	losses recorded	in	Other	comprehensive	income	at	December	31,	2003,	will	be	recognized	in earnings.	The	maximum	length	of	time	over	which	forecasted	transactions	are	hedged is	10	years,	related	to	core	lending	and	borrowing	activities.

In	2001,	the	adoption	of	SFAS	133	resulted	in	an	after-tax	reduction	to	net	income	of $25	million	and	an	after-tax	reduction	to	Other	comprehensive	income	of	$36	million. Due	to	SFAS	133,	JPMorgan	Chase	changed	certain	hedging	strategies	and	elected not	to	designate	some	derivatives	utilized	to	manage	economic	exposure	as	accounting hedges.	For	example,	to	moderate	its	use	of	derivatives,	the	mortgage	business	began using	AFS	securities	as	economic	hedges	of	mortgage	servicing	rights.	Changes	in	the fair	value	of	credit	derivatives	used	to	manage	the	Firm's	credit	risk	are	recorded	in Trading	revenue	because	of	the	difficulties	in	qualifying	such	contracts	as	hedges	of loans	and	commitments.

# Note	29 Off-balance	sheet	lending-related financial	instruments	and	guarantees

JPMorgan	Chase	utilizes	lending-related	financial	instruments	(e.g.,	commitments	and guarantees)	to	meet	the	financing	needs	of	its	customers.	The	contractual	amount	of these	financial	instruments	represents	the	maximum	possible	credit	risk	should	the counterparty	draw	down	the	commitment	or	the	Firm	fulfill	its	obligation	under	the guarantee,	and	the	counter-party	were	to	subsequently	fail	to	perform	according	to	the terms	of	the	contract.	Most	of	these	commitments	and	guarantees	expire	without	a default	occurring	or	without	being	drawn.	As	a	result,	the	total	contractual	amount	of these	instruments	is	not,	in	the	Firm's	view,	representative	of	its	actual	future	credit exposure	or	funding	requirements.	Further,	certain	commitments,	primarily	related	to consumer	financings,	are	cancelable,	upon	notice,	at	the	option	of	the	Firm.

To	provide	for	the	risk	of	loss	inherent	in	commercial-related	contracts,	an	allowance for	credit	losses	is	maintained.	See	Note	12	on	page	100	of	this	Annual	Report	for	a further	discussion	of	the	Allowance	for	credit	losses	on	lending-related	commitments.

The	following	table	summarizes	the	contract	amounts	relating	to	off-balance	sheet lending-related	financial	instruments	and	guarantees	at	December	31,	2003	and	2002:

# Off-balance	sheet	lending-related	financial	instruments

| December	31,	(in	millions) | December	31,	(in	millions) |  |  | 2003 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Consumer-related\nCommercial-related: |  |  |  | $176,923 | $151,138 |
| Other\tunfunded\tcommitments\tto\textend\tcredit | Other\tunfunded\tcommitments\tto\textend\tcredit | Other\tunfunded\tcommitments\tto\textend\tcredit | (a)(b) | $176,222 | $196,654 |
| Standby\tletters\tof\tcredit\tand\tguarantees | Standby\tletters\tof\tcredit\tand\tguarantees | (a) |  | 35,332 | 38,848 |
| Other\tletters\tof\tcredit | (a) |  |  | 4,204 | 2,618 |
| Total\tcommercial-related | Total\tcommercial-related |  |  | $215,758 | $238,120 |
| Customers'\tsecurities\tlent | Customers'\tsecurities\tlent |  |  | $143,143 | $101,503 |

(b)	 Includes	unused	advised	lines	of	credit	totaling	$19	billion	at	December	31,	2003	and	$22	billion	at December	31,	2002,	which	are	not	legally	binding.	In	regulatory	filings	with	the	Federal	Reserve	Board, unused	advised	lines	are	not	reportable.

FIN	45	establishes	guarantor's	accounting	and	disclosure	requirements	for	guarantees, requiring	that	a	guarantor	recognize,	at	the	inception	of	a	guarantee,	a	liability	in	an amount	equal	to	the	fair	value	of	the	obligation	undertaken	in	issuing	the	guarantee. FIN	45	defines	a	guarantee	as	a	contract	that	contingently	requires	the	Firm	to	pay	a guaranteed	party,	based	on:	(a)	changes	in	an	underlying	asset,	liability	or	equity security	of	the	guaranteed	party,	or	(b)	a	third	party's	failure	to	perform	under	a specified	agreement.	The	Firm	considers	the	following	off-balance	sheet	lending arrangements	to	be	guarantees	under	FIN	45:	certain	asset	purchase	agreements, standby	letters	of	credit	and	financial	guarantees,	securities	lending	indemnifications, certain	indemnification	agreements	included	within	third-party	contractual	arrangements and	certain	derivative	contracts.	These	guarantees	are	described	in	further	detail below.

As	of	January	1,	2003,	newly	issued	or	modified	guarantees	that	are	not	derivative contracts	have	been	recorded	on	the	Firm's	Consolidated	balance	sheet	at	their	fair value	at	inception.	The	fair	value	of	the	obligation	undertaken	in	issuing	the	guarantee at	inception	is	typically	equal	to	the	net	present	value	of	the	future	amount	of	premium receivable	under	the	contract.	The	Firm	has	recorded	this	amount	in	Other	Liabilities with	an	offsetting	entry	recorded	in	Other	Assets.	As	cash	is	received	under	the contract,	it	is	applied	to	the	premium	receivable	recorded	in	Other	Assets,	and	the	fair value	of	the	liability	recorded	at	inception	is	amortized	into	income	as	Fees	and Commissions	over	the	life	of	the	guarantee	contract.	The	amount	of	the	liability	related to	guarantees	recorded	at	December	31,	2003,	excluding	the	allowance	for	credit losses	on	lending-related	commitments	and	derivative	contracts	discussed	below,	was approximately	$59	million.

Unfunded	commitments	to	extend	credit	are	agreements	to	lend	only	when	a	customer has	complied	with	predetermined	conditions,	and	they	generally	expire	on	fixed	dates. The	allowance	for	credit	losses	on	commercial	lending-related	commitments	includes $155	million	at	December	31,	2003,	related	to	unfunded	commitments	to	extend	credit. The	majority	of	the	Firm's	unfunded	commitments	are	not	guarantees	as	defined	in	FIN 45,	except	for	certain	asset	purchase	agreements	of	$21	billion	at	December	31,	2003. These	agreements	are	primarily	used	as	a	mechanism	to	provide	liquidity	to	SPEs.	Of the	$21	billion	of	asset	purchase	agreements	at	December	31,	2003,	$18	billion	related to	multi-seller	conduits	and	structured	commercial	loan	vehicles	described	in	Note	14 on	pages	103-106	of	this	Annual	Report.	It	does	not	include	$6	billion	of	asset	purchase agreements	to	multi-seller	asset-backed	commercial	paper	conduits	consolidated	in accordance	with	FIN	46	at	December	31,	2003,	as	the	underlying	assets	of	the conduits	are	reported	on	the	Consolidated	balance	sheet.

Certain	asset	purchase	agreements	can	be	exercised	at	any	time	by	the	SPE's administrator,	while	others	require	a	triggering	event	to	occur.	Triggering	events include,	but	are	not	limited	to,	a	need	for	liquidity,	a	market	value	decline	of	the	assets or	a	downgrade	in	the	rating	of	JPMorgan	Chase	Bank.	These	agreements	may	cause the	Firm	to	purchase	an	asset	from	the	SPE	at	an	amount	above	the	asset's	fair	value, in	effect	providing	a	guarantee	of	the	initial	value	of	the	reference	asset	as	of	the	date	of the	agreement.	In	most	instances,	third-party	credit	enhancements	of	the	SPE	mitigate the	Firm's	potential	losses	on	these	agreements.	The	allowance	for	credit	losses	on commercial	lending-related	commitments	related	to	these	agreements	was	insignificant at	December	31,	2003.

Standby	letters	of	credit	and	financial	guarantees	are	conditional	lending	commitments issued	by	JPMorgan	Chase	to	guarantee	the	performance	of	a	customer	to	a	third	party under	certain	arrangements,	such	as	commercial	paper	facilities,	bond	financings, acquisition	financings	and	similar	transactions.	More	than	80%	of	these	arrangements mature	within	three	years.	The	Firm

typically	has	recourse	to	recover	from	the	customer	any	amounts	paid	under	these guarantees;	in	addition,	the	Firm	may	hold	cash	or	other	highly	liquid	collateral	to support	these	guarantees.	At	December	31,	2003,	the	Firm	held	collateral	relating	to $7.7	billion	of	these	arrangements.	The	allowance	for	credit	losses	on	lending-related commitments	included	$167	million	related	to	standby	letters	of	credit	and	financial guarantees.

JPMorgan	Chase	holds	customers'	securities	under	custodial	arrangements.	At	times, these	securities	are	loaned	to	third	parties,	and	the	Firm	issues	securities	lending indemnification	agreements	to	the	customer	that	protect	the	customer	against	the	risk	of loss	if	the	third	party	fails	to	return	the	securities.	To	support	these	indemnification agreements,	the	Firm	generally	obtains	from	the	third	party	cash	or	other	highly	liquid collateral	with	a	market	value	exceeding	100%	of	the	value	of	the	loaned	securities.	At December	31,	2003,	the	Firm	held	$146.7	billion	in	collateral	in	support	of	these agreements.

In	connection	with	issuing	securities	to	investors,	the	Firm	may	enter	into	contractual arrangements	with	third	parties	that	may	require	the	Firm	to	make	a	payment	to	them	in the	event	of	a	change	in	tax	law	or	an	adverse	interpretation	of	tax	law.	In	certain cases,	the	contract	may	also	include	a	termination	clause,	which	would	allow	the	Firm to	settle	the	contract	at	its	fair	value,	thus,	such	a	clause	would	not	require	the	Firm	to make	a	payment	under	the	indemnification	agreement.	Even	without	the	termination clause,	management	does	not	expect	such	indemnification	agreements	to	have	a material	adverse	effect	on	the	consolidated	financial	condition	of	JPMorgan	Chase.	The Firm	may	also	enter	into	indemnification	clauses	when	it	sells	a	business	or	assets	to	a third	party,	pursuant	to	which	it	indemnifies	that	third	party	for	losses	they	may	incur due	to	actions	taken	by	the	Firm	prior	to	the	sale.	See	below	for	more	information regarding	the	Firm's	loan	securitization	activities.	It	is	difficult	to	estimate	the	Firm's maximum	exposure	under	these	indemnification	arrangements,	since	this	would	require an	assessment	of	future	changes	in	tax	laws	and	future	claims	that	may	be	made against	the	Firm	that	have	not	yet	occurred.	However,	based	on	historical	experience, management	expects	the	risk	of	loss	to	be	remote.

As	part	of	the	Firm's	loan	securitization	activities,	as	described	in	Note	13	on	pages 100-103	of	this	Annual	Report,	the	Firm	provides	representations	and	warranties	that certain	securitized	loans	meet	specific	requirements.	The	Firm	may	be	required	to repurchase	the	loans	and/or	indemnify	the	purchaser	of	the	loans	against	losses	due	to any	breaches	of	such	representations	or	warranties.	Generally,	the	maximum	amount of	future	payments	the	Firm	would	be	required	to	make	under	such	repurchase	and/or indemnification	provisions	would	be	equal	to	the	current	amount	of	assets	held	by	such securitization-related	SPEs	as	of	December	31,	2003,	plus,	in	certain	circumstances, accrued	and	unpaid	interest	on	such	loans	and	certain	expenses.	The	potential	loss due	to	such	repurchase	and/or	indemnity	is	mitigated	by	the	due	diligence	the	Firm performs	to	ensure	that	the	assets	comply

with	the	requirements	set	forth	in	the	representations	and	warranties.	Historically, losses	incurred	on	such	repurchases	and/or	indemnifications	have	been	insignificant, and	therefore	management	expects	the	risk	of	material	loss	to	be	remote.

In	connection	with	Chase	Cardmember	Services,	the	Firm	is	a	50%	partner	with	one	of the	leading	companies	in	electronic	payment	services	in	a	joint	venture,	known	as Chase	Merchant	Services	(the	"joint	venture")	that	provides	merchant	processing services	in	the	United	States.	The	joint	venture	is	contingently	liable	for	processed credit	card	sales	transactions	in	the	event	of	a	dispute	between	the	cardmember	and	a merchant.	If	a	dispute	is	resolved	in	the	cardmember's	favor,	the	joint	venture	will	credit or	refund	the	amount	to	the	cardmember	and	charge	back	the	transaction	to	the merchant.	If	the	joint	venture	is	unable	to	collect	the	amount	from	the	merchant,	the joint	venture	will	bear	the	loss	for	the	amount	credited	or	refunded	to	the	cardmember. The	joint	venture	mitigates	this	risk	by	withholding	settlement	or	obtaining	escrow deposits	from	certain	merchants.	However,	in	the	unlikely	event	that:	1)	a	merchant ceases	operations	and	is	unable	to	deliver	products,	services	or	a	refund;	2)	the	joint venture	does	not	have	sufficient	withholdings	or	escrow	deposits	to	provide	customer refunds;	and	3)	the	joint	venture	does	not	have	sufficient	financial	resources	to	provide customer	refunds,	the	Firm	would	be	liable	to	refund	the	cardholder	in	proportion	to	its equity	interest	in	the	joint	venture.	For	the	year	ended	December	31,	2003,	the	joint venture	incurred	aggregate	credit	losses	of	$2.0	million	on	$260	billion	of	aggregate volume	processed.	At	December	31,	2003,	the	joint	venture	held	$242	million	of collateral.	The	Firm	believes	that,	based	on	historical	experience	and	the	collateral	held by	the	joint	venture,	the	fair	value	of	the	guarantee	would	not	be	materially	different from	the	credit	loss	allowance	recorded	by	the	joint	venture;	therefore,	the	Firm	has	not recorded	any	allowance	for	losses	in	excess	of	the	allowance	recorded	by	the	joint venture.

The	Firm	is	a	member	of	several	securities	and	futures	exchanges	and	clearinghouses both	in	the	United	States	and	overseas.	Membership	in	some	of	these	organizations requires	the	Firm	to	pay	a	pro	rata	share	of	the	losses	incurred	by	the	organization	as	a result	of	the	default	of	another	member.	Such	obligation	varies	with	different organizations.	It	may	be	limited	to	members	who	dealt	with	the	defaulting	member	or	to the	amount	(or	a	multiple	of	the	amount)	of	the	Firm's	contribution	to	a	members' guaranty	fund,	or,	in	a	few	cases,	it	may	be	unlimited.	It	is	difficult	to	estimate	the	Firm's maximum	exposure	under	these	membership	agreements,	since	this	would	require	an assessment	of	future	claims	that	may	be	made	against	the	Firm	that	have	not	yet occurred.	However,	based	on	historical	experience,	management	expects	the	risk	of loss	to	be	remote.

In	addition	to	the	contracts	described	above,	there	are	certain	derivative	contracts	to which	the	Firm	is	a	counterparty	that	meet	the	characteristics	of	a	guarantee	under	FIN 45.	These	derivatives	are	recorded	on	the	Consolidated	balance	sheet	at

fair	value.	These	contracts	include	written	put	options	that	require	the	Firm	to	purchase assets	from	the	option	holder	at	a	specified	price	by	a	specified	date	in	the	future,	as well	as	derivatives	that	effectively	guarantee	the	return	on	a	counter-party's	reference portfolio	of	assets.	The	total	notional	value	of	the	derivatives	that	the	Firm	deems	to	be guarantees	was	$50	billion	at	December	31,	2003.	The	Firm	reduces	its	exposures	to these	contracts	by	entering	into	offsetting	transactions	or	by	entering	into	contracts	that hedge	the	market	risk	related	to	these	contracts.	The	fair	value	related	to	these contracts	was	a	derivative	receivable	of	$163	million	and	a	derivative	payable	of $333	million	at	December	31,	2003.

Finally,	certain	written	put	options	and	credit	derivatives	permit	cash	settlement	and	do not	require	the	option	holder	or	the	buyer	of	credit	protection	to	own	the	reference asset.	The	Firm	does	not	consider	these	contracts	to	be	guarantees	as	described	in FIN	45.

# Note	30 Credit	risk	concentrations

Concentrations	of	credit	risk	arise	when	a	number	of	customers	are	engaged	in	similar business	activities	or	activities	in	the	same	geographic	region,	or	when	they	have similar	economic	features	that	would	cause	their	ability	to	meet	contractual	obligations to	be	similarly	affected	by	changes	in	economic	conditions.

