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Comparative Hypothetical and Historical Total Returns (%), Volatility (%) and
Correlation -- July 31, 2013
3 Year 5 Year 10 Year 10 Year 10 Year
Annualized Annualized Annualized Annualized 10 Year Sharpe 10 Year 3 Year Average 5 Year Average Average
Return Return Return Volatility Ratio Correlation Leverage Leverage Leverage
------------------------- ---------- ---------- ---------- ---------- -------------- ----------- -------------- -------------- --------
ETF Efficiente DS 5 Index 6.2% 6.4% 6.50% 5.62% 115.6% 100.0% 109.1% 108.4% 104.4%
------------------------- ---------- ---------- ---------- ---------- -------------- ----------- -------------- -------------- --------
SandP 500 (Excess Return) 17.1% 7.2% 5.2% 20.5% 25.2% 30.0%
------------------------- ---------- ---------- ---------- ---------- -------------- ----------- -------------- -------------- --------
Barclays Aggregate Bond 2.6% 4.2% 2.5% 3.9% 64.1% 26.8%
Index (Excess Return)
------------------------- ---------- ---------- ---------- ---------- -------------- ----------- -------------- -------------- --------
Notes
Hypothetical, historical performance measures: Represents the performance of the
Index based on the hypothetical back-tested closing levels from July 31, 2003
through September 24, 2012 and actual performance from September 25, 2012 to
July 31, 2013.
For purposes of these examples, each index was set equal to 100 at the beginning
of the relevant measurement period and returns are calculated arithmetically
(not compounded). The "SandP 500 Index (Excess Return)" and "Barclays Aggregate
Bond Index (Excess Return)" refer to hypothetical indices constructed from the
total returns of the relevant index with the returns of the Cash Index deducted.
There is no guarantee the ETF Efficiente DS 5 Index will outperform the SandP
500 Index (Excess Return), the Barclays Aggregate Bond Index (Excess Return) or
any alternative investment strategy. Sources: Bloomberg and JPMorgan.
Leverage: Leverage refers to the exposure of the Index to the Monthly Reference
Portfolio, ranging from 0% to 150%. The leverage is determined by dividing the
5% target volatility by the historical 1-month volatility of the Monthly
Reference Portfolio. These monthly leverage calculations are then added and the
sum is divided by the number of months in the relevant measurement period. The
exposure increases when the 1-month volatility of the Monthly Reference
Portfolio decreases, and decreases when the volatility increases, employing
leverage up to 150% when the volatility is less than 5%.
Correlation: Correlation refers to the performance of the relevant index to the
ETF Efficiente DS 5 Index, calculated based on the ten year annualized return.
Volatility: Volatility represents the annualized standard deviation of the
relevant index's arithmetic daily returns since January 30, 2004. Volatility
levels are calculated from the historical returns, as applicable to the relevant
measurement period, of the ETF Efficiente DS 5 Index, SandP 500 Index (Excess
Return), and the Barclays Aggregate Bond Index (Excess Return). The Sharpe
Ratio, which is a measure of risk-adjusted performance, is computed as the ten
year annualized historical return divided by the ten year annualized volatility.
For time periods prior to the launch of any ETF included in the Index and such
ETF's initial satisfaction of a minimum liquidity standard, the hypothetical
back-testing uses alternative performance information derived from a related
index, after deducting hypothetical fund fees, rather than performance
information for such ETF.
The back-tested, hypothetical, historical annualized volatility and index
returns have inherent limitations. These volatility and return results were
achieved by means of a retroactive application of a back-tested volatility model
designed with the benefit of hindsight. No representation is made that in the
future the relevant indices will have the volatility shown. Alternative modeling
techniques or assumptions might produce significantly different results and may
prove to be more appropriate. Actual annualized volatilities and returns may
vary materially from this analysis. Key Risks
There are risks associated with a momentum-based investment strategy--The Index
employs a mathematical model intended to implement what is known as a
momentum-based strategy, which seeks to capitalize on positive market price
trends based on the supposition that positive market price trends may continue.
This Index is different from a strategy that seeks long-term exposure to a
portfolio with fixed weights. The Index may fail to realize gains that could
occur from holding assets that have experienced price declines, but experience a
sudden price spike thereafter.
The Index may not achieve its target volatility - The exposure of the Index to
the synthetic portfolio of Basket Constituents is determined by a two-step
process composed of 1) a monthly selection process to determine the weighting
assigned to each Basket Constituent in the synthetic portfolio, and 2) a daily
adjustment of the exposure to the synthetic portfolio intended to achieve a
target annualized volatility of 5% on a daily basis. The monthly weights and
daily adjustments are based on the historical volatility of the synthetic
portfolio and are subject to certain constraints. However, there is no guarantee
that historical trends will continue in the future. Accordingly, the actual
realized annualized volatility of the index may be greater than or less than 5%,
which may adversely affect the level of the index.
The daily adjustment of the exposure of the index to the synthetic portfolio of
basket constitutents may impact performance -- Due to the daily exposure
adjustments, the Index may fail to realize gains due to price appreciation of
the synthetic portfolio at a time when the exposure is less than 100% or may
suffer increased losses due to price depreciation of the synthetic portfolio
when the exposure is above 100%. As a result, the Index may underperform an
index that does not include a daily exposure adjustment.
The Index may be partially uninvested -- The aggregate weight of the Cash Index
at any given time represents the portion of the synthetic portfolio that is
uninvested. In addition, when the exposure of the Index to the synthetic
portfolio is less than 100%, a portion of the synthetic portfolio will be
uninvested. The Index will reflect no return for any uninvested portion.
Our affiliate, J.P. Morgan Securities plc, is the calculation agent for the
Index and may adjust the Index in a way that affects its level--The policies and
judgments for which J.P. Morgan Securities plc, is responsible could have an
impact, positive or negative, on the level of the Index and the value of your
investment. J.P. Morgan Securities plc is under no obligation to consider your
interest as an investor with returns linked to the Index.
The Index may not be successful and may not outperform any alternative strategy.
The Index comprises notional assets and liabilities and therefore there is no
actual portfolio of assets to which any person is entitled or in which any
person has any ownership interest. The Index rebalances monthly and applies
weighting caps to the Basket Constituents and sectors.
The Index may be subject to increased volatility due to the use of leverage.
Changes in the value of the Basket Constituents may offset each other, and
correlation of performances among the Basket Constituents may reduce the
performance of the Index. An investment in securities linked to the Index is
subject to risks associated with non-U.S. markets, including emerging markets,
and is subject to currency exchange risk.
The risks identified above are not exhaustive. You should also review carefully
the related "Risk Factors" section in the relevant product supplement and/or
underlying supplement and the "Selected Risk Considerations" in the relevant
term sheet or pricing supplement.
For more information on the Index and for additional key risk information see
Page 12 of the Strategy Guide at
http://www.sec.gov/Archives/edgar/data/19617/000095010313002227/crt_dp37444-fwp
..pdf
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You may get these documents without cost by visiting EDGAR on the SEC Website at
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333-177923
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