CALCULATION OF REGISTRATION FEE |
Title
of Each Class of
Securities Offered |
Maximum
Aggregate
Offering Price |
Amount
of
Registration Fee |
Notes |
$1,940,000 |
$195.36 |
Pricing supplement no. 1503
To prospectus dated November 7, 2014,
prospectus supplement dated November 7, 2014,
product supplement no. 4a-I dated November 7, 2014 and
underlying supplement no. 1a-I dated November 7, 2014
|
Registration Statement No. 333-199966
Dated November 20, 2015
Rule 424(b)(2) |
Structured
Investments |
|
$1,940,000
Capped Buffered Return Enhanced Notes Linked to the Energy Select Sector SPDR® Fund due November 22, 2017
|
General
| · | The
notes are designed for investors who seek a return of 1.50 times any appreciation of the Energy Select Sector SPDR®
Fund, up to a maximum return of 30.48%, at maturity. |
| · | Investors
should be willing to forgo interest and dividend payments and, if the Final Share Price is less than the Initial Share Price by
more than 15%, be willing to lose some or all of their principal amount at maturity. |
| · | The
notes are unsecured and unsubordinated obligations of JPMorgan Chase & Co. Any payment on the notes is subject to the credit
risk of JPMorgan Chase & Co. |
| · | Minimum
denominations of $10,000 and integral multiples of $1,000 in excess thereof |
Key
Terms
Fund: |
The Energy Select Sector SPDR® Fund (Bloomberg ticker: XLE). For additional information about the Fund see the information set forth in Appendix A to this pricing supplement. |
Upside Leverage Factor: |
1.50 |
Payment at Maturity: |
If the Final Share Price is greater than the Initial Share Price, at maturity you will receive a cash payment that provides you with a return per $1,000 principal amount note equal to the Fund Return multiplied by 1.50, subject to the Maximum Return. Accordingly, under these circumstances, your payment at maturity per $1,000 principal amount note will be calculated as follows: |
|
$1,000 + ($1,000 × Fund Return × 1.50), subject to the Maximum Return |
|
If the Final Share Price is equal to the Initial Share Price or is less than the Initial Share Price by up to 15%, you will receive the principal amount of your notes at maturity. |
|
If the Final Share Price is less than the Initial Share Price by more than 15%, you will lose 1% of the principal amount of your notes for every 1% that the Final Share Price is less than the Initial Share Price by more than 15%. Under these circumstances, your payment at maturity per $1,000 principal amount note will be calculated as follows: |
|
$1,000 + [$1,000 × (Fund Return + 15%) × 1.1765] |
|
You will lose some or all of your principal amount at maturity if the Final Share Price is less than the Initial Share Price by more than 15%. |
Maximum Return: |
30.48%. For example, if the Fund Return is equal to or greater than 20.32%, you will receive the Maximum Return of 30.48%, which entitles you to a maximum payment at maturity of $1,304.80 per $1,000 principal amount note that you hold. |
Buffer Amount: |
15% |
Downside Leverage Factor: |
1.1765 |
Fund Return: |
(Final Share Price – Initial Share Price)
Initial Share Price |
|
Initial Share Price: |
The closing price of one share of the Fund on the Pricing Date, which was $66.90 |
Final Share Price: |
The arithmetic average of the closing prices of one share of the Fund on the Ending Averaging Dates |
Share Adjustment Factor: |
The Share Adjustment Factor
is referenced in determining the closing price of one share of the Fund and is set initially at 1.0 on the Pricing Date. The
Share Adjustment Factor is subject to adjustment upon the occurrence of certain events affecting the Fund. See “The
Underlyings — Funds — Anti-Dilution Adjustments” in the accompanying product supplement no. 4a-I for further
information about these adjustments. |
Pricing Date |
November 20, 2015 |
Original Issue Date (Settlement Date): |
On or about November 25, 2015 |
Ending Averaging Dates*: |
November 13, 2017, November 14, 2017, November 15, 2017, November 16, 2017 and November 17, 2017 |
Maturity Date*: |
November 22, 2017 |
CUSIP: |
48128GDS6 |
| * | Subject to postponement in the event of certain market
disruption events and as described under “General Terms of Notes — Postponement of a Determination Date — Notes
Linked to a Single Underlying — Notes Linked to a Single Underlying (Other Than a Commodity Index)” and “General
Terms of Notes — Postponement of a Payment Date” in the accompanying product supplement no. 4a-I |
Investing
in the notes involves a number of risks. See “Risk Factors” beginning on page PS-8 of the accompanying product supplement
no. 4a-I, “Risk Factors” beginning on page US-2 of the accompanying underlying supplement no. 1a-I and “Selected
Risk Considerations” beginning on page PS-4 of this pricing supplement.
