Additional
Information about JPMorgan Financial, JPMorgan Chase & Co. and the Notes
You should read this pricing supplement together with
the accompanying prospectus, as supplemented by the accompanying prospectus supplement, relating to our Series A medium-term notes
of which these Notes are a part, and the more detailed information contained in the accompanying product supplement and the accompanying
underlying supplement.
This pricing supplement, together with the documents listed below, contains the terms of the Notes and
supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative
pricing terms, correspondence, trade ideas, structures for implementation, sample structures, fact sheets, brochures or other educational
materials of ours.
You should carefully consider, among other things, the matters set forth in the “Risk Factors”
sections of the accompanying product supplement and the accompanying underlying supplement, as the Notes involve risks not associated
with conventional debt securities.
Our Central Index Key, or CIK, on the SEC website is
1665650, and JPMorgan Chase & Co.’s CIK is 19617. As used in this pricing supplement, the “Issuer,” “JPMorgan
Financial,” “we,” “us” and “our” refer to JPMorgan Chase Financial Company LLC.
For purposes of the accompanying product supplement,
each of the Russell 2000
®
Index and the S&P 500
®
Index is an “Index.”
Coupon
Observation Dates, Autocall Observation Dates and Coupon Payment Dates
Coupon Observation Dates
|
Autocall Observation Dates
|
Coupon Payment Dates
|
October 27, 2016
|
—
|
October 31, 2016
|
January 27, 2017
|
January 27, 2017
|
January 31, 2017
|
April 27, 2017
|
—
|
May 2, 2017
|
July 27, 2017
|
July 27, 2017
|
July 31, 2017
|
October 27, 2017
|
—
|
October 31, 2017
|
January 29, 2018
|
January 29, 2018
|
January 31, 2018
|
April 27, 2018
|
—
|
May 1, 2018
|
July 27, 2018 (the Final Valuation Date)
|
July 27, 2018 (the Final Valuation Date)
|
August 1, 2018 (the Maturity Date)
|
Each of the Coupon Observation Dates
and the Autocall Observation Dates, and therefore the Coupon Payment Dates, is subject to postponement in the event of a market
disruption event and as described under “General Terms of Notes — Postponement of a Determination Date — Notes
Linked to Multiple Underlyings” and “General Terms of Notes — Postponement of a Payment Date” in the accompanying
product supplement.
What
Are the Tax Consequences of the Notes?
You should review carefully the section entitled “Material
U.S. Federal Income Tax Consequences” in the accompanying product supplement no. UBS-1-I. In determining our reporting responsibilities
we intend to treat (i) the Notes for U.S. federal income tax purposes as prepaid forward contracts with associated contingent coupons
and (ii) any Contingent Coupons as ordinary income, as described in the section entitled “Material U.S. Federal Income Tax
Consequences — Tax Consequences to U.S. Holders — Notes Treated as Prepaid Forward Contracts with Associated Contingent
Coupons” in the accompanying product supplement. Based on the advice of Davis Polk & Wardwell LLP, our special tax counsel,
we believe that this is a reasonable treatment, but that there are other reasonable treatments that the IRS or a court may adopt.
Sale, Exchange or Redemption of a Note.
Assuming
the treatment described above is respected, upon a sale or exchange of the Notes (including redemption upon an automatic call or
at maturity), you should recognize capital gain or loss equal to the difference between the amount realized on the sale or exchange
and your tax basis in the Notes, which should equal the amount you paid to acquire the Notes (assuming Contingent Coupons are properly
treated as ordinary income, consistent with the position referred to above). This gain or loss should be short-term capital gain
or loss unless you hold the Notes for more than one year, in which case the gain or loss should be long-term capital gain or loss,
whether or not you are an initial purchaser of the Notes at the issue price. The deductibility of capital losses is subject to
limitations. If you sell your Notes between the time your right to a Contingent Coupon is fixed and the time it is paid, it is
likely that you will be treated as receiving ordinary income equal to the Contingent Coupon. Although uncertain, it is possible
that proceeds received from the sale or exchange of your Notes prior to an Observation Date but that can be attributed to an expected
Contingent Coupon payment could be treated as ordinary income. You should consult your tax adviser regarding this issue.
As described above, there are other reasonable treatments
that the IRS or a court may adopt, in which case the timing and character of any income or loss on the Notes could be materially
affected. In addition, in 2007 Treasury and the IRS released a notice requesting comments on the U.S. federal income tax treatment
of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require investors
in these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics,
including the character of income or loss with respect to these instruments and the relevance of factors such as the nature of
the underlying property to which the instruments are linked. While the notice requests comments on appropriate transition rules
and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially
affect the tax consequences of an investment in the Notes, possibly with retroactive effect. You should consult your tax adviser
regarding the U.S. federal income tax consequences of an investment in the Notes, including possible alternative treatments and
the issues presented by this notice.
Non-U.S. Holders — Tax Considerations
.
The U.S. federal income tax treatment of Contingent Coupons is uncertain, and although we believe it is reasonable to take a position
that Contingent Coupons are not subject to U.S. withholding tax (at least if an applicable Form W-8 is provided), a withholding
agent may nonetheless withhold on these payments (generally at a rate of 30%, subject to the possible reduction of that rate under
an applicable income tax treaty), unless income from your Notes is effectively connected with your conduct of a trade or business
in the United States (and, if an applicable treaty so requires, attributable to a permanent establishment in the United States).
If you are not a United States person, you are urged to consult your tax adviser regarding the U.S. federal income tax consequences
of an investment in the Notes in light of your particular circumstances.
Non-U.S. holders
should also note that recently promulgated Treasury regulations imposing a withholding tax on certain “dividend equivalents”
under certain “equity linked instruments” will not apply to the Notes.
FATCA.
Withholding under legislation
commonly referred to as “FATCA” could apply to payments with respect to the Notes that are treated as U.S.-source “fixed
or determinable annual or periodical” income (“FDAP Income”) for U.S. federal income tax purposes (such as interest,
if the Notes are recharacterized, in whole or in part, as debt instruments, or Contingent Coupons if they are otherwise treated
as FDAP Income). Under a recent IRS notice, withholding under FATCA will not apply to payments of gross proceeds (other than any
amount treated as FDAP Income) of a taxable disposition, including an early redemption or redemption at maturity, of the Notes.
You should consult your tax adviser regarding the potential application of FATCA to the Notes.
In the event of any withholding on
the Notes, we will not be required to pay any additional amounts with respect to amounts so withheld.