JPMorgan	Chase	regularly	monitors	various	segments	of	its	credit	risk	portfolio	to assess	potential	concentration	risks	and	to	obtain	collateral	when	deemed	necessary. In	the	Firm's	commercial	portfolio,	risk	concentrations	are	primarily	evaluated	by industry,	and	also	by	geographic	region.	In	the	consumer	portfolio,	concentrations	are primarily	evaluated	by	product,	and	by	U.S.	geographic	region.

For	further	information	regarding	on-balance	sheet	credit	concentrations	by	major product	and	geography,	see	Note	11	on	page	99	of	this	Annual	Report.	For	information regarding	concentrations	of	off-balance	sheet	lending-related	financial	instruments	by major	product,	see	Note	29	on	page	117	of	this	Annual	Report.	More	information	about concentrations	can	be	found	in	the	following	tables	in	the	MD&A:

The	table	below	presents	both	on-balance	sheet	and	off-balance	sheet	commercial-	and	consumer-related	credit	exposure	as	of	December	31,	2003	and	2002:

|  |  | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Credit | On-balance | Off-balance | Credit | On-balance | Off-balance |
|  |  |  | (a) | (b) |  | (a) | (b) |
| December\t31,\t(in\tbillions) | December\t31,\t(in\tbillions) | exposure | sheet | sheet | exposure | sheet | sheet |
| Commercial-related: |  |  |  |  |  |  |  |
| Commercial\tbanks | Commercial\tbanks | $47.1 | $36.5 | $10.6 | $42.2 | $33.7 | $8.5 |
| Asset\tmanagers | Asset\tmanagers | 21.8 | 11.7 | 10.1 | 24.9 | 12.3 | 12.6 |
| Securities\tfirms\tand\texchanges | Securities\tfirms\tand\texchanges | 15.6 | 9.3 | 6.3 | 17.5 | 11.7 | 5.8 |
| Finance\tcompanies\tand\tlessors | Finance\tcompanies\tand\tlessors | 15.6 | 3.1 | 12.5 | 19.0 | 4.1 | 14.9 |
| Utilities | Utilities | 15.3 | 3.7 | 11.6 | 17.7 | 6.4 | 11.3 |
| All\tother\tcommercial | All\tother\tcommercial | 267.3 | 102.7 | 164.6 | 291.6 | 106.6 | 185.0 |
| Total\tcommercial-related | Total\tcommercial-related | $382.7 | $167.0 | $215.7 | $412.9 | $174.8 | $238.1 |
| Consumer-related: |  |  |  |  |  |  |  |
| Credit\tcards | (c) | $157.9 | $16.8 | $141.1 | $143.1 | $19.7 | $123.4 |
| 1–4\tfamily\tresidential\tmortgages | 1–4\tfamily\tresidential\tmortgages | 102.5 | 73.7 | 28.8 | 84.0 | 64.0 | 20.0 |
| Automobile\tfinancings | Automobile\tfinancings | 41.3 | 38.7 | 2.6 | 35.4 | 33.6 | 1.8 |
| All\tother\tconsumer | All\tother\tconsumer | 11.6 | 7.2 | 4.4 | 13.4 | 7.5 | 5.9 |
| Total\tconsumer-related | Total\tconsumer-related | $313.3 | $136.4 | $176.9 | $275.9 | $124.8 | $151.1 |
| Total\texposure | Total\texposure | $696.0 | $303.4 | $392.6 | $688.8 | $299.6 | $389.2 |
| (a) | Represents\tloans,\tand\tderivative\tand\tother\treceivables. |  |  |  |  |  |  |

(a) Represents	loans,	and	derivative	and	other	receivables.

(b) Represents	lending-related	financial	instruments.

(c) Excludes	$34.9	billion	and	$30.7	billion	of	securitized	credit	card	receivables	at	December	31,	2003	and	2002,	respectively.

# Note	31 Fair	value	of	financial	instruments

The	fair	value	of	a	financial	instrument	is	the	amount	at	which	the	instrument	could	be exchanged	in	a	current	transaction	between	willing	parties,	other	than	in	a	forced	or liquidation	sale.

The	accounting	for	an	asset	or	liability	may	differ	based	on	the	type	of	instrument	and/or its	use	in	a	trading	or	investing	strategy.	Generally,	the	measurement	framework recorded	in	financial	statements	is	one	of	the	following:

•at	fair	value	on	the	Consolidated	balance	sheet,	with	changes	in	fair	value	recorded each	period	in	the	Consolidated	statement	of	income

•at	fair	value	on	the	Consolidated	balance	sheet,	with	changes	in	fair	value	recorded each	period	in	a	separate	component	of	stockholders'	equity	and	as	part	of	Other comprehensive	income

•at	cost	(less	other-than-temporary	impairments),	with	changes	in	fair	value	not recorded	in	the	financial	statements	but	disclosed	in	the	notes	thereto

•at	the	lower	of	cost	or	fair	value

The	Firm	has	a	well-established	and	well-documented	process	for	determining	fair values.	Fair	value	is	based	on	quoted	market	prices,	where	available.	If	listed	prices	or quotes	are	not	available,	fair	value	is	based	on	internally	developed	models	that primarily	use	market-based	or	independent	information	as	inputs	to	the	valuation model.	Valuation	adjustments	may	be	necessary	to	ensure	that	financial	instruments are	recorded	at	fair	value.

Valuation	adjustments	include	amounts	to	reflect	counterparty	credit	quality,	liquidity and	concentration	concerns	and	are	based	on	defined	methodologies	that	are	applied consistently	over	time.

•	 Credit	valuation	adjustments	are	necessary	when	the	market	price	(or	parameter)	is not	indicative	of	the	credit	quality	of	the	counterparty.	As	few	derivative	contracts are	listed	on	an	exchange,	the	majority	of	derivative	positions	are	valued	using internally	developed	models	that	use	as	their	basis	observable	market	parameters. Market	practice	is	to	quote	parameters	equivalent	to	a	AA	credit	rating:	thus,	all counterparties	are	assumed	to	have	the	same	credit	quality.	An	adjustment	is therefore	necessary	to	reflect	the	credit	quality	of	each	derivative	counterparty	and to	arrive	at	fair	value.	Without	this	adjustment,	derivative	positions	would	not	be appropriately	valued.

•Liquidity	adjustments	are	necessary	when	the	Firm	may	not	be	able	to	observe	a recent	market	price	for	a	financial	instrument	that	trades	in	inactive	(or	less	active) markets.	Thus,	valuation	adjustments	for	risk	of	loss	due	to	a	lack	of	liquidity	are applied	to	those	positions	to	arrive	at	fair	value.	The	Firm	tries	to	ascertain	the amount	of	uncertainty	in	the	initial	valuation	based	upon	the	liquidity	or	illiquidity,	as the	case	may	be,	of	the	market	in	which	the	instrument	trades	and	makes	liquidity adjustments	to	the	financial	instruments.	The	Firm	measures	the	liquidity adjustment	based	on	the	following	factors:	(1)	the	amount	of	time	since	the	last relevant	pricing	point;	(2)	whether	there	was	an	actual	trade	or	relevant	external quote;	and	(3)	the	volatility	of	the	principal	component	of	the	financial	instrument.

•	 Concentration	valuation	adjustments	are	necessary	to	reflect	the	cost	of	unwinding larger-than-normal	market	size	risk	positions.	The	cost	is	determined	based	on	the size	of	the	adverse	market	move	that	is	likely	to	occur	during	the	extended	period required	to	bring	a	position	down	to	a	nonconcentrated	level.	An	estimate	of	the period	needed	to	reduce,	without	market	disruption,	a	position	to	a nonconcentrated	level	is	generally	based	on	the	relationship	of	the	position	to	the average	daily	trading	volume	of	that	position.	Without	these	adjustments,	larger positions	would	be	valued	at	a	price	greater	than	the	price	at	which	the	Firm	could exit	the	positions.

Valuation	adjustments	are	determined	based	on	established	policies	and	are	controlled by	a	price	verification	group	independent	of	the	risk-taking	function.	Economic substantiation	of	models,	prices,	market	inputs	and	revenue	through	price/input	testing, as	well	as	backtesting,	is	done	to	validate	the	appropriateness	of	the	valuation methodology.	Any	changes	to	the	valuation	methodology	are	reviewed	by	management to	ensure	the	changes	are	justified.

The	methods	described	above	may	produce	a	fair	value	calculation	that	may	not	be indicative	of	net	realizable	value	or	reflective	of	future	fair	values.	Furthermore,	the	use of	different	methodologies	to	determine	the	fair	value	of	certain	financial	instruments could	result	in	a	different	estimate	of	fair	value	at	the	reporting	date.

Certain	financial	instruments	and	all	nonfinancial	instruments	are	excluded	from	the scope	of	SFAS	107.	Accordingly,	the	fair	value	disclosures	required	by	SFAS	107 provide	only	a	partial	estimate	of	the	fair	value	of	JPMorgan	Chase.	For	example,	the Firm	has	developed	long-term	relationships	with	its	customers	through	its	deposit	base and	credit	card	accounts,	commonly	referred	to	as	core	deposit	intangibles	and	credit card	relationships.	In	the	opinion	of	management,	these	items,	in	the	aggregate,	add significant	value	to	JPMorgan	Chase,	but	their	fair	value	is	not	disclosed	in	this	Note.

The	following	captions	describe	the	methodologies	and	assumptions	used,	by	financial instrument,	to	determine	fair	value.

# Financial	assets

# Assets	for	which	fair	value approximates	carrying	value

The	Firm	considers	fair	values	of	certain	financial	assets	carried	at	cost	–	including cash	and	due	from	banks,	deposits	with	banks,	securities	borrowed,	short-term receivables	and	accrued	interest	receivable	–	to	approximate	their	respective	carrying values,	due	to	their	short-term	nature	and	generally	negligible	credit	risk.

# Assets	where	fair	value	differs	from	cost

JPMorgan	Chase's	debt,	equity	and	derivative	trading	instruments	are	carried	at	their estimated	fair	value.	Quoted	market	prices,	when	available,	are	used	to	determine	the fair	value	of	trading	instruments.	If	quoted	market	prices	are	not	available,	then	fair values	are	estimated	by	using	pricing	models,	quoted	prices	of	instruments	with	similar characteristics	or	discounted	cash	flows.

# Federal	funds	sold	and	securities	purchased	under	resale	agreements

Federal	funds	sold	and	securities	purchased	under	resale	agreements	are	typically short-term	in	nature,	and	as	such,	for	a	significant	majority	of	the	Firm's	transactions, cost	approximates	carrying	value.	This	balance	sheet	item	also	includes	structured resale	agreements	and	similar	products	with	long-dated	maturities.	To	estimate	the	fair value	of	these	instruments,	the	cash	flows	are	discounted	using	the	appropriate	market rates	for	the	applicable	maturity.

# Securities

Fair	values	of	actively	traded	securities	are	determined	by	the	secondary	market,	while the	fair	values	for	nonactively	traded	securities	are	based	on	independent	broker quotations.

# Derivatives

Fair	value	for	derivatives	is	determined	based	on	the	following:

•position	valuation,	principally	based	on	liquid	market	pricing	as	evidenced	by exchange-traded	prices,	broker-dealer	quotations	or	related	input	parameters which	assume	all	counterparties	have	the	same	credit	rating;

•credit	valuation	adjustments	to	the	resulting	portfolio	valuation,	to	reflect	the	credit quality	of	individual	counterparties;	and

•other	fair	value	adjustments	to	take	into	consideration	liquidity,	concentration	and other	factors.

Fair	value	for	loans	is	determined	using	methodologies	suitable	for	each	type	of	loan:

•	 Fair	value	for	the	commercial	loan	portfolio	is	based	on	the	assessment	of	the	two main	risk	components	of	the	portfolio:	credit	and	interest.	The	cost	of	credit derivatives	is	used	to	estimate	the	fair	value	of	commercial	loans.

•	 Fair	values	for	consumer	installment	loans	(including	automobile	financings)	and	1	- 4	family	residential	mortgages,	for	which	market	rates	for	comparable	loans	are readily	available,	are	based	on	discounted	cash	flows,	adjusted	for	prepayments. The	discount	rates	used	for	consumer	installment	loans	are	current	rates	offered	by commercial	banks.	For	1	-	4	family	residential	mortgages,	secondary	market	yields for	comparable	mortgage-backed	securities,	adjusted	for	risk,	are	used.

•	 Fair	value	for	credit	card	receivables	is	based	on	discounted	expected	cash	flows. The	discount	rates	used	for	credit	card	receivables	incorporate	only	the	effects	of interest	rate	changes,	since	the	expected	cash	flows	already	reflect	an	adjustment for	credit	risk.

•	 The	fair	value	of	loans	in	the	held-for-sale	and	trading	portfolios	is	generally	based on	observable	market	prices	and	prices	of	similar	instruments,	including	bonds, credit	derivatives	and	loans	with	similar	characteristics.	Otherwise,	if	market	prices are	not	available,	the	fair	value	is	based	on	the	estimated	cash	flows	adjusted	for credit	risk;	that	risk	is	discounted,	using	a	rate	appropriate	for	each	maturity	that incorporates	the	effects	of	interest	rate	changes.

# Other	assets

This	caption	includes	private	equity	investments	and	MSRs.

For	a	discussion	of	the	fair	value	methodology	for	private	equity	investments,	see	Note 15	on	page	106	of	this	Annual	Report.

For	a	discussion	of	the	fair	value	methodology	for	MSRs,	see	Note	16	on	pages	107- 109	of	this	Annual	Report.

# Financial	liabilities

# Liabilities	for	which	fair	value	approximates	carrying	value

SFAS	107	requires	that	the	fair	value	disclosed	for	deposit	liabilities	with	no	stated maturity	(i.e.,	demand,	savings	and	certain	money	market	deposits)	be	equal	to	their carrying	value.	SFAS	107	does	not	allow	for	the	recognition	of	the	inherent	funding value	of	these	instruments.

Fair	value	of	commercial	paper,	other	borrowed	funds,	accounts	payable	and	accrued liabilities	is	considered	to	approximate	their	respective	carrying	values	due	to	their short-term	nature.

# Interest-bearing	deposits

Fair	values	of	interest-bearing	deposits	are	estimated	by	discounting	cash	flows	based on	the	remaining	contractual	maturities	of	funds	having	similar	interest	rates	and	similar maturities.

# Federal	funds	purchased	and	securities	sold	under	repurchase	agreements

Federal	funds	purchased	and	securities	sold	under	repurchase	agreements	are	typically short-term	in	nature,	and	as	such,	for	a	significant	majority	of	the	Firm's	transactions, cost	approximates	carrying	value.	This	balance	sheet	item	also	includes	structured repurchase	agreements	and	similar	products	with	long-dated	maturities.	To	estimate the	fair	value	of	these	instruments,	the	cash	flows	are	discounted	using	the	appropriate market	rates	for	the	applicable	maturity.

# Beneficial	interests	issued	by	consolidated	VIEs

Beneficial	interests	issued	by	consolidated	VIEs	("beneficial	interests")	are	generally short-term	in	nature,	and	as	such,	for	a	significant	majority	of	the	Firm's	transactions, cost	approximates	carrying	value.	The	Consolidated	balance	sheet	also	includes beneficial	interests	with	long-dated	maturities.	The	fair	value	of	these	instruments	is based	on	current	market	rates.

# Long-term	debt-related	instruments

Fair	value	for	long-term	debt,	including	the	guaranteed	preferred	beneficial	interests	in the	Firm's	junior	subordinated	deferrable	interest	debentures,	is	based	on	current market	rates	and	is	adjusted	for	JPMorgan	Chase's	credit	quality.

The	Firm	estimates	the	fair	value	of	its	commercial	commitments	to	extend	credit	based on	the	cost	of	credit	derivatives.	The	Firm	estimates	the	fair	value	of	its	consumer commitments	to	extend	credit	based	on	the	primary	market	prices	to	originate	new commitments.	It	is	the	change	in	current	primary	market	prices	that	provides	the estimate	of	the	fair	value	of	these	commitments.

On	this	basis,	at	December	31,	2003,	the	fair	value	of	the	Firm's	lending-related commitments	approximated	the	Allowance	for	lending-related	commitments	of	$324 million.	At	December	31,	2002,	the	fair	value	of	the	Firm's	lending-related	commitments was	approximately	$1.3	billion,	compared	with	the	Allowance	for	lending-related commitments	of	$363	million.