Neither
the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved
of the notes or passed upon the accuracy or the adequacy of this pricing supplement or the accompanying product supplement, underlying
supplement, prospectus supplement and prospectus. Any representation to the contrary is a criminal offense.
|
Price to Public (1) |
Fees and Commissions (2) |
Proceeds to Issuer |
Per note |
$1,000 |
$15 |
$985 |
Total |
$1,940,000 |
$29,100 |
$1,910,900 |
| (1) | See “Supplemental Use of Proceeds” in this
pricing supplement for information about the components of the price to public of the notes. |
| (2) | J.P. Morgan Securities LLC, which we refer to as JPMS,
acting as agent for JPMorgan Chase & Co., will pay all of the selling commissions of $15.00 per $1,000 principal amount note
it receives from us to other affiliated or unaffiliated dealers. See “Plan of Distribution (Conflicts of Interest)”
beginning on page PS-87 of the accompanying product supplement no. 4a-I. |
The estimated
value of the notes as determined by JPMS, when the terms of the notes were set, was $977.90 per $1,000 principal amount note.
See “JPMS’s Estimated Value of the Notes” in this pricing supplement for additional information.
The
notes are not bank deposits, are not insured by the Federal Deposit Insurance Corporation or any other governmental agency and
are not obligations of, or guaranteed by, a bank.
November 20, 2015
Additional
Terms Specific to the Notes
You should
read this pricing supplement together with the prospectus, as supplemented by the prospectus supplement, each dated November 7,
2014 relating to our Series E medium-term notes, of which these notes are a part, and the more detailed information contained
in product supplement no. 4a-I dated November 7, 2014 and underlying supplement no. 1a-I dated November 7, 2014. This pricing
supplement, together with the documents listed below, contains the terms of the notes, supplements the amended and restated term
sheet related hereto 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 “Risk Factors” in the accompanying product supplement no. 4a-I and “Risk Factors” in the
accompanying underlying supplement no. 1a-I, as the notes involve risks not associated with conventional debt securities. We urge
you to consult your investment, legal, tax, accounting and other advisers before you invest in the notes.
You may
access these documents on the SEC website at www.sec.gov
as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
Our Central
Index Key, or CIK, on the SEC website is 19617. As used in this pricing supplement, “we,” “us” and “our”
refer to JPMorgan Chase & Co.
JPMorgan Structured Investments |
PS-1 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
What
Is the Total Return on the Notes at Maturity, Assuming a Range of Performances for the Fund?
The following
table and examples illustrate the hypothetical total return and the hypothetical payment at maturity on the notes. The “total
return” as used in this pricing supplement is the number, expressed as a percentage, that results from comparing the payment
at maturity per $1,000 principal amount note to $1,000. Each hypothetical total return or payment at maturity set forth below
assumes an Initial Share Price of $70 and reflects the Upside Leverage Factor of 1.50, the Downside Leverage Factor of 1.1765,
the Maximum Return of 30.48% and the Buffer Amount of 15%. Each hypothetical total return or payment at maturity set forth below
is for illustrative purposes only and may not be the actual total return or payment at maturity applicable to a purchaser of the
notes. The numbers appearing in the following table and in the examples below have been rounded for ease of analysis.
Final Share Price |
Fund Return |
Total Return |
$119.000 |
70.00% |
30.4800% |
$112.000 |
60.00% |
30.4800% |
$105.000 |
50.00% |
30.4800% |
$98.000 |
40.00% |
30.4800% |
$91.000 |
30.00% |
30.4800% |
$84.224 |
20.32% |
30.4800% |
$84.000 |
20.00% |
30.0000% |
$80.500 |
15.00% |
22.5000% |
$77.000 |
10.00% |
15.0000% |
$73.500 |
5.00% |
7.5000% |
$71.750 |
2.50% |
3.7500% |
$70.000 |
0.00% |
0.0000% |
$68.250 |
-2.50% |
0.0000% |
$66.500 |
-5.00% |
0.0000% |
$63.000 |
-10.00% |
0.0000% |
$59.500 |
-15.00% |
0.0000% |
$56.000 |
-20.00% |
-5.8825% |
$49.000 |
-30.00% |
-17.6475% |
$42.000 |
-40.00% |
-29.4125% |
$35.000 |
-50.00% |
-41.1775% |
$28.000 |
-60.00% |
-52.9425% |
$21.000 |
-70.00% |
-64.7075% |
$14.000 |
-80.00% |
-76.4725% |
$7.000 |
-90.00% |
-88.2375% |
$0.000 |
-100.00% |
-100.0000% |
JPMorgan Structured Investments |
PS-2 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
Hypothetical
Examples of Amount Payable at Maturity
The following
examples illustrate how the total payment at maturity in different hypothetical scenarios is calculated.
Example
1: The price of one share of the Fund increases from the Initial Share Price of $70 to a Final Share Price of $73.50.
Because
the Final Share Price of $73.50 is greater than the Initial Share Price of $70 and the Fund Return of 5% multiplied by 1.50 does
not exceed the Maximum Return of 30.48%, the investor receives a payment at maturity of $1,075 per $1,000 principal amount note,
calculated as follows:
$1,000 +
($1,000 × 5% × 1.50) = $1,075
Example
2: The price of one share of the Fund decreases from the Initial Share Price of $70 to a Final Share Price of $59.50.
