CALCULATION OF REGISTRATION FEE |
Title
of Each Class of
Securities Offered |
Maximum
Aggregate
Offering Price |
Amount
of
Registration Fee |
Notes |
$3,535,000 |
$355.97 |
|
November 2015 |
Pricing Supplement No. 1506 |
Registration Statement No. 333-199966 |
Dated November 20, 2015 |
Filed pursuant to Rule 424(b)(2) |
Structured Investments
Opportunities in U.S. Equities
Contingent Income Auto-Callable
Securities due November 25, 2020
All Payments on the Securities Based on the Worst
Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR® Fund
Principal at Risk Securities
Contingent Income Auto-Callable Securities do not guarantee the
payment of interest or the repayment of principal. Instead, the securities offer the opportunity for investors to earn a
contingent quarterly payment equal to 1.8625% of the stated principal amount with respect to each determination date on which the
closing price of one ETF Share of each of the Financial Select Sector SPDR® Fund and the Industrial Select
Sector SPDR® Fund is greater than or equal to 75% of its initial share price, which we refer to as a downside
threshold level. However, if on any determination date, the closing price of one ETF Share of either ETF is less than
its downside threshold level, you will not receive any contingent quarterly payment for the related quarterly period. In
addition, if the closing price of one ETF Share of each ETF is greater than or equal to its initial share price on any determination
date (other than the first, second, third and final determination dates), the securities will be automatically redeemed for an
amount per security equal to the stated principal amount plus the contingent quarterly payment. If the securities have not
been automatically redeemed prior to maturity and the final share price of each ETF is greater than or equal to its downside
threshold level, the payment at maturity due on the securities will be the stated principal amount and the contingent quarterly
payment with respect to the final determination date.
If, however, the securities have not been automatically redeemed
prior to maturity and the final share price of either ETF is less than its downside threshold level, you will be exposed
to the decline in the worst performing ETF, as compared to its initial share price, on a 1-to-1 basis and will receive a cash payment
at maturity that is less than 75% of the stated principal amount of the securities and could be zero. The securities are for investors
who are willing to risk their principal and seek an opportunity to earn interest at a potentially above-market rate in exchange
for the risk of receiving few or no contingent quarterly payments and also the risk of receiving a cash payment at maturity that
is significantly less than the stated principal amount of the securities and could be zero. Accordingly, investors could
lose their entire initial investment in the securities. Because all payments on the securities are based on the worst
performing of the ETFs, a decline beyond the downside threshold level of either ETF will result in few or no contingent quarterly
payments and/or a significant loss of your initial investment, even if the other ETF appreciates or has not declined as much.
Investors will not participate in any appreciation of either ETF. The securities are unsecured and unsubordinated obligations of
JPMorgan Chase & Co., issued as part of JPMorgan Chase & Co.’s Medium-Term Notes, Series E, program. Any
payment on the securities is subject to the credit risk of JPMorgan Chase & Co.
FINAL TERMS |
|
Issuer: |
JPMorgan Chase & Co. |
ETF Shares: |
Shares of the Financial Select Sector SPDR® Fund (the “XLF ETF”) and shares of the Industrial Select Sector SPDR® Fund (the “XLI ETF” and, collectively with the XLF ETF, the “ETFs”) (each share of each ETF, an “ETF Share”) |
Aggregate principal amount: |
$3,535,000 |
Early redemption: |
If, on any of the determination dates (other than the first,
second, third and final determination dates), the closing price of one ETF Share of each ETF is greater than or equal to its
initial share price, the securities will be automatically redeemed for an early redemption payment on the first contingent payment
date immediately following the related determination date. No further payments will be made on the securities once they have been
redeemed.
The securities will not be redeemed early on any contingent
payment date if the closing price of one ETF Share of either ETF is below its initial share price on the related determination
date. |
Early redemption payment: |
The early redemption payment will be an amount equal to (i) the stated principal amount plus (ii) the contingent quarterly payment with respect to the related determination date. |
Contingent quarterly payment: |
·
If, on any determination date, the closing price of one ETF Share of each ETF is greater
than or equal to its downside threshold level, we will pay a contingent quarterly payment of $0.1863 (1.8625% of the stated principal
amount) per security on the related contingent payment date.
·
If, on any determination date, the closing price of one ETF Share of either ETF is
less than its downside threshold level, no contingent quarterly payment will be payable with respect to that determination date.
It is possible that one or both of the ETF Shares will remain below their respective downside threshold levels for extended periods
of time or even throughout the entire term of the securities so that you will receive few or no contingent quarterly payments. |
Payment at maturity: |
· If the final share price of each ETF is greater than or equal to its downside threshold level: |
(i) the stated principal amount plus (ii) the contingent quarterly payment with respect to the final determination date |
|
· If the final share price of either ETF is less than its downside threshold level: |
(i) the stated principal amount times (ii) the ETF performance factor of the worst performing ETF. This cash payment will be less than 75% of the stated principal amount of the securities and could be zero. |
Downside
threshold level: |
With respect to the XLF ETF: $18.5025, which is equal to 75% of its initial share price
With respect to the XLI ETF: $41.55, which is equal to 75% of its initial share price |
Stated principal amount: |
$10 per security |
Issue price: |
$10 per security (see “Commissions and issue price” below) |
Pricing date: |
November 20, 2015 |
Original issue date (settlement date): |
November 25, 2015 |
Maturity date: |
November 25, 2020, subject to postponement in the event of certain market disruption events and as described under “General Terms of Notes — Postponement of a Payment Date” in the accompanying product supplement no. 4a-I |
|
Terms continued on the following page |
Agent: |
J.P. Morgan Securities LLC (“JPMS”) |
Commissions
and issue price: |
|
Price to public(1) |
Fees and commissions |
Proceeds to issuer |
Per security |
|
$10.00 |
$0.25(2) |
$9.70 |
|
|
|
$0.05(3) |
|
Total |
|
$3,535,000.00 |
$106,050.00 |
$3,428,950.00 |
| (1) | See “Additional Information about the Securities — Supplemental use of proceeds and hedging” in this document
for information about the components of the price to public of the securities. |
| (2) | JPMS, acting as agent for JPMorgan Chase & Co., will pay all of the selling commissions of $0.25 per $10 stated principal
amount security it receives from us to Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”). See “Plan
of Distribution (Conflicts of Interest)” beginning on page PS-87 of the accompanying product supplement no. 4a-I. |
| (3) | Reflects a structuring fee payable to Morgan Stanley Wealth Management by the agent or its affiliates of $0.05 for each
$10 stated principal amount security. |
The estimated value of the securities on the pricing
date as determined by JPMS was $9.573 per $10 stated principal amount security. See “Additional Information about the
Securities — JPMS’s estimated value of the securities” in this document for additional information.
Investing in the securities
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 “Risk Factors” beginning on page 10 of this document.
Neither the Securities and Exchange Commission (the “SEC”)
nor any state securities commission has approved or disapproved of the securities or passed upon the accuracy or the adequacy of
this document or the accompanying product supplement, underlying supplement, prospectus supplement and prospectus. Any representation
to the contrary is a criminal offense.
The securities 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.
You should read this document
together with the related product supplement no. 4a-I, underlying
supplement no. 1a-I, prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also
see “Additional Information about the Securities” at the end of this document.
