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.
Observation
Dates and Coupon Payment Dates
Observation Dates
†
|
Coupon Payment Dates
†
|
November 29, 2016
|
December 1, 2016
|
February 28, 2017
|
March 2, 2017
|
May 30, 2017
|
June 1, 2017
|
August 29, 2017
|
August 31, 2017
|
November 29, 2017
|
December 1, 2017
|
February 28, 2018
|
March 2, 2018
|
May 29, 2018
|
May 31, 2018
|
August 29, 2018
|
August 31, 2018
|
November 29, 2018
|
December 3, 2018
|
February 28, 2019
|
March 4, 2019
|
May 29, 2019
|
May 31, 2019
|
August 29, 2019 (the Final Valuation Date)
|
September 4, 2019 (the Maturity Date)
|
|
†
|
The Notes are not callable until the second Observation Date, February 28, 2017.
|
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 a Single Underlying — Notes Linked to
a Single Underlying (Other Than a Commodity Index)” and “General Terms of Notes — Postponement of a Payment Date”
in the accompanying product supplement.
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 the Underlying. These risks are explained in more detail in the “Risk
Factors” sections of the accompanying product supplement and the accompanying underlying supplement. We also urge you to
consult your investment, legal, tax, accounting and other advisers before you invest in the Notes.
Risks Relating to the Notes Generally
|
♦
|
Your Investment in the Notes May Result in a Loss
— The
Notes differ from ordinary debt securities in that JPMorgan Financial will not necessarily repay the full principal amount of the
Notes. If the Notes are not called and the closing price of one share of the Underlying has declined below the Downside Threshold
on the Final Valuation Date, you will be fully exposed to any depreciation of the Underlying from the Initial Value to the 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. Under these circumstances, you will lose 1% of your principal for every
1% that the Final Value is less than the 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 the Underlying.
|
|
♦
|
Credit Risks of JPMorgan Financial and JPMorgan Chase & Co.
— The Notes are unsecured and unsubordinated debt obligations of the Issuer, JPMorgan Chase Financial Company LLC, the
payment on which is fully and unconditionally guaranteed by JPMorgan Chase & Co. The Notes will rank
pari passu
with
all of our other unsecured and unsubordinated obligations, and the related guarantee JPMorgan Chase & Co. will rank
pari
passu
with all of JPMorgan Chase & Co.’s other unsecured and unsubordinated obligations. The Notes and related guarantees
are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the Notes, including any repayment
of principal, depends on the ability of JPMorgan Financial and JPMorgan Chase & Co. to satisfy their obligations as they come
due. As a result, the actual and perceived creditworthiness of JPMorgan Financial and JPMorgan Chase & Co. may affect the market
value of the Notes and, in the event JPMorgan Financial and JPMorgan Chase & Co. were to default on their obligations, you
may not receive any amounts owed to you under the terms of the Notes and you could lose your entire investment.
|
|
♦
|
As a Finance Subsidiary, JPMorgan Financial Has No Independent Operations
and Limited Assets —
As a finance subsidiary of JPMorgan Chase & Co., we have no independent operations beyond the
issuance and administration of our securities. Aside from the initial capital contribution from JPMorgan Chase & Co., substantially
all of our assets relate to obligations of our affiliates to make payments under loans made by us or other intercompany agreements.
As a result, we are dependent upon payments from our affiliates to meet our obligations under the Notes. If these affiliates do
not make payments to us and we fail to make payments on the Notes, you may have to seek payment under the related guarantee by
JPMorgan Chase & Co., and that guarantee will rank
pari passu
with all other unsecured and unsubordinated obligations
of JPMorgan Chase & Co.
|
|
♦
|
You Are Not Guaranteed Any Contingent Coupons
— We will
not necessarily make periodic coupon payments on the Notes. If the closing price of one share of the Underlying on an Observation
Date is less than the Coupon Barrier, we will not pay you the Contingent Coupon for that Observation Date, and the Contingent Coupon
that would otherwise be payable will not be accrued and will be lost. If the closing price of one share of the Underlying is less
than the 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.
|
|
♦
|
Return on the Notes Limited to the Sum of Any Contingent Coupons
and You Will Not Participate in Any Appreciation of the Underlying
— The return potential of the Notes is limited to
the specified Contingent Coupon Rate, regardless of the appreciation of the 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 twelfth 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 of the Underlying even though you are not able to participate in any potential appreciation
of the 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 price of the Underlying and the shorter time remaining for the price to recover to or above the 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 the Underlying. In addition, if the Notes are not called and the Final Value is below the
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.
|
|
♦
|
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 price of one share of the Underlying is above the Downside Threshold.
