INDEX SUPPLEMENT J.P. MORGAN MOZAIC INDEX (USD)

Transcription

1 INDEX SUPPLEMENT J.P. MORGAN MOZAIC INDEX (USD) This document contains information solely about the J.P. Morgan MOZAIC Index (USD) (the Index ), which information has been provided by J.P. Morgan Securities LLC ( JPMS ) solely in its capacity as a licensor of the Index. The Index and certain relevant Select Considerations are described in further detail within the document and are qualified in their entirety by the index rules (the Rules ) which are appended hereto. Please read the information under the section titled Important Information below before reading any other material in this document. IMPORTANT INFORMATION The Index has been and may be licensed to one or several licensees (collectively, the Licensee ) for the Licensee s benefit. Neither the Licensee nor any product of the Licensee (the Product ) is sponsored, operated, endorsed, sold or promoted by JPMS or any of its affiliates (together and individually, J.P. Morgan ). J.P. Morgan makes no representation and no warranty, express or implied, to owners of the Product (or any person taking exposure to it) or any member of the public in any other circumstances (each a Contract Owner ): (a) regarding the advisability of investing in securities or other financial or insurance products generally or in the Product particularly; or (b) the suitability or appropriateness of an exposure to the Index in seeking to achieve any particular objective. It is for those taking an exposure to the Product and/or the Index to satisfy themselves of these matters and such persons should seek appropriate professional advice before making any investment. J.P. Morgan is not responsible for and does not have any obligation or liability in connection with the issuance, administration, marketing or trading of the Product. The publication of the Index and the referencing of any asset or other factor of any kind in the Index do not constitute any form of investment recommendation or advice in respect of any such asset or other factor by J.P. Morgan, and no person should rely upon it as such. J.P. Morgan does not act as an investment adviser or investment manager in respect of the Index or the Product and does not accept any fiduciary duties in relation to the Index, the Licensee, the Product or any Contract Owner. The Index has been designed and is compiled, calculated, maintained and sponsored by J.P. Morgan without regard to the Licensee, the Product or any Contract Owner. The ability of the Licensee to make use of the Index may be terminated on short notice and it is the responsibility of the Licensee to provide for the consequences of that in the design of the Product. J.P. Morgan does not accept any legal obligation to take the needs of any person who may invest in a Product into account in designing, compiling, calculating, maintaining or sponsoring the Index or in any decision to cease doing so. J.P. Morgan does not give any representation, warranty or undertaking, of any type (whether express or implied, statutory or otherwise) in relation to the Index, as to condition, satisfactory quality, performance or fitness for purpose or as to the results to be achieved by an investment in the Product or any data included in or omissions from the Index, or the use of the Index in connection with the Product or the veracity, currency, completeness or accuracy of the information on which the Index is based (and, without limitation, J.P. Morgan accepts no liability to any Contract Owner for any errors or omissions in that information or the results of any interruption to it and J.P. Morgan shall be under no obligation to advise any person of any such error, omission or interruption). To the extent any such representation, warranty or undertaking could be deemed to have been given by J.P. Morgan, it is excluded save to the extent that such exclusion is prohibited by law. To the fullest extent permitted by law, J.P. Morgan shall have no liability or responsibility to any person or entity (including, without limitation, to any Contract Owner) for any losses, damages, costs, charges, expenses or other liabilities howsoever arising, including, without limitation, liability for any special, punitive, indirect or consequential damages (including loss of business or loss of profit, loss of time and loss of goodwill), even if notified of the possibility of the same, arising in connection with the design, compilation, calculation, maintenance or sponsoring of the Index or in connection with the Product. The Index is the exclusive property of J.P. Morgan. J.P. Morgan is under no obligation to continue compiling, calculating, maintaining or sponsoring the Index and may delegate or transfer to a third party some or all of its functions in relation to the Index. -1-

2 J.P. Morgan may independently issue or sponsor other indices or products that are similar to and may compete with the Index and the Product. J.P. Morgan may also transact in assets referenced in the Index (or in financial instruments such as derivatives that reference those assets). It is possible that these activities could have an effect (positive or negative) on the value of the Index and the Product. Each of the above paragraphs is severable. If the contents of any such paragraph is held to be or becomes invalid or unenforceable in any respect in any jurisdiction, it shall have no effect in that respect, but without prejudice to the remainder of this notice. -2-

3 SELECT CONSIDERATIONS The Index Calculation Agent and the Index Sponsor have discretion over the Index, and neither the Index Calculation Agent nor the Index Sponsor has an obligation to consider the interests of investors and others that may have exposure to instruments linked to the Index. J.P. Morgan Securities plc ( JPMS plc ), an affiliate of JPMorgan Chase & Co., currently acts as the Index calculation agent (the Index Calculation Agent ) and is responsible for calculating the level of the Index and determining the effect of certain developments on the Index. The Index Calculation Agent is entitled to exercise discretion in relation to the Index, including but not limited to the calculation of the level of the Index in the event of an Extraordinary Event or FX Disruption Event as well as the determination of the occurrence of a Market Disruption Event (each as defined below under The J.P. Morgan MOZAIC Index (USD) ), and may also amend the rules governing the Index in certain circumstances. JPMS plc is also the Index Sponsor and is responsible for, among other things, the documentation of the Rules and the appointment of the Index Calculation Agent, and the Index Sponsor may also amend the rules governing the Index, as it deems appropriate. The judgments, policies and decisions for which the Index Calculation Agent and the Index Sponsor are responsible could have an impact, positive or negative, on the level of the Index. In taking any actions that might affect the Index, including the calculation of the Index level, neither the Index Calculation Agent nor the Index Sponsor has an obligation to consider the interests of investors or others that may have exposure to instruments linked to the Index. JPMorgan Chase & Co., as the ultimate parent company of JPMS plc, controls the Index Calculation Agent and the Index Sponsor. Furthermore, the selection of the constituents of the Index (the Constituents ) is not an investment recommendation by JPMS plc or any of its affiliates of the Constituents, or any of the securities, commodities, indices or futures contracts underlying the Constituents. See The J.P. Morgan MOZAIC Index (USD). The Index methodology may not be successful and may not outperform any alternative strategy that might be employed in respect of the Constituents. The Index methodology follows a notional proprietary strategy that operates on the basis of predetermined rules. No assurance can be given that the investment strategy on which the Index is based will be successful or that the Index will outperform any alternative strategy that might be employed in respect of the Constituents. The Constituents may not achieve the target volatility rate. Each selected Constituent has a Target Constituent Volatility (as defined below), which is used in determining the weight applied to such Constituent following a rebalancing. In calculating the level of the Index, the performance of each selected Constituent is scaled by its weight, which is in turn determined by comparing such Constituent s recent actual volatility against the target volatility rate, subject to an upper-bound limit of 1,000% (the Upper-Bound Limit ). A selected Constituent whose recent volatility exceeded the target volatility will generally have a weight that dampens the contribution of such Constituent s performance in the calculation of the Index level, while a selected Constituent whose recent volatility was less than the target volatility will generally have a weight that magnifies the contribution of such Constituent s performance. Because weights are established on the basis of the historical Constituent volatility and subject to the Upper-Bound Limit and because the realized volatility of a Constituent once its weight is put into effect may differ significantly from its historical levels and may change rapidly at any time, there can be no assurance the weighted average performance of any Constituent in the Index will realize an actual volatility equal to the Target Constituent Volatility. The actual realized volatility of any Constituent s weighted performance in the Index could be significantly greater or less than the target volatility rate. Furthermore, while it is generally the case that the target volatility rates will sum to a round number if at any time six constituents are currently referenced by the Index, as described below under The J.P. Morgan MOZAIC Index (USD), under certain circumstances, there may be more or fewer than six Constituents referenced by the Index, which may create further differences between the target volatility and actual realized volatility. -3-