Product
supplement no. 4a-I dated November 7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008407/e61359_424b2.pdf
Underlying supplement no. 1a-I dated November
7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008410/e61337_424b2.pdf
Prospectus
supplement and prospectus, each dated November 7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008397/e61348_424b2.pdf
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
Terms continued from previous page: |
Initial
share price: |
With respect to each ETF, the closing price of one ETF Share of that ETF on the pricing date, which was $24.67 for the Financial Select Sector SPDR® Fund and $55.40 for the Industrial Select Sector SPDR® Fund |
Final
share price: |
With respect to each ETF, the closing price of one ETF Share of that ETF on the final determination date |
Worst
performing ETF: |
The ETF with the worst ETF performance factor |
ETF
performance factor: |
With respect to each ETF, the final share price divided by the initial share price |
Share
adjustment factor: |
The share adjustment factor of each ETF is referenced in determining the closing price of one ETF Share of that ETF and is set initially at 1.0 on the pricing date. The share adjustment factor of each ETF is subject to adjustment in the event of certain events affecting that ETF. See “The Underlyings — Funds — Anti-Dilution Adjustments” in the accompanying products supplement. |
Determination
dates: |
February 22, 2016, May 20, 2016, August 22, 2016, November 21, 2016, February 21, 2017, May 22, 2017, August 21, 2017, November 20, 2017, February 20, 2018, May 21, 2018, August 20, 2018, November 20, 2018, February 20, 2019, May 20, 2019, August 20, 2019, November 20, 2019, February 20, 2020, May 20, 2020, August 20, 2020 and November 20, 2020, subject to postponement for non-trading days and certain market disruption events. |
Contingent
payment dates: |
With respect to each determination date other than the final determination date, the third business day after the related determination date. The payment of the contingent quarterly payment, if any, with respect to the final determination date will be made on the maturity date. |
CUSIP/ISIN: |
48127Y326 / US48127Y3264 |
Listing: |
The securities will not be listed on any securities exchange. |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
Investment Summary
The Contingent Income Auto-Callable Securities
due November 25, 2020 Based on the Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial
Select Sector SPDR® Fund , which we refer to as the securities, do not provide for the regular payment of interest.
Instead, the securities provide an opportunity for investors to earn a contingent quarterly payment, which is an amount equal to
$0.1863 (1.8625% of the stated principal amount) per security, with respect to each quarterly determination date on which closing
price of one ETF Share of each ETF is greater than or equal to 75% of its initial share price, which we refer to
as a downside threshold level. The contingent quarterly payment, if any, will be payable quarterly on the relevant contingent payment
date, which is the third business day after the related determination date or, in the case of the contingent quarterly payment,
if any, with respect to the final determination date, the maturity date. If the closing price of one ETF Share of either
ETF is less than its downside threshold level on any determination date, investors will receive no contingent quarterly payment
for the related quarterly period. It is possible that the closing price of one ETF Share of each ETF could be below its downside
threshold level on most or all of the determination dates so that you will receive few or no contingent quarterly payments during
the term of the securities. We refer to these payments as contingent, because there is no guarantee that you will receive a payment
on any contingent payment date. Even if both of the ETFs were to be at or above their respective downside threshold levels on some
quarterly determination dates, one or both ETFs may fluctuate below their respective downside threshold level(s) on others.
If the closing price of one ETF share
of each ETF is greater than or equal to its initial share price on any determination date (other than the first, second, third
and final determination dates), the securities will be automatically redeemed for an early redemption payment equal to the stated
principal amount plus the contingent quarterly payment with respect to the related determination date. If the securities
have not previously been redeemed and the final share price of each ETF is greater than or equal to its downside threshold
level, the payment at maturity will be the sum of the stated principal amount and the contingent quarterly payment with respect
to the final determination date. However, if the securities have not previously been redeemed and the final share price of either
ETF is less than its downside threshold level, investors will be exposed to the decline in the worst performing ETF, as compared
to its initial share price, on a 1-to-1 basis. Under these circumstances, the payment at maturity will be (i) the stated principal
amount times (ii) the ETF performance factor of the worst performing ETF, which will be less than 75% of the stated principal
amount of the securities and could be zero. Investors in the securities must be willing to accept the risk of losing their entire
principal and also the risk of receiving few or no contingent quarterly payments over the term of the securities. In addition,
investors will not participate in any appreciation of the ETFs.
Supplemental Terms of the Securities
For purposes of the accompanying product
supplement, each ETF is a “Fund.”
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest.
Instead, the securities offer investors an opportunity to earn a contingent quarterly payment equal to 1.8625% of the stated principal
amount with respect to each determination date on which the closing price of one ETF Share of each ETF is greater than or equal
to 75% of its initial share price, which we refer to as a downside threshold level. The securities may be redeemed prior to
maturity for the stated principal amount per security plus the applicable contingent quarterly payment, and the payment
at maturity will vary depending on the final share price of each ETF, as follows:
Scenario
1 |
This scenario assumes that, prior to
early redemption, each ETF closes at or above its downside threshold level on some determination dates but one or both of the ETFs
closes below their respective downside threshold levels on the others. On the 18th determination date, the closing price
of one ETF Share of each ETF is greater than or equal to its initial share price.
Investors receive the contingent
quarterly payment for the quarterly periods in which the closing price of one ETF Share of each ETF is at or above its downside
threshold level on the related determination date.
On the contingent payment
date immediately following the 18th determination date, the securities will be automatically redeemed for the stated
principal amount plus the contingent quarterly payment with respect to the related determination date. |
Scenario
2 |
This scenario assumes that each ETF closes
at or above its downside threshold level on some determination dates but one or both of the ETFs closes below their respective
downside threshold levels on the others, and each ETF closes below its initial share price on all the determination dates (other
than the first, second and third determination dates) prior to the final determination date. On the final determination date, each
ETF closes at or above its downside threshold level.
Consequently, the securities
are not automatically redeemed, and investors receive a contingent quarterly payment for the quarterly periods in which the closing
price of one ETF Share of each ETF is at or above its downside threshold level on the related determination date. At maturity,
investors will receive the stated principal amount and the contingent quarterly payment with respect to the final determination
date. |
Scenario
3 |
This scenario assumes that each ETF closes
at or above its downside threshold level on some determination dates but one or both of the ETFs closes below their respective
downside threshold levels on the others, and each ETF closes below its initial share price on all the determination dates (other
than the first, second and third determination dates) prior to the final determination date. On the final determination date, one
or both of the ETFs close below their respective downside threshold levels.
Consequently, the securities are not automatically
redeemed, and investors receive a contingent quarterly payment for the quarterly periods in which the closing price of one ETF
Share of each ETF is at or above its downside threshold level on the related determination date. At maturity, investors will receive
the stated principal amount times the ETF performance factor of the worst performing ETF, which will be less than 75% of
the stated principal amount and could be zero.
Investors will lose some, and may lose
all, of their principal in this scenario. |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for the
securities depending on (1) the closing prices and (2) the final share prices of the ETFs.
Diagram #1: First, Second and Third Determination
Dates
Diagram #2: Determination Dates (Other
Than the First, Second, Third and Final Determination Dates)
Diagram #3: Payment at Maturity if No
Automatic Early Redemption Occurs
For more information about the payment upon an early redemption
or at maturity in different hypothetical scenarios, see “Hypothetical Examples” starting on page 7.
