Additional
Information about JPMorgan Financial, JPMorgan Chase & Co. and the Notes
You should read this pricing supplement together with
the accompanying prospectus, as supplemented by the accompanying prospectus supplement, relating to our Series A medium-term notes
of which these Notes are a part, and the more detailed information contained in the accompanying product supplement and the accompanying
underlying supplement.
This pricing supplement, together with the documents listed below, contains the terms of the Notes and
supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative
pricing terms, correspondence, trade ideas, structures for implementation, sample structures, fact sheets, brochures or other educational
materials of ours.
You should carefully consider, among other things, the matters set forth in the “Risk Factors”
sections of the accompanying product supplement and the accompanying underlying supplement, as the Notes involve risks not associated
with conventional debt securities.
Our Central Index Key, or CIK, on the SEC website is
1665650, and JPMorgan Chase & Co.’s CIK is 19617. As used in this pricing supplement, the “Issuer,” “JPMorgan
Financial,” “we,” “us” and “our” refer to JPMorgan Chase Financial Company LLC.
For purposes of the accompanying product supplement, each of the Russell
2000
®
Index and the EURO STOXX 50
®
Index is an “Index.
Observation
Dates and Coupon Payment Dates
Observation Dates
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Coupon Payment Dates
†
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September 26, 2016
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September 28, 2016
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December 28, 2016
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December 30, 2016
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March 24, 2017
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March 28, 2017
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June 26, 2017
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June 28, 2017
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September 25, 2017
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September 27, 2017
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December 27, 2017
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December 29, 2017
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March 26, 2018
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March 28, 2018
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June 25, 2018
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June 27, 2018
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September 24, 2018
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September 26, 2018
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December 24, 2018
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December 28, 2018
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March 25, 2019
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March 27, 2019
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June 24, 2019 (the Final Valuation Date)
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June 28, 2019 (the Maturity Date)
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†
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The Notes are not callable until the second Observation Date, December 28, 2016.
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Each of the Observation Dates, and therefore
the Coupon Payment Dates, is subject to postponement in the event of a market disruption event and as described under “General
Terms of Notes — Postponement of a Determination Date — Notes Linked to Multiple Underlyings” and “General
Terms of Notes — Postponement of a Payment Date” in the accompanying product supplement.
What
Are the Tax Consequences of the Notes?
You should review carefully the section entitled “Material
U.S. Federal Income Tax Consequences” in the accompanying product supplement no. UBS-1-I. In determining our reporting responsibilities
we intend to treat (i) the Notes for U.S. federal income tax purposes as prepaid forward contracts with associated contingent coupons
and (ii) any Contingent Coupons as ordinary income, as described in the section entitled “Material U.S. Federal Income Tax
Consequences — Tax Consequences to U.S. Holders — Notes Treated as Prepaid Forward Contracts with Associated Contingent
Coupons” in the accompanying product supplement. Based on the advice of Davis Polk & Wardwell LLP, our special tax counsel,
we believe that this is a reasonable treatment, but that there are other reasonable treatments that the IRS or a court may adopt.
Sale, Exchange or Redemption of a Note.
Assuming
the treatment described above is respected, upon a sale or exchange of the Notes (including redemption upon an automatic call or
at maturity), you should recognize capital gain or loss equal to the difference between the amount realized on the sale or exchange
and your tax basis in the Notes, which should equal the amount you paid to acquire the Notes (assuming Contingent Coupons are properly
treated as ordinary income, consistent with the position referred to above). This gain or loss should be short-term capital gain
or loss unless you hold the Notes for more than one year, in which case the gain or loss should be long-term capital gain or loss,
whether or not you are an initial purchaser of the Notes at the issue price. The deductibility of capital losses is subject to
limitations. If you sell your Notes between the time your right to a Contingent Coupon is fixed and the time it is paid, it is
likely that you will be treated as receiving ordinary income equal to the Contingent Coupon. Although uncertain, it is possible
that proceeds received from the sale or exchange of your Notes prior to an Observation Date but that can be attributed to an expected
Contingent Coupon payment could be treated as ordinary income. You should consult your tax adviser regarding this issue.
As described above, there are other reasonable treatments
that the IRS or a court may adopt, in which case the timing and character of any income or loss on the Notes could be materially
affected. In addition, in 2007 Treasury and the IRS released a notice requesting comments on the U.S. federal income tax treatment
of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require investors
in these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics,
including the character of income or loss with respect to these instruments and the relevance of factors such as the nature of
the underlying property to which the instruments are linked. While the notice requests comments on appropriate transition rules
and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially
affect the tax consequences of an investment in the Notes, possibly with retroactive effect. You should consult your tax adviser
regarding the U.S. federal income tax consequences of an investment in the Notes, including possible alternative treatments and
the issues presented by this notice.
Non-U.S. Holders — Tax Considerations
.
The U.S. federal income tax treatment of Contingent Coupons is uncertain, and although we believe it is reasonable to take a position
that Contingent Coupons are not subject to U.S. withholding tax (at least if an applicable Form W-8 is provided), a withholding
agent may nonetheless withhold on these payments (generally at a rate of 30%, subject to the possible reduction of that rate under
an applicable income tax treaty), unless income from your Notes is effectively connected with your conduct of a trade or business
in the United States (and, if an applicable treaty so requires, attributable to a permanent establishment in the United States).
If you are not a United States person, you are urged to consult your tax adviser regarding the U.S. federal income tax consequences
of an investment in the Notes in light of your particular circumstances.
Non-U.S. holders should also note that
recently promulgated Treasury regulations imposing a withholding tax on certain “dividend equivalents” under certain
“equity linked instruments” will not apply to the Notes.
FATCA.
Withholding under legislation
commonly referred to as “FATCA” could apply to payments with respect to the Notes that are treated as U.S.-source “fixed
or determinable annual or periodical” income (“FDAP Income”) for U.S. federal income tax purposes (such as interest,
if the Notes are recharacterized, in whole or in part, as debt instruments, or Contingent Coupons if they are otherwise treated
as FDAP Income). If the Notes 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 Notes.
In the event of any withholding on
the Notes, we will not be required to pay any additional amounts with respect to amounts so withheld.
Key
Risks
An investment in the Notes involves significant risks. Investing
in the Notes is not equivalent to investing directly in either or both of the Underlyings. These risks are explained in more detail
in the “Risk Factors” sections of the accompanying product supplement and the accompanying underlying supplement. We
also urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the Notes.