4 If the values of the Constituents change, the level of the Index may not change in the same manner. Changes in the values of the Constituents may not result in a comparable change in the level of the Index. This is due to the fact that the Constituents are weighted in accordance with the Index s methodology, as prescribed by the Rules. Such weights can have the effect of amplifying or dampening the performance of the Constituents, and the weights are rebalanced, generally on a monthly basis, and may be subject to flattening and other periods in which weights are set to zero. The Index s changes will not be comparable to those of an index comprised of static and equally weighted notional exposures to the Constituents. The Index is not comprised of actual assets. The exposures to the Constituents are purely notional and will exist solely in the records maintained by or on behalf of the Index Calculation Agent. There is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest. The Index has a limited operating history and may perform in unanticipated ways. The Live Date for the Index was April 17, 2009, and therefore the Index has a limited operating history. Past performance should not be considered indicative of future performance. Any future downgrades of the U.S. government s credit rating by credit rating agencies may adversely affect the performance of the Index. In 2011, Standard & Poor s Ratings Services ( Standard & Poor s ) downgraded the U.S. government s credit rating from AAA to AA+. The downgrade increased volatility in the global equity, credit and commodities markets, which might have adversely affected the levels of the Constituents. Future downgrades by credit ratings agencies may also increase this volatility. This may in turn have an adverse impact on the Index. There are risks associated with the Index s momentum investment strategy. The Index is constructed using what is generally known as a momentum investment strategy. Momentum investing generally seeks to capitalize on positive trends in the price of assets. As such, the weights of the Constituents in the Index are based on the performance of the Constituents from a recent historical period of approximately six months. However, there is no guarantee that trends existing in the preceding period will continue in the future. A momentum strategy is different from a strategy that seeks long-term exposure to a portfolio consisting of constant components with fixed weights. The Index may fail to realize gains that could occur as a result of holding assets that have experienced recent poor performance, but that subsequently experience a recovery. Conversely, the Index may suffer losses as a result of holding assets that have experienced recent strong performance, but subsequently suffer a reversal. As a result, if market conditions do not represent a continuation of prior observed trends, the level of the Index, which is rebalanced based on prior trends, may decline or fail to appreciate. In particular, while momentum investing strategies are effective at identifying the market direction in trending markets, in non-trending, sideways markets, momentum investment strategies are subject to whipsaws. A whipsaw occurs when the market reverses and does the opposite of what is indicated by the trend indicator, resulting in a trading loss during the particular period. Consequently, the Index may perform poorly in non-trending, choppy markets characterized by short- term volatility. Additionally, due to the long-only construction of the Index, the weight of each Constituent will not be negative in respect of any rebalancing even if the relevant Constituent displayed a negative performance over the relevant six-month period. No assurance can be given that the investment strategy used to construct the Index will outperform any alternative index that might be constructed from the Constituents. -4-

5 Rebalancings and exposure flattenings are not effected with respect to Constituents in respect of which the relevant weekday is not a Scheduled Trading Day or in respect of which such weekday is a Disrupted Day. Although Index rebalancings are scheduled to occur as of the first weekday of each month and exposure flattenings can be triggered as of any weekday based on recent declines in the Index level, in the event such weekday is not a Scheduled Trading Day or is a Disrupted Day with respect to one or more Constituents, then those Constituents will, in the case of rebalancing, not be rebalanced that month, and, in the case of the exposure flattening mechanism, will not be subject to the initiation of an exposure flattening period and hence will not have their weights adjusted to zero (if they are positive at that time). Such occurrences may yield positive weights for more or fewer than six Constituents in a given month, may cause continued Index declines during what would otherwise be an exposure flattening period for the affected Constituents and may have other consequences that may adversely impact the Index. For more information on the Index s monthly rebalancing and its exposure flattening mechanism, see The J.P. Morgan MOZAIC Index (USD). The Index s exposure flattening mechanism may not be successful in preventing the Index level from declining, and may in fact cause the Index to have worse performance. The Index s exposure flattening mechanism is only triggered following recent historical declines of the Index level of more than 3.00% over a five-weekday period, and then only after a lag. In addition, in the event that a weekday on which an exposure flattening period would have been triggered in respect of one or more Constituents is not a Scheduled Trading Day or is a Disrupted Day in respect of those Constituents, the exposure flattening mechanism will not alter the weights of those Constituents, and hence those Constituents may continue to cause declines in the Index level notwithstanding prior declines in the Index level that were sufficient to trigger an exposure flattening period. In measuring the Index level changes during an historical five-weekday observation period, the exposure flattening mechanism takes into account the effect of any exposure flattening period that overlapped with such observation period, and hence the exposure flattening mechanism may not take into account the full extent of the negative performance of the normally weighted Constituents. This in turn may result in an exposure flattening period not being triggered even though negative performance of the normally weighted Constituents would justify it. For the foregoing reasons, the exposure flattening mechanism cannot be considered a safeguard against declines in the Index level. Furthermore, if Constituents subject to the exposure flattening mechanism recover their losses during the relevant exposure flattening period, the Index will not capture such recovery, resulting in lower performance. For more information on the exposure flattening mechanism, see The J.P. Morgan MOZAIC Index (USD). Constituent weights are subject to a high upper-bound limit and hence can increase exposure to Constituents in a way that effectively exposes the Index to leverage, potentially causing increased volatility in the Index level. For each selected Constituent, the rebalancing mechanism sets the weight of such Constituent to a level that would have caused the weighted historical performance of such Constituent over a recent 125-weekday observation period (approximately six months) (the Lookback Period, as defined in greater detail below under The J.P. Morgan MOZAIC Index (USD) ) to have a volatility equal to the Constituent Target Volatility, subject to the Upper-Bound Limit. In connection with a rebalancing, a selected Constituent whose volatility over the Lookback Period was less than the Constituent Target Volatility will generally have a new weight that magnifies the contribution of such Constituent s performance in the calculation of the Index level, producing results similar to leverage. When weights magnify Constituent performance, any movements in the prices or levels of the Constituents may result in greater changes in the levels of the Index than if leverage were not used. In particular, leverage will magnify any negative performance of the Constituents. -5-