Key
Risks
An investment in the Notes involves significant risks. Investing
in the Notes is not equivalent to investing directly in either or both of the Underlyings. These risks are explained in more detail
in the “Risk Factors” sections of the accompanying product supplement and the accompanying underlying supplement. We
also urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the Notes.
Risks Relating to the Notes Generally
|
♦
|
Your Investment in the Notes May Result in a Loss
— The
Notes differ from ordinary debt securities in that JPMorgan Financial will not necessarily repay the full principal amount of the
Notes. If the Notes are not called and the closing level of either Underlying has declined below its Downside Threshold on the
Final Valuation Date, you will be fully exposed to any depreciation of the Lesser Performing Underlying from its Initial Value
to its Final Value. In this case, JPMorgan Financial will repay less than the full principal amount at maturity, resulting in a
loss of principal that is proportionate to the negative Underlying Return of the Lesser Performing Underlying. Under these circumstances,
you will lose 1% of your principal for every 1% that the Final Value of the Lesser Performing Underlying is less than its Initial
Value and could lose your entire principal amount. As a result, your investment in the Notes may not perform as well as an investment
in a security that does not have the potential for full downside exposure to either Underlying.
|
|
♦
|
Credit Risks of JPMorgan Financial and JPMorgan Chase & Co.
— The Notes are unsecured and unsubordinated debt obligations of the Issuer, JPMorgan Chase Financial Company LLC, the
payment on which is fully and unconditionally guaranteed by JPMorgan Chase & Co. The Notes will rank
pari passu
with
all of our other unsecured and unsubordinated obligations, and the related guarantee JPMorgan Chase & Co. will rank
pari
passu
with all of JPMorgan Chase & Co.’s other unsecured and unsubordinated obligations. The Notes and related guarantees
are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the Notes, including any repayment
of principal, depends on the ability of JPMorgan Financial and JPMorgan Chase & Co. to satisfy their obligations as they come
due. As a result, the actual and perceived creditworthiness of JPMorgan Financial and JPMorgan Chase & Co. may affect the market
value of the Notes and, in the event JPMorgan Financial and JPMorgan Chase & Co. were to default on their obligations, you
may not receive any amounts owed to you under the terms of the Notes and you could lose your entire investment.
|
|
♦
|
As a Finance Subsidiary, JPMorgan Financial Has No Independent Operations
and Limited Assets —
As a finance subsidiary of JPMorgan Chase & Co., we have no independent operations beyond the
issuance and administration of our securities. Aside from the initial capital contribution from JPMorgan Chase & Co., substantially
all of our assets relate to obligations of our affiliates to make payments under loans made by us or other intercompany agreements.
As a result, we are dependent upon payments from our affiliates to meet our obligations under the Notes. If these affiliates do
not make payments to us and we fail to make payments on the Notes, you may have to seek payment under the related guarantee by
JPMorgan Chase & Co., and that guarantee will rank
pari passu
with all other unsecured and unsubordinated obligations
of JPMorgan Chase & Co.
|
|
♦
|
You Are Not Guaranteed Any Contingent Coupons
— We will
not necessarily make periodic coupon payments on the Notes. If the closing level of either Underlying on a Coupon Observation Date
is less than its Coupon Barrier, we will not pay you the Contingent Coupon for that Coupon Observation Date even if the closing
level of the other Underlying is greater than or equal to its Coupon Barrier on that Coupon Observation Date, and the Contingent
Coupon that would otherwise be payable will not be accrued and will be lost. If the closing level of either Underlying is less
than its Coupon Barrier on each of the Coupon Observation Dates, we will not pay you any Contingent Coupon during the term of,
and you will not receive a positive return on, your Notes. Generally, this non-payment of the Contingent Coupon coincides with
a period of greater risk of principal loss on your Notes.
|
|
♦
|
Return on the Notes Limited to the Sum of Any Contingent Coupons
and You Will Not Participate in Any Appreciation of Either Underlying
— The return potential of the Notes is limited
to the specified Contingent Coupon Rate, regardless of the appreciation of either Underlying, which may be significant. In addition,
the total return on the Notes will vary based on the number of Coupon Observation Dates on which the requirements for a Contingent
Coupon have been met prior to maturity or an automatic call. Further, if the Notes are called, you will not receive any Contingent
Coupons or any other payments in respect of any Coupon Observation Dates after the Call Settlement Date. Because the Notes could
be called as early as the first Autocall Observation Date, the total return on the Notes could be minimal. If the Notes are not
called, you may be subject to the risk of decline in the level of each Underlying, even though you are not able to participate
in any potential appreciation of either Underlying. Generally, the longer the Notes remain outstanding, the less likely it is that
they will be automatically called, due to the decline in the level of one or both of the Underlyings and the shorter time remaining
for the level of either Underlying to recover to or above its Initial Value on a subsequent Autocall Observation Date. As
a result, the return on an investment in the Notes could be less than the return on a hypothetical direct investment in either
Underlying. In addition, if the Notes are not called and the Final Value of either Underlying is below its Downside Threshold,
you will have a loss on your principal amount and the overall return on the Notes may be less than the amount that would be paid
on a conventional debt security of JPMorgan Financial of comparable maturity.
|
|
♦
|
Because the Notes Are Linked to the Lesser Performing Underlying,
You Are Exposed to Greater Risks of No Contingent Coupons and Sustaining a Significant Loss on Your Investment at Maturity Than
If the Notes Were Linked to a Single Underlying
— The risk that you will not receive any Contingent Coupons and lose
some or all of your initial investment in the Notes at maturity is greater if you invest in the Notes as opposed to substantially
similar securities that are linked to the performance of a single Underlying. With two Underlyings, it is more likely that the
closing level of either Underlying will be less than its Coupon Barrier on the Coupon Observation Dates or less than its Downside
Threshold on the Final Valuation Date. Therefore it is more likely that you will not receive any Contingent Coupons and that you
will suffer a significant loss on your investment at maturity. In addition, the performance of the Underlyings may not be correlated
or may be negatively correlated.
|
The lower the correlation between two
Underlyings, the greater the potential for one of those Underlyings to close below its Coupon Barrier or Downside Threshold on
a Coupon Observation Date or the Final Valuation Date, respectively. See “Correlation of the Underlyings” below. Although
the correlation of the Underlyings’ performance may change over the term of the Notes, the Contingent Coupon Rate is determined,
in part, based on the correlation of the Underlyings’ performance, as calculated using internal models of our affiliates
at the time when the terms of the Notes are finalized. A higher Contingent Coupon Rate is generally associated with lower correlation
of the Underlyings, which reflects a greater potential for loss on your investment at maturity. Furthermore, because the closing
level of each Underlying must be greater than or equal to its Initial Value on a semi-annual Autocall Observation Date in order
for the notes to be automatically called prior to maturity, the Notes are less likely to be automatically called on any Autocall
Observation Date than if the Notes were linked to a single Underlying.
|
♦
|
You Are Exposed to the Risk of Decline in the Level of Each Underlying
— Your return on the Notes and your payment at maturity, if any, is not linked to a basket consisting of the Underlyings.
