Pricing Supplement
To product supplement B dated July 31
,
2015
,
prospectus supplement
dated July 31
,
2015 and
prospectus dated April
27
,
2016
|
Pricing
Supplement No
.
2863B
Registration
Statement No
.
333–206013
Rule
424
(
b
)(
2
)
|
|
|
|
|
|
|
Structured
Investments
|
Deutsche Bank AG
$1,415,000 Capped Return Enhanced Notes Linked to the PHLX Semiconductor Sector Index
sm
due August 1
,
2018
|
General
|
·
|
The notes are designed
for investors who seek a return at maturity of two times the potential positive performance (if any) of the PHLX Semiconductor
Sector Index
sm
(the
“
Underlying
”
),
subject to a Maximum Return of 22.40%. However, if the Final Level is less than the Initial Level, for each $1,000 Face Amount
of notes, investors will lose 1.00% of the Face Amount for every 1.00% by which the Final Level is less than the Initial Level.
The notes do not pay any coupons or dividends and investors should be willing to lose some or all of their investment if the Final
Level is less than the Initial Level. Any payment on the notes is subject to the credit of the Issuer.
|
|
·
|
Senior unsecured obligations
of Deutsche Bank AG due August 1, 2018
|
|
·
|
Minimum purchase of
$10,000. Minimum denominations of $1,000 (the
“
Face Amount
”
)
and integral multiples thereof.
|
|
·
|
The notes priced on
July 14, 2017 (the
“
Trade Date
”
)
and are expected to settle on July 19, 2017 (the
“
Settlement
Date
”
).
|
Key Terms
Issuer:
|
Deutsche Bank AG, London Branch
|
Underlying:
|
PHLX Semiconductor Sector Index
sm
(Ticker: SOX)
|
Issue Price:
|
100% of the Face Amount
|
Upside Leverage Factor:
|
2.00
|
Maximum Return:
|
22.40%. Accordingly, the maximum Payment at Maturity is $1,224.00 per $1,000 Face Amount of notes.
|
Payment at Maturity:
|
·
If the Final Level is
greater than
the Initial Level
,
you will receive a cash payment at maturity per $1,000 Face Amount of notes calculated as follows:
|
|
|
|
$1,000 + ($1,000 x the
lesser of
(i) Underlying Return x Upside Leverage Factor and (ii) Maximum Return)
|
|
|
|
·
If the Final Level is
equal to
the Initial Level
,
you will receive a cash payment at maturity equal to the Face Amount per $1,000 Face Amount of notes.
|
|
|
|
·
If the Final Level is
less than
the Initial Level
,
you will receive a cash payment at maturity per $1,000 Face Amount of notes calculated as follows:
|
|
|
|
$1,000 + ($1,000 x Underlying Return)
|
|
|
|
If the Final Level is less than the Initial Level
,
you will be fully exposed to the negative Underlying Return and
,
for each $1
,
000 Face Amount of notes
,
you will lose 1
.
00% of the Face Amount for every 1
.
00% by which the Final Level is less than the Initial Level
.
In this circumstance
,
you will lose some or all of your investment at maturity
.
Any payment at maturity is subject to the credit of the Issuer
.
|
|
|
Underlying Return:
|
The performance of the Underlying from the Initial Level to the Final Level, calculated as follows:
|
|
|
|
Final Level – Initial Level
|
|
Initial Level
|
|
|
|
The Underlying Return may be positive
,
zero or negative
.
|
|
|
Initial Level:
|
1,104.3154, equal to the closing level of the Underlying on the Trade Date
|
(
Key Terms continued on next page
)
|
|
|
|
Investing in the notes involves a number of risks. See
“
Risk
Factors
”
beginning on page 7 of the accompanying product supplement, page PS-5 of the accompanying prospectus supplement
and page 13 of the accompanying prospectus and
“
Selected Risk Considerations
”
beginning on page 8 of
this pricing supplement.
The Issuer
’
s estimated value of the notes on
the Trade Date is $983.80 per $1,000 Face Amount of notes, which is less than the Issue Price. Please see
“
Issuer
’
s
Estimated Value of the Notes
”
on page 3 of this pricing supplement for additional information.
By acquiring the notes, you will be bound by and deemed irrevocably
to consent to the imposition of any Resolution Measure (as defined below) by the competent resolution authority, which may include
the write down of all, or a portion, of any payment on the notes or the conversion of the notes into ordinary shares or other instruments
of ownership. If any Resolution Measure becomes applicable to us, you may lose some or all of your investment in the notes. Please
see
“
Resolution Measures and Deemed Agreement
”
on page 4 of this pricing supplement for more information.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or passed
upon the accuracy or the adequacy of this pricing supplement or the accompanying product supplement, prospectus supplement or
prospectus. Any representation to the contrary is a criminal offense.
|
Price
to Public
|
Fees
(1)
|
Proceeds
to Issuer
|
Per
Note
|
$1,000.00
|
$10.00
|
$990.00
|
Total
|
$1,415,000.00
|
$14,150.00
|
$1,400,850.00
|
|
(1)
|
JPMorgan Chase Bank, N.A. and J.P. Morgan Securities
LLC, which we refer to as JPMS LLC, or one of its affiliates will act as placement agents for the notes. The placement agents
will receive a fee from the Issuer of $20.00 per $1,000 Face Amount of notes. Please see “Supplemental Plan of Distribution”
in this pricing supplement for more information about fees.
|
The notes are not deposits or savings accounts and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other U
.