6 The Index tracks daily weighted percentage changes in Constituent prices and levels, and hence the daily contribution of changes in Constituent prices and levels to changes in the Index level is not path dependent. The Index does not track a hypothetical fixed level of investment in the Constituents, but rather the weighted percentage changes in the prices and levels of the Constituents. Prior period changes in a Constituent s price or level does not impact the contribution of changes in the price or level of such Constituent in the current measurement period to changes in the Index level, except to the extent that such changes are reflected in the methodology for monthly rebalancing and with respect to the application of the Constituent flattening mechanism. For example, a significant downward change in the price or level of a Constituent immediately prior to the current measurement period will not except in the context of monthly rebalancings and the application of the Constituent flattening mechanism dampen the contribution of current or future changes in such Constituent s price or level to changes in the Index level. As such, the daily contribution of changes in Constituent prices and levels to changes in the Index level is not price dependent. Lower weights of Constituents will dampen the impact of their returns on the Index level. A selected Constituent whose volatility over the Lookback Period exceeded the Constituent Target Volatility will generally have a weight that dampens the contribution of such Constituent s performance in the calculation of the Index level. As a result, any positive performance of Constituents subject to such weight to the Index level will not be fully reflected in the Index level. The Index may be notionally uninvested. A number of circumstances including recent poor performance of some or all of the Constituents resulting in zero weights in the rebalancing process or through the imposition of exposure flattening periods may result in the Index being partially or completely uninvested on a notional basis. To the extent the sum of all Constituent weights is less than 100%, a portion of the Index may be considered notionally uninvested and the returns in respect of such portion will be zero. If the sum of all Constituent weights is equal to zero, the Index value will remain unchanged, reflecting zero returns for each day such sum is equal to zero. The Index is subject to significant risks associated with futures contracts. The Constituents are comprised of futures contracts and indices that track futures contracts. The price of a futures contract depends not only on the price of the underlying asset referenced by the futures contract, but also on other factors, including but not limited to changing supply and demand relationships, interest rates, governmental and regulatory policies and the policies of the exchanges on which the futures contracts trade. In addition, the futures markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity in the markets, participation of speculators, and government regulation and intervention. These factors and others can cause the prices of futures contracts to be volatile and unpredictable. Some of the Constituents are excess return commodity indices, which carry risks associated with notional investments in such indices. The commodity-linked Constituents are excess return indices within the S&P GSCI TM commodity index group. The policies of the sponsor of these indices concerning methodology and calculation, including decisions regarding additions, deletions or substitutions of the assets underlying the indices, could affect the level of these Constituents. The excess return indices constituting the commodity-linked Constituents track returns from hypothetical exposures to certain commodity futures contracts that take into account changes in the price level of the underlying futures contracts as well as roll yield, but not total returns. A commodity futures index that reflects total returns would reflect the returns from a notional fully collateralized investment in the underlying futures contracts, including any interest that could be earned on funds committed to the margin on the underlying futures contracts. -6-

7 The Index may be affected by significant volatility in the Constituents, each of which is subject to the volatility associated with futures contracts. Prices are subject to sudden changes and can move dramatically over short periods of time, even when they have been relatively stable for an extended period of time leading up to the change. As a result, the levels of the Constituents and, therefore, the Index may decline dramatically before the resulting increased volatility will be reflected in the Lookback Periods used to measure historical volatility in the Index s rebalancing mechanism. Consequently, the Index may experience sharp declines over short periods of time, notwithstanding the target volatility feature. This risk may be magnified by the risks associated with futures contracts. Suspensions or disruptions of market trading in futures contracts may adversely affect the Index. Futures markets are subject to temporary suspensions, distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators, and government regulation and intervention. In addition, U.S. and other futures exchanges have regulations that limit the magnitude of futures contract price changes that may occur in a single day. These limits may be referred to as daily price fluctuation limits and the maximum or minimum price of a contract on any given day as a result of these limits may be referred to as a limit price. Once the limit price has been reached in a particular contract, no trades may be made at a price beyond the limit (although trades can continue within the limit), or trading may be limited for a set period of time. Limit prices have the effect of precluding trading in a particular contract or forcing the liquidation of contracts at potentially disadvantageous times or prices. These circumstances could affect the level of the Index. The performance of foreign currency denominated Constituents is not adjusted for exchange rate movements when determining relative performance and weights for a monthly rebalancing. In the monthly rebalancing process, the six highest Constituent return levels are assessed based on the cumulative returns of each Constituent in local currency terms, without adjusting for currency differences, over the Lookback Period. As a result, Constituents that, on a dollar-adjusted basis, had relatively weaker or even negative performance, may nevertheless be ranked high enough to receive a positive weight in the upcoming period. This will have the consequence of producing notional allocations that may differ from those that would have obtained had they been based on performance measured on a dollar-parity basis. And, as indicated below, even though currency adjustment is not made when determining weights, the Index level itself does take into account currency fluctuation against the U.S. dollar. The Index level will be subject to currency exchange risk. Because the returns on Constituents that are futures contracts on foreign equity indices or governmentissued fixed income securities are converted into U.S. dollars for the purposes of calculating the returns of the Index, the Index level will reflect currency exchange rate risk with respect to each of the relevant foreign currencies. The returns of the index, however, will not reflect the changes in the notional value of the non-u.s. Constituents due solely to changes in the value of those currencies against the U.S. dollar. Such currency exchange risk, therefore, will depend on the extent to which those currencies strengthen or weaken against the U.S. dollar together with whether each non-u.s. Constituent appreciates or declines in value, as adjusted by the applicable weights of such non-u.s. Constituent in the Index. For example, if a non-u.s. Constituent has a positive daily return (as measured in its local currency), and the U.S. dollar strengthens against such non-u.s. Constituent s currency, such non-u.s. Constituent s contribution to the Index s return shall be less than it would have been had its contribution been based solely on its local currency return. Furthermore, if a non-u.s. Constituent has a negative daily return (as measured in its local currency), and the U.S. dollar weakens against such non-u.s. Constituent s currency, such non-u.s. Constituent s negative contribution to the Index s return shall be grater than it would have been had its contribution been based solely on its local currency return. Of particular importance to potential currency exchange risk are: existing and expected rates of inflation; -7-