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly payment is payable with respect to a determination date, whether the securities will be automatically
redeemed on any determination date prior to the final determination date and how to calculate the payment at maturity if the securities
have not been redeemed early. The following examples are for illustrative purposes only. Whether you receive a contingent quarterly
payment or whether the securities will be automatically redeemed will be determined by reference to the closing price of one ETF
Share of each ETF on each quarterly determination date and the amount you will receive at maturity, if any, will be determined
by reference to the final share price of each ETF. The actual initial share price and downside threshold level for each ETF will
be provided in the pricing supplement. All payments on the securities, if any, are subject to the credit risk of JPMorgan Chase
& Co. The numbers in the hypothetical examples below may have been rounded for the ease of analysis. The examples below are
based on the following assumed terms:
Contingent quarterly payment: |
A contingent quarterly payment of $0.1863 per quarter per security will be paid on the securities on each contingent payment date but only if the closing price of one ETF Share of each ETF is at or above its downside threshold level on the related determination date. |
Early redemption: |
If the closing price of one ETF Share of each ETF is greater than or equal to its initial share price on any quarterly determination date (other than the first, second, third and final determination dates), the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent quarterly payment with respect to the related determination date. |
Payment at maturity (if the securities have not been automatically redeemed early): |
If the final share price of each ETF is greater than
or equal to its downside threshold level: the stated principal amount and the contingent quarterly payment with respect to
the final determination date
If the
final share price of either ETF is less than its downside threshold level:
(i) the stated principal amount times (ii) the ETF performance
factor of the worst performing ETF |
Stated principal amount: |
$10 per security |
Hypothetical initial share price: |
With respect to the XLF ETF: $25.00
With respect to the XLI ETF : $55.00 |
Hypothetical downside threshold level: |
With respect to the XLF ETF: $18.75, which is 75% of its hypothetical
initial share price
With respect to the XLI ETF : $41.25, which is 75% of its hypothetical
initial share price |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
How to determine whether a contingent quarterly
payment is payable with respect to a determination date:
|
Closing Price |
Contingent quarterly
payment |
|
XLF ETF |
XLI ETF |
|
Hypothetical Determination Date 1 |
$20 (at or above downside threshold level) |
$50 (at or above downside threshold level) |
$0.1863 |
Hypothetical Determination Date 2 |
$15 (below downside threshold level) |
$45 (at or above downside threshold level) |
$0 |
Hypothetical Determination Date 3 |
$20 (at or above downside threshold level) |
$35 (below downside threshold level) |
$0 |
Hypothetical Determination Date 4 |
$10 (below downside threshold level) |
$35 (below downside threshold level) |
$0 |
On hypothetical determination date 1, each ETF closes at or
above its downside threshold level. Therefore, a contingent quarterly payment of $0.1863 is payable on the relevant contingent
payment date.
On each of the hypothetical determination dates 2 and 3, one
ETF closes at or above its downside threshold level but the other ETF closes below its downside threshold level. Therefore, no
contingent quarterly payment is payable on the relevant contingent payment date.
On hypothetical determination date 4, each ETF closes below
its downside threshold level and, accordingly, no contingent quarterly payment is payable on the relevant contingent payment date.
You will not receive a contingent quarterly payment on any
contingent payment date if the closing price of one ETF Share of either ETF is below its downside threshold level on the related
determination date.
How to determine whether the securities will
be automatically redeemed on any determination date prior to the final determination date:
|
Closing Price |
Early Redemption Payment |
|
XLF ETF |
XLI ETF |
|
Hypothetical Determination Date 1 |
$35 (at or above initial share price) |
$65 (at or above initial share price) |
n/a (securities are not redeemed early) |
Hypothetical Determination Date 2 |
$30 (at or above initial share price) |
$50 (below initial share price) |
n/a (securities are not redeemed early) |
Hypothetical Determination Date 3 |
$20 (below initial share price) |
$60 (at or above initial share price) |
n/a (securities are not redeemed early) |
Hypothetical Determination Date 4 |
$30 (at or above initial share price) |
$50 (below initial share price) |
n/a (securities are not redeemed early) |
Hypothetical Determination Date 5 |
$20 (below initial share price) |
$50 (below initial share price) |
n/a (securities are not redeemed early) |
Hypothetical Determination Date 6 |
$35 (at or above initial share price) |
$65 (at or above initial share price) |
$10.1863 (the stated principal amount plus the contingent quarterly payment with respect to |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
|
|
|
the related determination date) |
On each of hypothetical determination dates 1, 2 and 3, the
securities are not automatically redeemable even though each ETF closes above its initial share price on hypothetical determination
date 1.
On hypothetical determination date 4, one ETF closes at or above
its initial share price but the other ETF close below its initial share price. Therefore, the securities remain outstanding and
are not redeemed early.
On hypothetical determination date 5, each ETF closes below
its initial share price. Therefore, the securities remain outstanding and are not redeemed early.
On hypothetical determination date 6, each ETF closes at or
above its initial share price. Therefore, the securities are automatically redeemed and you receive an early redemption payment
equal to the stated principal amount plus the contingent quarterly payment with respect to the related determination date.
No further payments will be made on the securities once they have been redeemed.
How to calculate the payment at maturity (if
the securities have not been automatically redeemed early):
|
Final Share Price |
Payment at Maturity |
|
XLF ETF |
XLI ETF |
|
Example 1: |
$20 (at or above downside threshold level) |
$45 (at or above downside threshold level) |
$10.1863 (the stated principal amount plus the contingent quarterly payment with respect to the final determination date) |
Example 2: |
$10 (below downside threshold level) |
$45 (at or above downside threshold level) |
$10 × ETF performance factor of
the worst performing ETF =
$10 × ($10/$25) = $4.00 |
Example 3: |
$20 (at or above downside threshold level) |
$27.50 (below downside threshold level) |
$10 × ($27.50/$55) = $5.00 |
Example 4: |
$15 (below downside threshold level) |
$22 (below downside threshold level) |
$10 × ($22/$55) = $4.00 |
Example 5: |
$7.50 (below downside threshold level) |
$30 (below downside threshold level) |
$10 × ($7.50/$25) = $3.00 |
In example 1, the final share price of each ETF is at or above
its downside threshold level. Therefore, you receive at maturity the stated principal amount of the securities and the contingent
quarterly payment with respect to the final determination date.
In examples 2 and 3, the final share price of one ETF is at
or above its downside threshold level but the final share price of the other ETF is below its downside threshold level. Therefore,
you are exposed to the downside performance of the worst performing ETF at maturity and receive a cash payment at maturity equal
to the stated principal amount times the ETF performance factor of the worst performing ETF.
Similarly, in examples 4 and 5, the final share price of each
ETF is below its downside threshold level, and you receive a cash payment at maturity equal to the stated principal amount times
the ETF performance factor of the worst performing ETF.
If
the final share price of EITHER ETF is below its downside threshold level, you will be exposed to the downside performance of the
worst performing ETF Share at maturity, and your payment at maturity will be less than 75% of the stated principal amount per security
and could be zero.
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk factors
for investors in the securities. For further discussion of these and other risks, you should read the sections entitled “Risk
Factors” beginning on page PS-8 of the accompanying product supplement no. 4a-I and “Risk Factors” beginning
on page US-2 of the accompanying underlying supplement no. 1a-I. We urge you to consult your investment, legal, tax, accounting
and other advisers in connection with your investment in the securities.
| § | The securities do not guarantee the return of any principal and your investment in the securities may result in a loss.
The terms of the securities differ from those of ordinary debt securities in that the securities do not guarantee the return of
any of the principal amount at maturity. Instead, if the securities have not been automatically redeemed prior to maturity and
if the final share price of either of the ETFs is less than its downside threshold level, you will be exposed to the decline
in the closing price of one ETF Share of the worst performing ETF, as compared to its initial share price, on a 1-to-1 basis and
you will receive for each security that you hold at maturity a cash payment equal to the stated principal amount times the
ETF performance factor of the worst performing ETF. In this case, your payment at maturity will be less than 75% of the
stated principal amount and could be zero. |
| § | You will not receive any contingent quarterly payment for any quarterly period where the closing price of one ETF Share
of either ETF on the relevant determination date is less than its downside threshold level. The terms of the securities differ
from those of ordinary debt securities in that the securities do not guarantee the payment of regular interest. Instead, a contingent
quarterly payment will be made with respect to a quarterly period only if the closing price one ETF Share of each ETF on the relevant
determination date is greater than or equal to its downside threshold level. If the
closing price of one ETF Share of either ETF is below its downside threshold level
on any determination date, you will not receive a contingent quarterly payment for the relevant quarterly period. It is possible
that the closing price of one ETF Share of each ETF could be below its downside threshold level on most or all of the determination
dates so that you will receive few or no contingent quarterly payments. If you do not earn sufficient contingent quarterly payments
over the term of the securities, the overall return on the securities may be less than the amount that would be paid on a conventional
debt security of the issuer of comparable maturity. |
| § | The contingent quarterly payment is based solely on the closing prices of one ETF
Share of the ETFs on the specified determination dates. Whether
the contingent quarterly payment will be made with respect to a determination date will be based on the closing prices of one
ETF Share of each ETF on that determination date. As a result, you will not know whether you will receive the contingent
quarterly payment until the related determination date. Moreover, because the contingent quarterly payment is based solely on the
closing price of one ETF Share of each ETF on a specific determination date, if the
closing price of one ETF Share of either of the ETFs on that determination date is
below its downside threshold level, you will not receive any contingent quarterly
payment with respect to that determination date, even if the closing price of one ETF Share
of that ETF was higher on other days during the related quarterly period. |
| § | You are exposed to the price risk of both ETFs, with respect to both the contingent quarterly payments, if any, and the
payment at maturity, if any. Your return on the securities is not linked to a basket consisting of the ETFs. Rather, it will
be contingent upon the independent performance of each ETF. Unlike an instrument with a return linked to a basket of underlying
assets in which risk is mitigated and diversified among all the components of the basket, you will be exposed to the risks related
to each ETF. The performance of the ETFs may not be correlated. Poor performance by either ETF over the term of the securities
may negatively affect your return and will not be offset or mitigated by any positive performance by the other ETF. Accordingly,
your investment is subject to the risk of decline in the closing price of one ETF Share of
each ETF. |
To receive any contingent
quarterly payments, each ETF must close at or above its downside threshold level
on the applicable determination date. In addition, if either ETF has declined to below its downside threshold level as of
the final determination date, you will be fully exposed to the decline in the worst performing ETF, as compared to its initial
share price, on a 1-to-1 basis, even if the other ETF has appreciated. Under this scenario, the value of any such payment will
be less than 75% of the stated principal amount and could be zero.