Although
the Fund Return is negative, because the Final Share Price of $59.50 is less than the Initial Share Price of $70 by up to the
Buffer Amount of 15%, the investor receives a payment at maturity of $1,000 per $1,000 principal amount note.
Example
3: The price of one share of the Fund increases from the Initial Share Price of $70 to a Final Share Price of $98.
Because
the Final Share Price of $98 is greater than the Initial Share Price of $70 and the Fund Return of 40% multiplied by 1.50 exceeds
the Maximum Return of 30.48%, the investor receives a payment at maturity of $1,304.80 per $1,000 principal amount note, the maximum
payment at maturity.
Example
4: The price of one share of the Fund decreases from the Initial Share Price of $70 to a Final Share Price of $35.
Because
the Final Share Price of $35 is less than the Initial Share Price of $70 by more than the Buffer Amount of 15% and the Fund Return
is -50%, the investor receives a payment at maturity of $588.225 per $1,000 principal amount note, calculated as follows:
$1,000 +
[$1,000 × (-50% + 15%) × 1.1765] = $588.225
The hypothetical
returns and hypothetical payments on the notes shown above apply only if you hold the notes for their entire term. 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.
JPMorgan Structured Investments |
PS-3 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
Selected
Purchase Considerations
| · | CAPPED
APPRECIATION POTENTIAL — The notes provide the opportunity to enhance equity returns by multiplying a positive Fund
Return by 1.50, up to the Maximum Return of 30.48%. Accordingly, the maximum payment at maturity is $1,304.80 per $1,000 principal
amount note. Because the notes are our unsecured and unsubordinated obligations, payment of any amount on the notes is subject
to our ability to pay our obligations as they become due. |
| · | LIMITED
PROTECTION AGAINST LOSS — We will pay you your principal back at maturity if the Final Share Price is equal to the Initial
Share Price or is less than the Initial Share Price by up to 15%. If the Final Share Price is less than the Initial Share Price
by more than 15%, for every 1% that the Final Share Price is less than the Initial Share Price by more than 15%, you will lose
an amount equal to 1.1765% of the principal amount of your notes. Accordingly, you may lose some or all of your principal amount
at maturity. |
| · | RETURN
LINKED TO THE ENERGY SELECT SECTOR SPDR® FUND — The return on the notes is linked to the Energy Select
Sector SPDR® Fund. The Energy Select Sector SPDR® Fund is an exchange-traded fund of the Select
Sector SPDR® Trust, a registered investment company, that seeks to provide investment results that, before expenses,
correspond to the price and yield performance of publicly traded equity securities of companies in the Energy Select Sector Index,
which we refer to as the Underlying Index, with respect to the Energy Select Sector SPDR® Fund. The Energy Select
Sector Index is a modified market capitalization-based index that measures the performance of the energy sector of the S&P
500® Index. The Energy Select Sector Index includes companies in the following industries: oil, gas and consumable
fuels; and energy equipment and services. For additional information about the Energy Select Sector SPDR® Fund,
see the information set forth in Appendix A. |
| · | TAX
TREATMENT — You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences”
in the accompanying product supplement no. 4a-I. The following discussion, when read in combination with that section, constitutes
the full opinion of our special tax counsel, Davis Polk & Wardwell LLP, regarding the material U.S. federal income tax consequences
of owning and disposing of notes. |
Based
on current market conditions, in the opinion of our special tax counsel it is reasonable to treat the notes as “open transactions”
that are not debt instruments for U.S. federal income tax purposes, as more fully described in “Material U.S. Federal Income
Tax Consequences—Tax Consequences to U.S. Holders—Notes Treated as Open Transactions That Are Not Debt Instruments”
in the accompanying product supplement no. 4a-I. Assuming this treatment is respected, subject to the possible application of
the “constructive ownership” rules, the gain or loss on your notes should be treated as long-term capital gain or
loss if you hold your notes for more than a year, whether or not you are an initial purchaser of notes at the issue price. The
notes could be treated as “constructive ownership transactions” within the meaning of Section 1260 of the Internal
Revenue Code of 1986, as amended, in which case any gain recognized in respect of the notes that would otherwise be long-term
capital gain and that was in excess of the “net underlying long-term capital gain” (as defined in Section 1260) would
be treated as ordinary income, and a notional interest charge would apply as if that income had accrued for tax purposes at a
constant yield over the notes’ term. Our special tax counsel has not expressed an opinion with respect to whether the constructive
ownership rules apply to the notes. Accordingly, U.S. Holders should consult their tax advisers regarding the potential application
of the constructive ownership rules.
The
IRS or a court may not respect the treatment of the notes described above, in which case the timing and character of any income
or loss on your notes could be materially and adversely 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; the relevance of factors such as the nature of the underlying property to which the instruments are linked;
the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding
tax; and whether these instruments are or should be subject to the constructive ownership regime described above. 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 and adversely 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 the potential application of the constructive ownership rules, possible alternative treatments
and the issues presented by this notice.