Risks Relating to the Notes Generally
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Your Investment in the Notes May Result in a Loss
— The
Notes differ from ordinary debt securities in that JPMorgan Financial will not necessarily repay the full principal amount of the
Notes. If the Notes are not called and the closing level of either Underlying has declined below its Downside Threshold on the
Final Valuation Date, you will be fully exposed to any depreciation of the Lesser Performing Underlying from its Initial Value
to its Final Value. In this case, JPMorgan Financial will repay less than the full principal amount at maturity, resulting in a
loss of principal that is proportionate to the negative Underlying Return of the Lesser Performing Underlying. Under these circumstances,
you will lose 1% of your principal for every 1% that the Final Value of the Lesser Performing Underlying is less than its Initial
Value and could lose your entire principal amount. As a result, your investment in the Notes may not perform as well as an investment
in a security that does not have the potential for full downside exposure to either Underlying.
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Credit Risks of JPMorgan Financial and JPMorgan Chase & Co.
— The Notes are unsecured and unsubordinated debt obligations of the Issuer, JPMorgan Chase Financial Company LLC, the
payment on which is fully and unconditionally guaranteed by JPMorgan Chase & Co. The Notes will rank
pari passu
with
all of our other unsecured and unsubordinated obligations, and the related guarantee JPMorgan Chase & Co. will rank
pari
passu
with all of JPMorgan Chase & Co.’s other unsecured and unsubordinated obligations. The Notes and related guarantees
are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the Notes, including any repayment
of principal, depends on the ability of JPMorgan Financial and JPMorgan Chase & Co. to satisfy their obligations as they come
due. As a result, the actual and perceived creditworthiness of JPMorgan Financial and JPMorgan Chase & Co. may affect the market
value of the Notes and, in the event JPMorgan Financial and JPMorgan Chase & Co. were to default on their obligations, you
may not receive any amounts owed to you under the terms of the Notes and you could lose your entire investment.
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As a Finance Subsidiary, JPMorgan Financial Has No Independent Operations
and Limited Assets —
As a finance subsidiary of JPMorgan Chase & Co., we have no independent operations beyond the
issuance and administration of our securities. Aside from the initial capital contribution from JPMorgan Chase & Co., substantially
all of our assets relate to obligations of our affiliates to make payments under loans made by us or other intercompany agreements.
As a result, we are dependent upon payments from our affiliates to meet our obligations under the Notes. If these affiliates do
not make payments to us and we fail to make payments on the Notes, you may have to seek payment under the related guarantee by
JPMorgan Chase & Co., and that guarantee will rank
pari passu
with all other unsecured and unsubordinated obligations
of JPMorgan Chase & Co.
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You Are Not Guaranteed Any Contingent Coupons
— We will
not necessarily make periodic coupon payments on the Notes. If the closing level of either Underlying on an Observation Date is
less than its Coupon Barrier, we will not pay you the Contingent Coupon for that Observation Date even if the closing level of
the other Underlying is greater than or equal to its Coupon Barrier on that Observation Date, and the Contingent Coupon that would
otherwise be payable will not be accrued and will be lost. If the closing level of either Underlying is less than its Coupon Barrier
on each of the Observation Dates, we will not pay you any Contingent Coupon during the term of, and you will not receive a positive
return on, your Notes. Generally, this non-payment of the Contingent Coupon coincides with a period of greater risk of principal
loss on your Notes.
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Return on the Notes Limited to the Sum of Any Contingent Coupons
and You Will Not Participate in Any Appreciation of Either Underlying
— The return potential of the Notes is limited
to the specified Contingent Coupon Rate, regardless of the appreciation of either Underlying, which may be significant. In addition,
the total return on the Notes will vary based on the number of Observation Dates on which the requirements for a Contingent Coupon
have been met prior to maturity or an automatic call. Further, if the Notes are called, you will not receive any Contingent Coupons
or any other payments in respect of any Observation Dates after the Call Settlement Date. Because the Notes could be called as
early as the second Observation Date, the total return on the Notes could be minimal. If the Notes are not called, you may be subject
to the risk of decline in the level of each Underlying, even though you are not able to participate in any potential appreciation
of either Underlying. Generally, the longer the Notes remain outstanding, the less likely it is that they will be automatically
called, due to the decline in the level of one or both of the Underlyings and the shorter time remaining for the level of either
Underlying to recover to or above its Initial Value on a subsequent Observation Date. As a result, the return on an investment
in the Notes could be less than the return on a hypothetical direct investment in either Underlying. In addition, if the Notes
are not called and the Final Value of either Underlying is below its Downside Threshold, you will have a loss on your principal
amount and the overall return on the Notes may be less than the amount that would be paid on a conventional debt security of JPMorgan
Financial of comparable maturity.
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Because the Notes Are Linked to the Lesser Performing Underlying,
You Are Exposed to Greater Risks of No Contingent Coupons and Sustaining a Significant Loss on Your Investment at Maturity Than
If the Notes Were Linked to a Single Underlying
— The risk that you will not receive any Contingent Coupons and lose
some or all of your initial investment in the Notes at maturity is greater if you invest in the Notes as opposed to substantially
similar securities that are linked to the performance of a single Underlying. With two Underlyings, it is more likely that the
closing level of either Underlying will be less than its Coupon Barrier on the Observation Dates or less than its Downside Threshold
on the Final Valuation Date. Therefore it is more likely that you will not receive any Contingent Coupons and that you will suffer
a significant loss on your investment at maturity. In addition, the performance of the Underlyings may not be correlated or may
be negatively correlated.
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The lower the correlation between two
Underlyings, the greater the potential for one of those Underlyings to close below its Coupon Barrier or Downside Threshold on
an Observation Date or the Final Valuation Date, respectively. See “Correlation of the Underlyings” below. Although
the correlation of the Underlyings’ performance may change over the term of the Notes, the Contingent Coupon Rate is determined,
in part, based on the correlation of the Underlyings’ performance, as calculated using internal models of our affiliates
at the time when the terms of the Notes are finalized. A higher Contingent Coupon Rate is generally associated with lower correlation
of the Underlyings, which reflects a greater potential for loss on your investment at maturity. Furthermore, because the closing
level of each Underlying must be greater than or equal to its Initial Value on a quarterly Observation Date (after an initial six-month
non-call period) in order for the notes to be automatically called prior to maturity, the Notes are less likely to be automatically
called on any Observation Date than if the Notes were linked to a single Underlying.
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You Are Exposed to the Risk of Decline in the Level of Each Underlying
— Your return on the Notes and your payment at maturity, if any, is not linked to a basket consisting of the Underlyings.