| § | Because the securities are linked to the performance of the worst performing ETF,
you are exposed to greater risks of no contingent quarterly payments and sustaining a significant loss on your investment than
if the securities were linked to just one ETF. The risk that you will not receive any contingent quarterly payments, or that
you will suffer a significant loss on your investment is greater if you invest in the securities than if you invest in substantially
similar securities that are linked to the performance of just one ETF. With two ETFs, it is more likely that either ETF will close
below its downside threshold level on any determination date than if the securities were linked to only one ETF. In addition, you
will not benefit from the performance of the ETF that is not the worst performing ETF. Therefore it is more likely that you will
not receive any contingent quarterly payments and that you will suffer a significant loss on your investment. |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
| § | The securities are subject to the credit risk of JPMorgan Chase
& Co., and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value
of the securities. Investors are dependent on JPMorgan Chase & Co.’s ability to pay all amounts due on the
securities. Any actual or anticipated decline in our credit ratings or increase in the credit spreads determined by the market
for taking our credit risk is likely to adversely affect the market value of the securities. If we were to default on our payment
obligations, you may not receive any amounts owed to you under the securities and you could lose your entire investment. |
| § | Investors will not participate in any appreciation in either ETF.
Investors will not participate in any appreciation in either ETF from its initial share price, and the return on the securities
will be limited to the contingent quarterly payment that is paid with respect to each determination date on which the closing price
of one ETF Share of each ETF is greater
than or equal to its downside threshold level,
if any. |
| § | Early redemption risk.
The term of your investment in the securities
may be limited to as short as approximately one year by the automatic early redemption feature of the securities. If the securities
are redeemed prior to maturity, you will receive no more contingent quarterly payments and may be forced to reinvest in a lower
interest rate environment and may not be able to reinvest the proceeds from an investment in the securities at a comparable return
for a similar level of risk. |
| § | Economic interests of the issuer, the calculation agent, the agent of the offering of the securities and other affiliates
of the issuer may be different from those of investors. We
and our affiliates play a variety of roles in connection with the issuance of the securities, including acting as calculation agent
and as an agent of the offering of the securities, hedging our obligations under the securities and making the assumptions used
to determine the pricing of the securities and the estimated value of the securities, 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 securities. The calculation agent has determined the initial
share prices and the downside threshold levels and will determine the final share prices and whether the closing price of one
ETF Share of each ETF on any determination date is
greater than or equal to its initial share price or is below its downside threshold level, as applicable. Determinations made by
the calculation agent, including with respect to the occurrence or non-occurrence of market disruption events, may affect the payment
to you at maturity or whether the securities are redeemed early. |
In
addition, we are currently one of the companies that make up the XLF ETF. We will not have any obligation to consider your interests
as a holder of the securities in taking any corporate action that might affect the value of the XLF ETF or the securities.
Moreover,
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 securities and the value of the securities. It is possible that hedging or trading activities
of ours or our affiliates in connection with the securities could result in substantial returns for us or our affiliates while
the value of the securities 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 securities is lower than the
original issue price (price to public) of the securities. JPMS’s estimated value is
only an estimate using several factors. The original issue price of the securities exceeds JPMS’s estimated value because
costs associated with selling, structuring and hedging the securities are included in the original issue price of the securities.
These costs include the selling commissions, the structuring fee, the projected profits, if any, that our affiliates expect to
realize for assuming risks inherent in hedging our obligations under the securities and the estimated cost of hedging our obligations
under the securities. See “Additional Information about the Securities — JPMS’s estimated value of the securities”
in this document. |
| § | JPMS’s estimated value does not represent future values of
the securities and may differ from others’ estimates. JPMS’s estimated value of the securities is determined by reference
to JPMS’s internal pricing models. This estimated value is based on market conditions
and other relevant factors existing at the time of pricing 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 securities 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 securities 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 securities from you in secondary
market transactions. See “Additional Information about the Securities — JPMS’s estimated value of the securities”
in this document. |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
| § | 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 securities as well as the higher issuance, operational
and ongoing liability management costs of the securities 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 securities to be more favorable to you. In addition, JPMS’s estimated value might be lower if it were based on the interest
rate implied by our conventional fixed-rate credit spreads. Consequently, our use of an internal funding rate would have an adverse
effect on the terms of the securities and any secondary market prices of the securities. See “Additional Information about
the Securities — JPMS’s estimated value of the securities” in this document. |
| § | The value of the securities 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 securities for
a limited time period. We generally expect that some of the costs included in the original
issue price of the securities will be partially paid back to you in connection with any repurchases of your securities by JPMS
in an amount that will decline to zero over an initial predetermined period. These costs can include selling commissions, the structuring
fee, projected hedging profits, if any, and, in some circumstances, estimated hedging costs and our secondary market credit spreads
for structured debt issuances. See “Additional Information about the Securities — Secondary market prices of the securities”
in this document for additional information relating to this initial period. Accordingly, the estimated value of your securities
during this initial period may be lower than the value of the securities as published by JPMS (and which may be shown on your customer
account statements). |
| § | Secondary market prices of the securities will likely be lower than
the original issue price of the securities. Any secondary market prices of the securities
will likely be lower than the original issue price of the securities 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 the structuring fee and (b) may exclude projected hedging profits, if any, and estimated hedging costs
that are included in the original issue price of the securities. As a result, the price, if any, at which JPMS will be willing
to buy securities 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 securities. |
The
securities are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your securities
to maturity. See “— Secondary trading may be limited” below.
| § | Secondary market prices of the securities will be impacted by many
economic and market factors. The secondary market price of the securities 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, structuring fee, projected hedging profits, if any, estimated hedging costs and the price of each ETF, including: |
| o | any actual or potential change in our creditworthiness or credit spreads; |
| o | customary bid-ask spreads for similarly sized trades; |
| o | secondary market credit spreads for structured debt issuances; |
| o | the actual and expected volatility in the prices of each ETF; |
| o | the time to maturity of the securities; |
| o | whether the closing price of one ETF Share of either ETF has been, or is expected to be, less than its downside threshold level
on any determination date; |
| o | the likelihood of an early redemption being triggered; |
| o | the dividend rates on the ETFS and the equity securities held by the ETFs; |
| o | the actual and expected positive or negative correlation between the ETFs, or the actual or expected absence of any such correlation; |
| o | interest and yield rates in the market generally; |
| o | the occurrence of certain events affecting an ETF that may or may not require an adjustment to its share adjustment factor;
and |
| o | a variety of other economic, financial, political, regulatory and judicial events. |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
Additionally, independent pricing
vendors and/or third party broker-dealers may publish a price for the securities, which may also be reflected on customer account
statements. This price may be different (higher or lower) than the price of the securities, if any, at which JPMS may be willing
to purchase your securities in the secondary market.