The	following	table	presents	the	carrying	value	and	estimated	fair	value	of	financial	assets	and	liabilities	valued	under	SFAS	107.	Accordingly,	certain	amounts	which	are	not considered	financial	instruments	are	excluded	from	the	table.

|  | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| December\t31,\t(in\tbillions) | Carrying\nvalue | Estimated\nfair\tvalue | Appreciation/\n(depreciation) | Carrying\nvalue | Estimated\nfair\tvalue | Appreciation/\n(depreciation) |
| Financial\tassets |  |  |  |  |  |  |
| Assets\tfor\twhich\tfair\tvalue\tapproximates\tcarrying\tvalue | $84.6 | $84.6 | $— | $76.4 | $76.4 | $— |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tresale\tagreements | 76.9 | 77.2 | 0.3 | 65.8 | 66.0 | 0.2 |
| Trading\tassets | 252.9 | 252.9 | — | 248.3 | 248.3 | — |
| Securities\tavailable-for-sale | 60.1 | 60.1 | — | 84.0 | 84.0 | — |
| Securities\theld-to-maturity | 0.2 | 0.2 | — | 0.4 | 0.4 | — |
| Loans: |  |  |  |  |  |  |
| Commercial,\tnet\tof\tallowance\tfor\tloan\tlosses | 80.8 | 82.1 | 1.3 | 88.6 | 88.7(a) | 0.1 |
| Consumer,\tnet\tof\tallowance\tfor\tloan\tlosses | 134.2 | 135.4 | 1.2 | 122.4 | 124.7 | 2.3 |
| Other\tassets | 61.0 | 61.5 | 0.5 | 53.3 | 53.5 | 0.2 |
| Total\tfinancial\tassets | $750.7 | $754.0 | $3.3 | $739.2 | $742.0 | $2.8 |
| Financial\tliabilities |  |  |  |  |  |  |
| Liabilities\tfor\twhich\tfair\tvalue\tapproximates\tcarrying\tvalue | $146.6 | $146.6 | $— | $145.1 | $145.1 | $— |
| Interest-bearing\tdeposits | 247.0 | 247.1 | (0.1) | 222.7 | 223.1 | (0.4) |
| Federal\tfunds\tpurchased\tand\tsecurities\tsold\tunder\trepurchase\tagreements | 113.5 | 113.6 | (0.1) | 169.5 | 169.5 | — |
| Trading\tliabilities | 149.4 | 149.4 | — | 133.1 | 133.1 | — |
| Beneficial\tinterests\tissued\tby\tconsolidated\tVIEs | 12.3 | 12.3 | — | — | — | — |
| Long-term\tdebt-related\tinstruments | 54.8 | 57.0 | (2.2) | 45.2 | 45.5 | (0.3) |
| Total\tfinancial\tliabilities | $723.6 | $726.0 | $(2.4) | $715.6 | $716.3 | $(0.7) |
| Net\tappreciation |  |  | $0.9 |  |  | $2.1 |
| (a) |  |  |  |  |  |  |

(a) The	fair	value	has	been	revised	to	reflect	current	valuation	methodologies.

# Note	32 International	operations

The	following	table	presents	income	statement	information	of	JPMorgan	Chase	by major	geographic	areas.	The	Firm	defines	international	activities	as	business transactions	that	involve	customers	residing	outside	the	United	States,	and	the information	presented	below	is	based	primarily	on	the	domicile	of	the	customer. However,	many	of	the	Firm's	U.S.	operations	serve	international	businesses.

As	the	Firm's	operations	are	highly	integrated,	estimates	and	subjective	assumptions have	been	made	to	apportion	revenue	and	expense	between	U.S.	and	international operations.	The	estimates	and	assumptions	used	to	apportion	revenue	and	expense are	consistent	with	the	allocations	used	for	JPMorgan	Chase's	segment	reporting	as set	forth	in	Note	34	on	pages	126-127	of	this	Annual	Report.

The	Firm's	long-lived	assets	for	the	periods	presented	are	not	considered	by management	to	be	significant	in	relation	to	total	assets.	The	majority	of	the	Firm's	long- lived	assets	are	located	in	the	United	States.

|  |  |  |  | Income	(loss) | Net |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | (a) | (b) |  |  |
| For\tthe\tyear\tended\tDecember\t31,\t(in\tmillions) | For\tthe\tyear\tended\tDecember\t31,\t(in\tmillions) | Revenue | Expense | before\tincome\ttaxes | income\t(loss) |
| 2003 |  |  |  |  |  |
| Europe/Middle\tEast\tand\tAfrica | Europe/Middle\tEast\tand\tAfrica | $6,324 | $3,940 | $2,384 | $1,530 |
| Asia\tand\tPacific | Asia\tand\tPacific | 1,906 | 1,750 | 156 | 111 |
| Latin\tAmerica\tand\tthe\tCaribbean | Latin\tAmerica\tand\tthe\tCaribbean | 856 | 361 | 495 | 303 |
| Other |  | 52 | 15 | 37 | 22 |
| Total\tinternational | Total\tinternational | 9,138 | 6,066 | 3,072 | 1,966 |
| Total\tU.S. | Total\tU.S. | 24,118 | 17,162 | 6,956 | 4,753 |
| Total |  | $33,256 | $23,228 | $10,028 | $6,719 |
| 2002 |  |  |  |  |  |
| Europe/Middle\tEast\tand\tAfrica | Europe/Middle\tEast\tand\tAfrica | $5,120 | $4,882 | $238 | $157 |
| Asia\tand\tPacific | Asia\tand\tPacific | 1,900 | 1,820 | 80 | 53 |
| Latin\tAmerica\tand\tthe\tCaribbean | Latin\tAmerica\tand\tthe\tCaribbean | 685 | 557 | 128 | 85 |
| Other |  | 42 | 34 | 8 | 5 |
| Total\tinternational | Total\tinternational | 7,747 | 7,293 | 454 | 300 |
| Total\tU.S. | Total\tU.S. | 21,867 | 19,802(c) | 2,065 | 1,363 |
| Total |  | $29,614 | $27,095 | $2,519 | $1,663 |
| 2001 |  |  |  |  |  |
| Europe/Middle\tEast\tand\tAfrica | Europe/Middle\tEast\tand\tAfrica | $6,725 | $5,128 | $1,597 | $1,054 |
| Asia\tand\tPacific | Asia\tand\tPacific | 1,934 | 2,229 | (295) | (195) |
| Latin\tAmerica\tand\tthe\tCaribbean | Latin\tAmerica\tand\tthe\tCaribbean | 686 | 703 | (17) | (11) |
| Other |  | 43 | 38 | 5 | 3 |
| Total\tinternational | Total\tinternational | 9,388 | 8,098 | 1,290 | 851 |
| Total\tU.S. | Total\tU.S. | 19,956 | 18,680 | 1,276 | 843 |
| Total |  | $29,344 | $26,778 | $2,566 | $1,694 |
| (a) | Revenue\tis\tcomposed\tof\tNet\tinterest\tincome\tand\tnoninterest\trevenue. |  |  |  |  |

(a) Revenue	is	composed	of	Net	interest	income	and	noninterest	revenue.

(b) Expense	is	composed	of	Noninterest	expense	and	Provision	for	credit	losses.	The	amounts	include	an	allocation	of	Merger	and	restructuring	costs.

(c) Includes	the	$1.3	billion	(pre-tax)	charge	related	to	the	settlement	of	the	Enron	surety	litigation	and	the	establishment	of	a	litigation	reserve	for	certain	material	litigation,	proceedings	and	investigations.

# Parent	company

# Parent	company	–	statement	of	income

| Year	ended	December	31,	(in	millions) | Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- |
| Income |  |  |  |  |
| Dividends\tfrom\tbank\tand\tbank\tholding\tcompany |  |  |  |  |
| (a) |  |  |  |  |
| subsidiaries |  | $2,436 | $3,079 | $2,650 |
| Dividends\tfrom\tnonbank\tsubsidiaries | (a)(b) | 2,688 | 422 | 7,904 |
| Interest\tincome\tfrom\tsubsidiaries |  | 945 | 1,174 | 2,090 |
| Other\tinterest\tincome |  | 130 | 148 | 70 |
| Other\tincome\tfrom\tsubsidiaries,\tprimarily\tfees: |  |  |  |  |
| Bank\tand\tbank\tholding\tcompany |  | 632 | 277 | 96 |
| Nonbank |  | 385 | 390 | 287 |
| Other\tincome |  | (25) | 264 | 110 |
| Total\tincome |  | 7,191 | 5,754 | 13,207 |
| Expense |  |  |  |  |
| (b) |  |  |  |  |
| Interest\texpense\tto\tsubsidiaries |  | 422 | 405 | 491 |
| Other\tinterest\texpense |  | 1,329 | 1,511 | 2,436 |
| Compensation\texpense |  | 348 | 378 | 244 |
| Other\tnoninterest\texpense |  | 747 | 699 | 282 |
| Total\texpense |  | 2,846 | 2,993 | 3,453 |
| Income\tbefore\tincome\ttax\tbenefit\tand\tundistributed |  |  |  |  |
| net\tincome\tof\tsubsidiaries |  | 4,345 | 2,761 | 9,754 |
| Income\ttax\tbenefit |  | 474 | 432 | 394 |
| Equity\tin\tundistributed\tnet\tincome\t(loss)\tof |  |  |  |  |
| subsidiaries |  | 1,900 | (1,530) | (8,458) |
| Income\tbefore\teffect\tof\taccounting\tchange | Income\tbefore\teffect\tof\taccounting\tchange | 6,719 | 1,663 | 1,690 |
| Net\teffect\tof\tchange\tin\taccounting\tprinciple | Net\teffect\tof\tchange\tin\taccounting\tprinciple | — | — | 4 |
| Net\tincome |  | $6,719 | $1,663 | $1,694 |

# Parent	company	–	balance	sheet

| December	31,	(in	millions) | December	31,	(in	millions) |  | 2003 | 2002 |
| :--- | :--- | :--- | :--- | :--- |
| Assets |  |  |  |  |
| Cash\twith\tbanks | Cash\twith\tbanks |  | $148 | $108 |
| Deposits\twith\tbanking\tsubsidiaries | Deposits\twith\tbanking\tsubsidiaries |  | 12,554 | 9,994 |
| Securities\tpurchased\tunder\tresale\tagreements,\tprimarily\twith |  |  |  |  |
| nonbank\tsubsidiaries | nonbank\tsubsidiaries |  | 285 | 384 |
| Trading\tassets |  |  | 3,915 | 4,087 |
| Available-for-sale\tsecurities | Available-for-sale\tsecurities |  | 2,099 | 1,081 |
| Loans |  |  | 550 | 60 |
| Advances\tto,\tand\treceivables\tfrom,\tsubsidiaries: |  |  |  |  |
| Bank\tand\tbank\tholding\tcompany | Bank\tand\tbank\tholding\tcompany |  | 9,239 | 9,521 |
| Nonbank |  |  | 24,489 | 21,094 |
| Investment\t(at\tequity)\tin\tsubsidiaries: |  |  |  |  |
| Bank\tand\tbank\tholding\tcompany | Bank\tand\tbank\tholding\tcompany |  | 43,853 | 40,709 |
| (b) |  |  |  |  |
| Nonbank |  |  | 10,399 | 10,826 |
| Goodwill\tand\tother\tintangibles | Goodwill\tand\tother\tintangibles |  | 860 | 863 |
| Other\tassets |  |  | 9,213 | 8,681 |
| Total\tassets |  |  | $117,604 | $107,408 |
| Liabilities\tand\tstockholders'\tequity |  |  |  |  |
| Borrowings\tfrom,\tand\tpayables\tto,\tsubsidiaries | Borrowings\tfrom,\tand\tpayables\tto,\tsubsidiaries | (b) | $9,488 | $7,483 |
| Other\tborrowed\tfunds,\tprimarily\tcommercial\tpaper | Other\tborrowed\tfunds,\tprimarily\tcommercial\tpaper | Other\tborrowed\tfunds,\tprimarily\tcommercial\tpaper | 16,560 | 17,587 |
| Other\tliabilities |  |  | 4,767 | 4,937 |
| Long-term\tdebt | (c) |  | 40,635 | 35,095 |
| Total\tliabilities |  |  | 71,450 | 65,102 |
| Stockholders'\tequity | Stockholders'\tequity |  | 46,154 | 42,306 |
| Total\tliabilities\tand\tstockholders'\tequity | Total\tliabilities\tand\tstockholders'\tequity |  | $117,604 | $107,408 |

# Parent	company	–	statement	of	cash	flows

| Year	ended	December	31,	(in	millions) |  |  | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Operating\tactivities |  |  |  |  |  |
| Net\tincome |  |  | $6,719 | $1,663 | $1,694 |
| Less:\tNet\tincome\tof\tsubsidiaries |  |  | 7,017 | 1,971 | 2,096 |
| Parent\tcompany\tnet\tloss |  |  | (298) | (308) | (402) |
| Add:\tCash\tdividends\tfrom\tsubsidiaries | (a) |  | 5,098 | 2,320 | 10,554 |
| Other,\tnet |  |  | (272) | (912) | (926) |
| Net\tcash\tprovided\tby\toperating\tactivities | Net\tcash\tprovided\tby\toperating\tactivities |  | 4,528 | 1,100 | 9,226 |
| Investing\tactivities |  |  |  |  |  |
| Net\tchange\tin: |  |  |  |  |  |
| Deposits\twith\tbanking\tsubsidiaries |  |  | (2,560) | (3,755) | 2,557 |
| Securities\tpurchased\tunder\tresale\tagreements, |  |  |  |  |  |
| primarily\twith\tnonbank\tsubsidiaries | primarily\twith\tnonbank\tsubsidiaries |  | 99 | (40) | 953 |
| Loans |  |  | (490) | (27) | 24 |
| Advances\tto\tsubsidiaries |  |  | (3,165) | 6,172 | 3,931 |
| Investment\t(at\tequity)\tin\tsubsidiaries |  |  | (2,052) | (2,284) | (5,303) |
| Other,\tnet |  |  | 12 | (37) | — |
| Available-for-sale\tsecurities: |  |  |  |  |  |
| Purchases |  |  | (607) | (1,171) | (1,643) |
| Proceeds\tfrom\tsales\tand\tmaturities |  |  | 654 | 1,877 | 14 |
| Net\tcash\t(used\tin)\tprovided\tby\tinvesting\tactivities | Net\tcash\t(used\tin)\tprovided\tby\tinvesting\tactivities | Net\tcash\t(used\tin)\tprovided\tby\tinvesting\tactivities | (8,109) | 735 | 533 |
| Financing\tactivities |  |  |  |  |  |
| Net\tchange\tin\tborrowings\tfrom\tsubsidiaries | Net\tchange\tin\tborrowings\tfrom\tsubsidiaries | (b) | 2,005 | 573 | (526) |
| Net\tchange\tin\tother\tborrowed\tfunds |  |  | (2,104) | (915) | (3,272) |
| Proceeds\tfrom\tthe\tissuance\tof\tlong-term\tdebt | Proceeds\tfrom\tthe\tissuance\tof\tlong-term\tdebt | Proceeds\tfrom\tthe\tissuance\tof\tlong-term\tdebt | 12,105 | 12,533 | 7,258 |
| Repayments\tof\tlong-term\tdebt |  |  | (6,733) | (12,271) | (10,184) |
| Proceeds\tfrom\tthe\tissuance\tof\tstock\tand\tstock-related |  |  |  |  |  |
| awards |  |  | 1,213 | 725 | 1,429 |
| Redemption\tof\tpreferred\tstock |  |  | — | — | (511) |
| Treasury\tstock\tpurchased |  |  | — | — | (871) |
| Cash\tdividends\tpaid |  |  | (2,865) | (2,784) | (2,697) |
| Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | 3,621 | (2,139) | (9,374) |
| Net\tincrease\t(decrease)\tin\tcash\twith\tbanks | Net\tincrease\t(decrease)\tin\tcash\twith\tbanks |  | 40 | (304) | 385 |
| Cash\twith\tbanks\tat\tthe\tbeginning\tof\tthe\tyear | Cash\twith\tbanks\tat\tthe\tbeginning\tof\tthe\tyear |  | 108 | 412 | 27 |
| Cash\twith\tbanks\tat\tthe\tend\tof\tthe\tyear,\tprimarily,\twith\nbank\tsubsidiaries | Cash\twith\tbanks\tat\tthe\tend\tof\tthe\tyear,\tprimarily,\twith\nbank\tsubsidiaries | Cash\twith\tbanks\tat\tthe\tend\tof\tthe\tyear,\tprimarily,\twith\nbank\tsubsidiaries | $148 | $108 | $412 |
| Cash\tinterest\tpaid |  |  | $1,918 | $1,829 | $2,950 |
| Cash\tincome\ttaxes\tpaid\t(refund\treceived) | Cash\tincome\ttaxes\tpaid\t(refund\treceived) |  | $754 | $592 | $(250) |
| (a) |  |  |  |  |  |

(a) Dividends	in	2002	include	a	stock	dividend	of	$1.2	billion	from	the	mortgage	business,	which	was contributed	to	JPMorgan	Chase	Bank.	Cash	dividends	in	2001	include	funds	from	Robert	Fleming Holdings	Limited	and	The	Beacon	Group,	LLC.