S
.
or foreign governmental agency
or instrumentality
.
JPMorgan
Placement Agent
July 14, 2017
(
Key Terms continued from previous page
)
|
|
Final Level:
|
The arithmetic average of the closing levels of the Underlying on each of the five Averaging Dates
|
Trade Date:
|
July 14, 2017
|
Settlement Date:
|
July 19, 2017
|
Averaging Dates
1
:
|
July 23, 2018, July 24, 2018, July 25, 2018, July 26, 2018 and July 27, 2018
|
Maturity Date
1
:
|
August 1, 2018
|
Listing:
|
The notes will not be listed on any securities exchange.
|
CUSIP / ISIN:
|
25155MCJ8 / US25155MCJ80
|
|
|
|
1
|
Subject to adjustment as described under “Description
of Securities — Adjustments to Valuation Dates and Payment Dates” in the accompanying product supplement.
|
Issuer’s Estimated Value of the Notes
The Issuer’s estimated value of the notes is equal to the
sum of our valuations of the following two components of the notes: (i) a bond and (ii) an embedded derivative(s). The value of
the bond component of the notes is calculated based on the present value of the stream of cash payments associated with a conventional
bond with a principal amount equal to the Face Amount of notes, discounted at an internal funding rate, which is determined primarily
based on our market-based yield curve, adjusted to account for our funding needs and objectives for the period matching the term
of the notes. The internal funding rate is typically lower than the rate we would pay when we issue conventional debt securities
on equivalent terms. This difference in funding rate, as well as the agent’s commissions, if any, and the estimated cost
of hedging our obligations under the notes, reduces the economic terms of the notes to you and is expected to adversely affect
the price at which you may be able to sell the notes in any secondary market. The value of the embedded derivative(s) is calculated
based on our internal pricing models using relevant parameter inputs such as expected interest and dividend rates and mid-market
levels of price and volatility of the assets underlying the notes or any futures, options or swaps related to such underlying assets.
Our internal pricing models are proprietary and rely in part on certain assumptions about future events, which may prove to be
incorrect.
The Issuer’s estimated value of the notes on the Trade
Date (as disclosed on the cover of this pricing supplement) is less than the Issue Price of the notes. The difference between the
Issue Price and the Issuer’s estimated value of the notes on the Trade Date is due to the inclusion in the Issue Price of
the agent’s commissions, if any, and the cost of hedging our obligations under the notes through one or more of our affiliates.
Such hedging cost includes our or our affiliates’ expected cost of providing such hedge, as well as the profit we or our
affiliates expect to realize in consideration for assuming the risks inherent in providing such hedge.
The Issuer’s estimated value of the notes on the Trade
Date does not represent the price at which we or any of our affiliates would be willing to purchase your notes in the secondary
market at any time. Assuming no changes in market conditions or our creditworthiness and other relevant factors, the price, if
any, at which we or our affiliates would be willing to purchase the notes from you in secondary market transactions, if at all,
would generally be lower than both the Issue Price and the Issuer’s estimated value of the notes on the Trade Date. Our purchase
price, if any, in secondary market transactions will be based on the estimated value of the notes determined by reference to (i)
the then-prevailing internal funding rate (adjusted by a spread) or another appropriate measure of our cost of funds and (ii) our
pricing models at that time, less a bid spread determined after taking into account the size of the repurchase, the nature of the
assets underlying the notes and then-prevailing market conditions. The price we report to financial reporting services and to distributors
of our notes for use on customer account statements would generally be determined on the same basis. However, during the period
of approximately six months beginning from the Trade Date, we or our affiliates may, in our sole discretion, increase the purchase
price determined as described above by an amount equal to the declining differential between the Issue Price and the Issuer’s
estimated value of the notes on the Trade Date, prorated over such period on a straight-line basis, for transactions that are individually
and in the aggregate of the expected size for ordinary secondary market repurchases.