| § | Investing in the securities is not equivalent to investing in the
ETF Shares. Investing in the securities is not equivalent to investing in the ETF Shares,
the indices tracked by the ETFs, each of which we refer to as an underlying index, or the stocks held by the ETFs or the underlying
indices. Investors in the securities will not have voting rights or rights to receive dividends or other distributions or any other
rights with respect to the ETF Shares, the reference indices or the stocks held by the ETFs or the underlying indices. |
| § | Adjustments to the ETFs or the underlying indices could adversely
affect the value of the securities. Those responsible for calculating and maintaining the ETFs and the underlying indices
can add, delete or substitute the components of the ETFs or the underlying indices, or make other methodological changes that could
change the value of the ETF Shares or the underlying indices. Any of these actions could adversely affect the price of the ETF
Shares and, consequently, the value of the securities. |
| § | There are risks associated with the ETFs. Although the ETF Shares are listed for trading on NYSE Arca, Inc. and a number
of similar products have been traded on various national securities exchanges for varying periods of time, there is no assurance
that an active trading market will continue for the ETF Shares or that there will be liquidity in the trading market. The ETFs
are subject to management risk, which is the risk that the investment strategy of the respective investment advisers to the ETFs,
the implementation of which is subject to a number of constraints, may not produce the intended results. These constraints could
adversely affect the market prices of the ETF Shares and, consequently, the value of the securities. |
| § | The performance and market value of the ETF Shares of each ETF,
particularly during periods of market volatility, may not correlate with the performance of that ETF’s underlying index as
well as the net asset value per ETF Share. Each ETF 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 ETF Shares of each ETF 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 ETF Shares of each ETF and its underlying index. In addition, corporate
actions with respect to the equity securities underlying an ETF (such as mergers and spin-offs) may impact the variance between
the performances of its ETF Shares and its underlying index. Finally, because the ETF Shares of each ETF are traded on a securities
exchange and are subject to market supply and investor demand, the market value of one ETF Share of that ETF may differ from the
net asset value per ETF Share of that ETF. |
During periods of market volatility,
securities underlying an ETF may be unavailable in the secondary market, market participants may be unable to calculate accurately
the net asset value per ETF Share and the liquidity of the ETF Shares may be adversely affected. This kind of market volatility
may also disrupt the ability of market participants to create and redeem ETF Shares of an ETF. Further, market volatility may adversely
affect, sometimes materially, the prices at which market participants are willing to buy and sell ETF Shares of an ETF. As a result,
under these circumstances, the market value of ETF Shares may vary substantially from the net asset value per ETF Share of an ETF.
For all of the foregoing reasons, the performance of the ETF Shares of an ETF may not correlate with the performance of its underlying
index as well as its net asset value per ETF Share, which could materially and adversely affect the value of the securities in
the secondary market and/or reduce any payment on the notes.
| § | The XLF ETF is linked to the performance of the financial sector.
All or substantially all of the equity securities held by the XLF ETF are issued by companies whose primary line of business
is directly associated with the financial sector. Market or economic factors impacting financial companies could have a major effect
on the value of the XLF ETF. Financial services companies are subject to extensive government regulation, which may limit both
the amounts and types of loans and other financial commitments they can make, the interest rates and fees they can charge, the
scope of their activities, the prices they can charge and the amount of capital they must maintain. Profitability is largely dependent
on the availability and cost of capital funds and can fluctuate significantly when interest rates change. In addition, deterioration
of the credit markets generally may cause an adverse impact in a broad range of markets, including U.S. and international credit
and interbank money markets generally, thereby affecting a wide range of financial institutions and markets. Credit losses resulting
from financial difficulties of borrowers and financial losses associated with investment activities can negatively impact the sector.
Insurance companies may be subject to severe price competition. Adverse economic, business or political developments affecting
real estate could have a major effect on the value of real estate securities (which include real estate |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
investment trusts). 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.
| § | The XLI ETF is linked to the performance of the industrial sector. All or substantially all of the equity securities
held by the XLI ETF are issued by companies whose primary line of business is directly associated with the industrial sector. Market
or economic factors impacting industrial companies could have a major effect on the value of the XLF ETF. Industrial companies
are affected by supply and demand both for their specific product service and for industrial sector products in general. Government
regulation, world events, exchange rates and economic conditions, technological developments and liabilities for environmental
damage and general civil liabilities will likewise affect the performance of these companies. Aerospace and defense companies can
be significantly affected by government spending policies because companies involved in this industry rely, to a significant extent,
on U.S. and foreign government demand for their products and services. Governmental defense spending policies are typically under
pressure from efforts to control the U.S. (and other) government budgets. Transportation securities are cyclical and may have sharp
price movements, which may result from changes in the economy, fuel prices, labor agreements and insurance costs. 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. |
| § | Owning the securities is not the same as owning the ETF Shares.
Owning the securities is not the same as owning
the ETF Shares. Accordingly, changes in the closing price of one ETF Share of an ETF may not result in a comparable change of the
market value of the securities. If the closing
price of one ETF Share of an ETF on any trading day increases above its initial share price, the value of the securities may not
increase comparably, if at all. It is possible for the closing prices of one ETF Share of both ETFs to increase moderately while
the value of the securities decline. |
| § | The anti-dilution protection for the ETF Shares is limited.
The calculation agent will make adjustments to the share adjustment factor of each ETF for certain events affecting that ETF. However,
the calculation agent will not make an adjustment in response to all events that could affect the ETF Shares. If an event occurs
that does not require the calculation agent to make an adjustment, the value of the securities may be materially and adversely
affected. |
| § | Hedging and trading activities by the issuer and its affiliates could potentially affect the value of the securities.
The hedging or trading activities of the issuer’s affiliates and of any other hedging counterparty with respect to the
securities on
or prior to the pricing date and prior to maturity could have adversely affected, and may continue to adversely affect, the closing
prices of one ETF Share of either ETF. Any of these hedging or trading activities on or prior to the pricing date could
have affected the initial share prices and, as a result, the downside threshold levels, which are the respective prices at or above
which the ETFs must close on each determination date in order for you to earn a contingent quarterly payment or, if the securities
are not called prior to maturity, in order for you to avoid being exposed to the negative price performance of the worst performing
ETF at maturity. Additionally, these hedging or trading activities during the term of the securities could potentially affect the
prices of the ETFs on the determination dates and, accordingly, whether investors will receive one or more contingent quarterly
payments, whether the securities are automatically redeemed prior to maturity and, if the securities are not called prior to maturity,
the payment to you at maturity. It is possible that these hedging or trading activities could result in substantial returns for
us or our affiliates while the value of the securities declines. |
| § | Secondary trading may be limited.
The securities will not be listed on a securities exchange. There may be little or no secondary market for the securities.
Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily.
JPMS may act as a market maker for the securities, but is not required to do so. Because we do not expect that other market
makers will participate significantly in the secondary market for the securities, the price at which you may be able to trade your
securities is likely to depend on the price, if any, at which JPMS
is willing to buy the securities. If at any time JPMS
or another agent does not act as a market maker, it is likely that there would be little or no secondary market for the securities. |
| § | The U.S. federal income tax consequences of an investment in the securities are uncertain. There is no direct legal
authority as to the proper U.S. federal income tax treatment of the securities, and we do not intend to request a ruling from the
IRS. The IRS might not accept, and a court might not uphold, the treatment of the securities as prepaid forward contracts with
associated contingent coupons, as described in “Additional Information about the Securities — Additional Provisions
— Tax considerations” in this document and in “Material U.S. Federal Income Tax Consequences” in the accompanying
product supplement no. 4a-I. If the IRS were successful in asserting an alternative treatment for the securities, the timing and
character of any income or loss on the securities could be materially affected. Although the U.S. federal income tax treatment
of contingent quarterly payments (including any |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
contingent quarterly payments paid in connection
with an early redemption or at maturity) is uncertain, in determining our reporting responsibilities we intend (in the absence
of an administrative determination or judicial ruling to the contrary) to treat any contingent quarterly payments as ordinary income.