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 the Underlying closes below the 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 of the Underlying from the Initial Value to the Final Value. This contingent repayment of principal applies only
if you hold your Notes to maturity.
|
|
♦
|
A Higher Contingent Coupon Rate and/or a Lower Coupon Barrier and/or
Downside Threshold May Reflect Greater Expected Volatility of the Underlying, Which Is Generally Associated With a Greater Risk
of Loss
— Volatility is a measure of the degree of variation in the price of the Underlying over a period of time.
The greater the expected volatility of the Underlying at the time the terms of the Notes are set, the greater the expectation is
at that time that the price of the Underlying could close below the Coupon Barrier on any Observation Date, resulting in the loss
of one or more, or all, Contingent Coupon payments, or below the 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 volatility of the
Underlying at the time the terms of the Notes are set, where a higher expected volatility will generally be reflected in a higher
Contingent Coupon Rate than the fixed rate we would pay on conventional debt securities of the same maturity and/or on otherwise
comparable securities and/or a lower Coupon Barrier and/or a lower Downside Threshold as compared to otherwise comparable securities.
Accordingly, a higher Contingent Coupon Rate will generally be indicative of a greater risk of loss while a lower Coupon Barrier
or Downside Threshold does not necessarily indicate that the Notes have a greater likelihood of paying Contingent Coupon payments
or returning your principal at maturity. You should be willing to accept the downside market risk of each Underlying and
the potential loss of some or all of your principal at maturity.
|
|
♦
|
Reinvestment Risk
— If your Notes are called early, the
holding period over which you would have the opportunity to receive any Contingent Coupons could be as short as approximately six
months. There is no guarantee that you would be able to reinvest the proceeds from an investment in the Notes at a comparable return
and/or with a comparable interest rate for a similar level of risk in the event the Notes are called prior to the Maturity Date.
|
|
♦
|
Potential Conflicts
— We and our affiliates play a variety
of roles in connection with the issuance of the Notes, including acting as calculation agent and hedging our obligations under
the Notes and making the assumptions used to determine the pricing of the Notes and the estimated value of the Notes when the terms
of the Notes are set, which we refer to as the estimated value of the Notes. In performing these duties, our and JPMorgan Chase
& Co.’s economic interests and the economic interests of the calculation agent and other affiliates of ours are potentially
adverse to your interests as an investor in the Notes. In addition, our and JPMorgan Chase & Co.’s business activities,
including hedging and trading activities, could cause our and JPMorgan Chase & Co.’s economic interests to be adverse
to yours and could adversely affect any payment on the Notes and the value of the Notes. It is possible that hedging or trading
activities of ours or our affiliates in connection with the Notes could result in substantial returns for us or our affiliates
while the value of the Notes declines. Please refer to “Risk Factors — Risks Relating to Conflicts of Interest”
in the accompanying product supplement for additional information about these risks.
|
|
♦
|
Each Contingent Coupon Is Based Solely on the Closing Price of One
Share of the Underlying 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 price of one share of the Underlying 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 price of one share of the Underlying on the applicable Observation Date, if the
closing price of one share of the Underlying is less than the Coupon Barrier, you will not receive any Contingent Coupon with respect
to that Observation Date, even if the closing price of one share of the Underlying was higher on other days during the period before
that Observation Date.
|
|
♦
|
The Estimated Value of the Notes Is Lower Than the Original Issue
Price (Price to Public) of the Notes
— The estimated value of the Notes is only an estimate determined by reference to
several factors. The original issue price of the Notes exceeds the estimated value of the Notes because costs associated with selling,
structuring and hedging the Notes are included in the original issue price of the Notes. These costs include the selling commissions,
projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the
Notes and the estimated cost of hedging our obligations under the Notes. See “The Estimated Value of the Notes” in
this pricing supplement.