Resolution Measures and Deemed Agreement
On May 15, 2014, the European Parliament and the Council of the
European Union adopted a directive establishing a framework for the recovery and resolution of credit institutions and investment
firms (commonly referred to as the
“
Bank Recovery and Resolution
Directive
”
). The Bank Recovery and Resolution Directive
required each member state of the European Union to adopt and publish by December 31, 2014 the laws, regulations and administrative
provisions necessary to comply with the Bank Recovery and Resolution Directive. Germany adopted the Recovery and Resolution Act
(
Sanierungs
-
und Abwicklungsgesetz
, or the
“
Resolution
Act
”
), which became effective on January 1, 2015. The
Bank Recovery and Resolution Directive and the Resolution Act provided national resolution authorities with a set of resolution
powers to intervene in the event that a bank is failing or likely to fail and certain other conditions are met. From January 1,
2016, the power to initiate resolution measures applicable to significant banking groups (such as Deutsche Bank Group) in the European
Banking Union has been transferred to the European Single Resolution Board which, based on the European Union regulation establishing
uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of
a Single Resolution Mechanism and a Single Resolution Fund (the
“
SRM
Regulation
”
), works in close cooperation with the European
Central Bank, the European Commission and the national resolution authorities. Pursuant to the SRM Regulation, the Resolution Act
and other applicable rules and regulations, the notes may be subject to any Resolution Measure by the competent resolution authority
if we become, or are deemed by the competent supervisory authority to have become, “non-viable” (as defined under the
then applicable law) and are unable to continue our regulated banking activities without a Resolution Measure becoming applicable
to us. By acquiring the notes, you will be bound by and deemed irrevocably to consent to the provisions set forth in the accompanying
prospectus, which we have summarized below.
By acquiring the notes, you will be bound by and deemed irrevocably
to consent to the imposition of any Resolution Measure by the competent resolution authority. Under the relevant resolution laws
and regulations as applicable to us from time to time, the notes may be subject to the powers exercised by the competent resolution
authority to: (i) write down, including to zero, any payment (or delivery obligations) on the notes; (ii) convert the notes into
ordinary shares of (a) the Issuer, (b) any group entity or (c) any bridge bank or other instruments of ownership of such entities
qualifying as common equity tier 1 capital; and/or (iii) apply any other resolution measure including, but not limited to, any
transfer of the notes to another entity, the amendment, modification or variation of the terms and conditions of the notes or the
cancellation of the notes. We refer to each of these measures as a
“
Resolution
Measure
.
”
A “group entity” refers to an entity
that is included in the corporate group subject to a Resolution Measure. A “bridge bank” refers to a newly chartered
German bank that would receive some or all of our assets, liabilities and material contracts, including those attributable to our
branches and subsidiaries, in a resolution proceeding.
Furthermore, by acquiring the notes, you:
|
·
|
are deemed irrevocably to have agreed, and you will
agree: (i) to be bound by, to acknowledge and to accept any Resolution Measure and any amendment, modification or variation of
the terms and conditions of the notes to give effect to any Resolution Measure; (ii) that you will have no claim or other right
against us arising out of any Resolution Measure; and (iii) that the imposition of any Resolution Measure will not constitute
a default or an event of default under the notes, under the senior indenture dated November 22, 2006 among us, Law Debenture Trust
Company of New York, as trustee, and Deutsche Bank Trust Company Americas, as issuing agent, paying agent, authenticating agent
and registrar, as amended and supplemented from time to time (the
“
Indenture
”
),
or for the purposes of, but only to the fullest extent permitted by, the Trust Indenture Act of 1939, as amended (the
“
Trust
Indenture Act
”
);
|
|
·
|
waive, to the fullest extent permitted by the Trust
Indenture Act and applicable law, any and all claims against the trustee and the paying agent, the issuing agent and the registrar
(each, an
“
indenture agent
”
)
for, agree not to initiate a suit against the trustee or the indenture agents in respect of, and agree that the trustee and the
indenture agents will not be liable for, any action that the trustee or the indenture agents take, or abstain from taking, in
either case in accordance with the imposition of a Resolution Measure by the competent resolution authority with respect to the
notes; and
|
|
·
|
will be deemed irrevocably to have: (i) consented
to the imposition of any Resolution Measure as it may be imposed without any prior notice by the competent resolution authority
of its decision to exercise such power with respect to the notes; (ii) authorized, directed and requested The Depository Trust
Company (
“
DTC
”
)
and any direct participant in DTC or other intermediary through which you hold such notes to take any and all necessary action,
if required, to implement the imposition of any Resolution Measure with respect to the notes as it may be imposed, without any
further action or direction on your part or on the part of the trustee or the indenture agents; and (iii) acknowledged and accepted
that the Resolution Measure provisions described herein and in the “Resolution Measures” section of the accompanying
prospectus are exhaustive on the matters described herein and therein to the exclusion of any other agreements, arrangements or
understandings between you and the Issuer relating to the terms and conditions of the notes.
|
This is only a summary
,
for more information please
see the accompanying prospectus dated April 27
,
2016
,
including the risk factors beginning on page 13 of such prospectus
.