8 existing and expected interest rate levels; the balance of payments; political, civil or military unrest; and the extent of governmental surpluses or deficits in the relevant countries and the United States. All of these factors are, in turn, sensitive to the monetary, fiscal and trade policies pursued by the governments of various countries, including the United States and other countries important to international trade and finance. The Constituents comprising the Index may be replaced by substitutes in certain events. Following the occurrence of certain events with respect to a Constituent as described under The J.P. Morgan MOZAIC Index (USD), the affected Constituent may be replaced by a substitute futures contract, index or other asset, index or measure. The changing of a Constituent may affect the performance of the Index, as the replacement Constituent may perform significantly worse than the affected Constituent on either a standalone basis or as measured by its contribution to the Index s return. The Index is subject to market risks. The performance of the Index is dependent on the performance of the Constituents. Certain Constituents are subject to significant risks associated with government-issued fixed-income securities and may be volatile. The fixed income-linked Constituents are futures contracts for U.S., German and Japanese governmentissued debt securities. The market prices of the underlying debt securities may be volatile and significantly influenced by a number of factors, particularly the yields on these instruments as compared to current market interest rates and the actual or perceived credit quality of the governments issuing the underlying debt securities. In general, fixed-income securities are significantly affected by changes in current market interest rates. As interest rates rise, the price of fixed-income securities, such as the government-issued debt securities underlying certain Constituents, may decrease, and as interest rates decrease, the price of fixed-income securities, such as these underlying debt securities, may increase. Interest rates are subject to volatility due to a variety of factors, including: sentiment regarding underlying strength or weakness in the economies of the governments issuing the underlying debt securities and global economies; expectations regarding the level of price inflation; sentiment regarding credit quality in the governments issuing the underlying debt securities and global credit markets; central bank policies regarding interest rates; and the performance of global capital markets. Fluctuations in interest rates could affect the levels of the Constituents and the Index. -8-

9 The Constituents may be affected in unexpected ways by the recent sovereign debt crisis in Europe and related global economic conditions. The recent European debt crisis and related European financial restructuring efforts have contributed to instability in global markets. If global economic and market conditions, or economic conditions in Europe, the United States or other key markets, remain uncertain or deteriorate further, the Constituents may be affected in unexpected ways. If a sovereign government were to default on its debt obligations, or if the market perceives that a default has become more likely, yields on the government-issued debt securities underlying the fixed income-linked Constituents may change rapidly and dramatically, and such changes may adversely affect the level of the Index. Commodity prices are characterized by high and unpredictable volatility, which could lead to high and unpredictable volatility in prices and levels of the commodity-linked Constituents and hence in the Index. Market prices of the commodities and commodity futures contracts underlying the commodity-linked Constituents tend to be highly volatile and may fluctuate rapidly based on numerous factors, including: changes in supply and demand relationships; governmental programs and policies, national and international monetary, trade, political and economic events, changes in interest rates and exchange rates, speculation and trading in commodities and related contracts, weather, and agricultural, trade, fiscal and exchange control policies. Many commodities are also highly cyclical. These factors may affect the levels of the indices that comprise the commodity-linked Constituents in varying ways, and different factors may cause the value of different commodities included in the commodity-linked Constituents, and the prices of their futures contracts, to move in inconsistent directions at inconsistent rates. This, in turn, may adversely affect the Index. The Index provides only one means for exposure to commodities. The high volatility and cyclical nature of commodity markets may render these investments inappropriate as the focus of an investment portfolio. Certain Constituents or their underlying futures contracts are foreign futures contracts, and in some cases such futures contracts are linked to foreign securities. Certain fixed income- and equity-linked Constituents are foreign futures contracts linked to foreign securities, and certain futures contracts underlying the indices that constitute the commodity-linked Constituents are foreign commodity futures contracts. With respect to such Constituents, the performance of the underlying foreign futures contracts depends on conditions on foreign futures markets, which may differ substantially from conditions in U.S. markets. And in the case of fixed income- and equity-linked Constituents that constitute foreign futures contracts, the futures contracts are in turn linked to securities issued by non-u.s. companies and non-u.s. governments. As a result, the values of these futures contracts, and ultimately of the related Constituents, will also be affected by political, economic, financial and social factors in the relevant countries, including changes in a relevant country s government, economic and fiscal policies, currency exchange laws and other foreign laws or restrictions. The economies of these countries may differ unfavorably from the economy of the United States in such respects as growth of gross national product, rate of inflation, market volatility, capital reinvestment, resources and self-sufficiency. These countries may be subjected to different and, in some cases, more adverse economic environments. Some or all of these factors may adversely impact the value of the affected Constituents and hence of the Index and may exacerbate negative changes or offset positive changes resulting from other factors. The Index may in the future include contracts that are not traded on regulated futures exchanges. The Index, through its exposure to the Constituents, is currently based solely on futures contracts traded on regulated futures exchanges (referred to in the United States as designated contract markets ). If these exchange-traded futures contracts cease to exist, or if the calculation agent for the Constituents substitutes a futures contract in certain circumstances, the Index may in the future include futures contracts or over-the-counter contracts traded on trading facilities that are subject to lesser degrees of regulation or, in some cases, no substantive regulation. As a result, trading in such contracts, and the manner in which prices and volumes are reported by the relevant trading facilities, may not be subject to the provisions of, and the protections afforded by, the Commodity Exchange Act, or other applicable statutes and related regulations that govern trading on -9-

10 regulated futures exchanges. In addition, many electronic trading facilities have only recently initiated trading and do not have significant trading histories. As a result, the trading of contracts on such facilities, and the inclusion of such contracts in the Index, through its exposure to the Constituents, may be subject to certain risks not presented by regulated exchange-traded futures contracts, including risks related to the liquidity and price histories of the relevant contracts. JPMS is a primary dealer in connection with purchases and sales of U.S. Treasury securities by the Federal Reserve and JPMS s actions in that capacity may affect the level of the Index. JPMS is one of the primary dealers through which the Federal Reserve conducts open-market purchases and sales of U.S. Treasury and federal agency securities, including 2-Year Treasury Notes, 5-Year Treasury Notes and 10-Year Treasury Notes. Such activities may affect the prices and yields on the U.S. Treasury securities underlying the Constituents linked to U.S. government-issued debt securities and hence the level of the Index. JPMS has no obligation to take into consideration the Index when undertaking these activities. Correlation of performances among the Constituents may reduce the performance of the Index. Performances of the Constituents may become highly correlated from time to time, including, but not limited to, a period in which there is a substantial decline in a particular sector or asset type represented by the Constituents and which has a higher weight in the Index relative to any of the other sectors or asset types, as determined by the Index s strategy. High correlation during periods of negative returns among Constituents representing any one sector or asset type could have an adverse effect on the Index. Changes in the value of the Constituents may offset each other. At a time when the value of a Constituent representing a particular asset class or geographic region increases, the value of other Constituents representing a different asset class or geographic region may not increase as much or may decline. Therefore, in calculating the level of the Index, increases in the values of some of the Constituents may be moderated, or more than offset, by lesser increases or declines in the values of other Constituents. -10-