|
|
♦
|
The Estimated Value of the Notes Does Not Represent Future Values
of the Notes and May Differ from Others’ Estimates
— The estimated value of the Notes is determined by reference
to internal pricing models of our affiliates when the terms of the Notes are set. This estimated value of the Notes is based on
market conditions and other relevant factors existing at that time and assumptions about market parameters, which can include volatility,
dividend rates, interest rates and other factors. Different pricing models and assumptions could provide valuations for the Notes
that are greater than or less than the estimated value of the Notes. In addition, market conditions and other relevant factors
in the future may change, and any assumptions may prove to be incorrect. On future dates, the value of the Notes could change significantly
based on, among other things, changes in market conditions, our or JPMorgan Chase & Co.’s creditworthiness, interest
rate movements and other relevant factors, which may impact the price, if any, at which JPMS would be willing to buy Notes from
you in secondary market transactions. See “The Estimated Value of the Notes” in this pricing supplement.
|
|
♦
|
The Estimated Value of the Notes Is Derived by Reference to an Internal
Funding Rate
— The internal funding rate used in the determination of the estimated value of the Notes is based on, among
other things, our and our affiliates’ view of the funding value of the Notes as well as the higher issuance, operational
and ongoing liability management costs of the Notes in comparison to those costs for the conventional fixed-rate debt of JPMorgan
Chase & Co. The use of an internal funding rate and any potential changes to that rate may have an adverse effect on the terms
of the Notes and any secondary market prices of the Notes. See “The Estimated Value of the Notes” in this pricing supplement.
|
|
♦
|
The Value of the Notes as Published by JPMS (and Which May Be Reflected
on Customer Account Statements) May Be Higher Than the Then-Current Estimated Value of the Notes for a Limited Time Period
— We generally expect that some of the costs included in the original issue price of the Notes will be partially paid back
to you in connection with any repurchases of your Notes by JPMS in an amount that will decline to zero over an initial predetermined
period. These costs can include selling commissions, projected hedging profits, if any, and, in some circumstances, estimated hedging
costs and our internal secondary
|
market funding rates for structured
debt issuances. See “Secondary Market Prices of the Notes” in this pricing supplement for additional information relating
to this initial period. Accordingly, the estimated value of your Notes during this initial period may be lower than the value of
the Notes as published by JPMS (and which may be shown on your customer account statements).
|
♦
|
Secondary Market Prices of the Notes Will Likely Be Lower Than the
Original Issue Price of the Notes
— Any secondary market prices of the Notes will likely be lower than the original issue
price of the Notes because, among other things, secondary market prices take into account our internal secondary market funding
rates for structured debt issuances and, also, because secondary market prices (a) exclude selling commissions and (b) may exclude
projected hedging profits, if any, and estimated hedging costs that are included in the original issue price of the Notes. As a
result, the price, if any, at which JPMS will be willing to buy Notes from you in secondary market transactions, if at all, is
likely to be lower than the original issue price. Any sale by you prior to the Maturity Date could result in a substantial loss
to you. See the immediately following risk factor for information about additional factors that will impact any secondary market
prices of the Notes.
|
The Notes are not designed to be short-term
trading instruments. Accordingly, you should be able and willing to hold your Notes to maturity. See “— Lack of Liquidity”
below.