Additional Terms Specific to the Notes
You should read this pricing supplement together with product
supplement B dated July 31, 2015, the prospectus supplement dated July 31, 2015 relating to our Series A global notes of which
these notes are a part and the prospectus dated April 27, 2016. Delaware Trust Company, which acquired the corporate trust business
of Law Debenture Trust Company of New York, is the successor trustee of the notes. When you read the accompanying product supplement
and prospectus supplement, please note that all references in such supplements to the prospectus dated July 31, 2015, or to any
sections therein, should refer instead to the accompanying prospectus dated April 27, 2016 or to the corresponding sections of
such prospectus, as applicable, unless otherwise specified or the context otherwise requires. You may access these documents on
the website of the Securities and Exchange Commission (the
“
SEC
”
)
at
.
www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant
date on the SEC website):
|
·
|
Product supplement B dated July 31, 2015:
|
http://www.sec.gov/Archives/edgar/data/1159508/000095010315006059/crt_dp58181-424b2.pdf
|
·
|
Prospectus supplement dated July 31, 2015:
|
http://www.sec.gov/Archives/edgar/data/1159508/000095010315006048/crt-dp58161_424b2.pdf
|
·
|
Prospectus dated April 27, 2016:
|
https://www.sec.gov/Archives/edgar/data/1159508/000119312516559607/d181910d424b21.pdf
Our Central Index Key, or CIK, on the SEC website is 0001159508.
As used in this pricing supplement,
“
we
,
”
“
us
”
or
“
our
”
refers to Deutsche Bank AG, including, as the context requires, acting through one of its branches. This pricing supplement, together
with the documents listed above, 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, brochures or other educational materials of ours. You should carefully consider, among other
things, the matters set forth in this pricing supplement and in “Risk Factors” in the accompanying product supplement,
prospectus supplement and prospectus, as the notes involve risks not associated with conventional debt securities. We urge you
to consult your investment, legal, tax, accounting and other advisers before deciding to invest in the notes.
You may revoke your offer to purchase the notes at any time
prior to the time at which we accept such offer by notifying the applicable agent
.
We reserve the right to change the terms of
,
or reject any offer
to purchase
,
the notes prior to their issuance
.
We will notify you in the event of any changes to the terms of the notes and you will be asked to accept such changes in connection
with your purchase of any notes
.
You may choose to reject such changes
,
in which case we may reject your offer to purchase the notes
.
Hypothetical Examples
The following table illustrates a range of hypothetical payments
at maturity on the notes. The table and the hypothetical examples below reflect the Maximum Return on the notes of 22.40% and the
Upside Leverage Factor of 2.00. The actual Initial Level is set forth on the cover of this pricing supplement. The table and hypothetical
examples set forth below are for illustrative purposes only. The actual return applicable to a purchaser of the notes will be based
on the Underlying Return, determined using the closing levels of the Underlying on the specified Averaging Dates. The numbers appearing
in the table and examples below may have been rounded for ease of analysis. You should consider carefully whether the notes are
suitable to your investment goals.
Hypothetical
Underlying Return
(%)
|
Hypothetical
Return on the Notes
(%)
|
Hypothetical
Payment at Maturity
($)
|
100.00%
|
22.40%
|
$1,224.00
|
90.00%
|
22.40%
|
$1,224.00
|
80.00%
|
22.40%
|
$1,224.00
|
70.00%
|
22.40%
|
$1,224.00
|
60.00%
|
22.40%
|
$1,224.00
|
50.00%
|
22.40%
|
$1,224.00
|
40.00%
|
22.40%
|
$1,224.00
|
30.00%
|
22.40%
|
$1,224.00
|
20.00%
|
22.40%
|
$1,224.00
|
11.20%
|
22.40%
|
$1,224.00
|
10.00%
|
20.00%
|
$1,200.00
|
5.00%
|
10.00%
|
$1,100.00
|
0.00%
|
0.00%
|
$1,000.00
|
-5.00%
|
-5.00%
|
$950.00
|
-10.00%
|
-10.00%
|
$900.00
|
-20.00%
|
-20.00%
|
$800.00
|
-30.00%
|
-30.00%
|
$700.00
|
-40.00%
|
-40.00%
|
$600.00
|
-50.00%
|
-50.00%
|
$500.00
|
-60.00%
|
-60.00%
|
$400.00
|
-70.00%
|
-70.00%
|
$300.00
|
-80.00%
|
-80.00%
|
$200.00
|
-90.00%
|
-90.00%
|
$100.00
|
-100.00%
|
-100.00%
|
$0.00
|
Hypothetical
Examples of Amounts Payable at Maturity
The following hypothetical examples illustrate how the payments
on the notes at maturity set forth in the table above are calculated.
Example 1
:
The Final Level is greater than the Initial Level
,
resulting in
an Underlying Return of 30
.
00%
.
Because the Final Level is greater than the Initial Level and the product of the Underlying Return of 30.00% and the Upside Leverage
Factor is greater than the Maximum Return, the investor receives the Maximum Return on the notes. Accordingly, the investor receives
a Payment at Maturity of $1,224.00 per $1,000 Face Amount of notes, calculated as follows:
$1,000 + ($1,000 x the
lesser of
(i)
Underlying Return x Upside Leverage Factor and (ii) Maximum Return)
$1,000 + ($1,000 x 22.40%) = $1,224.00
Example 2
:
The Final Level is greater than the Initial Level
,
resulting in
an Underlying Return of 5
.