If the Notes have not been automatically called, your payment at maturity is contingent upon the performance of each individual
Underlying such that you will be equally exposed to the risks related to either of the Underlyings. In addition, the performance
of the Underlyings may not be correlated. Poor performance by either of the Underlyings over the term of the Notes may negatively
affect whether you will receive a Contingent Coupon on any Coupon Payment Date and your payment at maturity and will not be offset
or mitigated by positive performance by the other Underlying. Accordingly, your investment is subject to the risk of decline in
the value of each Underlying.
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Your Payment at Maturity May Be Determined By the Lesser Performing
Underlying
— Because the payment at maturity will be determined based on the performance of the Lesser Performing Underlying,
you will not benefit from the performance of the other Underlying. Accordingly, if the Notes have not been automatically
called and the Final Value of either Underlying is less than its Downside Threshold, you will lose some or all of your principal
amount at maturity, even if the Final Value of the other Underlying is greater than or equal to its Initial Value.
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Contingent Repayment of Principal Applies Only If You Hold the Notes
to Maturity
— If you are able to sell your Notes in the secondary market prior to maturity, you may have to sell them
at a loss relative to your initial investment even if the closing levels of both Underlyings are above their respective Downside
Thresholds. If by maturity the Notes have not been called, either JPMorgan Financial will repay you the full principal amount per
Note plus the Contingent Coupon, or, if either Underlying closes below its Downside Threshold on the Final Valuation Date, JPMorgan
Financial will repay less than the principal amount, if anything, at maturity, resulting in a loss on your principal amount that
is proportionate to the decline in the closing level of the Lesser Performing Underlying from its Initial Value to its Final Value.
This contingent repayment of principal applies only if you hold your Notes to maturity.
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A Higher Contingent Coupon Rate and/or a Lower Coupon Barrier and/or
Downside Threshold May Reflect Greater Expected Volatility of the Underlyings, Which Is Generally Associated With a Greater Risk
of Loss
— Volatility is a measure of the degree of variation in the levels of the Underlyings over a period of time.
The greater the expected volatilities of the Underlyings at the time the terms of the Notes are set, the greater the expectation
is at that time that the level of an Underlying could close below its Coupon Barrier on any Observation Date, resulting in the
loss of one or more, or all, Contingent Coupon payments, or below its Downside Threshold on the Final Valuation Date, resulting
in the loss of a significant portion or all of your principal at maturity. In addition, the economic terms of the Notes,
including the Contingent Coupon Rate, the Coupon Barrier and the Downside Threshold, are based, in part, on the expected volatilities
of the Underlyings at the time the terms of the Notes are set, where higher expected volatilities will generally be reflected in
a higher Contingent Coupon Rate than the fixed rate we would pay on conventional debt securities of the same maturity and/or on
otherwise comparable securities and/or a lower Coupon Barrier and/or a lower Downside Threshold as compared to otherwise comparable
securities. Accordingly, a higher Contingent Coupon Rate will generally be indicative of a greater risk of loss while a lower
Coupon Barrier or Downside Threshold does not necessarily indicate that the Notes have a greater likelihood of paying Contingent
Coupon payments or returning your principal at maturity. You should be willing to accept the downside market risk of each
Underlying and the potential loss of some or all of your principal at maturity.
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Reinvestment Risk
— If your Notes are called early, the
holding period over which you would have the opportunity to receive any Contingent Coupons could be as short as approximately six
months. There is no guarantee that you would be able to reinvest the proceeds from an investment in the Notes at a comparable return
and/or with a comparable interest rate for a similar level of risk in the event the Notes are called prior to the maturity date.
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Potential Conflicts
— We and our affiliates play a variety
of roles in connection with the issuance of the Notes, including acting as calculation agent and hedging our obligations under
the Notes and making the assumptions used to determine the pricing of the Notes and the estimated value of the Notes when the terms
of the Notes are set, which we refer to as the estimated value of the Notes. In performing these duties, our and JPMorgan Chase
& Co.’s economic interests and the economic interests of the calculation agent and other affiliates of ours are potentially
adverse to your interests as an investor in the Notes. In addition, our and JPMorgan Chase & Co.’s business activities,
including hedging and trading activities, could cause our and JPMorgan Chase & Co.’s economic interests to be adverse
to yours and could adversely affect any payment on the Notes and the value of the Notes. It is possible that hedging or trading
activities of ours or our affiliates in connection with the Notes could result in substantial returns for us or our affiliates
while the value of the Notes declines. Please refer to “Risk Factors — Risks Relating to Conflicts of Interest”
in the accompanying product supplement for additional information about these risks.
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Each Contingent Coupon Is Based Solely on the Closing Levels of
the Underlyings on the Applicable Observation Date
— Whether a Contingent Coupon will be payable with respect to an Observation
Date will be based solely on the closing levels of the Underlyings on that Observation Date. As a result, you will not know whether
you will receive a Contingent Coupon until the related Observation Date. Moreover, because each Contingent Coupon is based solely
on the closing levels of the Underlyings on the applicable Observation Date, if the closing level of either Underlying is less
than its Coupon Barrier, you will not receive any
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Contingent Coupon with respect to that
Observation Date, even if the closing level of the other Underlying is equal to or greater than its Coupon Barrier and even if
the closing level of that Underlying was higher on other days during the period before that Observation Date.
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The Estimated Value of the Notes Is Lower Than the Original Issue
Price (Price to Public) of the Notes
— The estimated value of the Notes is only an estimate determined by reference to
several factors. The original issue price of the Notes exceeds the estimated value of the Notes because costs associated with selling,
structuring and hedging the Notes are included in the original issue price of the Notes. These costs include the selling commissions,
the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under
the Notes and the estimated cost of hedging our obligations under the Notes. See “The Estimated Value of the Notes”
in this pricing supplement.
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The Estimated Value of the Notes Does Not Represent Future Values
of the Notes and May Differ from Others’ Estimates
— The estimated value of the Notes is determined by reference
to internal pricing models of our affiliates when the terms of the Notes are set. This estimated value of the Notes is based on
market conditions and other relevant factors existing at that time and assumptions about market parameters, which can include volatility,
dividend rates, interest rates and other factors. Different pricing models and assumptions could provide valuations for Notes that
are greater than or less than the estimated value of the Notes. In addition, market conditions and other relevant factors in the
future may change, and any assumptions may prove to be incorrect. On future dates, the value of the Notes could change significantly
based on, among other things, changes in market conditions, our or JPMorgan Chase & Co.’s creditworthiness, interest
rate movements and other relevant factors, which may impact the price, if any, at which JPMS would be willing to buy Notes from
you in secondary market transactions. See “The Estimated Value of the Notes” in this pricing supplement.