11 THE J.P. MORGAN MOZAIC INDEX (USD) General The J.P. Morgan MOZAIC Index (USD) (the Index ) was developed and is maintained and calculated by J.P. Morgan Securities plc ( JPMS plc ). The description of the Index and methodology included in this index supplement is based on rules formulated by JPMS plc (the Rules ). The Rules, and not this description, will govern the calculation and constitution of the Index and other decisions and actions related to their maintenance. The Rules in effect as of the date of this index supplement are included as part of the index supplement attached as Annex A to this index supplement. The Index is the intellectual property of JPMS plc, and JPMS plc reserves all rights with respect to its ownership of the Index. The Index is published to Bloomberg L.P. on the page JMOZUSD Index. Live calculation of the Index commenced on April 17, 2009 (the Live Date ), with Index levels calculated on a hypothetical historical basis from January 1, 1999 (the Index Start Date ). The initial level of the Index for January 1, 1999 was set at (the Base Level ). The Index tracks a dynamic, rules-based strategy offering notional exposure to a range of developed country government bond futures constituents (the Government Bond Futures Constituents ) and developed country equity index futures constituents (the Equity Index Futures Constituents and together with the Government Bond Futures Constituents, the Securities-based Constituents ) and exposure to certain listed excess return indices within the S&P GSCI TM commodity index group (the Non-Securities-based Constituents, and together with the Securities-based Constituents, the Constituents ). The strategy underlying the Index and the Rules: tracks percentage changes in the daily-weighted prices and levels of selected Constituents, after adjusting for currency differences and the application of weights whose levels are determined and rebalanced on a monthly basis; selects, based on recent past performance, Constituents to be tracked on a monthly basis (typically six Constituents) from a candidate list of 12 Constituents; excludes Constituents with recent negative performance, regardless of their performance relative to others in the candidate list of 12 Constituents; establishes weights for the selected Constituents based on a risk parity framework that looks to recent historical volatility; and employs an exposure flattening feature to temporarily suspend exposures in the Constituents in the event recent overall performance has declined beyond a specified threshold. To implement the foregoing strategy, the Rules contemplate a monthly rebalancing event, generally on the first weekday of each month, in respect of the Constituents. In the monthly rebalancing, the cumulative returns (in local currency terms, without adjusting for currency differences or the effect of compounding) of the 12 Constituents are measured over a recent 125-weekday observation period (approximately six months) (the Lookback Period, as defined in greater detail below). Each Constituent whose cumulative return in the Lookback Period is ranked in the highest six return levels will have a positive weight for the upcoming month so long as such Constituent s cumulative performance over the Lookback Period was positive. The weights for each of the Constituents that did not have one of the six highest returns or whose returns were negative during the Lookback Period will be set to zero for the upcoming month. If a Constituent is selected for the upcoming month, then its weight will be determined, based on a risk parity framework, to be the weight that would have yielded during the Lookback Period an annualized volatility of 7.75% 6, or approximately 1.29% (the Constituent Target Volatility ), subject to an upperbound limit of 1,000% (the Upper-Bound Limit ). The risk parity framework generally results in higher -11-

12 weights to selected Constituents that had lower historical volatility in the Lookback Period and lower weights to those that had higher historical volatility during the Lookback Period. The first weekday of a particular month is the Rebalancing Day (as defined below), unless such weekday is not a Scheduled Trading Day (as defined below) or such weekday is a Disrupted Day (as defined below) with respect to a particular Constituent, in which case that Constituent s weight for the upcoming month will remain the same as the prior month s weight. In respect of each Constituent, on each Scheduled Trading Day that is not a Disrupted Day for such Constituent, if the Index level declines by more than 3.00% over the five-weekday period ending on the second weekday immediately preceding such Scheduled Trading Day, then, notwithstanding its weight at that time, the weight of such Constituent will be subject to a five-weekday flattening period (beginning on the weekday immediately following such Scheduled Trading Day), during which time its weight will temporarily be set to zero, unless such Constituent is already then subject to an existing exposure flattening period. A Constituent that is already then subject to an exposure flattening period will remain in its original exposure flattening period and cannot be subject to a new exposure flattening period until the completion of the original period. Constituents in respect of which a given weekday either is not a Scheduled Trading Day or is a Disrupted Day will not be subject to the commencement of an exposure flattening period on the following weekday. The Index does not track a hypothetical fixed level of investment in the Constituents, but rather the weighted percentage changes in the prices and levels of the Constituents. Accordingly, the daily contribution of changes in Constituent prices and levels to changes in the Index level is not path dependent. Constituent weights are subject to a high upper-bound limit but are not subject to a separate leverage charge in the event weights exceed 100%. Individual and total weights of the Constituents can exceed 100% and each can be as low as zero, but Constituent weights can never be negative, or synthetically short, either in the aggregate or in respect of any single Constituent. To the extent the sum of all Constituent weights is less than 100%, a portion of the Index may be considered notionally uninvested and the returns in respect of such portion will be zero. If the sum of all Constituent weights is equal to zero, the Index value will remain unchanged, reflecting zero returns for each day such sum is equal to zero. No assurance can be given that the Index s strategy will be successful or that the Index will generate positive returns or will outperform any alternative strategy that might be constructed from the Constituents. Furthermore, the future volatility of any Constituent may not be consistent with its historical volatility. The actual realized volatility of any Constituent may be greater or less than the Constituent Target Volatility. The Index is described as tracking notional or synthetic exposures because there is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest. The Index merely references certain assets, the performance of which will be used as a reference point for calculating the Index level. Any Index level prior to the Live Date is a hypothetical historical, or back-tested, level. Such levels should not be taken as an indication of future performance, and no assurance can be given as to the levels or performance of the Index on a future date. Back-tested results are achieved by means of a retroactive application of a back-tested model designed with the benefit of hindsight. The Index Calculation Agent, in calculating hypothetical back-tested index levels, may have applied the disruption provisions specified in the Rules differently than it otherwise would have applied such provisions in a live calculation scenario. Additionally, the precision and rounding of the levels of the Index or a Constituent (or other calculated values) may differ from the methodology applied on a going forward basis. In calculating the hypothetical historical levels, the Index Calculation Agent may have made certain assumptions in respect of the timing surrounding the publication of certain indicators and Index levels. These assumptions may have a material impact on the back-tested levels occurring on or -12-