|
♦
|
Many Economic and Market Factors Will Impact the Value of the Notes
— As described under “The Estimated Value of the Notes” in this pricing supplement, the Notes can be thought
of as securities that combine a fixed-income debt component with one or more derivatives. As a result, the factors that influence
the values of fixed-income debt and derivative instruments will also influence the terms of the Notes at issuance and their value
in the secondary market. Accordingly, the secondary market price of the Notes during their term will be impacted by a number of
economic and market factors, which may either offset or magnify each other, aside from the selling commissions, projected hedging
profits, if any, estimated hedging costs and the price of the Underlying, including:
|
|
♦
|
any
actual or potential change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads;
|
|
♦
|
customary bid-ask spreads for similarly sized trades;
|
|
♦
|
our internal secondary market funding rates for structured debt issuances;
|
|
♦
|
the actual and expected volatility in the price of one share of the
Underlying;
|
|
♦
|
the time to maturity of the Notes;
|
|
♦
|
the likelihood of an automatic call being triggered;
|
|
♦
|
whether the closing price of one share of the Underlying has been,
or is expected to be, less than the Coupon Barrier on any Observation Date and whether the Final Value is expected to be less than
the Downside Threshold;
|
|
♦
|
the dividend rates on the Underlying and the equity securities held
by the Underlying;
|
|
♦
|
the occurrence of certain events affecting the Underlying that may
or may not require an adjustment to the closing price and the Share Adjustment Factor of the Underlying, including a merger or
acquisition;
|
|
♦
|
interest and yield rates in the market generally; and
|
|
♦
|
a variety of other economic, financial, political, regulatory and judicial
events.
|
Additionally, independent pricing vendors
and/or third party broker-dealers may publish a price for the Notes, which may also be reflected on customer account statements.
This price may be different (higher or lower) than the price of the Notes, if any, at which JPMS may be willing to purchase your
Notes in the secondary market.
|
♦
|
Investing in the Notes Is Not Equivalent to Investing in the Underlying
or the Equity Securities Composing the Underlying
— Investing in the Notes is not equivalent to investing in the Underlying
or the equity securities held by the Underlying. As an investor in the Notes, you will not have any ownership interest or rights
in the Underlying or the equity securities held by the Underlying, such as voting rights, dividend payments or other distributions.
|
|
♦
|
Your Return on the Notes Will Not Reflect Dividends on the Underlying
or the Equity Securities Composing the Underlying
— Your return on the Notes will not reflect the return you would realize
if you actually owned the Underlying or the equity securities held by the Underlying and received the dividends on the Underlying
or those equity securities. This is because the calculation agent will determine whether the Notes will be called and whether a
Contingent Coupon is payable and will calculate the amount payable to you at maturity of the Notes by reference to the closing
price of one share of the Underlying on the relevant Observation Date without taking into consideration the value of dividends
on the Underlying or the equity securities held by the Underlying.
|
|
♦
|
No Affiliation with the Underlying or the Issuers of the Equity
Securities Composing the Underlying
—
We are not affiliated with the Underlying or, to our knowledge,
the issuers of the equity securities held by the Underlying. We have not independently verified the information about the Underlying
or the issuers of the equity securities held by the Underlying contained in this pricing supplement. You should make your own investigation
into the Underlying and the issuers of the equity securities held by the Underlying. We are not responsible for the public disclosure
of information by the Underlying or the issuers of the equity securities held by the Underlying, whether contained in SEC filings
or otherwise
|
|
♦
|
No Assurances That the Investment View Implicit in the Notes Will
Be Successful
— While the Notes are structured to provide for Contingent Coupons if the Underlying does not close below
the Coupon Barrier on the Observation Dates, we cannot assure you of the economic environment during the term or at maturity of
your Notes.
|
|
♦
|
Lack of Liquidity
— The Notes will not be listed on any
securities exchange. JPMS intends to offer to purchase the Notes in the secondary market, but is not required to do so. Even if
there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Notes easily. Because other
dealers are not likely to make a secondary market for the Notes, the price at which you may be able to trade your Notes is likely
to depend on the price, if any, at which JPMS is willing to buy the Notes.
|
|
♦
|
Potentially Inconsistent Research, Opinions or Recommendations by
JPMS, UBS or Their Affiliates
— JPMS, UBS or their affiliates may publish research, express opinions or provide recommendations
that are inconsistent with investing in or holding the Notes, and that may be revised at any time. Any such research, opinions
or recommendations may or may not recommend that investors buy or hold the Underlying and could affect the price of the Underlying,
and therefore the market value of the Notes.
|
|
♦
|
Tax Treatment
— Significant aspects of the tax treatment
of the Notes are uncertain. You should consult your tax adviser about your tax situation.