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The Estimated Value of the Notes Is Derived by Reference to an Internal
Funding Rate
— The internal funding rate used in the determination of the estimated value of the Notes is based on, among
other things, our and our affiliates’ view of the funding value of the Notes as well as the higher issuance, operational
and ongoing liability management costs of the Notes in comparison to those costs for the conventional fixed-rate debt of JPMorgan
Chase & Co. The use of an internal funding rate and any potential changes to that rate may have an adverse effect on the terms
of the Notes and any secondary market prices of the Notes. See “The Estimated Value of the Notes” in this pricing supplement.
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The Value of the Notes as Published by JPMS (and Which May Be Reflected
on Customer Account Statements) May Be Higher Than the Then-Current Estimated Value of the Notes for a Limited Time Period
— We generally expect that some of the costs included in the original issue price of the Notes will be partially paid back
to you in connection with any repurchases of your Notes by JPMS in an amount that will decline to zero over an initial predetermined
period. These costs can include selling commissions, projected hedging profits, if any, and, in some circumstances, estimated hedging
costs and our internal secondary market funding rates for structured debt issuances. See “Secondary Market Prices of the
Notes” in this pricing supplement for additional information relating to this initial period. Accordingly, the estimated
value of your Notes during this initial period may be lower than the value of the Notes as published by JPMS (and which may be
shown on your customer account statements).
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Secondary Market Prices of the Notes Will Likely Be Lower Than the
Original Issue Price of the Notes
— Any secondary market prices of the Notes will likely be lower than the original issue
price of the Notes because, among other things, secondary market prices take into account our internal secondary market funding
rates for structured debt issuances and, also, because secondary market prices (a) exclude selling commissions and (b) may exclude
projected hedging profits, if any, and estimated hedging costs that are included in the original issue price of the Notes. As a
result, the price, if any, at which JPMS will be willing to buy Notes from you in secondary market transactions, if at all, is
likely to be lower than the original issue price. Any sale by you prior to the Maturity Date could result in a substantial loss
to you. See the immediately following risk factor for information about additional factors that will impact any secondary market
prices of the Notes.
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The Notes are not designed to be short-term
trading instruments. Accordingly, you should be able and willing to hold your Notes to maturity. See “— Lack of Liquidity”
below.
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Many Economic and Market Factors Will Impact the Value of the Notes
— As described under “The Estimated Value of the Notes” in this pricing supplement, the Notes can be thought
of as securities that combine a fixed-income debt component with one or more derivatives. As a result, the factors that influence
the values of fixed-income debt and derivative instruments will also influence the terms of the Notes at issuance and their value
in the secondary market. Accordingly, the secondary market price of the Notes during their term will be impacted by a number of
economic and market factors, which may either offset or magnify each other, aside from the selling commissions, projected hedging
profits, if any, estimated hedging costs and the levels of the Underlyings, including:
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any actual or potential
change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads;
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customary bid-ask spreads for similarly sized trades;
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our internal secondary market funding rates for structured debt issuances;
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the actual and expected volatility in the levels of the Underlyings;
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the time to maturity of the Notes;
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whether the closing level of either Underlying has been, or is expected
to be, less than its Coupon Barrier on any Observation Date and whether the Final Value of either Underlying is expected to be
less than its Downside Threshold;
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the dividend rates on the equity securities underlying the Underlyings;
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the actual and expected positive or negative correlation between the
Underlyings, or the actual or expected absence of any such correlation;
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interest and yield rates in the market generally;
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the exchange rates and the volatility of the exchange rates between
the U.S. dollar and each of the currencies in which the equity securities included in the EURO STOXX 50
®
Index trade
and the correlation among those rates and the levels of the EURO STOXX 50
®
Index; and
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a variety of other economic, financial, political, regulatory and judicial
events.
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Additionally, independent pricing vendors
and/or third party broker-dealers may publish a price for the Notes, which may also be reflected on customer account statements.
This price may be different (higher or lower) than the price of the Notes, if any, at which JPMS may be willing to purchase your
Notes in the secondary market.
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Investing in the Notes Is Not Equivalent to Investing in the Stocks
Composing the Underlyings
— Investing in the Notes is not equivalent to investing in the stocks included in the Underlyings.
As an investor in the Notes, you will not have any ownership interest or rights in the stocks included in the Underlyings, such
as voting rights, dividend payments or other distributions.
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We Cannot Control Actions by the Sponsor
of Either Underlying and That Sponsor Has No Obligation to Consider Your Interests
— We and our affiliates are not affiliated
with the sponsor of either Underlying and have no ability to control or predict its actions, including any errors in or discontinuation
of public disclosure regarding methods or policies relating to the calculation of that Underlying. The sponsor of each Underlying
is not involved in this Note offering in any way and has no obligation to consider your interest as an owner of the Notes in taking
any actions that might affect the market value of your Notes.
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Your Return on the Notes Will Not Reflect Dividends on the Stocks
Composing the Underlyings
— Your return on the Notes will not reflect the return you would realize if you actually owned
the stock included in the Underlyings and received the dividends on the stock included in the Underlyings. This is because the
calculation agent will determine whether the Notes will be called and whether a Contingent Coupon is payable. The calculation agent
will calculate the amount payable to you at maturity of the Notes by reference to the closing level of each Underlying on the relevant
Observation Date, without taking into consideration the value of dividends on the stock included in that Underlying.
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No Assurances That the Investment View Implicit in the Notes Will
Be Successful
— While the Notes are structured to provide for Contingent Coupons if each Underlying does not close below
its Coupon Barrier on the Observation Dates, we cannot assure you of the economic environment during the term or at maturity of
your Notes.
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Lack of Liquidity
— The Notes will not be listed on any
securities exchange. JPMS intends to offer to purchase the Notes in the secondary market, but is not required to do so. Even if
there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Notes easily. Because other
dealers are not likely to make a secondary market for the Notes, the price at which you may be able to trade your Notes is likely
to depend on the price, if any, at which JPMS is willing to buy the Notes.
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Potentially Inconsistent Research, Opinions or Recommendations by
JPMS, UBS or Their Affiliates
— JPMS, UBS or their affiliates may publish research, express opinions or provide recommendations
that are inconsistent with investing in or holding the Notes, and that may be revised at any time. Any such research, opinions
or recommendations may or may not recommend that investors buy or hold the Underlyings and could affect the level of an Underlying,
and therefore the market value of the Notes.