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 securities, possibly with retroactive effect. You should review carefully the section entitled “Material
U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4a-I and consult your tax adviser regarding
the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments and the
issues presented by this notice.
Non-U.S. Holders — Tax Consideration.
The U.S. federal income tax treatment of contingent quarterly payments is uncertain, and although we believe it is reasonable
to take a position that contingent quarterly payments 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 securities 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). In the event of any withholding, we will not be required to pay any additional amounts with
respect to amounts so withheld. 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 securities in light of your particular circumstances.
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
Financial Select Sector SPDR®
Fund Overview
The Financial 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 generally to the price and yield performance of publicly traded equity securities
of companies in the Financial Select Sector Index, which we refer to as the Underlying Index with respect to the Financial Select
Sector SPDR® Fund. Information provided to or filed with the SEC by the Select Sector SPDR® Trust
pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to the SEC file numbers
333-57791 and 811-08837, respectively, through the SEC’s website at http://www.sec.gov. In addition, information
may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated
documents. For additional information about the Financial Select Sector SPDR® Fund, see the information set forth
under “Fund Descriptions — The Financial Select Sector SPDR® Fund” in the accompanying underlying
supplement no. 1a-I.
Information as of market close on November 20, 2015:
Bloomberg
Ticker Symbol: |
XLF |
52
Week High (on 7/22/2015): |
$25.58 |
Current
Share Price: |
$24.67 |
52 Week
Low (on 9/28/2015): |
$22.28 |
52 Weeks
Ago (on 11/20/2014): |
$24.09 |
|
|
The following table sets forth
the published high and low closing prices, as well as end-of-quarter closing prices, of the Financial Select Sector SPDR®
Fund for each quarter in the period from January 1, 2010 through November 20, 2015. The closing
price of the Financial Select Sector SPDR® Fund on November 20, 2015 was $24.67. The associated graph shows the
closing prices of the Financial Select Sector SPDR® Fund for each day in the same period. We obtained the closing
price information above and in the table and graph below from the Bloomberg Professional® service (“Bloomberg”),
without independent verification. The closing prices may have been adjusted by Bloomberg for actions, such as stock splits.
The historical performance of the Financial Select Sector
SPDR® Fund should not be taken as an indication of its future performance, and no assurance can be given as to the
closing price of one ETF Share of the Financial Select Sector SPDR® Fund at any time, including on the determination
dates.
The Financial Select Sector SPDR® Fund |
High |
Low |
Period End |
2010 |
|
|
|
First Quarter |
$16.02 |
$13.66 |
$15.95 |
Second Quarter |
$17.05 |
$13.81 |
$13.81 |
Third Quarter |
$15.08 |
$13.44 |
$14.34 |
Fourth Quarter |
$16.01 |
$14.35 |
$15.95 |
2011 |
|
|
|
First Quarter |
$17.18 |
$15.90 |
$16.39 |
Second Quarter |
$16.69 |
$14.73 |
$15.35 |
Third Quarter |
$15.66 |
$11.56 |
$11.81 |
Fourth Quarter |
$14.05 |
$11.28 |
$13.00 |
2012 |
|
|
|
First Quarter |
$15.98 |
$13.30 |
$15.80 |
Second Quarter |
$15.92 |
$13.36 |
$14.64 |
Third Quarter |
$16.28 |
$14.22 |
$15.59 |
Fourth Quarter |
$16.70 |
$15.15 |
$16.39 |
2013 |
|
|
|
First Quarter |
$18.45 |
$16.85 |
$18.21 |
Second Quarter |
$20.17 |
$17.83 |
$19.45 |
Third Quarter |
$20.87 |
$19.44 |
$19.91 |
Fourth Quarter |
$21.86 |
$19.57 |
$21.86 |
2014 |
|
|
|
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
The Financial Select Sector SPDR® Fund |
High |
Low |
Period End |
First Quarter |
$22.48 |
$20.53 |
$22.34 |
Second Quarter |
$22.90 |
$21.28 |
$22.74 |
Third Quarter |
$23.81 |
$22.16 |
$23.17 |
Fourth Quarter |
$25.04 |
$22.04 |
$24.73 |
2015 |
|
|
|
First Quarter |
$24.73 |
$23.01 |
$24.11 |
Second Quarter |
$25.27 |
$24.09 |
$24.38 |
Third Quarter |
$25.58 |
$22.28 |
$22.66 |
Fourth Quarter (through November 20, 2015) |
$24.73 |
$22.67 |
$24.67 |
The Financial Select Sector SPDR® Fund – Daily Closing Prices*
January 4, 2010 to November 20, 2015 |
|
*The dotted line in the graph indicates
the downside threshold level, equal to 75% of the initial share price.
This document relates only to the securities offered
hereby and does not relate to the Financial Select Sector SPDR® Fund. We have derived all disclosures
contained in this document regarding the Financial Select Sector SPDR® Fund from the publicly available
documents described in the first paragraph under this “Financial Select Sector SPDR® Fund
Overview” section, without independent verification. In connection with the offering of the securities, neither we nor
the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the
Financial Select Sector SPDR® Fund. Neither we nor the agent makes any representation that such publicly
available documents or any other publicly available information regarding the Financial Select Sector SPDR®
Fund is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof
(including events that would affect the accuracy or completeness of the publicly available documents described in the first
paragraph under this “Financial Select Sector SPDR® Fund Overview” section) that would affect the
trading price of the Financial Select Sector SPDR® Fund (and therefore the price of one ETF Share of Financial
Select Sector SPDR® Fund at the time we priced the securities) have been publicly disclosed. Subsequent
disclosure of any such events or the disclosure of or failure to disclose material future events concerning the Financial
Select Sector SPDR® Fund could affect the value received at maturity with respect to the securities and
therefore the trading prices of the securities. Neither we nor any of our affiliates makes any representation to you as
to the performance of the Financial Select Sector SPDR® Fund.
The Financial Select Sector Index. The Financial Select
Sector Index is a modified market capitalization-based index that measures the performance of the financial sector of the S&P
500® Index. The Financial Select Sector Index includes
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
companies
in the following industries: diversified financial services, insurance, banks, capital markets, real estate investment trusts,
consumer finance, thrifts and mortgage finance, and real estate management and development. The Financial Select Sector Index is
described under the heading “Equity Index Descriptions — The Select Sector Indices” in the accompanying underlying
supplement no. 1a-I.
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
Industrial Select Sector SPDR®
Fund Overview
The Industrial 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 generally to the price and yield performance
of publicly traded equity securities of companies in the Industrial Select Sector Index, which we refer to as the underlying index
with respect to the Industrial Select Sector SPDR® Fund. Information provided to or filed with the SEC by
the Select Sector SPDR® Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can
be located by reference to the SEC file numbers 333-57791 and 811-08837, respectively, through the SEC’s website at http://www.sec.gov.
In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles
and other publicly disseminated documents. For additional information about the Industrial Select
Sector SPDR® Fund, see the information set forth in Appendix A.
Information as of market close on November 20, 2015:
Bloomberg
Ticker Symbol: |
XLI |
52
Week High (on 2/20/2015): |
$58.16 |
Current
Share Price: |
$55.40 |
52
Week Low (on 9/28/2015): |
$48.83 |
52
Weeks Ago (on 11/20/2014): |
$56.63 |
|
|
The following table sets forth the published high and low
closing prices of, as well as end-of-quarter closing prices, of the Industrial Select Sector SPDR® Fund for each
quarter in the period from January 1, 2010 through November 20, 2015. The closing price of the Industrial Select Sector SPDR®
Fund on November 20, 2015 was $55.40. The associated graph shows the closing prices of the Industrial Select Sector SPDR®
Fund for each day in the same period. We obtained the closing price information above and in the table and graph below from Bloomberg
without independent verification. The closing prices may have been adjusted by Bloomberg for actions, such as stock splits.
