A scarcity of clean, fresh water presents increasing risks to companies in many countries and many economic sectors. These risks are difficult for investors to assess, due both to poor information about the underlying supply conditions and to fragmentary or inadequate reporting by individual companies. As a result, market prices of securities are unlikely to accurately reflect the potential costs of water-related problems.

In this report, JPMorgan Global Environmental, Social, and Governance Research offers investors a framework for evaluating the impact of water scarcity and water pollution on individual sectors and companies. This is the first of a series of reports on transformational issues that we expect to offer investor clients and corporate managements over the course of 2008.

This report draws on the expertise of the World Resources Institute, which has helped us provide an overview of the issues from a global perspective. Then, with both our corporate and investor clients in mind, JPMorgan equity analysts from around the world lay out the water-related risks and opportunities they see facing companies in specific sectors. We provide criteria for examining these issues, which we hope will be of use to companies seeking to improve communication with investors about environmental issues as well as to investors themselves.

Here are the main points:

• Exposure to water scarcity and pollution is not limited to onsite production processes, and may actually be greater in companies’ supply chains than in their own operations.
• The power-generation, mining, semiconductor manufacturing, and food and beverage sectors are particularly exposed to waterrelated risks, in our view.
• In our opinion, corporate disclosure of water-related risks is seriously inadequate and is typically included in environmental statements prepared for public relations purposes rather than in the regulatory filings on which most investors rely.
• We recommend that investors assess the reliance of their portfolios on water resources and their vulnerability to problems of water availability and pollution.

We look forward to your comments on this report. We also welcome your ideas about other ways in which we may assist you in addressing environmental risks and opportunities affecting the securities markets.