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|
Tax Treatment
— Significant aspects of the tax treatment
of the Notes are uncertain. You should consult your tax adviser about your tax situation.
|
|
♦
|
Potential JPMorgan Financial Impact on the Level of an Underlying
— Trading or transactions by JPMorgan Financial or its affiliates in an Underlying and/or over-the-counter options, futures
or other instruments with returns linked to the performance of an Underlying may adversely affect the level of that Underlying
and, therefore, the market value of the Notes.
|
Risks Relating to the Underlyings
|
♦
|
An Investment in the Notes is Subject to Risks Associated with Small
Capitalization Stocks with Respect to the Russell 2000
®
Index
— The equity
securities
included in the
Russell 2000
®
Index
are issued by companies with relatively small market capitalization.
The stock prices of smaller companies may be more volatile than stock prices of large capitalization companies. Small capitalization
companies may be less able to withstand adverse economic, market, trade and competitive conditions relative to larger companies.
These companies tend to be less well-established than large market capitalization companies. Small capitalization companies are
less likely to pay dividends on their stocks, and the presence of a dividend payment could be a factor that limits downward stock
price pressure under adverse market conditions.
|
|
♦
|
Non-U.S. Securities Risk with Respect to
the EURO STOXX 50
®
Index —
The equity securities included in the
EURO STOXX 50
®
Index
have been issued by non-U.S. companies. Investments in securities linked to the value of such non-U.S. equity securities involve
risks associated with the securities markets in the home countries of the issuers of those non-U.S. equity securities, including
risks of volatility in those markets, governmental intervention in those markets and cross shareholdings in companies in certain
countries. Also, there is generally less publicly available information about companies in some of these jurisdictions than about
U.S. companies that are subject to the reporting requirements of the SEC.
|
|
♦
|
No Direct Exposure to Fluctuations in Foreign
Exchange Rates with Respect to the EURO STOXX 50
®
Index —
The value of the Notes will not be adjusted for exchange rate
fluctuations between the U.S. dollar and the currencies upon which the equity securities included in the
EURO STOXX 50
®
Index
are based, although any currency fluctuations could affect the performance of
|
the
EURO STOXX 50
®
Index
. Therefore, if the applicable currencies appreciate or depreciate relative to the U.S.
dollar over the term of the Notes, you will not receive any additional payment or incur any reduction in any payment on the Notes
.
Hypothetical
Examples
The examples below illustrate the hypothetical payments on a Coupon
Payment Date, upon an automatic call or at maturity under different hypothetical scenarios for a $10.00 Note on an offering of
the Notes, with the assumptions set forth below.* We cannot predict the closing level of either Underlying on any day during the
term of the Notes, including on any Observation Date. You should not take these examples as an indication or assurance of the expected
performance of the Notes. Numbers in the examples below have been rounded for ease of analysis. In these examples, we refer to
the Russell 2000
®
Index and the EURO STOXX 50
®
Index as the “RTY Index” and the “SX5E
Index,” respectively.
Principal Amount:
|
$10.00
|
Term:
|
Approximately 3 years (unless earlier called)
|
Hypothetical Initial Value:
|
100.000 for the RTY Index and 100.00 for the SX5E Index
|
Contingent Coupon Rate:
|
10.63% per annum (or 2.658% per quarter)
|
Observation Dates:
|
Quarterly (callable after six months)
|
Hypothetical Downside Threshold:
|
70.000 for the RTY Index and 70.00 for the SX5E Index (which, with respect to each Underlying, is 70% of the hypothetical Initial Value of that Underlying)
|
Hypothetical Coupon Barrier:
|
70.000 for the RTY Index and 70.00 for the SX5E Index (which, with respect to each Underlying, is 70% of the hypothetical Initial Value of that Underlying)
|
*
|
Terms used for purposes of these hypothetical examples may not represent the actual Contingent Coupon Rate, Initial Values, Downside Thresholds or Coupon Barriers. The actual Contingent Coupon Rate will be finalized on the Trade Date and provided in the pricing supplement. The hypothetical Initial Values of 100.00 for the RTY Index and 100.00 for the SX5E Index have been chosen for illustrative purposes only and may not represent a likely actual Initial Value for either Underlying. The actual Initial Value and resulting Downside Threshold and Coupon Barrier of each Underlying will be based on the closing level of that Underlying on the Trade Date. For historical data regarding the actual closing levels of the Underlyings, please see the historical information set forth under the sections titled “The Russell 2000
®
Index” and “The EURO STOXX 50
®
Index” below.
|
The examples below are purely hypothetical. These examples are
intended to illustrate (a) under what circumstances the Notes will be subject to an automatic call, (b) how the payment of a Contingent
Coupon with respect to any Observation Date will depend on whether the closing level of either Underlying on that Observation Date
is less than its Coupon Barrier, (c) how the value of the payment at maturity on the Notes will depend on whether the Final Value
of either Underlying is less than its Downside Threshold and (d) how the total return on the Notes may be less than the total return
on a direct investment in either or both Underlyings in certain scenarios. The “total return” as used in this pricing
supplement is the number, expressed as a percentage, that results from comparing the total payments per $10.00 principal amount
Note over the term of the Notes to the $10.00 initial issue price.
Example 1 — Notes Are Automatically Called on
the Second Observation Date
Date
|
|
Closing Level
|
|
Payment (per Note)
|
First Observation Date
|
|
RTY Index: 105.000
|
|
Closing level of each Underlying above its Initial Value; Notes NOT automatically callable because Observation Date is prior to the second Observation Date. Closing level of each Underlying above its Coupon Barrier; Issuer pays Contingent Coupon of $0.2658 on first Coupon Payment Date.
|
SX5E Index: 110.00
|
Second Observation Date
|
|
RTY Index: 110.000
|
|
Closing level of each Underlying at or above its Initial Value; Notes are automatically called; Issuer repays principal
plus
pays Contingent Coupon of $0.2658 on Call Settlement Date.
|
SX5E Index: 115.00
|
|
Total Payments (per $10.00 Note):
|
|
Payment on Call Settlement Date:
|
$10.2658 ($10.00 + $0.2658)
|
|
|
Prior Contingent Coupons:
|
$0.2658 ($0.2658 × 1)
|
|
|
Total:
|
$10.5316
|
|
|
Total Return:
|
5.316%
|
Because the closing level of each Underlying is greater than
or equal to its Initial Value on the second Observation Date (which is approximately six months after the Trade Date and is the
first Observation Date on which the Notes are callable), the Notes are automatically called on that Observation Date. JPMorgan
Financial will pay you on the Call Settlement Date $10.2658 per $10.00 principal amount Note, which is equal to your principal
amount
plus
the Contingent Coupon due on the Coupon Payment Date that is also the Call Settlement Date. No further amounts
will be owed to you under the Notes.