(b) Subsidiaries	include	trusts	that	issued	guaranteed	capital	debt	securities	("issuer	trusts").	As	a	result	of FIN	46,	the	Parent	deconsolidated	these	trusts.	In	2003,	the	Parent	received	dividends	of	$11	million from	the	issuer	trusts.	For	a	further	discussion	on	issuer	trusts,	see	Note	18	on	pages	110-111	of	this Annual	Report.

# Note	34 Segment	information

JPMorgan	Chase	is	organized	into	five	major	businesses.	These	businesses	are segmented	based	on	the	products	and	services	provided,	or	the	type	of	customer served,	and	reflect	the	manner	in	which	financial	information	is	evaluated	by management.

JPMorgan	Chase	uses	shareholder	value	added	("SVA")	and	operating	earnings	as	its principal	measures	of	segment	profitability.	For	a	definition	of	these	measurements, see	the	Glossary	of	terms	on	pages	130-131	of	this	Annual	Report.

Operating	revenue	and	expense	directly	associated	with	each	segment	are	included	in determining	the	segment's	operating	earnings.	Guidelines	exist	for	allocating	to	the segments	expenses	that	are	not	directly	incurred	by	them,	such	as	corporate	overhead. In	addition,	management	has	developed	a	risk-adjusted	capital	methodology	that quantifies	the	different	types	of	risk	—	credit,	market,	operational,	business	and	private equity	—	within	the	various	businesses	and	assigns	capital	accordingly.	Each	business segment	is	responsible	for	its	credit	costs,	including	actual	net	charge-offs	and	changes in	the	specific	and

# Segment	results	and	reconciliation	(table	continued	on	next	page)

|  |  |  |  |  |  |  | Treasury	&amp; |  |  | Investment	Management |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Year\tended\tDecember\t31, |  |  | Investment\tBank | Investment\tBank | Investment\tBank | Securities\tServices | Securities\tServices | Securities\tServices | &amp;\tPrivate\tBanking | &amp;\tPrivate\tBanking | &amp;\tPrivate\tBanking |
| (in\tmillions,\texcept\tratios) |  |  | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 |
| Operating\tnet\tinterest\tincome |  |  | $2,277 | $2,642 | $2,978 | $1,219 | $1,224 | $1,302 | $467 | $446 | $549 |
| Operating\tnoninterest\trevenue |  |  | 12,355 | 9,988 | 11,916 | 2,586 | 2,481 | 2,289 | 2,348 | 2,263 | 2,531 |
| (b) |  |  |  |  |  |  |  |  |  |  |  |
| Equity-related\tincome |  |  | (1) | (2) | (8) | — | — | — | 1 | 1 | — |
| (c) |  |  |  |  |  |  |  |  |  |  |  |
| Intersegment\trevenue |  |  | (191) | (130) | (139) | 187 | 187 | 211 | 62 | 129 | 109 |
| Total\toperating\trevenue |  |  | 14,440 | 12,498 | 14,747 | 3,992 | 3,892 | 3,802 | 2,878 | 2,839 | 3,189 |
| Total\toperating\texpense |  |  | 8,470 | 8,012 | 8,789 | 3,217 | 2,994 | 2,961 | 2,428 | 2,346 | 2,566 |
| Operating\tmargin |  |  | 5,970 | 4,486 | 5,958 | 775 | 898 | 841 | 450 | 493 | 623 |
| Credit\tcosts |  |  | (181) | 2,393 | 1,160 | 1 | 1 | 7 | 35 | 85 | 36 |
| (d) |  |  |  |  |  |  |  |  |  |  |  |
| Corporate\tcredit\tallocation |  |  | (36) | (82) | (94) | 36 | 82 | 94 | — | — | — |
| Operating\tearnings\t(loss)\tbefore\ttaxes | Operating\tearnings\t(loss)\tbefore\ttaxes |  | 6,115 | 2,011 | 4,704 | 810 | 979 | 928 | 415 | 408 | 587 |
| Income\ttaxes\t(benefit) |  |  | 2,430 | 708 | 1,847 | 290 | 358 | 335 | 147 | 147 | 229 |
| Operating\tearnings\t(loss) |  |  | 3,685 | 1,303 | 2,857 | 520 | 621 | 593 | 268 | 261 | 358 |
| Merger\tand\trestructuring\tcosts\tand\tspecial\titems | Merger\tand\trestructuring\tcosts\tand\tspecial\titems | (e) |  |  |  |  |  |  |  |  |  |
| Pre-SFAS\t142\tgoodwill\tamortization | (e) |  |  |  |  |  |  |  |  |  |  |
| Net\tincome\t(loss) |  |  | $3,685 | $1,303 | $2,857 | $520 | $621 | $593 | $268 | $261 | $358 |
| Average\tallocated\tcapital |  |  | $19,134 | $19,915 | $20,286 | $2,711 | $2,688 | $2,859 | $5,454 | $5,643 | $5,781 |
| (f) |  |  |  |  |  |  |  |  |  |  |  |
| Average\tmanaged\tassets |  |  | 510,894 | 495,464 | 510,676 | 18,993 | 17,780 | 18,552 | 33,685 | 35,729 | 36,896 |
| Shareholder\tvalue\tadded |  |  | 1,368 | (1,109) | 392 | 192 | 296 | 247 | (394) | (423) | (344) |
| Return\ton\tallocated\tcapital |  |  | 19% | 6% | 14% | 19% | 23% | 21% | 5% | 5% | 6% |
| Overhead\tratio |  |  | 59 | 64 | 60 | 81 | 77 | 78 | 84 | 83 | 80 |
| (a) |  |  |  |  |  |  |  |  |  |  |  |

(a) Corporate/reconciling	items	includes	Support	Units	and	Corporate	and	the	net	effect	of	management	accounting	policies.

(b) Equity-related	income	includes	equity	income	of	investees	accounted	for	by	the	equity	method.

(c) Intersegment	revenue	includes	intercompany	revenue	and	revenue-sharing	agreements,	net	of	intersegment	expenses.	Transactions	between	business	segments	are	primarily	conducted	at	fair	value.

(d) Represents	an	allocation	of	pre-tax	earnings	related	to	certain	credit	exposures	managed	within	IB's	credit	portfolio	on	behalf	of	clients	shared	with	TSS.

(e) Represents	the	after-tax	amounts.

(f) Includes	credit	card	receivables	that	have	been	securitized.	The	impact	of	securitizations	on	total	average	assets	was	$32.4	billion	in	2003,	$26.5	billion	in	2002	and	$18.0	billion	in	2001.

expected	components	of	the	Allowance	for	credit	losses.	The	residual	component	of	the Allowance	for	credit	losses,	available	for	losses	in	any	business	segment,	is	maintained at	the	corporate	level.

A	summary	of	the	business	segment	results	is	shown	in	the	following	table.	The Corporate/reconciling	items	column	reflects	revenue	and	expense	excluded	from	the determination	of	the	segments'	operating	earnings.	This	column	includes	the accounting	effects	remaining	at	the	corporate	level	after	the

application	of	management	accounting	policies,	including	income	tax	expenses	(the difference	between	the	amounts	allocated	to	business	units	and	JPMorgan	Chase's consolidated	income	tax	expense).

For	a	further	discussion	concerning	JPMorgan	Chase's	business	segments,	see Segment	results	in	the	MD&A	on	pages	27-44	of	this	Annual	Report.	Additionally, financial	information	relating	to	JPMorgan	Chase's	operations	by	geographic	area	is provided	in	Note	32	on	page	124	of	this	Annual	Report.

(table	continued	from	previous	page)

| JPMorgan	Partners | JPMorgan	Partners | JPMorgan	Partners | Chase	Financial	Services | Chase	Financial	Services | Chase	Financial	Services | reconciling	items | reconciling	items | (a) |  | Total | Total | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | 2003 | 2002 |  | 2001 | 2003 | 2002 | 2001 |
| $(264) | $(302) | $(302) | $9,620 | $8,225 | $6,765 | $(522) | $(416) |  | $(446) | $12,797 | $11,819 | $10,846 |
| 70 | (658) | (1,151) | 5,000 | 5,198 | 4,072 | (132) | (112) |  | (146) | 22,227 | 19,160 | 19,511 |
| — | (2) | (1) | 2 | 13 | (2) | 100 | 64 |  | 46 | 102 | 74 | 35 |
| 4 | (14) | (9) | 10 | (10) | (7) | (72) | (162) |  | (165) | — | — | — |
| (190) | (976) | (1,463) | 14,632 | 13,426 | 10,828 | (626) | (626) |  | (711) | 35,126 | 31,053 | 30,392 |
| 275 | 299 | 294 | 7,264 | 6,578 | 5,693 | 34 | (73) |  | 185 | 21,688 | 20,156 | 20,488 |
| (465) | (1,275) | (1,757) | 7,368 | 6,848 | 5,135 | (660) | (553) |  | (896) | 13,438 | 10,897 | 9,904 |
| — | — | — | 3,431 | 3,159 | 2,874 | 124 | 132 |  | 153 | 3,410 | 5,770 | 4,230 |
| — | — | — | — | — | — | — | — |  | — | — | — | — |
| (465) | (1,275) | (1,757) | 3,937 | 3,689 | 2,261 | (784) | (685) |  | (1,049) | 10,028 | 5,127 | 5,674 |
| (172) | (467) | (641) | 1,442 | 1,369 | 847 | (828) | (372) |  | (745) | 3,309 | 1,743 | 1,872 |
| (293) | (808) | (1,116) | 2,495 | 2,320 | 1,414 | 44 | (313) |  | (304) | 6,719 | 3,384 | 3,802 |
|  |  |  |  |  |  | NA | (1,721) |  | (1,715) | NA | (1,721) | (1,715) |
|  |  |  |  |  |  | NA | NA |  | (393) | NA | NA | (393) |
| $(293) | $(808) | $(1,116) | $2,495 | $2,320 | $1,414 | $44 | $(2,034) |  | $(2,412) | $6,719 | $1,663 | $1,694 |
| $5,789 | $6,293 | $7,557 | $8,750 | $8,612 | $7,733 | $1,150 | $(1,783) |  | $(2,692) | $42,988 | $41,368 | $41,524 |
| 8,818 | 9,677 | 11,698 | 215,216 | 179,635 | 162,980 | 20,737 | 21,591 |  | 13,146 | 808,343 | 759,876 | 753,948 |
| (1,169) | (1,759) | (2,262) | 1,434 | 1,276 | 475 | 78 | 88 |  | 245 | 1,509 | (1,631) | (1,247) |
| NM | NM | NM | 28% | 27% | 18% | NM | NM |  | NM | 16% | 8% | 9% |
| NM | NM | NM | 50 | 49 | 53 | NM | NM |  | NM | 62 | 65 | 67 |

The	tables	below	present	reconciliations	of	the	combined	segment	information	included	in	the	preceding	table	to	JPMorgan	Chase's	reported	revenue	and	net	income	as	included	in the	Consolidated	statement	of	income	on	page	82	of	this	Annual	Report.

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| Segments'\toperating\trevenue | $35,752 | $31,679 | $31,103 |
| Corporate\t/\treconciling\titems | (626) | (626) | (711) |
| Consolidated\toperating\trevenue | 35,126 | 31,053 | 30,392 |
| Impact\tof\tsecuritizations | (1,870) | (1,439) | (1,048) |
| Consolidated\trevenue | $33,256 | $29,614 | $29,344 |

| Year	ended	December	31,	(in	millions) | Year	ended	December	31,	(in	millions) |  | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Segments'\toperating\tearnings |  |  | $6,675 | $3,697 | $4,106 |
| Corporate\t/\treconciling\titems |  |  | 44 | (313) | (304) |
| Consolidated\toperating\tearnings |  |  | 6,719 | 3,384 | 3,802 |
| Merger\tand\trestructuring\tcosts\tand\tspecial\titems | Merger\tand\trestructuring\tcosts\tand\tspecial\titems | (a) | NA | (1,721) | (1,715) |
| Pre-SFAS\t142\tgoodwill\tamortization | (a) |  | NA | NA | (393) |
| Consolidated\tnet\tincome |  |  | $6,719 | $1,663 | $1,694 |
| (a)\nRepresents\tthe\tafter-tax\tamounts. |  |  |  |  |  |

(a) Represents	the	after-tax	amounts.

# Selected	quarterly	financial	data

# (unaudited)

| As	of	or	for	the	period	ended | 2003 | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions,\texcept\tper\tshare\tand\tratio\tdata) | 4th | 3rd | 2nd | 1st | 4th | 3rd | 2nd | 1st |
| REPORTED\tBASIS |  |  |  |  |  |  |  |  |
| Revenue | $8,068 | $7,748 | $9,034 | $8,406 | $7,495 | $6,947 | $7,574 | $7,598 |
| Noninterest\texpense |  |  |  |  |  |  |  |  |
| (excluding\tmerger\tand\trestructuring\tcosts) | 5,220 | 5,095 | 5,832 | 5,541 | 6,768(a) | 4,718 | 4,965 | 5,103 |
| Merger\tand\trestructuring\tcosts | — | — | — | — | 393 | 333 | 229 | 255 |
| Provision\tfor\tcredit\tlosses | 139 | 223 | 435 | 743 | 921 | 1,836 | 821 | 753 |
| Income\ttax\texpense\t(benefit) | 845 | 802 | 940 | 722 | (200) | 20 | 531 | 505 |
| Net\tincome\t(loss) | $1,864 | $1,628 | $1,827 | $1,400 | $(387) | $40 | $1,028 | $982 |
| Per\tCommon\tShare: |  |  |  |  |  |  |  |  |
| Net\tincome\t(loss)\tper\tshare: |  |  |  |  |  |  |  |  |
| Basic | $0.92 | $0.80 | $0.90 | $0.69 | $(0.20) | $0.01 | $0.51 | $0.49 |
| Diluted | 0.89 | 0.78 | 0.89 | 0.69 | (0.20) | 0.01 | 0.50 | 0.48 |
| Cash\tdividends\tdeclared | 0.34 | 0.34 | 0.34 | 0.34 | 0.34 | 0.34 | 0.34 | 0.34 |
| Book\tvalue\tat\tperiod-end | 22.10 | 21.55 | 21.53 | 20.73 | 20.66 | 21.26 | 20.93 | 20.16 |
| Performance\tRatios: |  |  |  |  |  |  |  |  |
| Return\ton\taverage\tassets | 0.95% | 0.83% | 0.96% | 0.73% | NM | 0.02% | 0.56% | 0.55% |
| Return\ton\taverage\tcommon\tequity | 17 | 15 | 17 | 13 | NM | NM | 10 | 10 |
| Capital\tRatios: |  |  |  |  |  |  |  |  |
| Tier\t1\tcapital\tratio | 8.5% | 8.7% | 8.4% | 8.4% | 8.2% | 8.7% | 8.8% | 8.6% |
| Total\tcapital\tratio | 11.8 | 12.1 | 12.0 | 12.2 | 12.0 | 12.4 | 12.7 | 12.5 |
| Tier\t1\tleverage\tratio | 5.6 | 5.5 | 5.5 | 5.0 | 5.1 | 5.4 | 5.4 | 5.4 |
| Selected\tBalance\tSheet\tItems: |  |  |  |  |  |  |  |  |
| Net\tloans | $214,995 | $ 231,448 | $ 222,307 | $ 212,256 | $ 211,014 | $ 206,215 | $ 207,080 | $ 209,541 |
| Total\tassets | 770,912 | 792,700 | 802,603 | 755,156 | 758,800 | 741,759 | 740,546 | 712,508 |
| Deposits | 326,492 | 313,626 | 318,248 | 300,667 | 304,753 | 292,171 | 293,829 | 282,037 |
| (b) |  |  |  |  |  |  |  |  |
| Long-term\tdebt | 54,782 | 50,661 | 49,918 | 48,290 | 45,190 | 44,552 | 47,802 | 42,761 |
| Common\tstockholders'\tequity | 45,145 | 43,948 | 43,812 | 42,075 | 41,297 | 42,428 | 41,727 | 40,122 |
| Total\tstockholders'\tequity | 46,154 | 44,957 | 44,821 | 43,084 | 42,306 | 43,437 | 42,736 | 41,131 |
| (c) |  |  |  |  |  |  |  |  |
| Share\tprice |  |  |  |  |  |  |  |  |
| High | $36.99 | $38.26 | $36.52 | $28.29 | $26.14 | $33.68 | $38.75 | $39.68 |
| Low | 34.45 | 32.40 | 23.75 | 20.13 | 15.26 | 17.86 | 30.15 | 26.70 |
| Close | 36.73 | 34.33 | 34.18 | 23.71 | 24.00 | 18.99 | 33.92 | 35.65 |
| (d) |  |  |  |  |  |  |  |  |
| OPERATING\tBASIS |  |  |  |  |  |  |  |  |
| Revenue | $8,530 | $8,219 | $9,514 | $8,863 | $7,925 | $7,301 | $7,908 | $7,919 |
| Expense | 5,220 | 5,095 | 5,832 | 5,541 | 5,468 | 4,620 | 4,965 | 5,103 |
| Operating\tmargin | 3,310 | 3,124 | 3,682 | 3,322 | 2,457 | 2,681 | 2,943 | 2,816 |
| Credit\tcosts | 601 | 694 | 915 | 1,200 | 1,351 | 2,190 | 1,155 | 1,074 |
| Earnings | $1,864 | $1,628 | $1,827 | $1,400 | $730 | $325 | $1,179 | $1,150 |
| Operating\tPerformance: |  |  |  |  |  |  |  |  |
| Shareholder\tvalue\tadded | $514 | $311 | $536 | $148 | $(551) | $(964) | $(57) | $(59) |
| Return\ton\taverage\tcommon\tequity | 17% | 15% | 17% | 13% | 7% | 3% | 11% | 11% |
| Overhead\tratio | 61 | 62 | 61 | 63 | 69 | 63 | 63 | 64 |
| Common\tdividend\tpayout\tratio | 38 | 44 | 40 | 50 | 96 | 222 | 59 | 60 |
| (a) |  |  |  |  |  |  |  |  |

(a) Includes	a	$1.3	billion	charge	in	connection	with	the	settlement	of	the	Enron-related	surety	litigation	and	the	establishment	of	a	reserve	related	to	certain	material	litigations,	proceedings	and	investigations.