|
|
♦
|
Potential JPMorgan Financial Impact on the Price of the Underlying
— Trading or transactions by JPMorgan Financial or its affiliates in the Underlying and/or over-the-counter options, futures
or other instruments with returns linked to the performance of the Underlying may adversely affect the price of the Underlying
and, therefore, the market value of the Notes.
|
Risks Relating to the Underlying
|
♦
|
There Are Risks Associated with the Underlying
—
Although shares of the Underlying are listed for trading
on a securities exchange and a number of similar products have been trading on a securities exchange for varying periods of time,
there is no assurance that an active trading market will continue for the shares of the Underlying or that there will be liquidity
in the trading market. The Underlying is subject to management risk, which is the risk that the investment strategies of
the Underlying’s investment adviser, the implementation of which is subject to a number of constraints, may not produce the
intended results. These constraints could adversely affect the market price of the shares of the Underlying, and consequently,
the value of the Notes.
|
|
♦
|
The Performance and Market Value of the Underlying, Particularly
During Periods of Market Volatility, May Not Correlate with the Performance of the Underlying’s Underlying Index as well
as the Net Asset Value per Share
— The Underlying does not fully replicate its Underlying Index (as defined under “The
Underlying” below) and may hold securities different from those included in its Underlying Index.
In
addition, the performance of the Underlying 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 Underlying and its Underlying Index.
In
addition, corporate actions with respect to the equity securities underlying the Underlying (such as mergers and spin-offs) may
impact the variance between the performances of the Underlying and its Underlying Index.
Finally,
because the shares of the Underlying are traded on a securities exchange and are subject to market supply and investor demand,
the market value of one share of the Underlying may differ from the net asset value per share of the Underlying.
|
During
periods of market volatility, securities underlying the Underlying may be unavailable in the secondary market, market participants
may be unable to calculate accurately the net asset value per share of the Underlying and the liquidity of the Underlying may be
adversely affected.
This kind of market volatility may also
disrupt the ability of market participants to create and redeem shares of the Underlying. Further,
market volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell
shares of the Underlying. As a result, under these circumstances,
the market value of shares of the Underlying may vary substantially from the net asset value per share of the Underlying. For
all of the foregoing reasons, the performance of the Underlying may not correlate with the performance of its Underlying Index
as well as the net asset value per share of the Underlying, which could materially and adversely affect the value of the Notes
in the secondary market and/or reduce any payment on the Notes.
|
¨
|
Risks Associated With the Oil and Gas Exploration and Production
Industry
—
All
or substantially all of the equity securities underlying the Underlying are issued by companies whose primary business is associated
with the exploration and production of oil and gas. As a result, the value of the Notes may be subject to greater volatility
and may be more adversely affected by a single economic, political or regulatory occurrence affecting this industry than a different
investment linked to securities of a more broadly diversified group of issuers or issuers in a less volatile industry. The
oil and gas industry is significantly affected by a number of factors that influence worldwide economic conditions and oil and
gas prices, such as natural disasters, supply disruptions, geopolitical events and other factors that may offset or magnify each
other, including:
|
|
♦
|
worldwide and domestic supplies of, and demand for, crude oil and natural
gas;
|
|
♦
|
the cost of exploring for, developing, producing, refining and marketing
crude oil and natural gas;
|
|
♦
|
changes in weather patterns and climatic changes;
|
|
♦
|
the ability of the members of Organization of Petroleum Exporting Countries
(OPEC) and other producing nations to agree to and maintain production levels;
|
|
♦
|
the worldwide military and political environment, uncertainty or instability
resulting from an escalation or additional outbreak of armed hostilities or further acts of terrorism in the United States, or
elsewhere;
|
|
♦
|
the price and availability of alternative and competing fuels;
|
|
♦
|
domestic and foreign governmental regulations and taxes;
|
|
♦
|
employment levels and job growth; and
|
|
♦
|
general economic conditions worldwide.
|
These or other factors or the absence
of such factors could cause a downturn in the oil and natural gas industries generally or regionally and could cause the value
of some or all of the component stocks included in the Underlying Index and held by the Underlying to decline during the term of
the securities.