Withholding
under legislation commonly referred to as “FATCA” may (if the notes are recharacterized as debt instruments) apply
to amounts treated as interest paid with respect to the notes. Notwithstanding anything to the contrary in the accompanying
product supplement no. 4a-I, under a recent IRS notice, withholding under FATCA will not apply to payments of gross proceeds (other
than any amount treated as interest) of a taxable disposition, including redemption at maturity, of the notes. You should
consult your tax adviser regarding the potential application of FATCA to the notes.
Non-U.S.
holders should also note that, notwithstanding anything to the contrary in the accompanying product supplement no. 4a-I, recently
promulgated Treasury regulations imposing a withholding tax on certain “dividend equivalents” under certain “equity
linked instruments” will not apply to the notes.
JPMorgan Structured Investments |
PS-4 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
Selected
Risk Considerations
An investment
in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in the Fund, the Underlying
Index or any of the component securities of the Fund or the Underlying Index. These risks are explained in more detail in the
“Risk Factors” section of the accompanying product supplement no. 4a-I and the “Risk Factors” section
of the accompanying underlying supplement no. 1a-I.
| · | YOUR
INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal. The return on the
notes at maturity is linked to the performance of the Fund and will depend on whether, and the extent to which, the Fund Return
is positive or negative. Your investment will be exposed to a loss on a leveraged basis if the Final Share Price is less than
the Initial Share Price by more than 15%. For every 1% that the Final Share Price is less than the Initial Share Price by more
than 15%, you will lose an amount equal to 1.1765% of the principal amount of your notes. Accordingly, you may lose some or all
of your principal amount at maturity. |
| · | YOUR
MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE MAXIMUM RETURN — If the Final Share Price is greater than the Initial Share
Price, for each $1,000 principal amount note, you will receive at maturity $1,000 plus an additional return that will not
exceed the Maximum Return of 30.48%, regardless of the appreciation in the Fund, which may be significant. |
| · | CREDIT
RISK OF JPMORGAN CHASE & CO. — The notes are subject to the credit risk of JPMorgan Chase & Co., and our credit
ratings and credit spreads may adversely affect the market value of the notes. Investors are dependent on JPMorgan Chase &
Co.’s ability to pay all amounts due on the notes. Any actual or potential change in our creditworthiness or credit spreads,
as determined by the market for taking our credit risk, is likely to adversely affect the value of the notes. If we were
to default on our payment obligations, you may not receive any amounts owed to you under the notes and you could lose your entire
investment. |
| · | 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 as an agent of the offering of the notes, 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 JPMS’s estimated value. In performing these duties, our 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 business activities, including hedging and trading activities, could cause our 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 no. 4a-I for additional information about these risks. |
| · | JPMS’S
ESTIMATED VALUE OF THE NOTES IS LOWER THAN THE ORIGINAL ISSUE PRICE (PRICE TO PUBLIC) OF THE NOTES — JPMS’s estimated
value is only an estimate using several factors. The original issue price of the notes exceeds JPMS’s estimated value 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 “JPMS’s
Estimated Value of the Notes” in this pricing supplement. |
| · | JPMS’S
ESTIMATED VALUE DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES — JPMS’s
estimated value of the notes is determined by reference to JPMS’s internal pricing models when the terms of the notes are
set. This estimated value is based on market conditions and other relevant factors existing at that time and JPMS’s assumptions
about market parameters, which can include volatility, dividend rates, interest rates and other factors. Different pricing models
and assumptions could provide valuations for notes that are greater than or less than JPMS’s estimated value. 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 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 “JPMS’s Estimated Value of the Notes” in this pricing supplement. |
| · | JPMS’S
ESTIMATED VALUE IS NOT DETERMINED BY REFERENCE TO CREDIT SPREADS FOR OUR CONVENTIONAL FIXED-RATE DEBT — The internal
funding rate used in the determination of JPMS’s estimated value generally represents a discount from the credit spreads
for our conventional fixed-rate debt. The discount is based on, among other things, our 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
our conventional fixed-rate debt. If JPMS were to use the interest rate implied by our conventional fixed-rate credit spreads,
we would expect the economic terms of the notes to be more favorable to you. Consequently, our use of an internal funding rate
would have an adverse effect on the terms of the notes and any secondary market prices of the notes. See “JPMS’s 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 JPMS’S
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 projected hedging profits,
if any, and, in some circumstances, estimated hedging costs and our secondary market credit spreads 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 |
JPMorgan Structured Investments |
PS-5 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
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 secondary market credit spreads 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 consideration 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.
| · | SECONDARY
MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS — 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 closing price of one share
of the Fund, including: |
| · | any actual or potential
change in our creditworthiness or credit spreads; |
| · | customary bid-ask spreads
for similarly sized trades; |
| · | secondary market credit
spreads for structured debt issuances; |
| · | the
actual and expected volatility of the Fund; |
| · | the
time to maturity of the notes; |
| · | the
dividend rates on the Fund and the equity securities held by the Fund; |
| · | interest
and yield rates in the market generally; |
| · | the
occurrence of certain events to the Fund that may or may not require an adjustment to the Share Adjustment Factor; 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.
| · | NO
INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive interest payments, and
you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of shares
of the Fund or securities held by the Fund or included in the Underlying Index would have. |
| · | THERE
ARE RISKS ASSOCIATED WITH THE FUND — Although the shares of the Fund are listed for trading on NYSE Arca and a number
of similar products have been traded on NYSE Arca and other securities exchanges for varying periods of time, there is no assurance
that an active trading market will continue for the shares of the Fund or that there will be liquidity in the trading market.