If the Notes have not been automatically called, your payment at maturity is contingent upon the performance of each individual
Underlying such that you will be equally exposed to the risks related to either of the Underlyings. In addition, the performance
of the Underlyings may not be correlated. Poor performance by either of the Underlyings over the term of the Notes may negatively
affect whether you will receive a Contingent Coupon on any Coupon Payment Date and your payment at maturity and will not be offset
or mitigated by positive performance by the other Underlying. Accordingly, your investment is subject to the risk of decline in
the value of each Underlying.
|
|
♦
|
Your Payment at Maturity May Be Determined By the Lesser Performing
Underlying
— Because the payment at maturity will be determined based on the performance of the Lesser Performing Underlying,
you will not benefit from the performance of the other Underlying. Accordingly, if the Notes have not been automatically
called and the Final Value of either Underlying is less than its Downside Threshold, you will lose some or all of your principal
amount at maturity, even if the Final Value of the other Underlying is greater than or equal to its Initial Value.
|
|
♦
|
Contingent Repayment of Principal Applies Only If You Hold the Notes
to Maturity
— If you are able to sell your Notes in the secondary market prior to maturity, you may have to sell them
at a loss relative to your initial investment even if the closing levels of both Underlyings are above their respective Downside
Thresholds. If by maturity the Notes have not been called, either JPMorgan Financial will repay you the full principal amount per
Note, plus the Contingent Coupon, or, if either Underlying closes below its Downside Threshold on the Final Valuation Date, JPMorgan
Financial will repay less than the principal amount, if anything, at maturity, resulting in a loss on your principal amount that
is proportionate to the decline in the closing level of the Lesser Performing Underlying from its Initial Value to its Final Value.
This contingent repayment of principal applies only if you hold your Notes to maturity.
|
|
♦
|
A Higher Contingent Coupon Rate and/or a Lower Coupon Barrier and/or
Downside Threshold May Reflect Greater Expected Volatility of the Underlyings, Which Is Generally Associated With a Greater Risk
of Loss
— Volatility is a measure of the degree of variation in the levels of the Underlyings over a period of time.
The greater the expected volatilities of the Underlyings at the time the terms of the Notes are set, the greater the expectation
is at that time that the level of an Underlying could close below its Coupon Barrier on any Coupon Observation Date, resulting
in the loss of one or more, or all, Contingent Coupon payments, or below its Downside Threshold on the Final Valuation Date, resulting
in the loss of a significant portion or all of your principal at maturity. In addition, the economic terms of the Notes,
including the Contingent Coupon Rate, the Coupon Barrier and the Downside Threshold, are based, in part, on the expected volatilities
of the Underlyings at the time the terms of the Notes are set, where higher expected volatilities will generally be reflected in
a higher Contingent Coupon Rate than the fixed rate we would pay on conventional debt securities of the same maturity and/or on
otherwise comparable securities and/or a lower Coupon Barrier and/or a lower Downside Threshold as compared to otherwise comparable
securities. Accordingly, a higher Contingent Coupon Rate will generally be indicative of a greater risk of loss while a lower
Coupon Barrier or Downside Threshold does not necessarily indicate that the Notes have a greater likelihood of paying Contingent
Coupon payments or returning your principal at maturity. You should be willing to accept the downside market risk of each
Underlying and the potential loss of some or all of your principal at maturity.
|
|
♦
|
Reinvestment Risk
— If your Notes are called early, the
holding period over which you would have the opportunity to receive any Contingent Coupons could be as short as approximately six
months. There is no guarantee that you would be able to reinvest the proceeds from an investment in the Notes at a comparable return
and/or with a comparable interest rate for a similar level of risk in the event the Notes are called prior to the maturity date.
|
|
♦
|
Potential Conflicts
— We and our affiliates play a variety
of roles in connection with the issuance of the Notes, including acting as calculation agent and hedging our obligations under
the Notes and making the assumptions used to determine the pricing of the Notes and the estimated value of the Notes when the terms
of the Notes are set, which we refer to as the estimated value of the Notes. In performing these duties, our and JPMorgan Chase
& Co.’s economic interests and the economic interests of the calculation agent and other affiliates of ours are potentially
adverse to your interests as an investor in the Notes. In addition, our and JPMorgan Chase & Co.’s business activities,
including hedging and trading activities, could cause our and JPMorgan Chase & Co.’s economic interests to be adverse
to yours and could adversely affect any payment on the Notes and the value of the Notes. It is possible that hedging or trading
activities of ours or our affiliates in connection with the Notes could result in substantial returns for us or our affiliates
while the value of the Notes declines. Please refer to “Risk Factors — Risks Relating to Conflicts of Interest”
in the accompanying product supplement for additional information about these risks.
|
|
♦
|
Each Contingent Coupon Is Based Solely on the Closing Levels of
the Underlyings on the Applicable Coupon Observation Date
— Whether a Contingent Coupon will be payable with respect
to a Coupon Observation Date will be based solely on the closing levels of the Underlyings on that Coupon Observation Date. As
a result, you will not know whether you will receive a Contingent Coupon until the related Coupon Observation Date. Moreover, because
each Contingent Coupon is based solely on the closing levels of the Underlyings on the applicable Coupon Observation Date, if the
closing level of either Underlying is less than its Coupon Barrier, you will not receive any Contingent Coupon with respect to
that Coupon Observation Date, even if the closing level of the other
|
Underlying is equal to or greater than
its Coupon Barrier and even if the closing level of that Underlying was higher on other days during the period before that Coupon
Observation Date.
|
♦
|
The Estimated Value of the Notes Is Lower Than the Original Issue
Price (Price to Public) of the Notes
— The estimated value of the Notes is only an estimate determined by reference to
several factors. The original issue price of the Notes exceeds the estimated value of the Notes because costs associated with selling,
structuring and hedging the Notes are included in the original issue price of the Notes. These costs include the selling commissions,
the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under
the Notes and the estimated cost of hedging our obligations under the Notes. See “The Estimated Value of the Notes”
in this pricing supplement.