13 before the Live Date. No representation is made that any investment that references the Index will or is likely to achieve returns similar to any hypothetical historical returns. Alternative modeling techniques or assumptions might provide different results. Finally, back-tested results of past performance are neither an indicator nor a guarantee of future performance or returns. Actual results and performance may vary compared to such hypothetical back-tested levels. Index Sponsor; Index Calculation Agent; Amendment of Rules; Limitation of Liability JPMS plc is the sponsor of the Index (the Index Sponsor ). The Index Sponsor is responsible for, among other things, the creation and design of the Index, the documentation of the Rules, and the appointment of the calculation agent of the Index (the Index Calculation Agent ), which may be the Index Sponsor, a non-related third party or an affiliate or subsidiary of the Index Sponsor. As of the date of this Index Supplement, JPMS plc is also the Index Calculation Agent. The Index Calculation Agent is responsible for: calculating the Index level in respect of each weekday in accordance with the Rules; and determining (subject to the prior agreement of the Index Sponsor) if a Market Disruption Event, Disrupted Day or Extraordinary Event (or other similar event) has occurred and the related consequences and adjustments in accordance with the Rules. The Index Calculation Agent will act in good faith and in a commercially reasonable manner with respect to the performance of its obligations and the exercise of its discretion pursuant to the Rules. The Index Sponsor may at any time and for any reason terminate the appointment of an Index Calculation Agent and appoint an alternative entity as the replacement Index Calculation Agent. While the Rules are intended to be comprehensive, ambiguities may arise. In those circumstances, the Index Calculation Agent will resolve those ambiguities in a reasonable manner and, if necessary, amend the Rules to reflect that resolution. The Index Calculation Agent s determinations in respect of the Index and interpretations of the Rules will be final. The Index Sponsor may delegate and/or transfer any of its obligations or responsibilities in connection with the Index to one or more entities which it determines are appropriate. The Index Calculation Agent must obtain written permission from the Index Sponsor prior to any delegation or transfer of its responsibilities or obligations in connection with the Index to a third party. None of the Index Sponsor, the Index Calculation Agent or any of their respective affiliates or subsidiaries or any of their respective directors, officers, employees, representatives, delegates or agents (each a Relevant Person ) will have any responsibility to any person (whether as a result of negligence or otherwise) for any determinations made or anything done (or omitted to be determined or done) in respect of the Index or publication of the Index Level (or failure to publish such level) and any use to which any person may put the Index or the Index Level. No Relevant Person will take the interests of Contract Owners into account in making any determination in respect of the Index. All determinations in respect of the Index and the Index Level will be final, conclusive and binding and no person will be entitled to make any claim against any of the Relevant Persons in respect thereof. Once a determination or calculation is made or action taken by the Index Calculation Agent in respect of the Index, neither the Index Calculation Agent nor any other Relevant Person will be under any obligation to revise any determination or calculation made or action taken for any reason. Constituents of the Index There are currently 12 Constituents in the Index, of which five are Government Bond Futures Constituents, three are Equity Index Futures Constituents and four are Non-Securities-based Constituents. We also refer to Government Bond Futures Constituents and Equity Index Futures Constituents as Securities-based -13-

14 Constituents. Government Bond Futures Constituents The Government Bond Futures Constituents consist of: the CBOT 2-Year U.S. Treasury Note Futures Contract (Bloomberg ticker: ZT/TU), which is a series of exchange-traded futures contracts with expiry dates at three month intervals. As defined by the Relevant Exchange, the underlying unit of each contract is a single notional note issued by the U.S. Treasury that has a face value at maturity of $200,000, and Deliverable Grades of instruments eligible for settlement include U.S. Treasury notes with (a) an original term to maturity of not more than five years and three months and (b) a remaining term to maturity of not less than one year and nine months from the first day of the delivery month and not more than two years from the last day of the delivery month, where the invoice price equals the futures settlement price times a conversion factor, plus accrued interest, and the conversion factor is the price of the delivered note ($1 par value) to yield 6% (the 2 Year Note Futures ); the CBOT 10-Year U.S. Treasury Note Futures Contract (Bloomberg ticker: ZN/TY), which is a series of exchange-traded futures contracts with expiry dates at three month intervals. As defined by the Relevant Exchange, the underlying unit of each contract is a single notional note issued by the U.S. Treasury that has a face value at maturity of $100,000, and Deliverable Grades of instruments eligible for settlement include U.S. Treasury notes with a remaining term to maturity of at least six and a half years, but not more than ten years, from the first day of the delivery month, where the invoice price equals the futures settlement price times a conversion factor, plus accrued interest, and the conversion factor is the price of the delivered note ($1 par value) to yield 6% (the 10 Year Note Futures ); the EUREX Euro-Schatz Futures Contract (Bloomberg ticker: FGBS/DU), which is a series of exchangetraded futures contracts, with expiry dates at three month intervals. As defined by the Relevant Exchange, each contract references certain notional debt instruments issued by the Federal Republic of Germany that have (a) a face value at maturity of 100,000 European Union euros, (b) a remaining term on the Delivery Day of not less than one and three quarter years, and not more than two and a quarter years, and (c) has a 6% coupon (the Schatz Futures ); the EUREX Euro-Bund Futures Contract (Bloomberg ticker: FGBL/RX), which is series of exchange-traded futures contracts, with expiry dates at three month intervals. As defined by the Relevant Exchange each contract references certain notional debt instruments issued by the Federal Republic of Germany that have (a) a face value at maturity of 100,000 European Union euros, (b) a remaining term on the Delivery Day of not less than eight and a half years, and not more than ten and half years, and (c) has a 6% coupon (the Bund Futures ); and the Osaka 10-Year Japanese Government Bond Futures Contract (Bloomberg ticker: JGB/JB), which is a series of exchange-traded futures contracts, with expiry dates at three month intervals. Each contract references a single notional bond issued by the State of Japan that has (a) a face value at maturity of 100,000,000 Japanese yen, (b) a remaining term to maturity of not less than seven years, and not more than eleven years, as of the issued date and delivery date and (c) pays a notional 6% coupon (the JGB Futures ). Equity Index Futures Constituents The Equity Index Futures Constituents consist of: the CME Standard and Poor s 500 Stock Price Index TM Futures Contract (Bloomberg ticker: SP/SP), which is a series of exchange-traded futures contracts, with expiry dates at three month intervals. As defined by the Relevant Exchange, each contract references the Standard and Poor s 500 Stock Price Index, which provides a notional exposure equal to the product of the level of the Standard and Poor s 500 Stock Price Index and $250 (the S&P Futures ); -14-