The Fund is subject to management risk, which is the risk that the investment strategies of the Fund’s investment adviser,
the implementation of which is subject to a number of constraints, may not produce the intended results. These constraints could
adversely affect the market price of the shares of the Fund, and consequently, the value of the notes. |
| · | THE
PERFORMANCE AND MARKET VALUE OF THE FUND, PARTICULARLY DURING PERIODS OF MARKET VOLATILITY, MAY NOT CORRELATE WITH THE PERFORMANCE
OF THE FUND’S UNDERLYING INDEX AS WELL AS THE NET ASSET VALUE PER SHARE — The Fund does not fully replicate its
Underlying Index and may hold securities different from those included in its Underlying Index. In addition, the performance of
the Fund will reflect additional transaction costs and fees that are not included in the calculation of its Underlying Index.
All of these factors may lead to a lack of correlation between the performance of the Fund and its Underlying Index. In addition,
corporate actions with respect to the equity securities underlying the Fund (such as mergers and spin-offs) may impact the variance
between the performances of the Fund and its Underlying Index. Finally, because the shares of the Fund are traded on a securities
exchange and are subject to market supply and investor demand, the market value of one share of the Fund may differ from the net
asset value per share of the Fund. |
During
periods of market volatility, securities underlying the Fund may be unavailable in the secondary market, market participants may
be unable to calculate accurately the net asset value per share of the Fund and the liquidity of the Fund may be adversely affected.
This kind of market volatility may also disrupt the ability of market participants to create and redeem shares in the Fund. Further,
market volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell
shares of the Fund. As a result, under these circumstances, the market value of shares of the Fund may vary substantially from
the net asset value per share of the Fund. For all of the foregoing reasons, the performance of the Fund may not correlate with
the performance of its Underlying Index as well as the net asset value per share of the Fund, which could materially and adversely
affect the value of the notes in the secondary market and/or reduce any payment on the notes.
| · | RISKS
ASSOCIATED WITH THE ENERGY SECTOR — All or substantially all of the equity securities held by the Fund are issued by
companies whose primary line of business is directly associated with the energy sector, |
JPMorgan Structured Investments |
PS-6 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
including
the following industries: oil, gas and consumable fuels; and energy equipment and services. Market or economic factors impacting
energy companies and companies that rely heavily on energy advances could have a major effect on the value of the Fund. Weak demand
for energy companies’ products or services or for energy products and services in general, as well as negative developments
in these other areas, including natural disasters or terrorist attacks, would adversely impact the Fund’s performance.
As a result, the value of the securities may be subject to greater volatility and be more adversely affected by a single economic,
political or regulatory occurrence affecting this sector than a different investment linked to securities of a more broadly diversified
group of issuers.
| · | 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. |
| · | THE
ANTI-DILUTION PROTECTION FOR THE FUND IS LIMITED — The calculation agent will make adjustments to the Share Adjustment
Factor for certain events affecting the shares of the Fund. However, the calculation agent will not make an adjustment in response
to all events that could affect the shares of the Fund. If an event occurs that does not require the calculation agent to make
an adjustment, the value of the notes may be materially and adversely affected. |
JPMorgan Structured Investments |
PS-7 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
Historical
Information
The following
graph sets forth the historical performance of the Fund based on the weekly historical closing prices of one share of the Fund
from January 8, 2010 through November 20, 2015. The closing price of one share of the Fund on November 20, 2015 was $66.90.
We obtained
the closing prices of one share of the Fund above and below from the Bloomberg Professional® service (“Bloomberg”),
without independent verification. The closing prices above and below may have been adjusted by Bloomberg for actions taken by
the Fund, such as stock splits. The historical closing prices of one share of the Fund should not be taken as an indication of
future performance, and no assurance can be given as to the closing price of one share of the Fund on any Ending Averaging Date.
We cannot give you assurance that the performance of the Fund will result in the return of any of your principal amount.