|
|
♦
|
The Estimated Value of the Notes Does Not Represent Future Values
of the Notes and May Differ from Others’ Estimates
— The estimated value of the Notes is determined by reference
to internal pricing models of our affiliates when the terms of the Notes are set. This estimated value of the Notes is based on
market conditions and other relevant factors existing at that time and assumptions about market parameters, which can include volatility,
dividend rates, interest rates and other factors. Different pricing models and assumptions could provide valuations for the Notes
that are greater than or less than the estimated value of the Notes. In addition, market conditions and other relevant factors
in the future may change, and any assumptions may prove to be incorrect. On future dates, the value of the Notes could change significantly
based on, among other things, changes in market conditions, our or JPMorgan Chase & Co.’s creditworthiness, interest
rate movements and other relevant factors, which may impact the price, if any, at which JPMS would be willing to buy Notes from
you in secondary market transactions. See “The Estimated Value of the Notes” in this pricing supplement.
|
|
♦
|
The Estimated Value of the Notes Is Derived by Reference to an Internal
Funding Rate
— The internal funding rate used in the determination of the estimated value of the Notes is based on, among
other things, our and our affiliates’ view of the funding value of the Notes as well as the higher issuance, operational
and ongoing liability management costs of the Notes in comparison to those costs for the conventional fixed-rate debt of JPMorgan
Chase & Co. The use of an internal funding rate and any potential changes to that rate may have an adverse effect on the terms
of the Notes and any secondary market prices of the Notes. See “The Estimated Value of the Notes” in this pricing supplement.
|
|
♦
|
The Value of the Notes as Published by JPMS (and Which May Be Reflected
on Customer Account Statements) May Be Higher Than the Then-Current Estimated Value of the Notes for a Limited Time Period
— We generally expect that some of the costs included in the original issue price of the Notes will be partially paid back
to you in connection with any repurchases of your Notes by JPMS in an amount that will decline to zero over an initial predetermined
period. These costs can include selling commissions, projected hedging profits, if any, and, in some circumstances, estimated hedging
costs and our internal secondary market funding rates for structured debt issuances. See “Secondary Market Prices of the
Notes” in this pricing supplement for additional information relating to this initial period. Accordingly, the estimated
value of your Notes during this initial period may be lower than the value of the Notes as published by JPMS (and which may be
shown on your customer account statements).
|
|
♦
|
Secondary Market Prices of the Notes Will Likely Be Lower Than the
Original Issue Price of the Notes
— Any secondary market prices of the Notes will likely be lower than the original issue
price of the Notes because, among other things, secondary market prices take into account our internal secondary market funding
rates for structured debt issuances and, also, because secondary market prices (a) exclude selling commissions and (b) may exclude
projected hedging profits, if any, and estimated hedging costs that are included in the original issue price of the Notes. As a
result, the price, if any, at which JPMS will be willing to buy Notes from you in secondary market transactions, if at all, is
likely to be lower than the original issue price. Any sale by you prior to the Maturity Date could result in a substantial loss
to you. See the immediately following risk factor for information about additional factors that will impact any secondary market
prices of the Notes.
|
The Notes are not designed to be short-term
trading instruments. Accordingly, you should be able and willing to hold your Notes to maturity. See “— Lack of Liquidity”
below.
|
♦
|
Many Economic and Market Factors Will Impact the Value of the Notes
— As described under “The Estimated Value of the Notes” in this pricing supplement, the Notes can be thought
of as securities that combine a fixed-income debt component with one or more derivatives. As a result, the factors that influence
the values of fixed-income debt and derivative instruments will also influence the terms of the Notes at issuance and their value
in the secondary market. Accordingly, the secondary market price of the Notes during their term will be impacted by a number of
economic and market factors, which may either offset or magnify each other, aside from the selling commissions, projected hedging
profits, if any, estimated hedging costs and the levels of the Underlyings, including:
|
|
♦
|
any
actual or potential change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads;
|
|
♦
|
customary bid-ask spreads for similarly sized trades;
|
|
♦
|
our internal secondary market funding rates for structured debt issuances;
|
|
♦
|
the actual and expected volatility in the levels of the Underlyings;
|
|
♦
|
the time to maturity of the Notes;
|
|
♦
|
the likelihood of an automatic call being triggered;
|
|
♦
|
whether the closing level of either Underlying has been, or is expected
to be, less than its Coupon Barrier on any Coupon Observation Date and whether the Final Value of either Underlying is expected
to be less than its Downside Threshold;
|
|
♦
|
the dividend rates on the equity securities underlying the Underlyings;
|
|
♦
|
the actual and expected positive or negative correlation between the
Underlyings, or the actual or expected absence of any such correlation;
|
|
♦
|
interest and yield rates in the market generally; and
|
|
♦
|
a variety of other economic, financial, political, regulatory and judicial
events.
|
Additionally, independent pricing vendors
and/or third party broker-dealers may publish a price for the Notes, which may also be reflected on customer account statements.
This price may be different (higher or lower) than the price of the Notes, if any, at which JPMS may be willing to purchase your
Notes in the secondary market.
|
♦
|
Investing in the Notes Is Not Equivalent to Investing in the Stocks
Composing the Underlyings
— Investing in the Notes is not equivalent to investing in the stocks included in the Underlyings.
As an investor in the Notes, you will not have any ownership interest or rights in the stocks included in the Underlyings, such
as voting rights, dividend payments or other distributions.
|
|
♦
|
We Cannot Control Actions by the Sponsor
of Either Underlying and That Sponsor Has No Obligation to Consider Your Interests
— We and our affiliates are not affiliated
with the sponsor of either Underlying and have no ability to control or predict its actions, including any errors in or discontinuation
of public disclosure regarding methods or policies relating to the calculation of that Underlying. The sponsor of each Underlying
is not involved in this Note offering in any way and has no obligation to consider your interest as an owner of the Notes in taking
any actions that might affect the market value of your Notes.
|
|
♦
|
Your Return on the Notes Will Not Reflect Dividends on the Stocks
Composing the Underlyings
— Your return on the Notes will not reflect the return you would realize if you actually owned
the stock included in the Underlyings and received the dividends on the stock included in the Underlyings. This is because the
calculation agent will determine whether the Notes will be called and whether a Contingent Coupon is payable and will calculate
the amount payable to you at maturity of the Notes by reference to the closing level of each Underlying on the relevant Observation
Date, without taking into consideration the value of dividends on the stock included in that Underlying.