(b) Includes	Junior	subordinated	deferrable	interest	debentures	held	by	trusts	that	issued	guaranteed	capital	debt	securities	and	Guaranteed	preferred	beneficial	interests	in	capital	debt	securities	issued	by	consolidated trusts.	Excludes	$2.4	billion	and	$3.1	billion	of	FIN	46	long-term	beneficial	interests	at	December	31,	2003	and	September	30,	2003,	respectively,	included	in	Beneficial	interests	issued	by	consolidated	variable	interest entities	on	the	Consolidated	balance	sheet.

(c) JPMorgan	Chase's	common	stock	is	listed	and	traded	on	the	New	York	Stock	Exchange,	the	London	Stock	Exchange	Limited	and	the	Tokyo	Stock	Exchange.	The	high,	low	and	closing	prices	of	JPMorgan	Chase's common	stock	are	from	the	New	York	Stock	Exchange	Composite	Transaction	Tape.

(d) Includes	credit	card	receivables	that	had	been	securitized.	Amounts	shown	in	2002	exclude	merger	and	restructuring	costs,	and	special	items.	For	a	description	of	special	items,	see	Glossary	of	terms	on	page	131	of this	Annual	Report.

| (in	millions,	except	per	share	and	ratio	data) | (in	millions,	except	per	share	and	ratio	data) | 2003 | 2002 | 2001 | 2000 | 1999 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| REPORTED\tBASIS |  |  |  |  |  |  |
| Revenue | Revenue | $33,256 | $29,614 | $29,344 | $33,186 | $31,146 |
| Noninterest\texpense |  |  |  |  |  |  |
| (excluding\tmerger\tand\trestructuring\tcosts) | (excluding\tmerger\tand\trestructuring\tcosts) | 21,688 | 21,554(a) | 21,073 | 21,642 | 18,188 |
| Merger\tand\trestructuring\tcosts | Merger\tand\trestructuring\tcosts | — | 1,210 | 2,523 | 1,431 | 23 |
| Provision\tfor\tcredit\tlosses | Provision\tfor\tcredit\tlosses | 1,540 | 4,331 | 3,182 | 1,380 | 1,446 |
| Income\ttax\texpense | Income\ttax\texpense | 3,309 | 856 | 847 | 3,006 | 3,988 |
| Income\tbefore\teffect\tof\taccounting\tchange | Income\tbefore\teffect\tof\taccounting\tchange | 6,719 | 1,663 | 1,719 | 5,727 | 7,501 |
| Net\teffect\tof\tchange\tin\taccounting\tprinciple | Net\teffect\tof\tchange\tin\taccounting\tprinciple | — | — | (25) | — | — |
| Net\tincome | Net\tincome | $6,719 | $1,663 | $1,694 | $5,727 | $7,501 |
| Per\tCommon\tShare: |  |  |  |  |  |  |
| Net\tincome\tper\tshare |  |  |  |  |  |  |
| Basic | Basic | $3.32 | $0.81 | $0.83(e) | $2.99 | $3.87 |
| Diluted | Diluted | 3.24 | 0.80 | 0.80(e) | 2.86 | 3.69 |
| Cash\tdividends\tdeclared | Cash\tdividends\tdeclared | 1.36 | 1.36 | 1.36 | 1.28 | 1.08 |
| Book\tvalue\tat\tDecember\t31 | Book\tvalue\tat\tDecember\t31 | 22.10 | 20.66 | 20.32 | 21.17 | 18.07 |
| Performance\tRatios: |  |  |  |  |  |  |
| Return\ton\taverage\tassets | Return\ton\taverage\tassets | 0.87% | 0.23% | 0.23% | 0.85% | 1.19% |
| Return\ton\taverage\tcommon\tequity | Return\ton\taverage\tcommon\tequity | 16 | 4 | 4 | 16 | 22 |
| Capital\tRatios: |  |  |  |  |  |  |
| Tier\t1\tcapital\tratio | Tier\t1\tcapital\tratio | 8.5% | 8.2% | 8.3% | 8.5% | 8.5% |
| Total\tcapital\tratio | Total\tcapital\tratio | 11.8 | 12.0 | 11.9 | 12.0 | 12.3 |
| Tier\t1\tleverage\tratio | Tier\t1\tleverage\tratio | 5.6 | 5.1 | 5.2 | 5.4 | 5.9 |
| Selected\tBalance\tSheet\tItems: |  |  |  |  |  |  |
| Net\tloans | Net\tloans | $214,995 | $211,014 | $212,920 | $212,385 | $199,270 |
| Total\tassets | Total\tassets | 770,912 | 758,800 | 693,575 | 715,348 | 667,003 |
| Deposits | Deposits | 326,492 | 304,753 | 293,650 | 279,365 | 287,064 |
| Long-term\tdebt | (b) | 54,782 | 45,190 | 43,622 | 47,238 | 45,540 |
| Common\tstockholders'\tequity | Common\tstockholders'\tequity | 45,145 | 41,297 | 40,090 | 40,818 | 33,434 |
| Total\tstockholders'\tequity | Total\tstockholders'\tequity | 46,154 | 42,306 | 41,099 | 42,338 | 35,056 |
| Share\tprice | (c) |  |  |  |  |  |
| High | High | $38.26 | $39.68 | $59.19 | $67.17 | $60.75 |
| Low | Low | 20.13 | 15.26 | 29.04 | 32.38 | 43.88 |
| Close | Close | 36.73 | 24.00 | 36.35 | 45.44 | 51.79 |
| OPERATING\tBASIS | (d) |  |  |  |  |  |
| Revenue | Revenue | $35,126 | $31,053 | $30,392 | $33,045 | $31,911 |
| Expense | Expense | 21,688 | 20,156 | 20,488 | 21,258 | 17,903 |
| Operating\tmargin | Operating\tmargin | 13,438 | 10,897 | 9,904 | 11,787 | 14,008 |
| Credit\tcosts | Credit\tcosts | 3,410 | 5,770 | 4,230 | 2,370 | 2,439 |
| Earnings | Earnings | $6,719 | $3,384 | $3,802 | $6,176 | $7,554 |
| Operating\tPerformance: |  |  |  |  |  |  |
| Shareholder\tvalue\tadded | Shareholder\tvalue\tadded | $1,509 | $(1,631) | $(1,247) | $1,739 | $3,496 |
| Return\ton\taverage\tcommon\tequity | Return\ton\taverage\tcommon\tequity | 16% | 8% | 9% | 17% | 23% |
| Overhead\tratio | Overhead\tratio | 62 | 65 | 67 | 64 | 56 |
| Common\tdividend\tpayout\tratio | Common\tdividend\tpayout\tratio | 43 | 83 | 73 | 39 | 28 |
| (a) |  |  |  |  |  |  |

(b) Includes	Junior	subordinated	deferrable	interest	debentures	held	by	trusts	that	issued	guaranteed	capital	debt	securities	and	Guaranteed	preferred	beneficial	interests	in	capital	debt	securities	issued	by	consolidated trusts.	Excludes	$2.4	billion	of	FIN	46	long-term	beneficial	interests	at	December	31,	2003	included	in	Beneficial	interests	issued	by	consolidated	variable	interest	entities	on	the	Consolidated	balance	sheet.

(c) JPMorgan	Chase's	common	stock	is	listed	and	traded	on	the	New	York	Stock	Exchange,	the	London	Stock	Exchange	Limited	and	the	Tokyo	Stock	Exchange.	The	high,	low	and	closing	prices	of	JPMorgan	Chase's common	stock	are	from	the	New	York	Stock	Exchange	Composite	Transaction	Tape.	Share-related	data	have	been	restated	to	reflect	a	three-for-two	stock	split	effective	as	of	the	close	of	business	on	June	9,	2000.

(d) Includes	credit	card	receivables	that	had	been	securitized.	Amounts	shown	prior	to	2003	exclude	merger	and	restructuring	costs,	and	special	items.	For	a	reconciliation	from	reported	results	to	operating	basis,	see page	28	of	this	Annual	Report.	For	a	description	of	special	items,	see	Glossary	of	terms	on	page	131	of	this	Annual	Report.

(e) Basic	and	diluted	earnings	per	share	have	been	reduced	by	$0.01	in	2001	because	of	the	impact	of	the	adoption	of	SFAS	133	relating	to	the	accounting	for	derivative	instruments	and	hedging	activities.

# Glossary	of	terms

AICPA:	American	Institute	of	Certified	Public	Accountants.

APB:	Accounting	Principles	Board	Opinion.

APB	25:	"Accounting	for	Stock	Issued	to	Employees."

Asset	capital	tax:	Capital	allocated	to	each	business	segment	based	on	its	average asset	level	and	certain	off-balance	sheet	credit-related	exposures;	reflects	the	need	for the	Firm	to	maintain	minimum	leverage	ratios	to	meet	bank	regulatory	definitions	of "well	capitalized."

Assets	Under	Management:	Represent	assets	managed	by	Investment	Management &	Private	Banking	on	behalf	of	institutional,	retail	and	private	banking	clients.

Assets	Under	Supervision:	Represent	assets	under	management	as	well	as	custody, brokerage,	administration	and	deposit	accounts.

Average	Allocated	Capital:	Represents	the	portion	of	average	common	stockholders' equity	allocated	to	the	business	segments,	based	on	their	respective	risks.	The	total average	allocated	capital	of	all	business	segments	equals	the	total	average	common stockholders'	equity	of	the	Firm.

Average	Managed	Assets:	Includes	credit	card	receivables	that	have	been securitized.

Basis	point	value	("BPV"):	This	measurement	quantifies	the	change	in	the	market value	of	assets	and	liabilities	(that	are	not	part	of	trading	activities)	that	would	result from	a	one-basis-point	change	in	interest	rates	or	a	one-basis-point	widening	of	interest rate	spreads.	BPV	shows	whether	an	increase	of	1/100	of	1%	(or	one	basis	point)	in	a market	rate	will	yield	a	profit	or	loss,	and	of	what	magnitude.

bp:	Denotes	basis	points;	100	bp	equals	1%.

Credit	derivatives	are	contractual	agreements	that	provide	protection	against	a	credit event	of	one	or	more	referenced	credits.	The	nature	of	a	credit	event	is	established	by the	protection	buyer	and	protection	seller	at	the	inception	of	a	transaction,	and	such events	include	bankruptcy,	insolvency	and	failure	to	meet	payment	obligations	when due.	The	buyer	of	the	credit	derivative	pays	a	periodic	fee	in	return	for	a	payment	by the	protection	seller	upon	the	occurrence,	if	any,	of	a	credit	event.

Credit	risk:	Risk	of	loss	from	obligor	or	counterparty	default.

Criticized:	An	indication	of	credit	quality	based	on	JPMorgan	Chase's	internal	risk assessment	system.	"Criticized"	assets	generally	represent	a	risk	profile	similar	to	a rating	of	a	CCC+/Caa1	or	lower,	as	defined	by	the	independent	rating	agencies.

Cross-currency	interest	rate	swaps	are	contracts	that	involve	the	exchange	of	both interest	and	principal	amounts	in	two	different	currencies.	Also	see	Interest	rate	swaps in	this	glossary.

EITF:	Emerging	Issues	Task	Force.

EITF	Issue	02-3:	"Issues	Involved	in	Accounting	for	Derivative	Contracts	Held	for Trading	Purposes	and	Contracts	Involved	in	Energy	Trading	and	Risk	Management Activities."

EITF	Issue	03-1:	"The	Meaning	of	Other-Than-Temporary	Impairment	and	Its Application	to	Certain	Investments."

# FASB:	Financial	Accounting	Standards	Board.

FIN	39:	FASB	Interpretation	No.	39,	"Offsetting	of	Amounts	Related	to	Certain Contracts."

FIN	41:	FASB	Interpretation	No.	41,	"Offsetting	of	Amounts	Related	to	Certain Repurchase	and	Reverse	Repurchase	Agreements."

FIN	45:	FASB	Interpretation	No.	45,	"Guarantor's	Accounting	and	Disclosure Requirement	for	Guarantees,	including	Indirect	Guarantees	of	Indebtedness	of	Others."

FIN	46:	FASB	Interpretation	No.	46,	"Consolidation	of	Variable	Interest	Entities,	an interpretation	of	Accounting	Research	Bulletin	No.	51."

FSP	SFAS	106-1:	FASB	Staff	Position	No.	SFAS106-1,	"Accounting	and	Disclosure Requirements	Related	to	the	Medicare	Prescription	Drug,	Improvement	and Modernization	Act	of	2003."

Foreign	exchange	contracts	are	contracts	that	provide	for	the	future	receipt	and delivery	of	foreign	currency	at	previously	agreed-upon	terms.

Interest	rate	options,	including	caps	and	floors,	are	contracts	to	modify	interest	rate risk	in	exchange	for	the	payment	of	a	premium	when	the	contract	is	initiated.	A	writer	of interest	rate	options	receives	a	premium	in	exchange	for	bearing	the	risk	of	unfavorable changes	in	interest	rates.	Conversely,	a	purchaser	of	an	option	pays	a	premium	for	the right,	but	not	the	obligation,	to	buy	or	sell	a	financial	instrument	or	currency	at predetermined	terms	in	the	future.

Interest	rate	swaps	are	contracts	in	which	a	series	of	interest	rate	payments	in	a single	currency	are	exchanged	over	a	prescribed	period.	An	example	of	a	situation	in which	an	interest	rate	swap	would	be	used	would	be	to	convert	fixed-rate	debt	to	a variable	rate.	By	entering	into	the	swap,	the	principal	amount	of	the	debt	would	remain unchanged,	but	the	interest	streams	would	change	from	fixed	to	variable.

Investment-grade:	An	indication	of	credit	quality	based	on	JPMorgan	Chase's	internal risk	assessment	system.	"Investment-grade"	generally	represents	a	risk	profile	similar to	a	rating	of	a	BBB-/Baa3	or	better,	as	defined	by	independent	rating	agencies.

Liquidity	risk:	The	risk	of	being	unable	to	fund	a	portfolio	of	assets	at	appropriate maturities	and	rates,	and	the	risk	of	being	unable	to	liquidate	a	position	in	a	timely manner	at	a	reasonable	price.

Managed	credit	card	receivables	or	managed	basis:	Refers	to	credit	card

receivables	on	the	Firm's	balance	sheet	plus	credit	card	receivables	that	have	been securitized.

Mark-to-market	exposure:	Mark-to-market	exposure	is	a	measure,	at	a	point	in	time, of	the	value	of	a	derivative	or	foreign	exchange	contract	in	the	open	market.	When	the mark-to-market	value	is	positive,	it	indicates	the	counterparty	owes	JPMorgan	Chase and,	therefore,	creates	a	repayment	risk	for	the	Firm.	When	the	mark-to-market	value	is negative,	JPMorgan	Chase	owes	the	counterparty.	In	this	situation,	the	Firm	does	not have	repayment	risk.

Market	risk:	The	potential	loss	in	value	of	portfolios	and	financial	instruments	caused by	movements	in	market	variables,	such	as	interest	and	foreign	exchange	rates,	credit spreads,	and	equity	and	commodity	prices.