In addition, because the closing level of each Underlying was
greater than or equal to its Coupon Barrier on the first Observation Date, JPMorgan Financial will pay the Contingent Coupon of
$0.2658 on the first Coupon Payment Date. Accordingly, JPMorgan Financial will have paid a total of $10.5316 per $10.00 principal
amount Note for a 5.316% total return over the shortened six (6) month term of the Notes as a result of the automatic call.
Example 2 — Notes Are NOT Automatically Called
and the Final Value of Each Underlying Is Above Its Downside Threshold and Coupon Barrier
Date
|
|
Closing Level
|
|
Payment (per Note)
|
First Observation Date
|
|
RTY Index: 115.000
|
|
Closing level of each Underlying above its Initial Value; Notes NOT automatically callable because Observation Date is prior to the second Observation Date. Closing level of each Underlying above its Coupon Barrier; Issuer pays Contingent Coupon of $0.2658 on first Coupon Payment Date.
|
SX5E Index: 110.00
|
Second Observation Date
|
|
RTY Index: 80.000
|
|
Closing level of each Underlying below its Initial Value; Notes NOT automatically called. Closing level of each Underlying above its Coupon Barrier; Issuer pays Contingent Coupon of $0.2658 on second Coupon Payment Date.
|
SX5E Index: 75.00
|
Third Observation Date
|
|
RTY Index: 85.000
|
|
Closing level of each Underlying below its Initial Value; Notes NOT automatically called. Closing level of SX5E Index below its Coupon Barrier; Issuer DOES NOT pay Contingent Coupon on third Coupon Payment Date.
|
SX5E Index: 60.00
|
Fourth to Eleventh Observation Dates
|
|
Various (below Coupon Barrier)
|
|
Closing level of each Underlying below its Initial Value; Notes NOT automatically called. Closing level of each Underlying below its Coupon Barrier; Issuer DOES NOT pay Contingent Coupon on any of the fourth to eleventh Coupon Payment Dates.
|
Twelfth Observation Date (the Final Valuation Date)
|
|
RTY Index: 110.000
|
|
Closing level of SX5E Index below its Initial Value; Notes NOT automatically called. Final Value of each Underlying above its Downside Threshold; Issuer repays principal
plus
pays Contingent Coupon of $0.175 on Maturity Date.
|
SX5E Index: 80.00
|
Total Payments (per $10.00 Note):
|
|
Payment at Maturity:
|
$10.2658 ($10.00 + $0.2658)
|
|
|
Prior Contingent Coupons:
|
$0.5316 ($0.2658 × 2)
|
|
|
Total:
|
$10.7974
|
|
|
Total Return:
|
7.9724%
|
Because the closing level of at least one Underlying was less
than its Initial Value on each Observation Date on and after the second Observation Date (which is approximately six months after
the Trade Date and is the first Observation Date on which the Notes are callable), the Notes are not automatically called. Because
the Final Value of each Underlying is greater than or equal to its Downside Threshold, JPMorgan Financial will pay you on the Maturity
Date $10.2658 per $10.00 principal amount Note, which is equal to your principal amount
plus
the Contingent Coupon due on
the Coupon Payment Date that is also the Maturity Date.
In addition, because the closing level of each Underlying
was greater than or equal to its Coupon Barrier on the first and second Observation Dates, JPMorgan Financial will pay the Contingent
Coupon of $0.7974 on the first and second Coupon Payment Dates. However, because the closing level of at least one Underlying was
less than its Coupon Barrier on the third through eleventh Observation Dates, JPMorgan Financial will not pay any Contingent Coupon
on the Coupon Payment Dates following those Observation Dates. Accordingly, JPMorgan Financial will have paid a total of $10.7974
per $10.00 principal amount Note for a 7.974% total return over the approximately three (3) year term of the Notes.
Example 3 — Notes Are NOT Automatically Called and
the Final Value of Either Underlying Is Below Its Downside Threshold
Date
|
|
Closing Level
|
|
Payment (per Note)
|
First Observation Date
|
|
RTY Index: 55.000
|
|
Closing level of each Underlying below its Initial Value; Notes NOT automatically callable because Observation Date is prior to the second Observation Date. Closing level of each Underlying below its Coupon Barrier; Issuer DOES NOT pay Contingent Coupon on first Coupon Payment Date.
|
SX5E Index: 60.00
|
Second Observation Date
|
|
RTY Index: 105.000
|
|
Closing level of the SX5E Index below its Initial Value; Notes NOT automatically called. Closing level of SX5E Index below its Coupon Barrier; Issuer DOES NOT pay Contingent Coupon on second Coupon Payment Date.
|
SX5E Index: 60.00
|
Third Observation Date
|
|
RTY Index: 90.000
|
|
Closing level of each Underlying below its Initial Value; Notes NOT automatically called. Closing level of SX5E Index below its Coupon Barrier; Issuer DOES NOT pay Contingent Coupon on third Coupon Payment Date.
|
SX5E Index: 60.00
|
Fourth to Eleventh Observation Dates
|
|
Various (below Coupon Barrier)
|
|
Closing level of each Underlying below its Initial Value; Notes NOT automatically called. Closing level of each Underlying below its Coupon Barrier; Issuer DOES NOT pay Contingent Coupon on any of the fourth to eleventh Coupon Payment Dates.
|
Twelfth Observation Date (the Final Valuation Date)
|
|
RTY Index: 45.000
|
|
Closing level of RTY Index below its Initial Value; Notes NOT automatically called. Closing level of RTY Index below its Downside Threshold; Issuer DOES NOT pay Contingent Coupon on Maturity Date, and Issuer will repay less than the principal amount resulting in a loss proportionate to the decline of the Lesser Performing Underlying.
|
SX5E Index: 110.00
|
Total Payments (per $10.00 Note):
|
|
Payment at Maturity:
|
$4.50
|
|
|
Prior Contingent Coupons:
|
$0.00
|
|
|
Total:
|
$4.50
|
|
|
Total Return:
|
-55.00%
|
Because the closing level of at least one Underlying is less
than its Initial Value on each Observation Date on and after the second Observation Date (which is approximately six months after
the Trade Date and is the first Observation Date on which the Notes are callable), the Notes are not automatically called. Because
the Final Value of at least one Underlying is less than its Downside Threshold on the Final Valuation Date, at maturity, JPMorgan
Financial will pay you a total of $4.50 per $10.00 principal amount Note, for a -55.00% total return on the Notes, calculated as
follows:
$10.00 × (1 + Lesser Performing Underlying
Return)
Step 1: Determine the Underlying Return of each Underlying:
Underlying Return of the RTY Index:
(Final Value – Initial Value)
|
=
|
45.00 – 100.000
|
= -55.00%
|
Initial Value
|
100.000
|
Underlying Return of the SX5E Index:
(Final Value – Initial Value)
|
=
|
110.00 – 100.00
|
= 10.00%
|
Initial Value
|
100.00
|
Step 2: Determine the Lesser Performing Underlying.