The historical performance of the Industrial Select Sector
SPDR® Fund should not be taken as an indication of its future performance, and no assurance can be given as to the
closing price of one ETF Share of the Industrial Select Sector SPDR® Fund at any time, including on the determination
dates.
The Industrial Select Sector SPDR® Fund |
High |
Low |
Period end |
2010 |
|
|
|
First Quarter |
$31.42 |
$26.90 |
$31.24 |
Second Quarter |
$33.36 |
$27.43 |
$27.43 |
Third Quarter |
$31.44 |
$27.01 |
$31.28 |
Fourth Quarter |
$34.89 |
$30.98 |
$34.87 |
2011 |
|
|
|
First Quarter |
$38.05 |
$35.07 |
$37.67 |
Second Quarter |
$38.70 |
$35.21 |
$37.24 |
Third Quarter |
$38.30 |
$29.01 |
$29.22 |
Fourth Quarter |
$34.26 |
$28.40 |
$33.75 |
2012 |
|
|
|
First Quarter |
$38.14 |
$34.49 |
$37.42 |
Second Quarter |
$37.66 |
$33.36 |
$35.67 |
Third Quarter |
$37.76 |
$34.21 |
$36.53 |
Fourth Quarter |
$38.46 |
$35.42 |
$37.90 |
2013 |
|
|
|
First Quarter |
$42.12 |
$38.65 |
$41.76 |
Second Quarter |
$44.36 |
$40.18 |
$42.64 |
Third Quarter |
$47.76 |
$42.61 |
$46.41 |
Fourth Quarter |
$52.26 |
$45.41 |
$52.26 |
2014 |
|
|
|
First Quarter |
$53.00 |
$48.64 |
$52.33 |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
The Industrial Select Sector SPDR® Fund |
High |
Low |
Period end |
Second Quarter |
$55.59 |
$50.90 |
$54.06 |
Third Quarter |
$54.75 |
$51.39 |
$53.15 |
Fourth Quarter |
$57.50 |
$49.54 |
$56.58 |
2015 |
|
|
|
First Quarter |
$58.16 |
$54.37 |
$55.77 |
Second Quarter |
$57.22 |
$54.03 |
$54.06 |
Third Quarter |
$54.94 |
$48.83 |
$49.89 |
Fourth Quarter (through November 20, 2015) |
$55.40 |
$49.78 |
$55.40 |
The Industrial Select Sector SPDR® Fund – Daily Closing Prices*
January 4, 2010 to November 20, 2015 |
|
*The dotted line in the graph indicates
the downside threshold level, equal to 75% of the initial share price.
This document relates only to the securities offered hereby
and does not relate to the Industrial Select Sector SPDR® Fund. We have derived all disclosures contained in this
document regarding the Industrial Select Sector SPDR® Fund from the publicly available documents described in the
first paragraph under this “Industrial Select Sector SPDR® Fund Overview” section, without independent
verification. In connection with the offering of the securities, neither we nor the agent has participated in the preparation of
such documents or made any due diligence inquiry with respect to the Industrial Select Sector SPDR® Fund. Neither
we nor the agent makes any representation that such publicly available documents or any other publicly available information regarding
The Industrial Select Sector SPDR® Fund is accurate or complete. Furthermore, we cannot give any assurance that
all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly
available documents described in the first paragraph under this “Industrial Select Sector SPDR® Fund Overview”
section) that would affect the trading price of the Industrial Select Sector SPDR® Fund (and therefore the price
of one ETF Share of the Industrial Select Sector SPDR® Fund at the time we priced the securities) have been publicly
disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning
the Industrial Select Sector SPDR® Fund could affect the value received at maturity with respect to the securities
and therefore the trading prices of the securities.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the Industrial Select Sector SPDR® Fund.
The Industrial Select Sector Index. The
Industrial Select Sector Index is a modified market capitalization-based index that measures the performance of the industrial
sector of the S&P 500® Index. The Industrial Select Sector Index includes companies in the following industries:
aerospace and defense; industrial conglomerates; marine; transportation
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
infrastructure;
machinery; road and rail; air freight and logistics; commercial services and supplies; professional services; electrical equipment;
construction and engineering; trading companies and distributors; airlines; and building products. The Industrial Select Sector
Index is described under the heading “The Industrial Select Sector Index” in Appendix A below.
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
Additional Information about the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Provisions |
|
Record date: |
The record date for each contingent payment date is the date one business day prior to that contingent payment date. |
Postponement of maturity date: |
If the scheduled maturity date is not a business day, then the maturity date will be the following business day. If the scheduled final determination date is not a trading day or if a market disruption event occurs on that day so that the final determination date is postponed and falls less than three business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the third business day following that final determination date as postponed. |
Minimum ticketing size: |
$1,000 / 100 securities |
Trustee: |
Deutsche Bank Trust Company Americas (formerly Bankers Trust Company) |
Calculation agent: |
JPMS |
JPMS’s estimated value of the securities: |
JPMS’s estimated value of the securities set
forth on the cover of this document 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 securities, valued using our internal funding rate for structured debt described below,
and (2) the derivative or derivatives underlying the economic terms of the securities. JPMS’s estimated value does not represent
a minimum price at which JPMS would be willing to buy your securities 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 “Risk Factors — 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 securities 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 securities on the
pricing date is based on market conditions and other relevant factors and assumptions existing at that time. See “Risk Factors
— JPMS’s estimated value does not represent future values of the securities and may differ from others’ estimates.”
JPMS’s estimated value of the securities is lower
than the original issue price of the securities because costs associated with selling, structuring and hedging the securities are
included in the original issue price of the securities. These costs include the selling commissions paid to JPMS and other affiliated
or unaffiliated dealers, the structuring fee, the projected profits, if any, that our affiliates expect to realize for assuming
risks inherent in hedging our obligations under the securities and the estimated cost of hedging our obligations under the securities.
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 securities. See “Risk Factors — JPMS’s estimated value
of the securities is lower than the original issue price (price to public) of the securities” in this document. |
Secondary market prices of the securities: |
For information about factors that will impact any secondary market prices of the securities, see “Risk Factors — Secondary market prices of the securities will be impacted by many economic and market factors” in this document. In addition, we generally expect that some of the costs included in the original issue price of the securities will be partially paid back to you in connection with any repurchases of your securities 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 stated term of the securities. The length of any such initial period reflects the structure of the securities, whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated costs of hedging the securities and when these costs are incurred, as determined by JPMS. See “Risk Factors — The value of the securities 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 securities for a limited time period.” |
Tax considerations: |
You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4a-I. In determining our reporting responsibilities we intend to treat (i) the securities for U.S. federal income tax purposes as prepaid forward contracts with associated contingent coupons and (ii) any contingent quarterly payments 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 no. 4a-I. Based on the advice of Davis Polk & Wardwell LLP, our special tax counsel, we believe that this is a reasonable treatment, but that |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
|
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 securities 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 securities, possibly with retroactive effect. You should consult your tax adviser regarding the U.S. federal
income tax consequences of an investment in the securities, 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 quarterly payments is uncertain, and although we believe it is reasonable to take a
position that contingent quarterly payments 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 securities 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 securities in light of your particular circumstances.
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 securities.
FATCA. Withholding under legislation commonly referred
to as “FATCA” could apply to payments with respect to the securities 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 securities are recharacterized, in whole or in part, as debt instruments, or Contingent Interest Payments if they are otherwise
treated as FDAP Income). If the securities are recharacterized, in whole or in part, as debt instruments, withholding could also
apply to payments of gross proceeds of a taxable disposition, including an early redemption or redemption at maturity. However,
under a recent IRS notice, this regime will not apply to payments of gross proceeds (other than any amount treated as FDAP Income)
with respect to dispositions occurring before January 1, 2019. You should consult your tax adviser regarding the potential application
of FATCA to the securities. |
Supplemental use of proceeds and hedging: |
The securities are offered to meet investor demand
for products that reflect the risk-return profile and market exposure provided by the securities. See “How the Securities
Work” in this document for an illustration of the risk-return profile of the securities and “The Financial Select Sector
SPDR® Fund Overview” and “Appendix A” in this document for a description of the market exposure
provided by the securities.