Master	netting	agreement:	An	agreement	between	two	counterparties	that	have multiple	derivative	contracts	with	each	other	that	provides	for	the	net	settlement	of	all contracts	through	a	single	payment,	in	a	single	currency,	in	the	event	of	default	on	or termination	of	any	one	contract.	See	FIN	39.

# NA:	Not	applicable.

Net	yield	on	interest-earning	assets:	The	average	rate	for	interest-earning	assets less	the	average	rate	paid	for	all	sources	of	funds.

# NM:	Not	meaningful.

Operating	basis	or	operating	earnings:	Reported	results	excluding	the	impact	of credit	card	securitizations	and,	prior	to	2003,	merger	and	restructuring	costs	and special	items.

Operational	risk:	The	risk	of	loss	resulting	from	inadequate	or	failed	processes	or systems,	human	factors	or	external	events.

Overhead	ratio:	Operating	expense	(excluding	merger	and	restructuring	costs	and special	items)	as	a	percentage	of	operating	revenue.

Return	on	Tangible	Allocated	Capital:	Operating	earnings	less	preferred	dividends as	a	percentage	of	average	allocated	capital,	excluding	the	impact	of	goodwill.

# SFAS:	Statement	of	Financial	Accounting	Standards.

SFAS	87:	"Employers'	Accounting	for	Pensions."

SFAS	88:	"Employers'	Accounting	for	Settlements	and	Curtailments	of	Defined	Benefit Pension	Plans	and	for	Termination	Benefits."

SFAS	106:	"Employers'	Accounting	for	Postretirement	Benefits	Other	Than	Pensions."

SFAS	107:	"Disclosures	about	Fair	Value	of	Financial	Instruments."

SFAS	109:	"Accounting	for	Income	Taxes."

SFAS	114:	"Accounting	by	Creditors	for	Impairment	of	a	Loan."

SFAS	115:	"Accounting	for	Certain	Investments	in	Debt	and	Equity	Securities."

SFAS	121:	"Accounting	for	the	Impairment	of	Long-Lived	Assets	and	for	Long-Lived Assets	to	be	Disposed	Of."

# SFAS	123:	"Accounting	for	Stock-Based	Compensation."

SFAS	133:	"Accounting	for	Derivative	Instruments	and	Hedging	Activities."

SFAS	140:	"Accounting	for	Transfers	and	Servicing	of	Financial	Assets	and Extinguishments	of	Liabilities	—	a	replacement	of	FASB	Statement	No.	125."

# SFAS	141:	"Business	Combinations."

# SFAS	142:	"Goodwill	and	Other	Intangible	Assets."

SFAS	144:	"Accounting	for	the	Impairment	or	Disposal	of	Long-Lived	Assets."

SFAS	146:	"Accounting	for	Costs	Associated	with	Exit	or	Disposal	Activities."

SFAS	149:	"Amendment	of	Statement	No.	133	on	Derivative	Instruments	and	Hedging Activities."

SFAS	150:	"Accounting	for	Certain	Financial	Instruments	with	Characteristics	of	both Liabilities	and	Equity."

Shareholder	value	added	("SVA"):	Represents	operating	earnings	minus	preferred dividends	and	an	explicit	charge	for	capital.

Six	Sigma:	Represents	a	business	management	approach	that	enables	firms	to improve	the	quality	of	products	and	services	delivered	to	clients	through	understanding client	priorities,	and	then	eliminating	process	defects	and	failures.	"Sigmas"	(or standard	deviations)	are	statistical	measures	of	the	defects	or	failures	generated	by	a business	process.

Special	items:	All	amounts	are	on	a	pre-tax	basis	unless	otherwise	noted.	There	were no	special	items	in	2003.	Special	items	in	2002	included	a	$1.3	billion	charge	for	the settlement	of	the	Enron	surety	litigation	and	the	establishment	of	a	litigation	reserve, and	a	$98	million	charge	for	excess	real	estate	capacity	related	to	facilities	in	the	West Coast	of	the	United	States.	Special	items	in	2001	included	a	$25	million	loss	(after-tax) from	the	cumulative	effect	of	a	transition	adjustment	related	to	the	adoption	of	SFAS 133.	Special	items	in	2000	included	an	$827	million	gain	on	the	sale	of	the	Hong	Kong retail	banking	business,	a	$399	million	gain	from	the	transfer	of	Euroclear-related business,	an	$81	million	gain	from	the	sale	of	the	Panama	operations	and	a $176	million	loss	resulting	from	the	economic	hedge	of	the	purchase	price	of	Flemings prior	to	its	acquisition.	Special	items	in	1999	were	interest	income	of	$62	million	from prior	years'	tax	refunds,	gains	of	$166	million	from	sales	of	non-strategic	assets	and	a $100	million	special	contribution	to	The	Chase	Manhattan	Foundation.

Stress	testing:	A	scenario	that	measures	market	risk	under	unlikely	but	plausible events	in	abnormal	markets.

Tangible	shareholder	value	added:	SVA	less	the	impact	of	goodwill	on	operating earnings	and	capital	charges.

Value-at-Risk	("VAR"):	A	measure	of	the	dollar	amount	of	potential	loss	from	adverse market	moves	in	an	ordinary	market	environment.

# Distribution	of	assets,	liabilities	and	stockholders'	equity;

# interest	rates	and	interest	differentials

# Consolidated	average	balance	sheet,	interest	and	rates

Provided	below	is	a	summary	of	JPMorgan	Chase's	consolidated	average	balances, interest	rates	and	interest	differentials	on	a	taxable-equivalent	basis	for	the	years	2001 through	2003.	Income	computed	on	a	taxable-equivalent	basis	is	the	income	reported in	the	Consolidated	statement	of	income,	adjusted	to

make	income	and	earnings	yields	on	assets	exempt	from	income	taxes	(primarily federal	taxes)	comparable	with	other	taxable	income.	The	incremental	tax	rate	used	for calculating	the	taxable-equivalent	adjustment	was	approximately	41%	in	each	of	the years	2003,	2002	and	2001.	A	substantial	portion	of	JPMorgan	Chase's	securities	is taxable.

(Table	continued	on	next	page)

| Year	ended	December	31,<br>(Taxable-equivalent	interest	and	rates;	in	millions,	except	rates) | Average<br>balance | Interest | Average<br>rate |
| :--- | :--- | :--- | :--- |
| Assets |  |  |  |
| Deposits\twith\tbanks | $9,742 | $214 | 2.20% |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tresale\tagreements | 87,273 | 1,497 | 1.72 |
| Securities\tborrowed | 40,305 | 323 | 0.80 |
| Trading\tassets\t—\tdebt\tand\tequity\tinstruments | 148,970 | 6,608 | 4.44 |
| Securities: |  |  |  |
| Available-for-sale | 77,156 | 3,553 | 4.60(a) |
| Held-to-maturity | 286 | 21 | 7.19 |
| Loans | 226,106 | 11,288(b) | 4.99 |
| Total\tinterest-earning\tassets | 589,838 | 23,504 | 3.98 |
| Allowance\tfor\tloan\tlosses | (5,161) |  |  |
| Cash\tand\tdue\tfrom\tbanks | 17,951 |  |  |
| Trading\tassets\t—\tderivative\treceivables | 85,628 |  |  |
| All\tother\tassets | 87,722 |  |  |
| Total\tassets | $775,978 |  |  |
| Liabilities |  |  |  |
| Interest-bearing\tdeposits | $227,645 | $3,604 | 1.58% |
| Federal\tfunds\tpurchased\tand\tsecurities\tsold\tunder\trepurchase\tagreements | 161,020 | 2,199 | 1.37 |
| Commercial\tpaper | 13,387 | 151 | 1.13 |
| (d) |  |  |  |
| Other\tborrowings | 69,703 | 3,549 | 5.09 |
| (e) |  |  |  |
| Beneficial\tinterests\tissued\tby\tconsolidated\tVIEs | 9,421 | 106 | 1.13 |
| Long-term\tdebt | 49,095 | 1,498 | 3.05 |
| Total\tinterest-bearing\tliabilities | 530,271 | 11,107 | 2.09 |
| Noninterest-bearing\tdeposits | 77,640 |  |  |
| Trading\tliabilities\t—\tderivative\tpayables | 67,783 |  |  |
| All\tother\tliabilities,\tincluding\tthe\tallowance\tfor\tlending-related\tcommitments | 56,287 |  |  |
| Total\tliabilities | 731,981 |  |  |
| Preferred\tstock\tof\tsubsidiary | — |  |  |
| Stockholders'\tequity |  |  |  |
| Preferred\tstock | 1,009 |  |  |
| Common\tstockholders'\tequity | 42,988 |  |  |
| Total\tstockholders'\tequity | 43,997(f) |  |  |
| Total\tliabilities,\tpreferred\tstock\tof\tsubsidiary\tand\tstockholders'\tequity | $775,978 |  |  |
| Interest\trate\tspread |  |  | 1.89% |
| Net\tinterest\tincome\tand\tnet\tyield\ton\tinterest-earning\tassets |  | $12,397 | 2.10 |

Note:	The	weighted-average	interest	rates	reflect	the	impact	of	local	interest	rates	prevailing	in	certain	Latin	American	countries	with	highly	inflationary	economies.

(c) Includes	$84	million	in	2001	of	interest	income	resulting	from	the	refund	of	prior-years'	taxes.	Excluding	this	amount,	the	net	yield	on	interest-earning	assets	would	be	1.97%	in	2001.

(d) Includes	securities	sold	but	not	yet	purchased.

(e) Not	applicable	for	years	prior	to	2003	since	the	Firm	adopted	FIN	46	during	2003.

Within	the	Consolidated	average	balance	sheet,	interest	and	rates	summary,	the principal	amounts	of	nonaccrual	loans	have	been	included	in	the	average	loan balances	used	to	determine

the	average	interest	rate	earned	on	loans.	For	additional	information	on	nonaccrual loans,	including	interest	accrued,	see	Note	11	on	pages	98	and	99.

# (Continuation	of	table)

| 2002 | 2002 | 2002 | 2001 | 2001 | 2001 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Average\nbalance | Interest | Average\nrate | Average\nbalance | Interest | Average\nrate |  |
| $11,945 | $303 | 2.54% | $9,119 | $452 | 4.96% |  |
| 84,194 | 2,078 | 2.47 | 83,841 | 3,805 | 4.54 |  |
| 42,703 | 681 | 1.59 | 38,156 | 1,343 | 3.52 |  |
| 137,272 | 6,814 | 4.96 | 129,578 | 7,391 | 5.70 |  |
| 66,619 | 3,389 | 5.09(a) | 66,062 | 3,691 | 5.59(a) |  |
| 446 | 29 | 6.45 | 526 | 35 | 6.67 |  |
| 211,432 | 12,068(b) | 5.71 | 219,843 | 15,548(b) | 7.07 |  |
| 554,611 | 25,362 | 4.57 | 547,125 | 32,265 | 5.90 |  |
| (5,178) |  |  | (3,862) |  |  |  |
| 18,850 |  |  | 20,928 |  |  |  |
| 73,641 |  |  | 78,461 |  |  |  |
| 91,433 |  |  | 93,321 |  |  |  |
| $733,357 |  |  | $735,973 |  |  |  |
| $217,417 | $5,253 | 2.42% | $215,865 | $7,998(c) | 3.70% | (c) |
| 168,428 | 3,313 | 1.97 | 163,858 | 6,655 | 4.06 |  |
| 16,134 | 281 | 1.74 | 18,561 | 749 | 4.03 |  |
| 69,393 | 3,444 | 4.96 | 64,029 | 3,694 | 5.77 |  |
| NA | NA | NA | NA | NA | NA |  |
| 43,927 | 1,467 | 3.34 | 45,583 | 2,283 | 5.01 |  |
| 515,299 | 13,758 | 2.67 | 507,896 | 21,379 | 4.21 |  |
| 69,999 |  |  | 60,983 |  |  |  |
| 57,607 |  |  | 69,676 |  |  |  |
| 47,988 |  |  | 54,158 |  |  |  |
| 690,893 |  |  | 692,713 |  |  |  |
| 87 |  |  | 550 |  |  |  |
| 1,009 |  |  | 1,186 |  |  |  |
| 41,368 |  |  | 41,524 |  |  |  |
| 42,377(f) |  |  | 42,710(f) |  |  |  |
| $733,357 |  |  | $735,973 |  |  |  |
|  |  | 1.90% |  |  | 1.69% |  |
|  | $11,604 | 2.09 |  | $10,886 | 1.99(c) |  |

# Interest	rates	and	interest	differential	analysis	of	net	interest	income	–

Presented	below	is	a	summary	of	interest	rates	and	interest	differentials	segregated between	U.S.	and	non-U.S.	operations	for	the	years	2001	through	2003.	The segregation	of	U.S.	and	non-U.S.	components	is	based	on	the	location	of	the	office

recording	the	transaction.	Intracompany	funding	generally	comprises	dollar- denominated	deposits	originated	in	various	locations	that	are	centrally	managed	by JPMorgan	Chase's	treasury	units.	U.S.	net	interest	income	was	$10.5	billion	in	2003, an	increase	of	$1.6	billion	from	the	prior	year.	The

| Year	ended	December	31,<br>(Taxable-equivalent	interest	and	rates;	in	millions,	except	rates) |  | Average<br>balance | Interest | Average<br>rate |
| :--- | :--- | :--- | :--- | :--- |
| Interest-earning\tassets: |  |  |  |  |
| Deposits\twith\tbanks,\tprimarily\tnon-U.S. |  | $9,742 | $214 | 2.20% |
| Federal\tfunds\tsold\tand\tsecurities\tpurchased\tunder\tresale\tagreements: |  |  |  |  |
| U.S. |  | 61,925 | 988 | 1.59 |
| Non-U.S. |  | 25,348 | 509 | 2.01 |
| Securities\tborrowed,\tprimarily\tU.S. |  | 40,305 | 323 | 0.80 |
| Trading\tassets\t—\tdebt\tand\tequity\tinstruments: |  |  |  |  |
| U.S. |  | 86,234 | 4,013 | 4.65 |
| Non-U.S. |  | 62,736 | 2,595 | 4.14 |
| Securities: |  |  |  |  |
| U.S. |  | 67,024 | 3,184 | 4.75 |
| Non-U.S. |  | 10,418 | 390 | 3.75 |
| Loans: |  |  |  |  |
| U.S. |  | 194,051 | 9,088 | 4.68 |
| Non-U.S. |  | 32,055 | 2,200 | 6.86 |
| Total\tinterest-earning\tassets |  | 589,838 | 23,504 | 3.98 |
| Interest-bearing\tliabilities: |  |  |  |  |
| Interest-bearing\tdeposits: |  |  |  |  |
| U.S. |  | 117,035 | 1,688 | 1.44 |
| Non-U.S. |  | 110,610 | 1,916 | 1.73 |
| Federal\tfunds\tpurchased\tand\tsecurities\tsold\tunder\trepurchase\tagreements: |  |  |  |  |
| U.S. |  | 129,715 | 1,599 | 1.23 |
| Non-U.S. |  | 31,305 | 600 | 1.92 |
| Other\tborrowed\tfunds: |  |  |  |  |
| U.S. |  | 59,249 | 2,351 | 3.97 |
| Non-U.S. |  | 23,841 | 1,349 | 5.66 |
| Beneficial\tinterests\tissued\tby\tconsolidated\tVIEs,\tprimarily\tU.S. | (b) | 9,421 | 106 | 1.13 |
| Long-term\tdebt,\tprimarily\tU.S. |  | 49,095 | 1,498 | 3.05 |
| Intracompany\tfunding: |  |  |  |  |
| U.S. |  | 44,856 | 946 | — |
| Non-U.S. |  | (44,856) | (946) | — |
| Total\tinterest-bearing\tliabilities |  | 530,271 | 11,107 | 2.09 |
| (c) |  |  |  |  |
| Noninterest-bearing\tliabilities |  | 59,567 |  |  |
| Total\tinvestable\tfunds |  | $589,838 | $11,107 | 1.89% |
| Net\tinterest\tincome\tand\tnet\tyield: |  |  | $12,397 | 2.10% |
| U.S. |  |  | 10,512 | 2.40 |
| Non-U.S. |  |  | 1,885 | 1.24 |
| Percentage\tof\ttotal\tassets\tand\tliabilities\tattributable\tto\tnon-U.S.\toperations: |  |  |  |  |
| Assets |  |  |  | 30.7 |
| Liabilities |  |  |  | 35.5 |

(b) Not	applicable	for	years	prior	to	2003	since	the	Firm	adopted	FIN	46	during	2003.