The
RTY Index is the Underlying with the lower Underlying Return.
Step 3: Calculate the Payment at Maturity:
$10.00 × (1 + Lesser Performing Underlying
Return) = $10.00 × (1 + -55.00%) = $4.50
In addition, because the closing level of at least one Underlying
is less than its Coupon Barrier on each Observation Date, JPMorgan Financial will not pay any Contingent Coupons over the term
of the Notes. Accordingly, JPMorgan Financial will have paid a total of $4.50 per $10.00 principal amount Note for a -55.00% total
return over the approximately three (3) year term of the Notes.
The hypothetical returns and hypothetical payments on the Notes
shown above apply
only if you hold the Notes for their entire term or until automatically called
. These hypotheticals do
not reflect fees or expenses that would be associated with any sale in the secondary market. If these fees and expenses were included,
the hypothetical returns and hypothetical payments shown above would likely be lower.
The
Underlyings
Included on the following pages is a brief description
of the Underlyings. This information has been obtained from publicly available sources, without independent verification. Set forth
below is a table that provides the quarterly high and low closing levels of each Underlying. This information given below is for
the four calendar quarters in each of 2011, 2012, 2013, 2014 and 2015 and the first calendar quarter of 2016. Partial data is provided
for the second calendar quarter of 2016. We obtained the closing levels information set forth below from the Bloomberg Professional
®
service (“Bloomberg”), without independent verification. You should not take the historical levels of either Underlying
as an indication of future performance.
The
Russell 2000
®
Index
The Russell 2000
®
Index consists of
the middle 2,000 companies included in the Russell 3000E™ Index and, as a result of the index calculation methodology, consists
of the smallest 2,000 companies included in the Russell 3000
®
Index. The Russell 2000
®
Index is designed
to track the performance of the small capitalization segment of the U.S. equity market. For additional information about the Russell
2000
®
Index, see the information set forth under “Equity Index Descriptions — The Russell Indices”
in the accompanying underlying supplement.
Historical Information Regarding the Russell 2000
®
Index
The following table sets forth the quarterly high and
low closing levels of the Russell 2000
®
Index, based on daily closing levels of the Russell 2000
®
Index as reported by Bloomberg, without independent verification. The closing level of the Russell 2000
®
Index on
June 28, 2016 was 1,107.298. We obtained the closing levels of the Russell 2000
®
Index above and below from Bloomberg,
without independent verification. You should not take the historical levels of the Russell 2000
®
Index as an indication
of future performance.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Close
|
1/1/2011
|
3/31/2011
|
843.549
|
773.184
|
843.549
|
4/1/2011
|
6/30/2011
|
865.291
|
777.197
|
827.429
|
7/1/2011
|
9/30/2011
|
858.113
|
643.421
|
644.156
|
10/1/2011
|
12/31/2011
|
765.432
|
609.490
|
740.916
|
1/1/2012
|
3/31/2012
|
846.129
|
747.275
|
830.301
|
4/1/2012
|
6/30/2012
|
840.626
|
737.241
|
798.487
|
7/1/2012
|
9/30/2012
|
864.697
|
767.751
|
837.450
|
10/1/2012
|
12/31/2012
|
852.495
|
769.483
|
849.350
|
1/1/2013
|
3/31/2013
|
953.068
|
872.605
|
951.542
|
4/1/2013
|
6/30/2013
|
999.985
|
901.513
|
977.475
|
7/1/2013
|
9/30/2013
|
1,078.409
|
989.535
|
1,073.786
|
10/1/2013
|
12/31/2013
|
1,163.637
|
1,043.459
|
1,163.637
|
1/1/2014
|
3/31/2014
|
1,208.651
|
1,093.594
|
1,173.038
|
4/1/2014
|
6/30/2014
|
1,192.964
|
1,095.986
|
1,192.964
|
7/1/2014
|
9/30/2014
|
1,208.150
|
1,101.676
|
1,101.676
|
10/1/2014
|
12/31/2014
|
1,219.109
|
1,049.303
|
1,204.696
|
1/1/2015
|
3/31/2015
|
1,266.373
|
1,154.709
|
1,252.772
|
4/1/2015
|
6/30/2015
|
1,295.799
|
1,215.417
|
1,253.947
|
7/1/2015
|
9/30/2015
|
1,273.328
|
1,083.907
|
1,100.688
|
10/1/2015
|
12/31/2015
|
1,204.159
|
1,097.552
|
1,135.889
|
1/1/2016
|
3/31/2016
|
1,114.028
|
953.715
|
1,114.028
|
4/1/2016
|
6/28/2016*
|
1,188.954
|
1,089.646
|
1,107.298
|
|
*
|
As of the date of this pricing supplement, available information for the second calendar quarter of 2016 includes data for
the period from April 1, 2016 through June 28, 2016. Accordingly, the “Quarterly High,” “Quarterly Low”
and “Close” data indicated are for this shortened period only and do not reflect complete data for the second calendar
quarter of 2016.
|
The graph below illustrates the daily performance of the Russell
2000
®
Index from January 3, 2006 through June 28, 2016, based on information from Bloomberg, without independent
verification. The dotted line represents the Downside Threshold and Coupon Barrier of 775.109, equal to 70% of the closing level
of the Russell 2000
®
Index on June 28, 2016.
Past performance of the Index is not indicative of the future
performance of the Russell 2000
®
Index.
The
EURO STOXX 50
®
Index
The EURO STOXX 50
®
Index consists of 50
component stocks of market sector leaders from within the Eurozone. The EURO STOXX 50
®
Index and STOXX
®
are the intellectual property (including registered trademarks) of STOXX Limited, Zurich, Switzerland and/or its licensors (the
“Licensors”), which are used under license. The Notes based on the EURO STOXX 50
®
Index are in no way
sponsored, endorsed, sold or promoted by STOXX Limited and its Licensors and neither Stoxx Limited nor any of its Licensors shall
have any liability with respect thereto. For additional information about the EURO STOXX 50
®
Index, see the information
set forth under “Equity Index Descriptions — The EURO STOXX 50
®
Index” in the accompanying underlying
supplement.