For example, the Underlying suffered
significant negative performance in 2014 and 2015 while the broader U.S equities markets achieved positive returns for the same
period.
|
¨
|
Anti-Dilution Protection Is Limited
—
Although the calculation
agent will adjust the closing price of one share of the Underlying for certain events affecting the Underlying, the calculation
agent is not required to make an adjustment for every event that can affect the Underlying. If an event occurs that does
not require the calculation agent to adjust the closing price of one share of the Underlying, the market value of your Notes and
any payment on the Notes may be materially and adversely affected.
|
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 linked to a hypothetical Underlying and assume an Initial Value of $100.00, a Downside Threshold and Coupon Barrier
of $65.50 (which is 65.50% of the hypothetical Initial Value) and reflect the Contingent Coupon Rate of 11.00% per annum.* The
hypothetical Initial Value has been chosen for illustrative purposes only and does not represent the actual Initial Value. The
actual Initial Value, Downside Threshold and Coupon Barrier are based on the closing price of one share of the Underlying on the
Trade Date and are specified on the cover of this pricing supplement. For historical data regarding the actual closing prices of
one share of the Underlying, please see the historical information set forth under “The Underlying” in this pricing
supplement.
Principal Amount:
|
$10.00
|
Term:
|
Approximately three years (unless earlier called)
|
Hypothetical Initial Value:
|
$100.00
|
Contingent Coupon Rate:
|
11.00% per annum (or 2.75% per quarter)
|
Observation Dates:
|
Quarterly (callable after six months)
|
Hypothetical Downside Threshold:
|
$65.50 (which is 65.50%* of the hypothetical Initial Value)
|
Hypothetical Coupon Barrier:
|
$65.50 (which is 65.50%* of the hypothetical Initial Value)
|
*
|
The actual value of any Contingent Coupon payments you will receive over the term of the Notes and the actual value of the payment upon automatic call or at maturity applicable to your Notes may be more or less than the amounts displayed in these hypothetical scenarios.
|
|
|
|
The examples below are purely hypothetical and are not based
on any specific offering of Notes linked to any specific Underlying. These examples are intended to illustrate how the value of
any payment on the Notes will depend on the closing price of one share on the Observation Dates.
Example 1 — Notes Are Automatically Called on the Second
Observation Date
Date
|
Closing Price
|
Payment (per Note)
|
First Observation Date
|
$105.00 (at or above Initial Value; Notes NOT called because Observation Date is prior to the second Observation Date)
|
$0.275 (Contingent Coupon)
|
Second Observation Date
|
$110.00 (at or above Initial Value)
|
$10.275 (Payment Upon Automatic Call)
|
|
|
Total Payment:
|
$10.55 (5.50% return)
|
|
|
|
|
Although the closing price is above the Initial Value on the
first Observation Date, the Notes are not called because the Notes cannot be called before the second Observation Date. Because
the Notes are automatically called on the second Observation Date, we will pay you on the applicable Call Settlement Date a total
of $10.275 per Note, reflecting your principal amount
plus
the applicable Contingent Coupon. When that amount is added to
the Contingent Coupon payment of $0.275 received in respect of prior Observation Dates, we will have paid you a total of $10.55
per Note for a 5.50% total return on the Notes. No further amounts will be owed on the Notes.
Example 2 — Notes Are Automatically Called on the Eleventh
Observation Date
Date
|
Closing Price
|
Payment (per Note)
|
First Observation Date
|
$90.00 (at or above Coupon Barrier; below Initial Value)
|
$0.275 (Contingent Coupon)
|
Second Observation Date
|
$85.00 (at or above Coupon Barrier; below Initial Value)
|
$0.275 (Contingent Coupon)
|
Third through Tenth Observation Dates
|
Various (all at or above Coupon Barrier, all below Initial Value)
|
$2.20 (Contingent Coupons)
|
Eleventh Observation Date
|
$105.00 (at or above Initial Value)
|
$10.275 (Payment upon Automatic Call)
|
|
|
|
|
|
Total Payment:
|
$13.025 (30.25% return)
|
|
|
|
|
Because the Notes are automatically called on the eleventh Observation
Date, we will pay you on the applicable Call Settlement Date a total of $10.275 per Note, reflecting your principal amount
plus
the applicable Contingent Coupon. When that amount is added to the Contingent Coupon payments of $2.75 received in respect of prior
Observation Dates, we will have paid you a total of $13.025 per Note for a 30.25% total return on the Notes. No further amounts
will be owed on the Notes.