(c) Represents	the	amount	of	noninterest-bearing	liabilities	funding	interest-earning	assets.

increase	primarily	was	attributable	to	higher	volume	of	consumer	loans,	primarily mortgage	and	automobile	loans.	Net	interest	income	from	non-U.S.	operations	was $1.9	billion	for

2003,	compared	with	$2.7	billion	in	2002.	The	decrease	reflects	declining	spreads.

For	further	discussion,	see	the	section	entitled	"Net	interest	income"	in	the	MD&A	on page	25.

| 2002 | 2002 | 2002 | 2001 | 2001 | 2001 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Average\nbalance | Interest | Average\nrate | Average\nbalance | Interest | Average\nrate |  |
| $11,945 | $303 | 2.54% | $9,119 | $452 | 4.96% |  |
| 60,176 | 1,302 | 2.16 | 53,783 | 2,279 | 4.24 |  |
| 24,018 | 776 | 3.23 | 30,058 | 1,526 | 5.08 |  |
| 42,703 | 681 | 1.59 | 38,156 | 1,343 | 3.52 |  |
| 81,202 | 4,397 | 5.42 | 83,908 | 5,268 | 6.28 |  |
| 56,070 | 2,417 | 4.31 | 45,670 | 2,123 | 4.65 |  |
| 53,745 | 2,913 | 5.42 | 52,636 | 3,137 | 5.96 |  |
| 13,320 | 505 | 3.79 | 13,952 | 589 | 4.22 |  |
| 174,359 | 9,627 | 5.52 | 179,912 | 12,379 | 6.88 |  |
| 37,073 | 2,441 | 6.58 | 39,931 | 3,169 | 7.94 |  |
| 554,611 | 25,362 | 4.57 | 547,125 | 32,265 | 5.90 |  |
| 107,823 | 2,412 | 2.24 | 93,589 | 3,080(a) | 3.29(a) |  |
| 109,594 | 2,841 | 2.59 | 122,276 | 4,918 | 4.02 |  |
| 131,213 | 2,800 | 2.13 | 129,400 | 5,333 | 4.12 |  |
| 37,215 | 513 | 1.38 | 34,458 | 1,322 | 3.84 |  |
| 58,533 | 2,490 | 4.25 | 55,770 | 3,202 | 5.74 |  |
| 26,994 | 1,235 | 4.58 | 26,820 | 1,241 | 4.63 |  |
| NA | NA | NA | NA | NA | NA |  |
| 43,927 | 1,467 | 3.34 | 45,583 | 2,283 | 5.01 |  |
| 68,736 | 1,758 | — | 52,418 | 1,988 | — |  |
| (68,736) | (1,758) | — | (52,418) | (1,988) | — |  |
| 515,299 | 13,758 | 2.67 | 507,896 | 21,379 | 4.21 |  |
| 39,312 |  |  | 39,229 |  |  |  |
| $554,611 | $13,758 | 2.48% | $547,125 | $21,379 | 3.91% |  |
|  | $11,604 | 2.09% |  | $10,886 | 1.99% | (a) |
|  | 8,912 | 2.25 |  | 8,432 | 2.12(a) |  |
|  | 2,692 | 1.69 |  | 2,454 | 1.64 |  |
|  |  | 31.7 |  |  | 31.4 |  |
|  |  | 34.9 |  |  | 38.0 |  |

# Changes	in	net	interest	income,	volume	and	rate	analysis

The	table	below	presents	an	analysis	of	the	effect	on	net	interest	income	of	volume	and	rate	changes	for	the	periods	2003	versus	2002	and	2002	versus	2001.	In	this	analysis,	the change	due	to	the	volume/rate	variance	has	been	allocated	to	volume.

|  | 2003	versus	2002 | 2003	versus	2002 | 2003	versus	2002 | 2002	versus	2001 | 2002	versus	2001 | 2002	versus	2001 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (On\ta\ttaxable-equivalent\tbasis; | Increase\t(decrease)\tdue\tto\tchange\tin: | Increase\t(decrease)\tdue\tto\tchange\tin: | Net | Increase\t(decrease)\tdue\tto\tchange\tin: | Increase\t(decrease)\tdue\tto\tchange\tin: | Net |
| in\tmillions) | Volume | Rate | change | Volume | Rate | change |
| Interest-earning\tassets |  |  |  |  |  |  |
| Deposits\twith\tbanks,\tprimarily |  |  |  |  |  |  |
| non-U.S. | $(48) | $(41) | $(89) | $72 | $(221) | $(149) |
| Federal\tfunds\tsold\tand\tsecurities |  |  |  |  |  |  |
| purchased\tunder\tresale |  |  |  |  |  |  |
| agreements: |  |  |  |  |  |  |
| U.S. | 29 | (343) | (314) | 142 | (1,119) | (977) |
| Non-U.S. | 26 | (293) | (267) | (194) | (556) | (750) |
| Securities\tborrowed,\tprimarily |  |  |  |  |  |  |
| U.S. | (21) | (337) | (358) | 74 | (736) | (662) |
| Trading\tassets\t—\tdebt\tand\tequity |  |  |  |  |  |  |
| instruments: |  |  |  |  |  |  |
| U.S. | 241 | (625) | (384) | (157) | (714) | (871) |
| Non-U.S. | 273 | (95) | 178 | 449 | (155) | 294 |
| Securities: |  |  |  |  |  |  |
| U.S. | 631 | (360) | 271 | 60 | (284) | (224) |
| Non-U.S. | (110) | (5) | (115) | (24) | (60) | (84) |
| Loans: |  |  |  |  |  |  |
| U.S. | 926 | (1,465) | (539) | (305) | (2,447) | (2,752) |
| Non-U.S. | (345) | 104 | (241) | (185) | (543) | (728) |
| Change\tin\tinterest\tincome | 1,602 | (3,460) | (1,858) | (68) | (6,835) | (6,903) |
| Interest-bearing\tliabilities |  |  |  |  |  |  |
| Interest-bearing\tdeposits: |  |  |  |  |  |  |
| U.S. | 139 | (863) | (724) | 315 | (983) | (668) |
| Non-U.S. | 18 | (943) | (925) | (328) | (1,749) | (2,077) |
| Federal\tfunds\tpurchased\tand |  |  |  |  |  |  |
| securities\tsold\tunder |  |  |  |  |  |  |
| repurchase\tagreements: |  |  |  |  |  |  |
| U.S. | (20) | (1,181) | (1,201) | 42 | (2,575) | (2,533) |
| Non-U.S. | (114) | 201 | 87 | 39 | (848) | (809) |
| Other\tborrowed\tfunds: |  |  |  |  |  |  |
| U.S. | 25 | (164) | (139) | 119 | (831) | (712) |
| Non-U.S. | (178) | 292 | 114 | 7 | (13) | (6) |
| Beneficial\tinterests\tissued\tby |  |  |  |  |  |  |
| consolidated\tVIEs,\tprimarily |  |  |  |  |  |  |
| (a) |  |  |  |  |  |  |
| U.S. | 106 | — | 106 | NA | NA | NA |
| Long-term\tdebt,\tprimarily\tU.S. | 158 | (127) | 31 | (55) | (761) | (816) |
| Intracompany\tfunding: |  |  |  |  |  |  |
| U.S. | (503) | (309) | (812) | 415 | (645) | (230) |
| Non-U.S. | 503 | 309 | 812 | (415) | 645 | 230 |
| Change\tin\tinterest\texpense | 134 | (2,785) | (2,651) | 139 | (7,760) | (7,621) |
| Change\tin\tnet\tinterest\tincome | $1,468 | $(675) | $793 | $(207) | $925 | $718 |
| (a) |  |  |  |  |  |  |

(a) Not	applicable	for	years	prior	to	2003	since	the	Firm	adopted	FIN	46	during	2003.

# Securities	portfolio

The	table	below	presents	the	amortized	cost,	estimated	fair	value	and	average	yield	(including	the	impact	of	related	derivatives)	of	JPMorgan	Chase's	securities	by	contractual maturity	range	and	type	of	security.

| Maturity	schedule	of	available-for-sale	and	held-to-maturity	securities | Maturity	schedule	of	available-for-sale	and	held-to-maturity	securities | Maturity	schedule	of	available-for-sale	and	held-to-maturity	securities | Maturity	schedule	of	available-for-sale	and	held-to-maturity	securities | Due	in	1 | Due	after	1 | Due	after	5 | Due	after | Due	after |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| December\t31,\t2003\t(in\tmillions,\trates\ton\ta\ttaxable-equivalent\tbasis) | December\t31,\t2003\t(in\tmillions,\trates\ton\ta\ttaxable-equivalent\tbasis) | December\t31,\t2003\t(in\tmillions,\trates\ton\ta\ttaxable-equivalent\tbasis) | December\t31,\t2003\t(in\tmillions,\trates\ton\ta\ttaxable-equivalent\tbasis) | year\tor\tless | through\t5\tyears | through\t10\tyears | 10\tyears | (a) | Total |
| U.S.\tgovernment\tand\tfederal\tagency/corporation\tobligations: |  |  |  |  |  |  |  |  |  |
| Amortized\tcost | Amortized\tcost | Amortized\tcost |  | $1,565 | $5,146 | $4,265 | $34,714 | $34,714 | $45,690 |
| Fair\tvalue | Fair\tvalue |  |  | 1,557 | 5,105 | 4,190 | 34,372 | 34,372 | 45,224 |
| Average\tyield | Average\tyield | (b) |  | 1.07% | 3.10% | 4.02% | 4.88% | 4.88% | 4.47% |
| Other: | (c) |  |  |  |  |  |  |  |  |
| Amortized\tcost | Amortized\tcost | Amortized\tcost |  | $3,334 | $4,066 | $3,574 | $3,758 | $3,758 | $14,732 |
| Fair\tvalue | Fair\tvalue |  |  | 3,343 | 4,070 | 3,625 | 3,806 | 3,806 | 14,844 |
| Average\tyield | Average\tyield | (b) |  | 2.28% | 3.61% | 4.41% | 4.39% | 4.39% | 3.70% |
| Total\tavailable-for-sale\tsecurities: | Total\tavailable-for-sale\tsecurities: | Total\tavailable-for-sale\tsecurities: | (d) |  |  |  |  |  |  |
| Amortized\tcost | Amortized\tcost | Amortized\tcost |  | $4,899 | $9,212 | $7,839 | $38,472 | $38,472 | $60,422 |
| Fair\tvalue | Fair\tvalue |  |  | 4,900 | 9,175 | 7,815 | 38,178 | 38,178 | 60,068 |
| Average\tyield | Average\tyield | (b) |  | 1.89% | 3.33% | 4.20% | 4.83% | 4.83% | 4.28% |
| Total\theld-to-maturity\tsecurities: | Total\theld-to-maturity\tsecurities: | Total\theld-to-maturity\tsecurities: | (d) |  |  |  |  |  |  |
| Amortized\tcost | Amortized\tcost | Amortized\tcost |  | $— | $— | $2 | $174 | $174 | $176 |
| Fair\tvalue | Fair\tvalue |  |  | — | — | 2 | 184 | 184 | 186 |
| Average\tyield | Average\tyield | (b) |  | —% | —% | 7.32% | 6.91% | 6.91% | 6.92% |

(a) Securities	with	no	stated	maturity	are	included	with	securities	with	a	contractual	maturity	of	10	years	or	more.	Substantially	all	of	JPMorgan	Chase's	mortgaged-backed	securities	("MBSs")	and	collateralized	mortgage obligations	("CMOs")	are	due	in	10	years	or	more	based	on	contractual	maturity.	The	estimated	duration,	which	reflects	anticipated	future	prepayments	based	on	a	consensus	of	dealers	in	the	market,	is	approximately five	years	for	MBSs	and	CMOs.

(b) The	average	yield	is	based	on	amortized	cost	balances	at	the	end	of	the	year.	Yields	are	derived	by	dividing	interest	income	(including	the	effect	of	related	derivatives	on	available-for-sale	securities	and	the amortization	of	premiums	and	accretion	of	discounts)	by	total	amortized	cost.	Taxable-equivalent	yields	are	used	where	applicable.

(c) Includes	obligations	of	state	and	political	subdivisions,	debt	securities	issued	by	non-U.S.	governments,	corporate	debt	securities,	CMOs	of	private	issuers	and	other	debt	and	equity	securities.

(d) For	the	amortized	cost	of	the	above	categories	of	securities	at	December	31,	2002,	see	Note	9	on	page	96.	At	December	31,	2001,	the	amortized	cost	of	U.S.	government	and	federal	agencies	and	other	available-for- sale	securities	was	$42,474	million	and	$17,060	million,	respectively.	At	December	31,	2001,	the	amortized	cost	of	U.S.	government	and	federal	agencies	held-to-maturity	securities	was	$476	million.	There	were	no other	held-to-maturity	securities	at	December	31,	2001.

The	U.S.	government	and	certain	of	its	agencies	were	the	only	issuers	whose	securities exceeded	10%	of	JPMorgan	Chase's	total	stockholders'	equity	at	December	31,	2003. For	a	further	discussion	of	JPMorgan	Chase's	securities	portfolios,	see	Note	9	on pages	96-97.

# Loan	portfolio

The	table	below	sets	forth	the	amounts	of	loans	outstanding	by	type:

| December	31,	(in	millions) | 2003 | 2002 | 2001 | 2000 | 1999 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| U.S.\tloans: |  |  |  |  |  |
| Commercial\tand\tindustrial | $43,631 | $49,205 | $56,680 | $64,031 | $58,563 |
| Commercial\treal\testate\t—\tcommercial\tmortgage | 3,182 | 3,176 | 3,533 | 4,109 | 5,207 |
| Commercial\treal\testate\t—\tconstruction | 589 | 516 | 615 | 725 | 800 |
| Financial\tinstitutions | 4,622 | 3,770 | 5,608 | 7,342 | 6,623 |
| Consumer | 136,393 | 124,687 | 111,850 | 95,960 | 85,289 |
| Total\tU.S.\tloans | 188,417 | 181,354 | 178,286 | 172,167 | 156,482 |
| Non-U.S.\tloans: |  |  |  |  |  |
| Commercial\tand\tindustrial | 24,618 | 31,446 | 33,530 | 37,002 | 38,067 |
| Commercial\treal\testate | 79 | 381 | 167 | 1,470 | 362 |
| Financial\tinstitutions | 5,671 | 2,438 | 3,570 | 3,976 | 3,779 |
| Non-U.S.\tgovernments | 705 | 616 | 1,161 | 805 | 1,517 |
| Consumer | 28 | 129 | 730 | 630 | 2,801 |
| Total\tnon-U.S.\tloans | 31,101 | 35,010 | 39,158 | 43,883 | 46,526 |
| (a) |  |  |  |  |  |
| Total\tloans | $219,518 | $216,364 | $217,444 | $216,050 | $203,008 |

# Maturities	and	sensitivity	to	changes	in	interest	rates

The	table	below	shows,	at	December	31,	2003,	commercial	loan	maturity	and	distribution	between	fixed	and	floating	interest	rates	based	upon	the	stated	terms	of	the	commercial	loan agreements.	The	table	does	not	include	the	impact	of	derivative	instruments.

|  | Within | Within | 1-5 | After	5 |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| December\t31,\t2003\t(in\tmillions) | 1\tyear | (a) | years | years | Total |
| U.S.: |  |  |  |  |  |
| Commercial\tand\tindustrial | $19,786 | $19,786 | $19,115 | $4,730 | $43,631 |
| Commercial\treal\testate | 576 | 576 | 1,239 | 1,956 | 3,771 |
| Financial\tinstitutions | 4,146 | 4,146 | 468 | 8 | 4,622 |
| Non-U.S. | 16,210 | 16,210 | 9,925 | 4,938 | 31,073 |
| Total\tcommercial\tloans | $40,718 | $40,718 | $30,747 | $11,632 | $83,097 |
| Loans\tat\tfixed\tinterest\trates |  |  | $17,447 | $5,477 |  |
| Loans\tat\tvariable\tinterest\trates |  |  | 13,300 | 6,155 |  |
| Total\tcommercial\tloans |  |  | $30,747 | $11,632 |  |
| (a) |  |  |  |  |  |

(a) Includes	demand	loans,	overdrafts	and	loans	having	no	stated	schedule	of	repayments	and	no	stated	maturity.

# Cross-border	outstandings

Cross-border	disclosure	is	based	upon	the	Federal	Financial	Institutions	Examination Council's	("FFIEC")	guidelines	governing	the	determination	of	cross-border	risk.	In accordance	with	FFIEC	revised	guidelines,	credit	derivatives	were	included	in	the determination	of	cross-border	exposure	beginning	in	2001.