00%
.
Because the Final Level is greater than the Initial Level and the product of the Underlying Return of 5.00% and the Upside Leverage
Factor is less than the Maximum Return, the investor receives a Payment at Maturity of $1,100.00 per $1,000 Face Amount of notes,
calculated as follows:
$1,000 + ($1,000 x the
lesser of
(i)
Underlying Return x Upside Leverage Factor and (ii) Maximum Return)
$1,000 + ($1,000 x 5.00% x 2.00) = $1,100.00
Example 3
:
The Final Level is equal to the Initial Level
,
resulting in an Underlying
Return of 0
.
00%
.
Because the Final Level is equal to the Initial Level, the investor receives a Payment at Maturity of $1,000.00 per $1,000 Face
Amount of notes.
Example 4
:
The Final Level is less than the Initial Level
,
resulting in an
Underlying Return of
-
40
.
00%
.
Because the Final Level is less than the Initial Level, the Underlying Return is negative and the investor receives a Payment at
Maturity of $600.00 per $1,000 Face Amount of notes, calculated as follows:
$1,000 + ($1,000 x Underlying Return)
$1,000 + ($1,000 x -40.00%) = $600.00
Selected Purchase Considerations
|
·
|
CAPPED APPRECIATION POTENTIAL
— The notes provide the opportunity to enhance returns by
multiplying
a positive
Underlying Return by the Upside Leverage Factor of 2.00, subject to the Maximum Return on the notes of 22.40%, resulting in a maximum
Payment at Maturity of $1,224.00 per $1,000 Face Amount of notes.
Any payment on the notes is subject to our ability to satisfy
our obligations as they become due
.
|
|
·
|
FULL DOWNSIDE EXPOSURE
— If the Final Level is less than the Initial Level, for each $1,000 Face Amount of notes,
you will lose 1.00% of the Face Amount for every 1.00% by which the Final Level is less than the Initial Level. In this circumstance,
you will lose some or all of your investment in the notes.
|
|
·
|
RETURN LINKED TO THE PERFORMANCE OF THE PHLX
Semiconductor Sector Index
sm
—
The return on the notes, which may be positive, zero or negative, is linked to the
performance of the PHLX Semiconductor Sector Index
sm
as described herein.
The
PHLX Semiconductor Sector Index
sm
is a modified capitalization-weighted index that is
designed to track the performance of a set of companies that are engaged
in the design, distribution, manufacture and sale of semiconductors. The
PHLX Semiconductor
Sector Index
sm
is calculated,
maintained
and published by NASDAQ OMX (the
“
Index
Sponsor
”
).
This is only a summary of the PHLX Semiconductor
Sector Index
sm
.
For more information on the PHLX Semiconductor Sector Index
sm
,
including information concerning its composition
,
calculation methodology and adjustment policy
,
please see the
section entitled “The PHLX Semiconductor Sector Index
sm
”
in this pricing supplement
.
|
|
·
|
TAX CONSEQUENCES
— In the opinion of our special tax counsel, Davis Polk & Wardwell LLP, which is based on
prevailing market conditions, it is more likely than not that the notes will be treated for U.S. federal income tax purposes as
prepaid financial contracts that are not debt. Generally, if this treatment is respected, (i) you should not
recognize
taxable income or loss prior to the maturity or other taxable disposition of your notes and (ii) the gain or loss on your notes
should be capital gain or loss and should be long-term capital gain or loss if you have held the notes for more than one year.
The Internal Revenue Service (the
“
IRS
”
)
or a court might not agree with this treatment, however, in which case the timing and character of income or loss on your notes
could be materially and adversely affected.
|
In 2007, the U.S. Treasury
Department
and the IRS released a notice requesting comments on various issues regarding the U.S. federal income tax treatment of “prepaid
forward contracts” and similar instruments. The notice focuses in particular on whether beneficial owners of these instruments
should be required to accrue income over the term of their investment. It also asks for comments on a number of related topics,
including the character of income or loss with respect to these instruments; the relevance of factors such as the nature of the
underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals)
realized by non-U.S. persons should be subject to withholding tax; and whether these instruments are or should be subject to the
“constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gain
as ordinary income and impose a notional interest charge. While the notice requests comments on appropriate transition rules and
effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the notes, possibly with retroactive effect.
Withholding under legislation commonly referred to
as “FATCA” might (if the notes were recharacterized as debt instruments) apply to amounts treated as interest paid
with respect to the notes. Notwithstanding anything to the contrary in the section of the accompanying product supplement entitled
“U.S. Federal Income Tax Consequences,” under a recent IRS notice, withholding under FATCA will not apply to payments
of gross proceeds (other than any amount treated as interest) of a taxable disposition, including redemption at maturity, of the
notes. You should consult your tax adviser regarding the potential application of FATCA to the notes.