15 the EUREX DAX Index Futures Contract (Bloomberg ticker: FDAX/DX), which is a series of exchangetraded futures contracts, with expiry dates at three month intervals. As defined by the Relevant Exchange, each contract references the Deutscher Aktien Index which provides a notional exposure equal to the product of the level of the DAX Index and 25 European Union euros (the DAX Futures ); and the Osaka Nikkei 225 Index Futures Contract (Bloomberg ticker: NK/NK), which is a series of exchangetraded futures contracts, with expiry dates at three month intervals. As defined by the Relevant Exchange, each contract references the Nikkei Stock Average (Nikkei 225 Index), which provides a notional exposure equal to the product of the level of the Nikkei 225 Index and 1,000 Japanese yen (the Nikkei Futures ). Non-Securities-based Constituents The Index references the following Non-Securities-based Constituents: the S&P GSCI TM Agriculture Excess Return Index is published daily on Bloomberg Ticker SPGCAGP Index <go> (the GSCI AG Index ); the S&P GSCI TM Precious Metals OC Excess Return Index is published daily on Bloomberg Ticker SPGCPMP Index <go> (the GSCI PM Index ); the S&P GSCI TM Industrial Metals Excess Return Index is published daily on Bloomberg Ticker SPGCINP Index <go> (the GSCI IM Index ); and the S&P GSCI TM Energy Excess Return Index is published daily on Bloomberg Ticker SPGCENP Index <go> (the GSCI EN Index ). -15-

16 The following table sets forth the 12 current Constituents and also contains the Bloomberg ticker, Relevant Exchange for each Constituent, to the extent applicable, as well as the local reporting currency of each Constituent s price or level and (where applicable) the Reuters page on which the FX rate for such currency is published, as the case may be. No. Government Bond Futures Constituents Bloomberg Ticker Relevant Exchange Reporting Currency Reuters Page 1 2 Year Note Futures ZT/TU Chicago Board of Trade or any successor 2 10 Year Note Futures ZN/TY Chicago Board of Trade or any successor 3 Schatz Futures FGBS/DU EUREX Exchange or any successor 4 Bund Futures FGBL/RX EUREX Exchange or any successor 5 JGB Futures JGB/JB Osaka Stock Exchange or any successor No. Equity Index Futures Constituents Bloomberg Ticker Relevant Exchange 6 S&P Futures SP/SP Chicago Mercantile Exchange or any successor 7 DAX Futures FDAX/DX EUREX Exchange or any successor 8 Nikkei Futures NK/NK Osaka Stock Exchange or any successor No. Non-Securities-based Constituents Bloomberg Ticker Relevant Exchange U.S. dollars U.S. dollars European Union euro European Union euro Japanese yen Reporting Currency U.S. dollars European Union euro Japanese yen Reporting Currency N/A N/A WMRSPOT05 WMRSPOT05 WMRSPOT12 Reuters Page N/A WMRSPOT05 WMRSPOT12 Reuters Page 9 GSCI AG Index SPGCAGP Index <go> 10 GSCI PM Index SPGCPMP Index <go> 11 GSCI IM Index SPGCINP Index <go 12 GSCI EN Index SPGCENP Index <go> N/A U.S. dollars N/A N/A U.S. dollars N/A N/A U.S. dollars N/A N/A U.S. dollars N/A Monthly Rebalancing The Index Calculation Agent calculates the Index s notional exposure to each Constituent as of its monthly Rebalancing Day (as defined below), and the rebalanced notional exposure to such Constituent is reflected in the Index beginning as of the weekday immediately following such Rebalancing Day. With respect to a particular Constituent, a Rebalancing Day means: if the first weekday of a month is a Scheduled Trading Day for such Constituent and is not a -16-

17 Disrupted Day for such Constituent, such weekday will be the Rebalancing Day for such Constituent; and if the first weekday of a month is not a Scheduled Trading Day or is a Disrupted Day for such Constituent, there shall be no Rebalancing Day that month for such Constituent, meaning that the Index Calculation Agent shall not rebalance such Constituent for the given month and its weight will remain unchanged from the prior month. Rebalancing Weights Beginning as of the weekday immediately following the monthly Rebalancing Day for a particular Constituent, the weight assigned to such Constituent (the Monthly Constituent Weight ) shall be determined as follows: if the Return Signal (as defined below) for such Constituent for such month is equal to zero, then that Constituent s Monthly Constituent Weight shall be zero; otherwise, such Constituent s Monthly Constituent Weight shall equal the lesser of (i) 1,000% (the Upper-Bound Limit ) and (ii) the Target Constituent Volatility divided by a measure of such Constituent s volatility over the Lookback Period (as defined below) (such Constituent s Constituent Historical Volatility ), expressed as follows: Monthly Constituent Weight = Target Constituent Volatility Constituent Historical Volatility In this scenario, the Monthly Constituent Weight is based on a risk parity framework and is essentially the weight that would have yielded during the Lookback Period an annualized volatility equal to the Target Constituent Volatility of 7.75% 6, or approximately 1.29%, subject to the Upper- Bound Limit. The risk parity framework generally results in higher Monthly Constituent Weights to selected Constituents that had lower historical volatility in the Lookback Period and lower Monthly Constituent Weights to those that had higher historical volatility during the Lookback Period. Thereafter, the Monthly Constituent Weight for such Constituent shall remain the same for each weekday until the application of the Monthly Constituent Weight from the next Rebalancing Day. Relevant Definitions The Lookback Period for a particular Constituent and a particular Rebalancing Day is the 125- weekday period ending on the third weekday prior to such Rebalancing Day. The Return Signal (which is referred to as the Trading Signal in the Rules) for a particular Constituent and a particular Rebalancing Day is either one or zero and is determined as follows: the cumulative return (i.e., the sum of the Daily Returns (as defined below) for such Constituent) of each Constituent over the Lookback Period is determined; the cumulative returns of all Constituents are ordered, and the six highest returns are determined; if the cumulative return of such Constituent over the Lookback Period falls among the six highest returns and such cumulative return is greater than zero, it will be assigned a Return Signal of one (1) for the month; and otherwise, such Constituent will be assigned a Return Signal of zero (0) for the month. Note that more than six Constituents may meet these criteria if there is a tie for sixth place. In addition, if one or more Constituents with positive weights from the prior month are not rebalanced because the first -17-