JPMS’s
Estimated Value of the Notes
JPMS’s
estimated value of the notes set forth on the cover of this pricing supplement is equal to the sum of the values of the following
hypothetical components: (1) a fixed-income debt component with the same maturity as the notes, valued using our internal funding
rate for structured debt described below, and (2) the derivative or derivatives underlying the economic terms of the notes. JPMS’s
estimated value does not represent a minimum price at which JPMS would be willing to buy your notes in any secondary market (if
any exists) at any time. The internal funding rate used in the determination of JPMS’s estimated value generally represents
a discount from the credit spreads for our conventional fixed-rate debt. For additional information, see “Selected Risk
Considerations — JPMS’s Estimated Value Is Not Determined by Reference to Credit Spreads for Our Conventional Fixed-Rate
Debt.” The value of the derivative or derivatives underlying the economic terms of the notes is derived from JPMS’s
internal pricing models. These models are dependent on inputs such as the traded market prices of comparable derivative instruments
and on various other inputs, some of which are market-observable, and which can include volatility, dividend rates, interest rates
and other factors, as well as assumptions about future market events and/or environments. Accordingly, JPMS’s estimated
value of the notes is determined when the terms of the notes are set based on market conditions and other relevant factors and
assumptions existing at that time. See “Selected Risk Considerations — JPMS’s Estimated Value Does Not Represent
Future Values of the Notes and May Differ from Others’ Estimates.”
JPMS’s
estimated value of the notes is lower than the original issue price 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 paid
to JPMS and other affiliated or unaffiliated dealers, 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. Because hedging our obligations entails risk and may be influenced by market forces beyond our control, this hedging may
result in a profit that is more or less than expected, or it may result in a loss. We or one or more of our affiliates will retain
any profits realized in hedging our obligations under the notes. See “Selected Risk Considerations — JPMS’s
Estimated Value of the Notes Is Lower Than the Original Issue Price (Price to Public) of the Notes” in this pricing supplement.
Secondary
Market Prices of the Notes
For information
about factors that will impact any secondary market prices of the notes, see “Selected Risk Considerations — Secondary
Market Prices of the Notes Will Be Impacted by Many Economic and Market Factors” in this pricing supplement. In addition,
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 that is intended to be the shorter of six months and one-half of the
JPMorgan Structured Investments |
PS-8 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
stated term
of the notes. The length of any such initial period reflects the structure of the notes, whether our affiliates expect to earn
a profit in connection with our hedging activities, the estimated costs of hedging the notes and when these costs are incurred,
as determined by JPMS. See “Selected Risk Considerations — The Value of the Notes as Published by JPMS (and Which
May Be Reflected on Customer Account Statements) May Be Higher Than JPMS’s Then-Current Estimated Value of the Notes for
a Limited Time Period.”
Supplemental
Use of Proceeds
The notes
are offered to meet investor demand for products that reflect the risk-return profile and market exposure provided by the notes.
See “What Is the Total Return on the Notes at Maturity, Assuming a Range of Performances for the Fund?” and “Hypothetical
Examples of Amount Payable at Maturity” in this pricing supplement for an illustration of the risk-return profile of the
notes and Appendix A in this pricing supplement for a description of the market exposure provided by the notes.
The original
issue price of the notes is equal to JPMS’s estimated value of the notes plus the selling commissions paid to JPMS and other
affiliated or unaffiliated dealers, plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming
risks inherent in hedging our obligations under the notes, plus the estimated cost of hedging our obligations under the
notes.
Validity
of the Notes
In the opinion
of Davis Polk & Wardwell LLP, as our special products counsel, when the notes offered by this pricing supplement have been
executed and issued by us and authenticated by the trustee pursuant to the indenture, and delivered against payment as contemplated
herein, such notes will be our valid and binding obligations, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable
principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith),
provided that such counsel expresses no opinion as to the effect of fraudulent conveyance, fraudulent transfer or similar
provision of applicable law on the conclusions expressed above. This opinion is given as of the date hereof and is limited to
the federal laws of the United States of America, the laws of the State of New York and the General Corporation Law of the State
of Delaware. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution
and delivery of the indenture and its authentication of the notes and the validity, binding nature and enforceability of the indenture
with respect to the trustee, all as stated in the letter of such counsel dated November 7, 2014, which was filed as an exhibit
to the Registration Statement on Form S-3 by us on November 7, 2014.
JPMorgan Structured Investments |
PS-9 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
APPENDIX
A
The
Energy Select Sector SPDR® Fund
We have
derived all information contained in this document regarding the Energy Select Sector SPDR® Fund from publicly
available information, without independent verification. This information reflects the policies of, and is subject to change by
the Select Sector SPDR® Trust (the “Select Sector Trust”) and SSgA Funds Management, Inc. (“SSFM”).
The Energy Select Sector SPDR® Fund is an investment portfolio managed by SSFM, the investment adviser to the Energy
Select Sector SPDR® Fund. The Energy Select Sector SPDR® Fund is an exchange-traded fund (“ETF”)
that trades on the NYSE Arca, Inc. under the ticker symbol “XLE.”
The Select
Sector Trust is a registered investment company that consists of eleven separate investment portfolios (each, a “Select
Sector SPDR® Fund”), including the Energy Select Sector SPDR® Fund. Each Select Sector SPDR®
Fund is an index fund that invests in a particular sector or group of industries represented by a specified Select Sector
Index (as defined below). The companies included in each Select Sector Index are selected on the basis of general industry classifications
from a universe of companies defined by the S&P 500® Index. The Select Sector Indices (each, a “Select
Sector Index”) upon which the Select Sector SPDR® Funds are based together comprise all of the companies
in the S&P 500® Index. The investment objective of each Select Sector SPDR® Fund is to provide
investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities
of companies in a particular sector or group of industries, as represented by a specified market sector index.