Section 871(m) of the Code and Treasury regulations
promulgated thereunder (
“
Section 871
(
m
)
”
)
generally impose a 30% withholding tax (unless an income tax treaty applies) on dividend equivalents paid or deemed paid to non-U.S.
holders with respect to certain financial instruments linked to U.S. equities or indices that include U.S. equities. Section 871(m)
provides certain exceptions to this withholding regime, including for instruments linked to certain broad-based indices that meet
requirements set forth in the applicable Treasury regulations (such an index, a
“
Qualified
Index
”
). Additionally, the applicable regulations exclude
from the scope of Section 871(m) instruments issued in 2017 that do not have a delta of one with respect to underlying securities
that could pay U.S.-source dividends for U.S. federal income tax purposes (each an
“
Underlying
Security
”
). Based on certain determinations made by us,
our special tax counsel is of the opinion that Section 871(m) should not apply to the notes with regard to non-U.S. holders. Our
determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application
may depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying
Security. You should consult your tax adviser regarding the potential application of Section 871(m) to the notes.
You should review carefully the section of the accompanying
product supplement entitled “U.S. Federal Income Tax Consequences.” The preceding discussion, when read in combination
with that section, constitutes the full opinion of our special tax counsel regarding the material U.S. federal income tax consequences
of owning and disposing of the notes.
Under current law, the United Kingdom will not impose
withholding tax on payments made with respect to the notes.
For a discussion of certain German tax considerations
relating to the notes, you should refer to the section in the accompanying prospectus supplement entitled “Taxation by Germany
of Non-Resident Holders.”
You should consult your tax adviser regarding the
U
.
S
.
federal tax consequences of an investment in the notes
(
including
possible alternative treatments and the issues presented by the 2007 notice
),
as well as tax consequences arising under the laws of any state
,
local or non-U
.
S
.
taxing jurisdiction
.
Selected Risk Considerations
An investment in the notes involves significant risks. Investing
in the notes is not equivalent to investing directly in the stocks composing the Underlying. In addition to these selected risk
considerations, you should review the “Risk Factors” sections of the accompanying product supplement, prospectus supplement
and prospectus.
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS
— The notes do not guarantee any return of your investment.
The return on the notes at maturity is linked to the performance of the Underlying and will depend on whether, and the extent to
which, the Underlying Return is positive, zero or negative. If the Final Level is less than the Initial Level, for each $1,000
Face Amount of notes, you will lose 1.00% of the Face Amount for every 1.00% by which the Final Level is less than the Initial
Level. In this circumstance, you will lose some or all of your investment at maturity.
Any payment on the notes is subject to
our ability to satisfy our obligations as they become due
.
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THE RETURN ON THE NOTES IS LIMITED
— If the Final Level is greater than the Initial Level, for each $1,000 Face
Amount of notes, you will receive at maturity the Face Amount
plus
an additional amount that will not exceed the
product
of
the Maximum Return of 22.40% and $1,000 Face Amount of notes. Consequently, the maximum Payment at Maturity is $1,224.00
per $1,000 Face Amount of notes, regardless of any increase in the level of the Underlying, which may be significant.
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THE NOTES DO NOT PAY ANY COUPONS
— Unlike ordinary debt securities, the notes do not pay any coupons and do not
guarantee any return of your investment at maturity.
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THE NOTES ARE SUBJECT TO THE CREDIT OF DEUTSCHE BANK AG
— The notes are senior unsecured obligations of Deutsche
Bank AG and are not, either directly or indirectly, an obligation of any third party. Any payment(s) to be made on the notes depends
on the ability of Deutsche Bank AG to satisfy its obligations as they become due. An actual or anticipated downgrade in Deutsche
Bank AG’s credit rating or increase in the credit spreads charged by the market for taking Deutsche Bank AG’s credit
risk will likely have an adverse effect on the value of the notes. As a result, the actual and perceived creditworthiness of Deutsche
Bank AG will affect the value of the notes and, in the event Deutsche Bank AG were to default on its obligations or become subject
to a Resolution Measure, you might not receive any amount(s) owed to you under the terms of the notes and you could lose your entire
investment.
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The Notes May Be Written Down
,
Be Converted Into Ordinary Shares or Other Instruments of Ownership or Become Subject to Other Resolution Measures
.
You May Lose Some or All of Your Investment If Any Such Measure Becomes Applicable to US
— Pursuant to the SRM
Regulation, the Resolution Act and other applicable rules and regulations described above under “Resolution Measures and
Deemed Agreement,” the notes are subject to the powers exercised by the competent resolution authority to impose Resolution
Measures on us, which may include: writing down, including to zero, any claim for payment on the notes; converting the notes into
ordinary shares of (i) the Issuer, (ii) any group entity or (iii) any bridge bank or other instruments of ownership of such entities
qualifying as common equity tier 1 capital; or applying any other resolution measure including, but not limited to, transferring
the notes to another entity, amending, modifying or varying the terms and conditions of the notes or cancelling the notes. The
competent resolution authority may apply Resolution Measures individually or in any combination.