|
|
♦
|
No Assurances That the Investment View Implicit in the Notes Will
Be Successful
— While the Notes are structured to provide for Contingent Coupons if each Underlying does not close below
its Coupon Barrier on the Observation Dates, we cannot assure you of the economic environment during the term or at maturity of
your Notes.
|
|
♦
|
Lack of Liquidity
— The Notes will not be listed on any
securities exchange. JPMS intends to offer to purchase the Notes in the secondary market, but is not required to do so. Even if
there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Notes easily. Because other
dealers are not likely to make a secondary market for the Notes, the price at which you may be able to trade your Notes is likely
to depend on the price, if any, at which JPMS is willing to buy the Notes.
|
|
♦
|
Potentially Inconsistent Research, Opinions or Recommendations by
JPMS, UBS or Their Affiliates
— JPMS, UBS or their affiliates may publish research, express opinions or provide recommendations
that are inconsistent with investing in or holding the Notes, and that may be revised at any time. Any such research, opinions
or recommendations may or may not recommend that investors buy or hold the Underlyings and could affect the level of an Underlying,
and therefore the market value of the Notes.
|
|
♦
|
Tax Treatment
— Significant aspects of the tax treatment
of the Notes are uncertain. You should consult your tax adviser about your tax situation.
|
|
♦
|
Potential JPMorgan Financial Impact on the Level of an Underlying
— Trading or transactions by JPMorgan Financial or its affiliates in an Underlying and/or over-the-counter options, futures
or other instruments with returns linked to the performance of an Underlying may adversely affect the level of that Underlying
and, therefore, the market value of the Notes.
|
Risks Relating to the Underlyings
|
♦
|
An Investment in the Notes is Subject to Risks Associated with Small
Capitalization Stocks with Respect to the Russell 2000
®
Index
— The equity securities included in the
Russell 2000
®
Index
are issued by companies with relatively small market capitalization. The stock prices
of smaller companies may be more volatile than stock prices of large capitalization companies. Small capitalization companies may
be less able to withstand adverse economic, market, trade and competitive conditions relative to larger companies. These companies
tend to be less well-established than large market capitalization companies. Small capitalization companies are less likely to
pay dividends on their stocks, and the presence of a dividend payment could be a factor that limits downward stock price pressure
under adverse market conditions.
|
|
♦
|
JPMorgan Chase & Co. Is Currently One of the Companies that
Makes Up the
S&P
500
®
Index
— JPMorgan Chase & Co. is currently one of
the companies that makes up the
S&P
500
®
Index
. JPMorgan
Chase & Co. will not have any obligation to consider your interests as a holder of the Notes in taking any corporate action
that might affect the value of the
S&P
500
®
Index
and
the Notes.
|
Hypothetical
Examples
The examples below illustrate the hypothetical payments on a Coupon
Payment Date, upon an automatic call or at maturity under different hypothetical scenarios for a $10.00 Note on an offering of
the Notes, with the assumptions set forth below.* We cannot predict the closing level of either Underlying
on any day during the term of the Notes, including on any Coupon Observation Date or Autocall Observation Date. You should not
take these examples as an indication or assurance of the expected performance of the Notes. Numbers in the examples below have
been rounded for ease of analysis. In these examples, we refer to the Russell 2000
®
Index and the S&P 500
®
Index as the “RTY Index” and the “SPX Index,” respectively.
Principal Amount:
|
$10.00
|
Term:
|
Approximately 2 years (unless earlier called)
|
Hypothetical Initial Value:
|
100.000 for the RTY Index and 100.00 for the SPX Index
|
Contingent Coupon Rate:
|
7.70% per annum (or 1.925% per quarter)
|
Coupon Observation Dates:
|
Quarterly
|
Autocall Observation Dates:
|
Semi-annually
|
Hypothetical Downside Threshold:
|
70.000 for the RTY Index and 70.00 for the SPX Index (which, with respect to each Underlying, is 70% of the hypothetical Initial Value
of that Underlying)
|
Hypothetical Coupon Barrier:
|
70.000 for the RTY Index and 70.00 for the SPX Index (which, with respect to each Underlying, is 70% of the hypothetical Initial Value
of that Underlying)
|
*
|
Terms
used for purposes of these hypothetical examples do not represent the actual Initial Values, Coupon Barriers or Downside Thresholds. The
hypothetical Initial Values of 100.000 for the RTY Index and 100.00 for the SPX Index
have been chosen
for illustrative purposes only and do not represent the actual Initial Value for either Underlying. The actual
Initial Value and resulting Downside Threshold and Coupon Barrier of each Underlying are based on the closing level of that
Underlying on the Trade Date and are specified on the cover of this pricing supplement. For historical data regarding
the actual closing levels of the Underlyings, please see the historical information set forth under the sections titled “The
Russell 2000
®
Index” and “The S&P 500
®
Index” below.
|
The examples below are purely hypothetical. These examples are
intended to illustrate (a) under what circumstances the Notes will be subject to an automatic call, (b) how the payment of a Contingent
Coupon with respect to any Coupon Observation Date will depend on whether the closing level of either
Underlying on that Coupon Observation Date is less than its Coupon Barrier, (c) how the value of
the payment at maturity on the Notes will depend on whether the Final Value of either Underlying
is less than its Downside Threshold and (d) how the total return on
the Notes may be less than the total return on a direct investment in either or both Underlyings
in certain scenarios. The “total return” as used in this pricing supplement is the number, expressed as a percentage,
that results from comparing the total payments per $10.00 principal amount Note over the term of the Notes to the $10.00 initial
issue price.
Example 1 — Notes Are Automatically Called on
the First Autocall Observation Date
Date
|
|
Closing
Level
|
|
Payment (per Note)
|
First Coupon Observation Date
|
|
RTY Index: 105.000
|
|
Closing
level of each Underlying above
its Initial Value; Notes NOT automatically callable because Observation Date is not an Autocall Observation Date. Closing
level of each Underlying above
its Coupon Barrier; Issuer pays Contingent Coupon of $0.1925
on first Coupon Payment Date.
|
SPX Index: 110.00
|
Second Coupon Observation Date (First Autocall Observation Date)
|
|
RTY Index: 110.000
|
|
Closing
level of each Underlying at or above
its Initial Value; Notes are automatically called; Issuer repays principal
plus
pays Contingent Coupon of $0.1925
on Call Settlement Date.
|
SPX Index: 115.00
|
|
Total Payments (per $10.00 Note):
|
|
Payment on Call Settlement Date:
|
$10.1925
($10.00 + $0.1925)
|
|
|
Prior Contingent Coupons:
|
$0.1925
($0.1925
×
1)
|
|
|
Total:
|
$10.385
|
|
|
Total Return:
|
3.85%
|
Because the closing level of each
Underlying is greater than or equal to its Initial Value on the first
Autocall Observation Date (which is also the second Coupon Observation Date), the Notes are automatically called on that Autocall
Observation Date. JPMorgan Financial will pay you on the Call Settlement Date $10.1925 per $10.00
principal amount Note, which is equal to your principal amount
plus
the Contingent Coupon due on the Coupon Payment Date
that is also the Call Settlement Date. No further amounts will be owed to you under the Notes.