The	following	table	lists	all	countries	in	which	JPMorgan	Chase's	cross-border outstandings	exceed	0.75%	of	consolidated	assets	as	of	any	of	the	dates	specified.	The disclosure	includes	certain	exposures	that	are	not	required	under	the	disclosure requirements	of	the	SEC.	The	most	significant	differences	between	the	FFIEC	and SEC	methodologies	relate	to	the	treatments	of	local	country	exposure	and	to	foreign exchange	and	derivatives.

For	a	further	discussion	of	JPMorgan	Chase's	cross-border	exposure	based	on management's	view	of	this	exposure,	see	page	58.

# Cross-border	outstandings	exceeding	0.75%	of	total	assets

|  |  |  |  |  | Net	local | Total |  | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  | country | direct |  | cross-border |
|  |  |  |  | (a) |  | (b) | (c) |  |
| (in\tmillions) | At\tDecember\t31, | Governments | Banks | Other | assets | exposure | Commitments | exposure |
| Germany | 2003 | $14,741 | $12,353 | $4,383 | $— | $31,477 | $31,332 | $62,809 |
|  | 2002 | 21,705 | 10,213 | 4,789 | — | 36,707 | 20,405 | 57,112 |
|  | 2001 | 32,003 | 10,068 | 4,194 | — | 46,265 | 11,977 | 58,242 |
| U.K. | 2003 | $1,111 | $3,758 | $11,839 | $— | $16,708 | $35,983 | $52,691 |
|  | 2002 | 1,386 | 7,821 | 12,191 | — | 21,398 | 20,416 | 41,814 |
|  | 2001 | 1,380 | 1,980 | 7,590 | — | 10,950 | 14,360 | 25,310 |
| France | 2003 | $2,311 | $3,788 | $6,070 | $599 | $12,768 | $22,385 | $35,153 |
|  | 2002 | 5,212 | 6,461 | 3,136 | 984 | 15,793 | 14,902 | 30,695 |
|  | 2001 | 5,621 | 3,792 | 3,743 | — | 13,156 | 9,044 | 22,200 |
| Netherlands | 2003 | $4,571 | $3,997 | $11,152 | $— | $19,720 | $11,689 | $31,409 |
|  | 2002 | 4,030 | 2,907 | 8,724 | — | 15,661 | 7,744 | 23,405 |
|  | 2001 | 4,871 | 1,468 | 7,999 | 9 | 14,347 | 4,729 | 19,076 |
| Italy | 2003 | $9,336 | $3,743 | $2,570 | $818 | $16,467 | $10,738 | $27,205 |
|  | 2002 | 7,340 | 3,604 | 2,489 | 488 | 13,921 | 6,001 | 19,922 |
|  | 2001 | 11,323 | 2,147 | 3,722 | 1,492 | 18,684 | 4,901 | 23,585 |
| Japan | 2003 | $8,902 | $510 | $2,358 | $— | $11,770 | $13,474 | $25,244 |
|  | 2002 | 7,990 | 1,534 | 1,443 | — | 10,967 | 10,290 | 21,257 |
|  | 2001 | 4,696 | 2,499 | 2,278 | — | 9,473 | 6,662 | 16,135 |
| Spain | 2003 | $1,365 | $1,909 | $2,964 | $— | $6,238 | $7,301 | $13,539 |
|  | 2002 | 2,293 | 1,501 | 1,987 | 659 | 6,440 | 5,613 | 12,053 |
|  | 2001 | 2,860 | 1,869 | 1,670 | 554 | 6,953 | 3,453 | 10,406 |
| Switzerland | 2003 | $370 | $4,630 | $2,201 | $320 | $7,521 | $4,993 | $12,514 |
|  | 2002 | 463 | 1,684 | 3,129 | 700 | 5,976 | 3,375 | 9,351 |
|  | 2001 | 295 | 3,142 | 3,129 | 261 | 6,827 | 2,141 | 8,968 |
| Luxembourg | 2003 | $774 | $718 | $8,336 | $— | $9,828 | $1,007 | $10,835 |
|  | 2002 | 572 | 977 | 5,355 | — | 6,904 | 646 | 7,550 |
|  | 2001 | 133 | 1,946 | 2,510 | — | 4,589 | 751 | 5,340 |
| Belgium | 2003 | $1,426 | $474 | $1,096 | $— | $2,996 | $1,072 | $4,068 |
|  | 2002 | 640 | 761 | 1,283 | — | 2,684 | 1,975 | 4,659 |
|  | 2001 | 1,224 | 1,884 | 2,615 | — | 5,723 | 2,644 | 8,367 |
| (a) | Consists\tprimarily\tof\tcommercial\tand\tindustrial. |  |  |  |  |  |  |  |

(a) Consists	primarily	of	commercial	and	industrial.

(b) Exposure	includes	loans	and	accrued	interest	receivable,	interest-bearing	deposits	with	banks,	acceptances,	resale	agreements,	other	monetary	assets,	cross-border	trading	debt	and	equity	instruments,	mark-to- market	exposure	of	foreign	exchange	and	derivative	contracts	and	local	country	assets,	net	of	local	country	liabilities.	The	amounts	associated	with	foreign	exchange	and	derivative	contracts	are	presented	after	taking into	account	the	impact	of	legally	enforceable	master	netting	agreements.

(c) Commitments	include	outstanding	letters	of	credit,	undrawn	commitments	to	extend	credit	and	credit	derivatives.

JPMorgan	Chase's	total	cross-border	exposure	tends	to	fluctuate	greatly,	and	the	amount	of	exposure	at	year-end	tends	to	be	a	function	of	timing	rather	than	representing	a consistent	trend.

# Risk	elements

The	following	table	sets	forth	nonperforming	assets	and	contractually	past-due	assets	at	the	dates	indicated:

| December	31,	(in	millions) |  |  | 2003 | 2002 | 2001 | 2000 | 1999 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Nonperforming\tassets |  |  |  |  |  |  |  |
| U.S.\tnonperforming\tloans: | (a) |  |  |  |  |  |  |
| Commercial\tand\tindustrial |  |  | $1,060 | $1,769 | $1,186 | $727 | $411 |
| Commercial\treal\testate |  |  | 24 | 32 | 56 | 65 | 51 |
| Financial\tinstitutions |  |  | 1 | 258 | 33 | 29 | 12 |
| Consumer |  |  | 497 | 519 | 495 | 377 | 416 |
| Total\tU.S.\tnonperforming\tloans | Total\tU.S.\tnonperforming\tloans | Total\tU.S.\tnonperforming\tloans | 1,582 | 2,578 | 1,770 | 1,198 | 890 |
| Non-U.S.\tnonperforming\tloans: | Non-U.S.\tnonperforming\tloans: | (a) |  |  |  |  |  |
| Commercial\tand\tindustrial |  |  | 886 | 1,566 | 679 | 556 | 688 |
| Commercial\treal\testate |  |  | 13 | 11 | 9 | 9 | — |
| Financial\tinstitutions |  |  | 25 | 36 | 23 | 13 | 96 |
| Non-U.S.\tgovernments |  |  | — | — | 11 | 35 | 41 |
| Consumer |  |  | 3 | 2 | 4 | 7 | 22 |
| Total\tnon-U.S.\tnonperforming\tloans | Total\tnon-U.S.\tnonperforming\tloans | Total\tnon-U.S.\tnonperforming\tloans | 927 | 1,615 | 726 | 620 | 847 |
| Total\tnonperforming\tloans |  |  | 2,509 | 4,193 | 2,496 | 1,818 | 1,737 |
| Derivative\treceivables |  |  | 253 | 289 | 1,300 | 37 | 34 |
| Other\treceivables |  |  | 108 | 108 | — | — | — |
| Assets\tacquired\tin\tloan\tsatisfactions | Assets\tacquired\tin\tloan\tsatisfactions | Assets\tacquired\tin\tloan\tsatisfactions | 216 | 190 | 124 | 68 | 102 |
| Total\tnonperforming\tassets |  |  | $3,086 | $4,780 | $3,920 | $1,923 | $1,873 |
| Contractually\tpast-due\tassets | Contractually\tpast-due\tassets | (b) |  |  |  |  |  |
| U.S.\tloans: |  |  |  |  |  |  |  |
| Commercial\tand\tindustrial |  |  | $41 | $57 | $11 | $95 | $52 |
| Commercial\treal\testate |  |  | — | — | 19 | 3 | 5 |
| Consumer |  |  | 269 | 473 | 484 | 399 | 347 |
| Total\tU.S.\tloans |  |  | 310 | 530 | 514 | 497 | 404 |
| Non-U.S.\tloans |  |  |  |  |  |  |  |
| Commercial\tand\tindustrial |  |  | 5 | — | 5 | 1 | 4 |
| Financial\tinstitutions |  |  | — | — | — | — | 20 |
| Consumer |  |  | — | — | 2 | 2 | 15 |
| Total\tnon-U.S.\tloans |  |  | 5 | — | 7 | 3 | 39 |
| Derivative\treceivables |  |  | — | — | — | — | 1 |
| Total |  |  | $315 | $530 | $521 | $500 | $444 |
| (a) |  |  |  |  |  |  |  |

(a) All	nonperforming	loans	accounted	for	on	a	nonaccrual	basis.	There	were	no	nonperforming	renegotiated	loans.	Renegotiated	loans	are	those	for	which	concessions,	such	as	the	reduction	of	interest	rates	or	the deferral	of	interest	or	principal	payments,	have	been	granted	as	a	result	of	a	deterioration	in	the	borrowers'	financial	condition.

(b) Accruing	loans	past-due	90	days	or	more	as	to	principal	and	interest,	which	are	not	characterized	as	nonperforming	loans.

For	a	discussion	of	nonperforming	loan	and	past-due	loan	policies,	see	Note	11	on	pages	98-99.

# Impact	of	nonperforming	loans	on	interest	income

The	negative	impact	on	interest	income	from	nonperforming	loans	represents	the	difference	between	the	amount	of	interest	income	that	would	have	been	recorded	on	nonperforming loans	according	to	contractual	terms	and	the	amount	of	interest	that	actually	was	recognized	on	a	cash	basis.	The	following	table	sets	forth	this	data	for	the	years	specified.	The decrease	in	2003	in	total	negative	impact	on	interest	income	reflects	a	lower	level	of	interest	that	was	not	recognized	in	income	due	to	the	decreased	level	of	nonperforming	loans.

| Year	ended	December	31,	(in	millions) | 2003 | 2002 | 2001 |
| :--- | :--- | :--- | :--- |
| U.S.: |  |  |  |
| Gross\tamount\tof\tinterest\tthat\twould\thave\tbeen\trecorded\tat\tthe\toriginal\trate | $86 | $167 | $136 |
| Interest\tthat\twas\trecognized\tin\tincome | (5) | (24) | (30) |
| Negative\timpact\t—\tU.S. | 81 | 143 | 106 |
| Non-U.S.: |  |  |  |
| Gross\tamount\tof\tinterest\tthat\twould\thave\tbeen\trecorded\tat\tthe\toriginal\trate | 58 | 102 | 42 |
| Interest\tthat\twas\trecognized\tin\tincome | — | — | (3) |
| Negative\timpact\t—\tnon-U.S. | 58 | 102 | 39 |
| Total\tnegative\timpact\ton\tinterest\tincome | $139 | $245 | $145 |

# Summary	of	loan	and	lending-related	commitments	loss	experience

The	tables	below	summarize	the	changes	in	the	allowance	for	loan	losses	and	lending-related	commitments,	respectively,	during	the	periods	indicated.	For	a	further	discussion,	see Note	12	on	page	100.

# Allowance	for	loan	losses

# Loan	loss	analysis

# Deposits

The	following	table	provides	a	summary	of	the	average	balances	and	average	interest	rates	of	JPMorgan	Chase's	various	deposits	for	the	years	indicated:

|  |  | Average	balances | Average	balances | Average	balances | Average	interest	rates | Average	interest	rates | Average	interest	rates |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions,\texcept\tinterest\trates) | (in\tmillions,\texcept\tinterest\trates) | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 |
| U.S.: |  |  |  |  |  |  |  |
| Noninterest-bearing\tdemand | Noninterest-bearing\tdemand | $22,289 | $23,506 | $23,828 | —% | —% | —% |
| Interest-bearing\tdemand |  | 4,859 | 4,192 | 1,720 | 1.22 | 1.02 | 1.37 |
| Savings |  | 104,863 | 84,215 | 69,149 | 0.75 | 0.26 | 1.57 |
| Time |  | 55,911 | 57,929 | 54,110 | 1.51 | 3.71 | 3.64 |
| Total\tU.S.\tdeposits |  | 187,922 | 169,842 | 148,807 | 0.90 | 1.42 | 2.07 |
| Non-U.S.: |  |  |  |  |  |  |  |
| Noninterest-bearing\tdemand | Noninterest-bearing\tdemand | 6,561 | 7,395 | 5,229 | — | — | — |
| Interest-bearing\tdemand |  | 66,460 | 56,331 | 49,831 | 1.63 | 2.34 | 3.99 |
| Savings |  | 607 | 1,008 | 791 | 0.15 | 0.56 | 1.93 |
| Time |  | 43,735 | 52,840 | 72,190 | 1.90 | 2.87 | 4.04 |
| Total\tnon-U.S.\tdeposits | (a) | 117,363 | 117,574 | 128,041 | 1.63 | 2.42 | 3.84 |
| Total\tdeposits |  | $305,285 | $287,416 | $276,848 | 1.18% | 1.83% | 2.89% |
| (a) |  |  |  |  |  |  |  |

(a) The	majority	of	non-U.S.	deposits	were	in	denominations	of	$100,000	or	more.

At	December	31,	2003,	U.S.	time	deposits	in	denominations	of	$100,000	or	more	totaled	$36	billion,	substantially	all	of	which	mature	in	three	months	or	less.	The	table	below presents	the	maturities	for	U.S.	time	certificates	of	deposit	in	denominations	of	$100,000	or	more:

|  | 3	months | Over	3	months | Over	6	months | Over |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| By\tremaining\tmaturity\tat\tDecember\t31,\t2003\t(in\tmillions) | or\tless | but\twithin\t6\tmonths | but\twithin\t12\tmonths | 12\tmonths | Total |
| U.S.\ttime\tcertificates\tof\tdeposit\t($100,000\tor\tmore) | $9,422 | $667 | $557 | $565 | $11,231 |

# Short-term	and	other	borrowed	funds

The	following	table	provides	a	summary	of	JPMorgan	Chase's	short-term	and	other	borrowed	funds	for	the	years	indicated:

(a) Includes	securities	sold	but	not	yet	purchased.

(b) Included	on	the	Consolidated	balance	sheet	in	Beneficial	interests	issued	by	consolidated	variable	interest	entities.	VIEs	had	unused	lines	of	credit	of	$427	million	at	December	31,	2003	for	general	liquidity	purposes.

(c) Not	applicable	for	years	prior	to	2003	since	the	Firm	adopted	FIN	46	during	2003.

Federal	funds	purchased	represents	overnight	funds.	Securities	sold	under	repurchase agreements	generally	mature	between	one	day	and	three	months.	Commercial	paper generally	is	issued	in	amounts	not	less	than	$100,000	and	with	maturities	of	270	days or	less.	Other	borrowed	funds	consist	of	demand

notes,	term	federal	funds	purchased	and	various	other	borrowings	that	generally	have maturities	of	one	year	or	less.	At	December	31,	2003,	JPMorgan	Chase	had	no	lines	of credit	for	general	corporate	purposes.

# Signatures

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly	caused	this	report	to	be	signed	on	behalf	of	the	undersigned, thereunto	duly	authorized.

(Registrant)

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the	registrant	and	in	the	capacity	and	on the	date	indicated.	JPMorgan	Chase	does	not	exercise	the	power	of	attorney	to	sign	on	behalf	of	any	Director.

# Capacity

# /s/	WILLIAM	B.	HARRISON,	JR.

Director,	Chairman	and	Chief	Executive	Officer (Principal	Executive	Officer)

/s/	HANS	W.	BECHERER (Hans	W.	Becherer) Director /s/	RILEY	P.	BECHTEL (Riley	P.	Bechtel) Director /s/	FRANK	A.	BENNACK,	JR. (Frank	A.	Bennack,	Jr.) Director /s/	JOHN	H.	BIGGS (John	H.	Biggs) Director /s/	LAWRENCE	A.	BOSSIDY (Lawrence	A.	Bossidy) Director /s/	M.	ANTHONY	BURNS (M.	Anthony	Burns) Director

# EXHIBIT	INDEX


what was the ratio of the firm commitments to provide liquidity on asset- specific basis in 2003 compared to 2002 $ 18.0 billion at december 31 , 2003 , and $ 23.5 billion at december 31 , 2002
  commitment_2003 = 18.0
 commitment_2002 = 23.5
ratio = commitment_2003 / commitment_2002
answer = ratio