Example 3 — Notes Are NOT Automatically Called
and
the Final Value Is at or above the Downside Threshold
Date
|
Closing Price
|
Payment (per Note)
|
First Observation Date
|
$90.00 (at or above Coupon Barrier; below Initial Value)
|
$0.275 (Contingent Coupon)
|
Second Observation Date
|
$85.00 (at or above Coupon Barrier)
|
$0.275 (Contingent Coupon)
|
Third through Eleventh
Observation Dates
|
Various (all below Coupon Barrier)
|
$0.00
|
Final Valuation Date
|
$85.00 (at or above Downside Threshold; below Initial Value)
|
$10.275 (Payment at Maturity)
|
|
|
Total Payment:
|
$10.825 (8.25% return)
|
|
|
|
|
At maturity, we will pay you a total of $10.275 per Note, reflecting
your principal amount
plus
the applicable Contingent Coupon. When that amount is added to the Contingent Coupon payment
of $0.55 received in respect of prior Observation Dates, we will have paid you a total of $10.825 per Note for an 8.25% total return
on the Notes.
Example 4 — Notes Are NOT Automatically Called
and
the Final Value Is below the Downside Threshold
Date
|
Closing Price
|
Payment (per Note)
|
First Observation Date
|
$90.00 (at or above Coupon Barrier; below Initial Value)
|
$0.275 (Contingent Coupon)
|
Second Observation Date
|
$85.00 (at or above Coupon Barrier; below Initial Value)
|
$0.275 (Contingent Coupon)
|
Third through Eleventh Observation Dates
|
Various (all at or above Coupon Barrier; all below Initial Value)
|
$2.475 (Contingent Coupons)
|
Final Valuation Date
|
$60.00 (below Downside Threshold)
|
$10.00 × (1 + Underlying Return) =
$10.00 × (1 + -40%) =
$10.00 × 60% =
$6.00 (Payment at Maturity)
|
|
|
|
|
|
Total Payment:
|
$9.025 (-9.75% return)
|
|
|
|
|
Because the Notes are not called and the Final Value of $60.00
is below the Downside Threshold, at maturity we will pay you $6.00 per Note. When that amount is added to the Contingent Coupon
payments of $3.025 received in respect of prior Observation Dates, we will have paid you $9.025 per Note for a loss on the Notes
of 9.75%.
Example 5 — Notes Are NOT Automatically Called
and
the Final Value is below the Downside Threshold
Date
|
Closing Price
|
Payment (per Note)
|
First Observation Date
|
$55.00 (below Coupon Barrier)
|
$0.00
|
Second Observation Date
|
$50.00 (below Coupon Barrier)
|
$0.00
|
Third through Eleventh
Observation Dates
|
Various (all below Coupon Barrier)
|
$0.00
|
Final Valuation Date
|
$50.00 (below Downside Threshold)
|
$10.00 × (1 + Underlying Return) =
$10.00 × (1 + -50%) =
$10.00 × 50% =
$5.00 (Payment at Maturity)
|
|
|
Total Payment:
|
$5.00 (-50.00% return)
|
|
|
|
|
Because the Notes are not automatically called, the Final Value is
below the Downside Threshold and the Underlying Return is -50%, at maturity we will pay you $5.00 per Note for a loss on the Notes
of 50.00%. Because there is no Contingent Coupon paid during the term of the Notes, that represents the total payment on 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
Underlying
The SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF is an exchange-traded fund of the SPDR
®
Series Trust, a registered
investment company. The SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF seeks
to provide investment results that, before fees and expenses, correspond generally to the total return performance of an index
derived from the oil and gas exploration and production segment of a U.S. total market composition index, which we refer to as
the Underlying Index with respect to the SPDR
®
S&P
®
Oil & Gas Exploration & Production
ETF. The Underlying Index with respect to the SPDR
®
S&P
®
Oil & Gas Exploration & Production
ETF is currently the S&P
®
Oil & Gas Exploration & Production Select Industry Index
®
.