In addition, because the closing level
of each Underlying was greater than or equal to its Coupon Barrier on the first Coupon Observation
Date, JPMorgan Financial will pay the Contingent Coupon of $0.1925
on the first Coupon Payment Date. Accordingly, JPMorgan Financial will have paid a total of $10.385
per $10.00 principal amount Note for a 3.85% total return over the shortened six (6) month term of the Notes as a result of the
automatic call.
Example 2 — Notes Are NOT Automatically Called
and the Final Value of Each Underlying Is Above Its Downside Threshold
and Coupon Barrier
Date
|
|
Closing
Level
|
|
Payment (per Note)
|
First Coupon Observation Date
|
|
RTY Index: 115.000
|
|
Closing
level of each Underlying above its Initial Value; Notes NOT automatically callable because Coupon Observation Date is not an Autocall Observation Date. Closing
level of each Underlying above
its Coupon Barrier; Issuer pays Contingent Coupon of $0.1925
on first Coupon Payment Date.
|
SPX Index: 110.00
|
Second Coupon Observation Date (First Autocall Observation Date)
|
|
RTY Index: 80.000
|
|
Closing level of each Underlying below its Initial Value; Notes NOT automatically called. Closing level of each Underlying above its Coupon Barrier; Issuer pays Contingent Coupon of $0.1925 on second Coupon Payment Date.
|
SPX Index: 75.00
|
|
Third to Seventh Coupon Observation Dates (Second and Third Autocall Observation Dates)
|
|
Various (below
Coupon Barrier)
|
|
Closing
level of each Underlying below
its Initial Value; Notes NOT automatically called on an Autocall Observation Date. Closing
level of each Underlying below
its Coupon Barrier; Issuer DOES NOT pay Contingent Coupon on any of the third to
seventh Coupon Payment Dates.
|
Eighth Coupon Observation Date (the Final Valuation Date)
|
|
RTY Index: 110.000
|
|
Closing
level of SPX Index below
its Initial Value; Notes
NOT automatically called. Final Value of each Underlying above
its Downside Threshold; Issuer repays principal
plus
pays Contingent Coupon of $0.1925
on Maturity Date.
|
SPX Index: 80.00
|
Total Payments (per $10.00 Note):
|
|
Payment at Maturity:
|
$10.1925
($10.00 + $0.1925)
|
|
|
Prior Contingent Coupons:
|
$0.
385 ($0.1925
×
2)
|
|
|
Total:
|
$10.5775
|
|
|
Total Return:
|
5.775%
|
Because the closing level of
at least one Underlying was less than its Initial Value on each Autocall
Observation Date, starting with the first Autocall Observation Date (which is also the second Coupon Observation Date), the Notes
are not automatically called. Because the Final Value of each Underlying is greater than or equal
to its Downside Threshold, JPMorgan Financial will pay you on the Maturity Date $10.1925
per $10.00 principal amount Note, which is equal to your principal amount
plus
the Contingent Coupon due on the Coupon Payment
Date that is also the Maturity Date.
In addition, because the closing level
of each Underlying was greater than or equal to its Coupon Barrier on the first and
second Coupon Observation Dates, JPMorgan Financial will pay the Contingent Coupon of $0.1925
on the first and second Coupon Payment Dates. However, because the
closing level of at least one Underlying was less than its Coupon
Barrier on the third through seventh Coupon Observation Dates, JPMorgan Financial will not pay any
Contingent Coupon on the Coupon Payment Dates following those Coupon Observation Dates. Accordingly, JPMorgan Financial will have
paid a total of $10.5775 per $10.00 principal amount Note for a 5.775% total return over the approximately
two (2) year term of the Notes.
Example 3 — Notes
Are NOT Automatically Called and the Final Value of Either Underlying Is Below Its
Downside Threshold
Date
|
|
Closing Level
|
|
Payment (per Note)
|
First Coupon Observation Date
|
|
RTY Index: 55.000
|
|
Closing level of each Underlying below its Initial Value; Notes NOT automatically callable because Coupon Observation Date is not an Autocall Observation Date. Closing level of each Underlying below its Coupon Barrier; Issuer DOES NOT pay Contingent Coupon on first Coupon Payment Date.
|
SPX Index: 60.00
|
Second Coupon Observation Date (First Autocall Observation Date)
|
|
RTY Index: 105.000
|
|
Closing level of SPX Index below its Initial Value; Notes NOT automatically called. Closing level of each Underlying below its Coupon Barrier; Issuer DOES NOT pay Contingent Coupon on second Coupon Payment Date.
|
SPX Index: 60.00
|
SPX Index: 60.00
|
Third to Seventh Coupon Observation Dates (Second and Third Autocall Observation Dates)
|
|
Various (below
Coupon Barrier)
|
|
Closing level of each Underlying below its Initial Value; Notes NOT automatically called on an Autocall Observation Date. Closing level of each Underlying below its Coupon Barrier; Issuer DOES NOT pay Contingent Coupon on any of the third to seventh Coupon Payment Dates.
|
Eighth Coupon Observation Date (the Final Valuation Date)
|
|
RTY Index: 45.000
|
|
Closing level of RTY Index below its Initial Value; Notes NOT automatically called. Final Value of RTY Index below its Downside Threshold; Issuer DOES NOT pay Contingent Coupon on Maturity Date, and Issuer will repay less than the principal amount resulting in a loss proportionate to the decline of the Lesser Performing Underlying.
|
SPX Index: 110.00
|
Total Payments (per $10.00 Note):
|
|
Payment at Maturity:
|
$4.50
|
|
|
Prior Contingent Coupons:
|
$0.00
|
|
|
Total:
|
$4.50
|
|
|
Total Return:
|
-55.00%
|
Because the closing level of at least one Underlying was less
than its Initial Value on each Autocall Observation Date, starting with the first Autocall Observation Date (which is also the
second Coupon Observation Date), the Notes are not automatically called. Because the Final Value
of at least one Underlying is less than its Downside Threshold on
the Final Valuation Date, at maturity, JPMorgan Financial will pay you a total of $4.50 per $10.00 principal amount Note, for a
-55.00% total return on the Notes, calculated as follows:
$10.00 ×
(1 + Lesser Performing Underlying Return)
Step 1: Determine the Underlying
Return of each Underlying:
Underlying
Return of the RTY Index:
(Final Value – Initial Value)
|
=
|
45.000 – 100.000
|
= -55.00%
|
Initial Value
|
100.000
|
Underlying
Return of the SPX Index:
(Final Value – Initial Value)
|
=
|
110.00 – 100.00
|
= 10.00%
|
Initial Value
|
100.00
|
Step 2: Determine the Lesser
Performing Underlying.