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The German law on the mechanism for the resolution
of banks of November 2, 2015 (
Abwicklungsmechanismusgesetz
, or the
“
Resolution
Mechanism Act
”
) provides that, in a German insolvency
proceeding of the Issuer, certain specifically defined senior unsecured debt instruments would rank junior to, without constituting
subordinated debt, all other outstanding unsecured unsubordinated obligations of the Issuer and be satisfied only if all such other
senior unsecured obligations of the Issuer have been paid in full. This prioritization would also be given effect if Resolution
Measures are imposed on the Issuer, so that obligations under debt instruments that rank junior in insolvency as described above
would be written down or converted into common equity tier 1 instruments
before
any other senior unsecured obligations of
the Issuer are written down or converted. A large portion of our liabilities consist of senior unsecured obligations that either
fall outside the statutory definition of debt instruments that rank junior to other senior unsecured obligations according to the
Resolution Mechanism Act or are expressly exempted from such definition.
Among those unsecured unsubordinated obligations that
are expressly exempted are money market instruments and senior unsecured debt instruments whose terms provide that (i) the repayment
or the amount of the repayment depends on the occurrence or non-occurrence of an event which is uncertain at the point in time
when the senior unsecured debt instruments are issued or is settled in a way other than by monetary payment, or (ii) the payment
of interest or the amount of the interest payments depends on the occurrence or non-occurrence of an event which is uncertain at
the point in time when the senior unsecured debt instruments are issued unless the payment of interest or the amount of the interest
payments solely depends on a fixed or floating reference interest rate and is settled by monetary payment. This order of priority
introduced by the Resolution Mechanism Act would apply in German insolvency proceedings instituted, or when Resolution Measures
are imposed, on or after January 1, 2017 with effect for debt instruments of the Issuer outstanding at that time. In a German insolvency
proceeding or in the event of the imposition of Resolution Measures with respect to the Issuer, the competent regulatory authority
or court would determine which of our senior debt securities issued under the prospectus have the terms described in clauses (i)
or (ii) above, referred to herein as the
“
Structured
Debt Securities
,
”
and which do not, referred to
herein as the
“
Non
-
Structured
Debt Securities
.
”
We expect the notes offered herein
to be classified as Structured Debt Securities, but the competent regulatory authority or court may classify the notes differently.
In a German insolvency proceeding or in the event of the imposition of Resolution Measures with respect to the Issuer, the Structured
Debt Securities are expected to be among the unsecured unsubordinated obligations that would bear losses after the Non-Structured
Debt Securities as described above.
Nevertheless
,
you may lose some or all of your investment in the
notes
if a Resolution Measure
becomes applicable to us
.
Imposition of a Resolution
Measure would likely occur if we become, or are deemed by the competent supervisory authority to have become, “non-viable”
(as defined under the then applicable law) and are unable to continue our regulated banking activities without a Resolution Measure
becoming applicable to us. The Bank Recovery and Resolution Directive and the Resolution Act are intended to eliminate the need
for public support of troubled banks, and you should be aware that public support, if any, would only potentially be used by the
competent supervisory authority as a last resort after having assessed and exploited, to the maximum extent practicable, the resolution
tools, including the bail-in tool.
By acquiring the notes, you would have no claim or
other right against us arising out of any Resolution Measure and we would have no obligation to make payments under the notes following
the imposition of a Resolution Measure. In particular, the imposition of any Resolution Measure will not constitute a default or
an event of default under the notes, under the Indenture or for the purposes of, but only to the fullest extent permitted by, the
Trust Indenture Act. Furthermore, because the notes are subject to any Resolution Measure, secondary market trading in the notes
may not follow the trading behavior associated with similar types of securities issued by other financial institutions which may
be or have been subject to a Resolution Measure.
In addition, by your acquisition of the notes, you
waive, to the fullest extent permitted by the Trust Indenture Act and applicable law, any and all claims against the trustee and
the indenture agents for, agree not to initiate a suit against the trustee or the indenture agents in respect of, and agree that
the trustee and the indenture agents will not be liable for, any action that the trustee or the indenture agents take, or abstain
from taking, in either case in accordance with the imposition of a Resolution Measure by the competent resolution authority with
respect to the notes.
Accordingly
,
you may have limited or circumscribed rights
to challenge any decision of the competent resolution authority to impose any Resolution Measure
.