Information
provided to or filed with the SEC by the Select Sector Trust pursuant to the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, can be located by reference to SEC file numbers 333-57791 and 811-08837, respectively, through
the SEC’s website at http://www.sec.gov. For additional information regarding the Select Sector Trust or the Energy Select
Sector SPDR® Fund, please see the Energy Select Sector SPDR® Fund’s prospectus. In addition,
information about the Select Sector Trust, SSFM and the Energy Select Sector SPDR® Fund may be obtained from other
sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents and the Select
Sector Trust website at http://www.sectorspdrs.com. We make no representation or warranty as to the accuracy or completeness of
such information. Information contained in the Select Sector Trust website is not incorporated by reference in, and should not
be considered a part of, this document.
Investment
Objective
The Energy
Select Sector SPDR® Fund seeks to provide investment results that, before expenses, correspond generally to the
price and yield performance of publicly traded equity securities of companies in the Energy Select Sector Index. For more information
about the Energy Select Sector Index, please see “ — The Energy Select Sector Index” below.
Investment
Strategy — Replication
The Energy
Select Sector SPDR® Fund employs a replication strategy in seeking to track the performance of the Energy Select
Sector Index. This means that the Energy Select Sector SPDR® Fund typically invests in substantially all of the
securities represented in the Energy Select Sector Index in approximately the same proportions as the Energy Select Sector Index.
SSFM may sell securities that are represented in the Energy Select Sector Index, or purchase securities that are not yet represented
in the Energy Select Sector Index, in anticipation of their removal from or addition to the Energy Select Sector Index. Further,
SSFM may choose to overweight securities in the Energy Select Sector Index, purchase or sell securities not in the Energy Select
Sector Index or utilize various combinations of other available techniques, in seeking to track the Energy Select Sector Index.
Under normal
market conditions, the Energy Select Sector SPDR® Fund generally invests substantially all, but at least 95%, of
its total assets in the securities composing the Energy Select Sector Index. In addition, the Energy Select Sector SPDR®
Fund may invest in cash and cash equivalents or money market instruments, such as repurchase agreements and money market
funds (including money market funds advised by SSFM). Swaps, options and futures contracts, convertible securities and structured
notes may be used by the Energy Select Sector SPDR® Fund in seeking performance that corresponds to the Energy
Select Sector Index and in managing cash flows. SSFM anticipates that, under normal circumstances, it may take several business
days for additions and deletions to the Energy Select Sector Index to be reflected in the portfolio composition of the Energy
Select Sector SPDR® Fund. The Board of Trustees of the Select Sector Trust may change the Energy Select Sector
SPDR® Fund’s investment strategy and certain other policies without shareholder approval.
There may,
however, be instances where SSFM intends to employ a sampling strategy in managing the Energy Select Sector SPDR®
Fund. Sampling means that SSFM will use quantitative analysis to select securities, including securities in the Energy Select
Sector Index, outside of the Energy Select Sector Index and derivatives, that have a similar investment profile as the Energy
Select Sector Index in terms of key risk factors, performance attributes and other economic characteristics. These include industry
weightings, market capitalization, and other financial characteristics of securities.
Correlation
The Energy
Select Sector Index is a theoretical financial calculation, while the Energy Select Sector SPDR® Fund is an actual
investment portfolio. The performance of the Energy Select Sector SPDR® Fund’s return may not match or achieve
a
JPMorgan Structured Investments |
PS-10 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
high degree
of correlation with the return of the Energy Select Sector Index due to operating expenses, transaction costs, cash flows, regulatory
requirements and operational inefficiencies.
Holdings
Information
As of November
19, 2015, the Energy Select Sector SPDR® Fund included 41 companies. The following table summarizes the Energy
Select Sector SPDR® Fund’s top 10 holdings in individual securities as of that date.
Top
10 Holdings in Individual Securities as of November 19, 2015
Security |
Percentage of
Total Holdings |
Exxon Mobil Corporation |
17.00% |
Chevron Corporation |
13.13% |
Schlumberger NV |
7.74% |
EOG Resources Inc. |
4.16% |
Occidental Petroleum Corporation |
3.78% |
Valero Energy Corporation |
3.72% |
ConocoPhillips |
3.67% |
Pioneer Natural Resources Company |
3.59% |
Phillips 66 |
3.33% |
Tesoro Corporation |
3.31% |
The information
above was compiled from the Select Sector Trust website, without independent verification. Information contained in the Select
Sector Trust website is not incorporated by reference in, and should not be considered a part of, this document.
The
Energy Select Sector Index
We have
derived all information contained in this document regarding the Energy Select Sector Index, including, without limitation, its
make-up, method of calculation and changes in its components, from publicly available information, without independent verification.
This information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC or BofA Merrill Lynch Research,
as index compilation agent (the “Index Compilation Agent”).