The RTY Index is the Underlying with the lower Underlying Return.
Step 3: Calculate the Payment
at Maturity:
$10.00 × (1 + Lesser
Performing Underlying Return) = $10.00 × (1 + -55.00%) = $4.50
In addition, because the closing level
of at least one Underlying is less than its Coupon Barrier on each Coupon Observation Date, JPMorgan
Financial will not pay any Contingent Coupons over the term of the Notes. Accordingly, JPMorgan Financial will have paid a total
of $4.50 per $10.00 principal amount Note for a -55.00% total return over the approximately two (2) year term of the Notes.
The hypothetical returns and hypothetical payments on the Notes
shown above apply
only if you hold the Notes for their entire term or until automatically called
. These hypotheticals do
not reflect fees or expenses that would be associated with any sale in the secondary market. If these fees and expenses were included,
the hypothetical returns and hypothetical payments shown above would likely be lower.
The
Underlyings
Included on the following pages is a brief description
of the Underlyings. This information has been obtained from publicly available sources, without independent verification. Set forth
below is a table that provides the quarterly high and low closing levels of each Underlying. This information given below is for
the four calendar quarters in each of 2011, 2012, 2013, 2014 and 2015 and the first and second calendar quarters of 2016. Partial
data is provided for the third calendar quarter of 2016. We obtained the closing levels information set forth below from the Bloomberg
Professional
®
service (“Bloomberg”), without independent verification. You should not take the historical
levels of either Underlying as an indication of future performance.
The
Russell 2000
®
Index
The Russell 2000
®
Index consists of the
middle 2,000 companies included in the Russell 3000E™ Index and, as a result of the index calculation methodology, consists
of the smallest 2,000 companies included in the Russell 3000
®
Index. The Russell 2000
®
Index is designed
to track the performance of the small capitalization segment of the U.S. equity market. For additional information about the Russell
2000
®
Index, see the information set forth under “Equity Index Descriptions — The Russell Indices”
in the accompanying underlying supplement.
Historical Information Regarding the Russell 2000
®
Index
The following table sets forth the quarterly high and
low closing levels of the Russell 2000
®
Index, based on daily closing levels of the Russell 2000
®
Index as reported by Bloomberg, without independent verification. The closing level of the Russell
2000
®
Index on July 27, 2016 was 1,218.927. We obtained the closing levels of the Russell 2000
®
Index
above and below from Bloomberg, without independent verification. You should not take the historical levels of the Russell 2000
®
Index as an indication of future performance.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Close
|
1/1/2011
|
3/31/2011
|
843.549
|
773.184
|
843.549
|
4/1/2011
|
6/30/2011
|
865.291
|
777.197
|
827.429
|
7/1/2011
|
9/30/2011
|
858.113
|
643.421
|
644.156
|
10/1/2011
|
12/31/2011
|
765.432
|
609.490
|
740.916
|
1/1/2012
|
3/31/2012
|
846.129
|
747.275
|
830.301
|
4/1/2012
|
6/30/2012
|
840.626
|
737.241
|
798.487
|
7/1/2012
|
9/30/2012
|
864.697
|
767.751
|
837.450
|
10/1/2012
|
12/31/2012
|
852.495
|
769.483
|
849.350
|
1/1/2013
|
3/31/2013
|
953.068
|
872.605
|
951.542
|
4/1/2013
|
6/30/2013
|
999.985
|
901.513
|
977.475
|
7/1/2013
|
9/30/2013
|
1,078.409
|
989.535
|
1,073.786
|
10/1/2013
|
12/31/2013
|
1,163.637
|
1,043.459
|
1,163.637
|
1/1/2014
|
3/31/2014
|
1,208.651
|
1,093.594
|
1,173.038
|
4/1/2014
|
6/30/2014
|
1,192.964
|
1,095.986
|
1,192.964
|
7/1/2014
|
9/30/2014
|
1,208.150
|
1,101.676
|
1,101.676
|
10/1/2014
|
12/31/2014
|
1,219.109
|
1,049.303
|
1,204.696
|
1/1/2015
|
3/31/2015
|
1,266.373
|
1,154.709
|
1,252.772
|
4/1/2015
|
6/30/2015
|
1,295.799
|
1,215.417
|
1,253.947
|
7/1/2015
|
9/30/2015
|
1,273.328
|
1,083.907
|
1,100.688
|
10/1/2015
|
12/31/2015
|
1,204.159
|
1,097.552
|
1,135.889
|
1/1/2016
|
3/31/2016
|
1,114.028
|
953.715
|
1,114.028
|
4/1/2016
|
6/30/2016
|
1,188.954
|
1,089.646
|
1,151.923
|
7/1/2016
|
7/27/2016*
|
1,218.927
|
1,139.453
|
1,218.927
|
|
*
|
As
of the date of this pricing supplement, available information for the third calendar
quarter of 2016 includes data for the period from July 1, 2016 through July 27, 2016.
Accordingly, the “Quarterly High,” “Quarterly Low” and “Close”
data indicated are for this shortened period only and do not reflect complete data for
the second calendar quarter of 2016.
|
The graph below illustrates the daily performance of the
Russell 2000
®
Index from January 3, 2006 through July 27, 2016, based on information from Bloomberg, without independent
verification. The dotted line represents the Downside Threshold and Coupon Barrier of
853.249, equal to 70% of the closing
level of the Russell 2000
®
Index on July 27, 2016.
Past performance of the Index is not indicative of the future
performance of the Russell 2000
®
Index.
The
S&P 500
®
Index
The S&P 500
®
Index consists of stocks of 500 companies selected to provide a performance benchmark for the U.S. equity markets. For additional
information about the S&P 500
®
Index, see the information set forth under “Equity Index Descriptions —
The S&P U.S. Indices” in the accompanying underlying supplement.