The original issue price of the securities is equal
to JPMS’s estimated value of the securities plus the selling commissions paid to JPMS and other affiliated or unaffiliated
dealers and the structuring fee, plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming
risks inherent in hedging our obligations under the securities, plus the estimated cost of hedging our obligations under the securities. |
Benefit plan investor considerations: |
See “Benefit Plan Investor Considerations” in the accompanying product supplement no. 4a-I |
Supplemental plan of distribution: |
Subject to regulatory constraints, JPMS intends to use its
reasonable efforts to offer to purchase the securities in the secondary market, but is not required to do so. JPMS, acting as agent
for JPMorgan Chase & Co., will pay all of the selling commissions it receives from us to Morgan Stanley Wealth Management.
In addition, Morgan Stanley Wealth Management will receive a structuring fee as set forth on the cover of this document for each
security.
We or our affiliate may enter into swap agreements or related
hedge transactions with one of our other affiliates or unaffiliated counterparties in connection with the sale of the securities
and JPMS and/or an affiliate may earn additional income as a result of payments pursuant to the swap or related hedge transactions.
See “— Supplemental use of proceeds and hedging” above and “Use of Proceeds and Hedging” on page
PS-42 of the accompanying product supplement no. 4a-I. |
Validity of the securities: |
In the opinion of Davis Polk & Wardwell LLP, as our special products counsel, when the securities 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 securities 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 |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
|
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 securities 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. |
Contact: |
Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or Morgan Stanley’s principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (800) 869-3326). |
Where you can find more information: |
You should read this document 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 securities 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 document, together with the documents listed below, contains
the terms of the securities, supplements the preliminary terms 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, stand-alone 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 securities 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 securities.
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):
Product supplement no. 4a-I dated November 7, 2014:
http://www.sec.gov/Archives/edgar/data/19617/000089109214008407/e61359_424b2.pdf
Underlying supplement no. 1a-I dated November 7, 2014:
http://www.sec.gov/Archives/edgar/data/19617/000089109214008410/e61337_424b2.pdf
Prospectus supplement and prospectus, each dated
November 7, 2014:
http://www.sec.gov/Archives/edgar/data/19617/000089109214008397/e61348_424b2.pdf
Our Central Index Key, or CIK, on the SEC website is 19617.
As used in this document, “we,” “us,”
and “our” refer to JPMorgan Chase & Co. |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
APPENDIX A
The Industrial Select
Sector SPDR® Fund
We have derived all information contained
in this document regarding the Industrial 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 Industrial Select Sector
SPDR® Fund is an investment portfolio managed by SSFM, the investment adviser to the Industrial Select Sector SPDR®
Fund. The Industrial Select Sector SPDR® Fund is an exchange-traded fund (“ETF”) that trades on the
NYSE Arca under the ticker symbol “XLI.”
The Select Sector Trust is a registered
investment company that consists of nine separate investment portfolios (each, a “Select Sector SPDR® Fund”),
including the Industrial 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. 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 Industrial Select Sector SPDR® Fund, please
see the Industrial Select Sector SPDR® Fund’s prospectus. In addition, information about the Select Sector
Trust, SS FM and the Industrial 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 Industrial 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 Industrial Select Sector Index. For more information about the Industrial Select Sector
Index, please see “— The Industrial Select Sector Index” below.
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
Investment Strategy — Replication
The Industrial Select Sector SPDR® Fund employs
a replication strategy in seeking to track the performance of the Industrial Select Sector Index. This means that the Industrial
Select Sector SPDR® Fund typically invests in substantially all of the securities represented in the Industrial
Select Sector Index in approximately the same proportions as the Industrial Select Sector Index. SSFM may sell securities that
are represented in the Industrial Select Sector Index, or purchase securities that are not yet represented in the Industrial Select
Sector Index, in anticipation of their removal from or addition to the Industrial Select Sector Index. Further, SSFM may choose
to overweight securities in the Industrial Select Sector Index, purchase or sell securities not in the Industrial Select Sector
Index or utilize various combinations of other available techniques, in seeking to track the Industrial Select Sector Index.
Under normal market conditions, the Industrial Select Sector
SPDR® Fund generally invests substantially all, but at least 95%, of its total assets in the securities composing
the Industrial Select Sector Index. In addition, the Industrial 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 Industrial
Select Sector SPDR® Fund in seeking performance that corresponds to the Industrial 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 Industrial Select Sector Index to be reflected in the portfolio composition of the Industrial Select Sector SPDR®
Fund. The Board of Trustees of the Select Sector Trust may change the Industrial Select Sector SPDR® Fund’s
investment strategy and certain other policies without shareholder approval.
There may, however, be instances where SSFM intends to utilize
a sampling strategy in managing the Industrial Select Sector SPDR® Fund. Sampling means that SSFM will use quantitative
analysis to select securities, including securities in the Industrial Select Sector Index, outside of the Industrial Select Sector
Index and derivatives, that have a similar investment profile as the Industrial 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 Industrial Select Sector Index is a theoretical financial
calculation, while the Industrial Select Sector SPDR® Fund is an actual investment portfolio. The performance of
the Industrial Select Sector SPDR® Fund’s return may not match or achieve a high degree of correlation with
the return of the Industrial Select Sector Index due to operating expenses, transaction costs, cash flows, regulatory requirements
and operational inefficiencies.
Holdings Information
As of November 19, 2015, the Industrial
Select Sector SPDR® Fund included 66 companies. The following table summarizes the Industrial Select Sector SPDR®
Fund’s top 10 holdings in individual companies as of that date.
Top 10 Holdings in Individual Securities
as of November 19, 2015
Name |
Weight |
1. General Electric Company |
11.12% |
2. 3M Company |
5.25% |
3. Boeing Company |
5.15% |
4. Honeywell International Inc. |
4.49% |
5. United Technologies Corporation |
4.38% |
6. Union Pacific Corporation |
4.26% |
7. United Parcel Service Inc. Class B |
3.83% |
8. Danaher Corporation |
3.35% |
9. Lockheed Martin Corporation |
3.28% |
10. General Dynamics Corporation |
2.48% |
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.
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
The Industrial Select
Sector Index
We have derived all information contained
in this document regarding the Industrial Select Sector Index, including, without limitation, its make-up, method of calculation
and changes in their 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”).
In July 2012, The McGraw-Hill Companies,
Inc. (“McGraw-Hill”), the owner of the S&P Indices business, and CME Group Inc. (“CME Group”), the
90% owner of the CME Group and Dow Jones & Company, Inc. joint venture that owns the Dow Jones Indexes business, formed a new
joint venture, S&P Dow Jones Indices LLC, which owns the S&P Indices business and the Dow Jones Indexes business, including
the Select Sector Indices.
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. 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 Industrial Select Sector Index is a
modified market capitalization-based index, intended to provide an indication of the pattern of common stock price movements of
companies that are components of the S&P 500® Index and are involved in the development or production of industrial
products. The Industrial Select Sector Index includes companies in the following industries: aerospace and defense; industrial
conglomerates; marine; transportation infrastructure; machinery; road and rail; air freight and logistics; commercial services
and supplies; professional services; electrical equipment; construction and engineering; trading companies and distributors; airlines;
and building products. The Industrial Select Sector Index is one of the nine 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). |
| · | 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. See “Equity Index
Descriptions — The S&P 500® Index” in underlying supplement no. 1a-I. 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. |
Contingent
Income Auto-Callable Securities due November 25, 2020
Based on the
Worst Performing of the Financial Select Sector SPDR® Fund and the Industrial Select Sector SPDR®
Fund
Principal at Risk Securities
| 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.
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