18 weekday of the month is not a Scheduled Trading Day for such Constituents, more than six Constituents may have positive weights for a given month. Constituent Historical Volatility for a particular Constituent and a particular Rebalancing Day is calculated as the volatility of the Daily Returns of such Constituent over the relevant Lookback Period and is expressed mathematically as follows: Where: σ c,t R c,t R c,k refers to the volatility of the relevant Constituent c as of the weekday t, which in this case is the third weekday immediately preceding the day originally scheduled for such Rebalancing Day; refers to the Daily Return of the relevant Constituent c as of the weekday t, which in this case is the third weekday immediately preceding the day originally scheduled for such Rebalancing Day; refers to the Daily Return of the relevant Constituent c as of the weekday k (with k=t referring to the third weekday immediately preceding the relevant Rebalancing Day, k=t-1 referring to the fourth weekday immediately preceding the day originally scheduled for such Rebalancing Day and so forth); and Scheduled Trading Day means: in respect of a Securities-based Constituent, each day on which the Relevant Exchange (see the table above under the heading Constituents of the Index ) is scheduled to be open for trading for its regular trading session, or in respect of any such exchange, any successor exchange therefor (broadly construed as occurring as a result of a merger, acquisition or otherwise); and in respect of a Non-Securities-based Constituent, each day in respect of which the relevant index sponsor is scheduled to publish the Closing Price (as defined below) for such Constituent. Closing Price means (i) in the case of a Securities-based Constituent, the official settlement price in respect of such Securities-based Constituent, as calculated and published by the applicable Constituent Sponsor (as defined below), and (ii) in the case of a Non-Securities-based Constituent, the official closing level in respect of such Non-Securities-based Constituent, as calculated and published by the applicable Constituent Sponsor. Constituent Sponsor means, in respect of any Constituent, the Relevant Exchange or any corporation or other entity that, as determined by the Index Calculation Agent: (a) is responsible for setting and reviewing the rules and procedures and the method of calculation and adjustments, if any, related to such Constituent and (b) announces (directly or through an agent) the level or price of such Constituent on a regular basis in respect of each Scheduled Trading Day. Disrupted Day means, in respect of any Scheduled Trading Day for any Constituent, the occurrence or existence of a Market Disruption Event (as defined below). -18-

19 Market Disruption Event means, in respect of any Scheduled Trading Day and a Constituent: in the case of a Securities-based Constituent, the failure of by the relevant Constituent Sponsor to calculate and publish the Closing Price of such Securities-based Constituent; and in the case of a Non-Securities-based Constituent, the occurrence of any one or more of the following circumstances: o o o o material limitation, suspension, or disruption of trading in one or more of the futures contracts included in such Non-Securities-based Constituent which results in a failure by the exchange on which such futures contract is traded to report a closing price for such futures contract on the day on which such event occurs or any succeeding day on which it continues; the closing price for any futures contract included in such Non-Securities-based Constituent is a limit price, which means that the closing price for such futures contract for a day has increased or decreased from the previous day s closing price by the maximum amount permitted under applicable exchange rules; a failure by the applicable exchange or other price source to announce or publish the closing price for any futures contract included in such Non-Securities-based Constituent; or the failure of by the relevant Constituent Sponsor to calculate and publish the Closing Price of such Non-Securities-based Constituent. Calculation and Publication of the Index Level The Index Calculation Agent calculates the Index level in respect of each weekday; provided, however, that if a weekday is a Disrupted Day in respect of a Constituent and such Constituent s Monthly Constituent Weight for such weekday is not equal to zero, the Index Calculation Agent will not publish an Index level for such weekday. The Index level was established as as of January 1, The Index level in respect of each subsequent weekday is equal to the sum of the prior weekday s Index level plus the product of (i) the prior weekday s Index level and (ii) the sum of the weighted U.S. dollar-adjusted return, if any, since the prior weekday for each Constituent (subject to the application of any Exposure Flattening Period (as defined below) in respect of such Constituent on such new weekday). The Index level calculation is expressed mathematically as follows: Where: Index t = Index t-1 x (1 + USD Returns t ) t refers in this case to the weekday in respect of which the Index level is being calculated; Index t refers to the Index level in respect of weekday t; Index t-1 USD Returns t refers to the Index level in respect of the weekday immediately preceding weekday t; and refers to the sum of the weighted U.S. dollar-adjusted return, if any, since the prior weekday for each Constituent. However, if, as a result of the foregoing calculation, the Index level would be zero or less than zero, the Index level will as of that day and thereafter be set to zero. The Index is published to Bloomberg L.P. on the page JMOZUSD Index. The Index level will be expressed to at least two decimal places, as determined by the Index Calculation Agent in a commercially -19-

20 reasonable manner. The Index Calculation Agent may maintain the Index to a greater degree of specification and may calculate the Index level using such calculated levels. Neither the Index Sponsor nor the Index Calculation Agent is under any obligation to continue the calculation, publication and dissemination of the Index. Calculation of USD Returns t USD Returns t for the Index in respect of weekday t is calculated as the sum of the weighted U.S. dollar-adjusted return, if any, since the prior weekday for each Constituent (subject to the application of any Exposure Flattening Period in respect of such Constituent for such new weekday). In order to calculate the weighted U.S. dollar-adjusted return, if any, of a Constituent, the unadjusted return for such Constituent for the relevant weekday (the Daily Return ) must first be calculated. Securities-based Constituents. The Daily Return for a Securities-based Constituent is calculated with respect to each weekday as follows: if such weekday is a Scheduled Trading Day for such Constituent and is not a Disrupted Day for such Constituent, and such weekday occurs in the period from, and including, the Roll Day (as defined below) in respect of the Second Near Futures Contract for such Constituent to, but excluding, the Expiry Last Trading Day (as defined below) of the First Near Futures Contract (as defined below) for such Constituent: Where: R c,t means the Daily Return in respect of weekday t for Constituent c; means, in respect of a Scheduled Trading Day on weekday t for Constituent c that is not a Disrupted Day for such Constituent, the Closing Price of the Second Near Futures Contract (as defined below) for such Constituent published by the Relevant Exchange as of such Scheduled Trading Day; and means, in respect of a Scheduled Trading Day on weekday t for Constituent c that is not a Disrupted Day for such Constituent, the Closing Price of the Second Near Futures Contract for such Constituent published by the Relevant Exchange in respect of the first immediately preceding Scheduled Trading Day that was not a Disrupted Day in respect of such Constituent. if such weekday is a Scheduled Trading Day for such Constituent and is not a Disrupted Day for such Constituent, and such weekday is prior to the Roll Day in respect of the Second Near Futures Contract for such Constituent: Where: R c,t means the Daily Return on weekday t for Constituent c; -20-