Historical Information Regarding the S&P 500
®
Index
The following table sets forth the quarterly high and low closing
levels of the S&P 500
®
Index, based on daily closing levels of the S&P 500
®
Index as reported
by Bloomberg, without independent verification. The closing level of the S&P 500
®
Index on July 27, 2016 was
2,166.58. We obtained the closing levels of the S&P 500
®
Index above and below from Bloomberg, without independent
verification. You should not take the historical levels of the S&P 500
®
Index as an indication of future performance.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Close
|
1/1/2011
|
3/31/2011
|
1,343.01
|
1,256.88
|
1,325.83
|
4/1/2011
|
6/30/2011
|
1,363.61
|
1,265.42
|
1,320.64
|
7/1/2011
|
9/30/2011
|
1,353.22
|
1,119.46
|
1,131.42
|
10/1/2011
|
12/31/2011
|
1,285.09
|
1,099.23
|
1,257.60
|
1/1/2012
|
3/31/2012
|
1,416.51
|
1,277.06
|
1,408.47
|
4/1/2012
|
6/30/2012
|
1,419.04
|
1,278.04
|
1,362.16
|
7/1/2012
|
9/30/2012
|
1,465.77
|
1,334.76
|
1,440.67
|
10/1/2012
|
12/31/2012
|
1,461.40
|
1,353.33
|
1,426.19
|
1/1/2013
|
3/31/2013
|
1,569.19
|
1,457.15
|
1,569.19
|
4/1/2013
|
6/30/2013
|
1,669.16
|
1,541.61
|
1,606.28
|
7/1/2013
|
9/30/2013
|
1,725.52
|
1,614.08
|
1,681.55
|
10/1/2013
|
12/31/2013
|
1,848.36
|
1,655.45
|
1,848.36
|
1/1/2014
|
3/31/2014
|
1,878.04
|
1,741.89
|
1,872.34
|
4/1/2014
|
6/30/2014
|
1,962.87
|
1,815.69
|
1,960.23
|
7/1/2014
|
9/30/2014
|
2,011.36
|
1,909.57
|
1,972.29
|
10/1/2014
|
12/31/2014
|
2,090.57
|
1,862.49
|
2,058.90
|
1/1/2015
|
3/31/2015
|
2,117.39
|
1,992.67
|
2,067.89
|
4/1/2015
|
6/30/2015
|
2,130.82
|
2,057.64
|
2,063.11
|
7/1/2015
|
9/30/2015
|
2,128.28
|
1,867.61
|
1,920.03
|
10/1/2015
|
12/31/2015
|
2,109.79
|
1,923.82
|
2,043.94
|
1/1/2016
|
3/31/2016
|
2,063.95
|
1,829.08
|
2,059.74
|
4/1/2016
|
6/30/2016
|
1,716.51
|
1,520.94
|
1,608.45
|
7/1/2016
|
7/27/2016*
|
2,175.03
|
2,088.55
|
2,166.58
|
|
*
|
As
of the date of this pricing supplement, available information for the third calendar
quarter of 2016 includes data for the period from July 1, 2016 through July 27, 2016.
Accordingly, the “Quarterly High,” “Quarterly Low” and “Close”
data indicated are for this shortened period only and do not reflect complete data for
the second calendar quarter of 2016.
|
The graph below illustrates the daily performance of the S&P
500
®
Index from January 3, 2006 through July 27, 2016, based on information from Bloomberg, without independent
verification. The dotted line represents the Downside Threshold and Coupon Barrier of 1,516.61, equal to 70% of the closing level
of the S&P 500
®
Index on July 27, 2016.
Past performance of the Index is not indicative of the future
performance of the
S&P 500
®
Index.
Correlation
of the Underlyings
The graph below illustrates the daily performance of
the Russell 2000
®
Index and the S&P 500
®
Index from January 3, 2006 through July 27, 2016. For
comparison purposes, each Underlying has been normalized to have a closing level of 100.00 on January 3, 2006 by dividing the closing
level of that Underlying on each day by the closing level of that Underlying on January 3, 2006 and multiplying by 100.00. We obtained
the closing levels used to determine the normalized closing levels set forth below from Bloomberg, without independent verification.
Past performance of the Underlyings is not indicative
of the future performance of the
Underlyings.
The correlation of a pair of Underlyings represents a statistical
measurement of the degree to which the returns of those Underlyings were similar to each other over a given period in terms of
timing and direction (
i.e.
, positive or negative). Set forth below is a table that provides the correlation of each pair
of Underlyings, calculated based on the quarterly returns of the Underlyings from July 27, 2006 through July 27, 2016, based on
information from Bloomberg, without independent verification. You should not take the historical correlations of the Underlyings
as an indication of future correlation.
|
Russell 2000
®
Index
|
S&P 500
®
Index
|
Russell 2000
®
Index
|
—
|
0.944
|
S&P 500
®
Index
|
0.944
|
—
|
A correlation of 1.000 for a pair of Underlyings represents a
perfect positive correlation. This means that the closing levels of that pair of Underlyings have moved in the same direction and
the ratio of their quarterly returns has been constant. A correlation of -1.000 for a pair of Underlyings represents a perfect
negative correlation. This means that the closing levels of that pair of Underlyings have moved in the opposite direction and the
ratio of their quarterly returns has been constant. A correlation of 0.000 for a pair of Underlyings means that the Underlyings
are uncorrelated. This means that there is no statistical relationship between the quarterly returns of that pair of Underlyings.
The closer the correlation of a pair of Underlyings is to 1.000, the more positively correlated those Underlyings are. The closer
the correlation of a pair of Underlyings is to -1.000, the more negatively correlated those Underlyings. The closer the correlation
of a pair of Underlyings is to 0.000, the less correlated those Underlyings are. The lower the correlation between two Underlyings,
the greater the potential for one of those Underlyings to close below its Coupon Barrier or Downside Threshold on any Observation
Date or the Final Valuation Date, respectively.
The correlations set forth above are based on the historical performance
of the Underlying, and you should not take those historical correlations as an indication of future correlation. In addition, the
correlations set forth above are not the same as the correlations referenced in setting the terms of the notes. The correlations
referenced in setting the terms of the Notes are calculated using internal models of our affiliates and are not derived from the
quarterly returns of the Underlyings over the period set forth above. Although the correlation of the Underlyings’ performance
may change over the term of the Notes, the Contingent Coupon Rate is determined, in part, based on the correlations of the Underlyings’
performance calculated using internal models of our affiliates at the time when the terms of the Notes are finalized. A higher
Contingent Coupon Rate is generally associated with lower correlation of the Underlyings, which reflects a greater potential for
missed Contingent Coupons and for a loss on your investment at maturity.