The S&P
®
Oil & Gas Exploration & Production Select Industry Index
®
is a modified equal-weighted
index that is designed to measure the performance of the following GICS
®
sub-industries: integrated oil & gas,
oil & gas exploration & mining and oil & gas refining & marketing. Information provided to or filed with the SEC
by the SPDR
®
Series 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 333-57793 and 811-08839, 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 SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF, see the information set forth under “Fund Descriptions — The SPDR
®
S&P
®
Industry ETFs” in the accompanying underlying supplement.
Historical Information
The following table sets forth the quartlerly high
and low closing prices of one share of the Underlying, based on daily closing prices of one share of the Underlying as reported
by the Bloomberg Professional
®
service (“Bloomberg”), without independent verification. This information
given below is for the four calendar quarters in each of 2011, 2012, 2013, 2014 and 2015 and the first and second calendar quarters
of 2016. Partial data is provided for the third calendar quarter of 2016. The closing price of one share of the Underlying on August
29, 2016 was $37.59. We obtained the closing prices of one share of the Underlying above and below from Bloomberg, without independent
verification. The closing prices may have been adjusted by Bloomberg for certain actions, such as stock splits. You should not
take the historical prices of one share of the Underlying as an indication of future performance.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Close
|
1/1/2011
|
3/31/2011
|
$64.50
|
$52.75
|
$64.50
|
4/1/2011
|
6/30/2011
|
$64.97
|
$54.71
|
$58.78
|
7/1/2011
|
9/30/2011
|
$65.24
|
$42.80
|
$42.80
|
10/1/2011
|
12/31/2011
|
$57.56
|
$39.99
|
$52.69
|
1/1/2012
|
3/31/2012
|
$61.34
|
$52.67
|
$56.91
|
4/1/2012
|
6/30/2012
|
$57.85
|
$45.20
|
$50.40
|
7/1/2012
|
9/30/2012
|
$59.35
|
$48.73
|
$55.69
|
10/1/2012
|
12/31/2012
|
$57.38
|
$50.69
|
$54.07
|
1/1/2013
|
3/31/2013
|
$62.10
|
$55.10
|
$60.49
|
4/1/2013
|
6/30/2013
|
$62.61
|
$54.71
|
$58.18
|
7/1/2013
|
9/30/2013
|
$66.47
|
$58.62
|
$65.89
|
10/1/2013
|
12/31/2013
|
$72.74
|
$65.02
|
$68.53
|
1/1/2014
|
3/31/2014
|
$71.83
|
$64.04
|
$71.83
|
4/1/2014
|
6/30/2014
|
$83.45
|
$71.19
|
$82.28
|
7/1/2014
|
9/30/2014
|
$82.08
|
$68.83
|
$68.83
|
10/1/2014
|
12/31/2014
|
$66.84
|
$42.75
|
$47.86
|
1/1/2015
|
3/31/2015
|
$53.94
|
$42.55
|
$51.66
|
4/1/2015
|
6/30/2015
|
$55.63
|
$46.43
|
$46.66
|
7/1/2015
|
9/30/2015
|
$45.22
|
$31.71
|
$32.84
|
10/1/2015
|
12/31/2015
|
$40.53
|
$28.64
|
$30.22
|
1/1/2016
|
3/31/2016
|
$30.96
|
$23.60
|
$30.35
|
4/1/2016
|
6/30/2016
|
$37.50
|
$29.23
|
$34.81
|
7/1/2016
|
8/29/2016*
|
$37.90
|
$32.75
|
$37.59
|
|
*
|
As of the date of this pricing supplement, available information for the third calendar quarter of 2016 includes data for the
period from April 1, 2016 through August 29, 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 third calendar quarter
of 2016.
|
The graph below illustrates the daily performance of the Underlying
from June 22, 2006 through August 29, 2016, based on information from Bloomberg, without independent verification. The dotted line
represents the Downside Threshold and Coupon Barrier of $24.62, equal to 65.50% of the closing price of one share of the Underlying
on August 29, 2016.
Past performance of the Fund is not indicative of the future
performance of the
Underlying.