Historical Information Regarding the EURO STOXX 50
®
Index
The following table sets forth the quarterly high and
low closing levels of the EURO STOXX 50
®
Index, based on daily closing levels of the EURO STOXX 50
®
Index as reported by Bloomberg, without independent verification. The closing level of the EURO STOXX 50
®
Index
on June 28, 2016 was 2,758.67. We obtained the closing levels of the EURO STOXX 50
®
Index above and below from Bloomberg,
without independent verification. You should not take the historical levels of the EURO STOXX 50
®
Index as an indication
of future performance.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Close
|
1/1/2011
|
3/31/2011
|
3,068.00
|
2,721.24
|
2,910.91
|
4/1/2011
|
6/30/2011
|
3,011.25
|
2,715.88
|
2,848.53
|
7/1/2011
|
9/30/2011
|
2,875.67
|
1,995.01
|
2,179.66
|
10/1/2011
|
12/31/2011
|
2,476.92
|
2,090.25
|
2,316.55
|
1/1/2012
|
3/31/2012
|
2,608.42
|
2,286.45
|
2,477.28
|
4/1/2012
|
6/30/2012
|
2,501.18
|
2,068.66
|
2,264.72
|
7/1/2012
|
9/30/2012
|
2,594.56
|
2,151.54
|
2,454.26
|
10/1/2012
|
12/31/2012
|
2,659.95
|
2,427.32
|
2,635.93
|
1/1/2013
|
3/31/2013
|
2,749.27
|
2,570.52
|
2,624.02
|
4/1/2013
|
6/30/2013
|
2,835.87
|
2,511.83
|
2,602.59
|
7/1/2013
|
9/30/2013
|
2,936.20
|
2,570.76
|
2,893.15
|
10/1/2013
|
12/31/2013
|
3,111.37
|
2,902.12
|
3,109.00
|
1/1/2014
|
3/31/2014
|
3,172.43
|
2,962.49
|
3,161.60
|
4/1/2014
|
6/30/2014
|
3,314.80
|
3,091.52
|
3,228.24
|
7/1/2014
|
9/30/2014
|
3,289.75
|
3,006.83
|
3,225.93
|
10/1/2014
|
12/31/2014
|
3,277.38
|
2,874.65
|
3,146.43
|
1/1/2015
|
3/31/2015
|
3,731.35
|
3,007.91
|
3,697.38
|
4/1/2015
|
6/30/2015
|
3,828.78
|
3,424.30
|
3,424.30
|
7/1/2015
|
9/30/2015
|
3,686.58
|
3,019.34
|
3,100.67
|
10/1/2015
|
12/31/2015
|
3,506.45
|
3,069.05
|
3,267.52
|
1/1/2016
|
3/31/2016
|
3,178.01
|
2,680.35
|
3,004.93
|
4/1/2016
|
6/28/2016*
|
3,151.69
|
2,697.44
|
2,758.67
|
|
*
|
As of the date of this pricing supplement, available information for the second calendar quarter of 2016 includes data for
the period from April 1, 2016 through June 28, 2016. Accordingly, the “Quarterly High,” “Quarterly Low”
and “Close” data indicated are for this shortened period only and do not reflect complete data for the second calendar
quarter of 2016.
|
The graph below illustrates the daily performance of the EURO
STOXX 50
®
Index from January 2, 2006 through June 28, 2016, based on information from Bloomberg, without independent
verification. The dotted line represents the Downside Threshold and Coupon Barrier of 1,931.07, equal to 70% of the closing level
of the EURO STOXX 50
®
Index on June 28, 2016.
Past performance of the Index is not indicative of the future
performance of the
EURO STOXX 50
®
Index.
Correlation
of the Underlyings
The graph below illustrates the daily performance of
the Russell 2000
®
Index and the EURO STOXX 50
®
Index from January 3, 2006 through June 28, 2016.
For comparison purposes, each Underlying has been normalized to have a closing level of 100.00 on January 3, 2006 by dividing the
closing level of that Underlying on each day by the closing level of that Underlying on January 3, 2006 and multiplying by 100.00.
We obtained the closing levels used to determine the normalized closing levels set forth below from Bloomberg, without independent
verification.
Past performance of the Underlyings is not indicative
of the future performance of the
Underlyings.
The correlation of a pair of Underlyings represents a statistical
measurement of the degree to which the returns of those Underlyings were similar to each other over a given period in terms of
timing and direction (
i.e.
, positive or negative). Set forth below is a table that provides the correlation of each pair
of Underlyings, calculated based on the quarterly returns of the Underlyings from June 28, 2006 through June 28, 2016, based on
information from Bloomberg, without independent verification. You should not take the historical correlations of the Underlyings
as an indication of future correlation.
|
Russell 2000
®
Index
|
EURO STOXX 50
®
Index
|
Russell 2000
®
Index
|
—
|
0.819
|
EURO STOXX 50
®
Index
|
0.819
|
—
|
A correlation of 1.000 for a pair of Underlyings represents a
perfect positive correlation. This means that the closing levels of that pair of Underlyings have moved in the same direction and
the ratio of their quarterly returns has been constant. A correlation of -1.000 for a pair of Underlyings represents a perfect
negative correlation. This means that the closing levels of that pair of Underlyings have moved in the opposite direction and the
ratio of their quarterly returns has been constant. A correlation of 0.000 for a pair of Underlyings means that the Underlyings
are uncorrelated. This means that there is no statistical relationship between the quarterly returns of that pair of Underlyings.
The closer the correlation of a pair of Underlyings is to 1.000, the more positively correlated those Underlyings are. The closer
the correlation of a pair of Underlyings is to -1.000, the more negatively correlated those Underlyings. The closer the correlation
of a pair of Underlyings is to 0.000, the less correlated those Underlyings are. The lower the correlation between two Underlyings,
the greater the potential for one of those Underlyings to close below its Coupon Barrier or Downside Threshold on any Observation
Date or the Final Valuation Date, respectively.
The correlations set forth above are based on the historical performance
of the Underlying, and you should not take those historical correlations as an indication of future correlation. In addition, the
correlations set forth above are not the same as the correlations referenced in setting the terms of the Notes. The correlations
referenced in setting the terms of the Notes are calculated using internal models of our affiliates and are not derived from the
quarterly returns of the Underlyings over the period set forth above. Although the correlation of the Underlyings’ performance
may change over the term of the Notes, the Contingent Coupon Rate is determined, in part, based on the correlations of the Underlyings’
performance calculated using internal models of our affiliates at the time when the terms of the Notes are finalized. A higher
Contingent Coupon Rate is generally associated with lower correlation of the Underlyings, which reflects a greater potential for
missed Contingent Coupons and for a loss on your investment at maturity.