The constituents
included in the Select Sector Indices are selected by the Index Compilation Agent in consultation with S&P Dow Jones Indices
LLC from the universe of companies represented by the S&P 500® Index. For further information about the S&P
500® Index, please see “Equity Index Descriptions — S&P 500® Index” in the
accompanying underlying supplement no. 1a-I. The composition and weighting of the components included in the Select Sector Indices
can be expected to differ from the composition and weighting of components included in any similar S&P 500®
sector index that is published and disseminated by S&P Dow Jones Indices LLC. S&P Dow Jones Indices LLC acts as the index
calculation agent in connection with the calculation and dissemination of the Select Sector Indices. S&P Dow Jones Indices
LLC’s only relationship to the Index Compilation Agent is the licensing of certain trademarks and trade names of S&P
and of the S&P 500® Index which is determined, composed and calculated by S&P Dow Jones Indices LLC without
regard to the Index Compilation Agent.
The Energy
Select Sector Index is a modified market capitalization-based index that measures the performance of the energy sector of the
S&P 500® Index. The Energy Select Sector Index includes companies in the following industries: oil, gas and
consumable fuels; and energy equipment and services. The Energy Select Sector Index is one of the eleven Select Sector sub-indices
of the S&P 500® Index, each of which we refer to as a “Select Sector Index.”
Construction
and Maintenance
The Select
Sector Indices are developed, maintained and calculated in accordance with the following criteria:
| | Each of the component stocks in the Select Sector Indices
(the “Component Stocks”) is a constituent company of the S&P 500® Index. |
| | Each stock in the S&P 500® Index is
allocated to one and only one of the Select Sector Indices. |
| | The Index Compilation Agent assigns each constituent stock
of the S&P 500® Index to a Select Sector Index. The Index Compilation Agent, after consultation with S&P
Dow Jones Indices LLC, assigns a particular company’s stock to a Select Sector Index based on that company’s classification
under the Global Industry Classification Standard (GICS). |
JPMorgan Structured Investments |
PS-11 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
| | The Select Sector Indices are calculated using the same
methodology utilized by S&P Dow Jones Indices LLC in calculating the S&P 500® Index. The daily
calculation of a Select Sector Index is computed by dividing the total market value of the companies in that Select Sector Index
by a number called the index divisor. |
| | The Select Sector Indices are calculated by S&P Dow
Jones Indices LLC using a modified “market capitalization” methodology subject to a capping methodology that implements
Internal Revenue Code diversification requirements that are applicable to exchange-traded funds. For reweighting purposes, the
Select Sector Indices are rebalanced quarterly after the close of business on the second to last calculation day of March, June,
September and December using the following procedures: |
| 1. | The rebalancing reference date is two business days prior
to the last calculation day of March, June, September and December. |
| 2. | With prices reflected on the rebalancing reference date,
and membership, shares outstanding, and other metrics as of the rebalancing effective date, each company is weighted using the
modified market capitalization methodology. Modifications are made as described below. |
| 3. | The Select Sector Indices are first evaluated based on
their companies’ modified market capitalization weights to ensure none of the Select Sector Indices breach the maximum allowable
limits defined in paragraphs 4 and 7 below. If a Select Sector Index breaches any of the allowable limits, the companies are reweighted
based on their float-adjusted market capitalization weights calculated using the prices as of the rebalancing reference date,
and membership, shares outstanding and other metrics as of the rebalancing effective date. |
| 4. | If any company has a weight greater than 24%, that company
has its float-adjusted market capitalization weight capped at 23%. The cap is set to 23% to allow for a 2% buffer. This buffer
is needed to ensure that no company exceeds 25% as of the quarter end diversification requirement date. |
| 5. | All excess weight is equally redistributed to all uncapped
companies within the relevant Select Sector Capped Index. |
| 6. | After this redistribution, if the float-adjusted market
capitalization weight of any other company then breaches 23%, the process is repeated iteratively until no company breaches the
23% weight cap. |
| 7. | The sum of the companies with weight greater than 4.8%
cannot exceed 50% of the total index weight. These caps are set to allow for a buffer below the 5% limit. |
| 8. | If the rule in paragraph 7 is breached, all the companies
are ranked in descending order of their float-adjusted market capitalization weights and the first stock that causes the 50% limit
to be breached is identified. The weight of this company is, then, reduced to 4.6%. |
| 9. | This excess weight is equally redistributed to all companies
with weights below 4.6%. This process is repeated iteratively until paragraph 7 is satisfied. |
| 10. | Index share amounts are assigned to each constituent to
arrive at the weights calculated above. Since index shares are assigned based on prices one business day prior to rebalancing,
the actual weight of each constituent at the rebalancing differs somewhat from these weights due to market movements. |
If necessary,
the reweighting process may take place more than once prior to the close on the last business day of March, June, September or
December to ensure the Select Sector Indices conform to all diversification requirements.
JPMorgan Structured Investments |
PS-12 |
Capped Buffered Equity Notes Linked to the Energy Select Sector SPDR® Fund |
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