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THE ISSUER
’
S ESTIMATED VALUE OF THE NOTES ON
THE TRADE DATE WILL BE LESS THAN THE ISSUE PRICE OF THE NOTES
— The Issuer’s estimated value of the notes on the
Trade Date (as disclosed on the cover of this pricing supplement) is less than the Issue Price of the notes. The difference between
the Issue Price and the Issuer’s estimated value of the notes on the Trade Date is due to the inclusion in the Issue Price
of the agent’s commissions, if any, and the cost of hedging our obligations under the notes through one or more of our affiliates.
Such hedging cost includes our or our affiliates’ expected cost of providing such hedge, as well as the profit we or our
affiliates expect to realize in consideration for assuming the risks inherent in providing such hedge. The Issuer’s estimated
value of the notes is determined by reference to an internal funding rate and our pricing models. The internal funding rate is
typically lower than the rate we would pay when we issue conventional debt securities on equivalent terms. This difference in funding
rate, as well as the agent’s commissions, if any, and the estimated cost of hedging our obligations under the notes, reduces
the economic terms of the notes to you and is expected to adversely affect the price at which you may be able to sell the notes
in any secondary market. In addition, our internal pricing models are proprietary and rely in part on certain assumptions about
future events, which may prove to be incorrect. If at any time a third party dealer were to quote a price to purchase your notes
or otherwise value your notes, that price or value may differ materially from the estimated value of the notes determined by reference
to our internal funding rate and pricing models. This difference is due to, among other things, any difference in funding rates,
pricing models or assumptions used by any dealer who may purchase the notes in the secondary market.
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INVESTING IN THE NOTES IS NOT THE SAME AS INVESTING IN THE STOCKS COMPOSING THE UNDERLYING
— The return on the
notes may not reflect the return you would have realized if you had directly invested in the stocks composing the Underlying. For
instance, you will not receive more than the Maximum Return regardless of any potential increase in the level of the Underlying,
which could be significant, even though you will be exposed to any decline in the level of the Underlying at maturity.
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IF THE LEVEL OF THE UNDERLYING CHANGES
,
THE VALUE OF YOUR
NOTES MAY NOT CHANGE IN THE SAME MANNER
— Your notes may trade quite differently from the level of the Underlying. Changes
in the level of the Underlying may not result in comparable changes in the value of your notes.
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NO DIVIDEND PAYMENTS OR VOTING RIGHTS
— As a holder of the notes, you will not have any voting rights or rights
to receive cash dividends or other distributions or other rights that holders of the stocks composing the Underlying would have.
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THE UNDERLYING REFLECTS THE PRICE RETURN OF THE STOCKS COMPOSING THE UNDERLYING
,
NOT THEIR TOTAL RETURN INCLUDING ALL DIVIDENDS AND OTHER DISTRIBUTIONS
— The Underlying reflects the changes in the market
prices of the stocks composing the Underlying. The Underlying is not, however, a “total return” index, which, in addition
to reflecting those price returns, would also reflect the reinvestment of all dividends and other distributions paid on the stocks
composing the Underlying.
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THE SPONSOR OF THE UNDERLYING MAY ADJUST THE UNDERLYING IN WAYS THAT AFFECT THE LEVEL OF THE UNDERLYING AND HAS NO OBLIGATION
TO CONSIDER YOUR INTERESTS —
The Index Sponsor is responsible for calculating and maintaining the Underlying. The Index
Sponsor can add, delete or substitute the Underlying components or make other methodological changes that could change the level
of the Underlying. You should realize that the changing of Underlying components may affect the Underlying, as a newly added component
may perform significantly better or worse than the component it replaces. Additionally, the Index Sponsor may alter, discontinue
or suspend calculation or dissemination of the Underlying. Any of these actions could adversely affect the value of, and your return
on, the notes. The Index Sponsor has no obligation to consider your interests in calculating or revising the Underlying.
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THE EQUITY SECURITIES INCLUDED IN THE UNDERLYING ARE SUBJECT TO RISKS ASSOCIATED WITH THE SEMICONDUCTOR INDUSTRY
—
All or substantially all of the equity securities included in the Underlying are issued by companies whose primary line of business
is directly associated with the design, distribution, manufacture and sale of semiconductors. The prices of stocks of companies
that are heavily involved in the semiconductor industry
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are particularly vulnerable to rapid changes in technology
product cycles, rapid product obsolescence, government regulation, changes in the prices and availability of raw materials such
as water, silicon, electricity and chemicals, and competition in the semiconductor industry, both domestically and internationally,
including competition from foreign competitors with lower productions costs. Such companies may also be heavily dependent on patent
and intellectual property rights, the loss or impairment of which may adversely affect profitability. Additionally, such companies
may face competition for the services of, and difficulties in employing and retaining, qualified personnel. These factors, or the
absence of such factors, could cause a downturn in the semiconductor industry and could cause the value of some or all of the securities
included in the Underlying, and thus, and the level of the Underlying, to decline during the term of the notes.
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PAST PERFORMANCE OF THE UNDERLYING IS NO GUIDE TO FUTURE PERFORMANCE
— The actual performance of the Underlying
over the term of the notes may bear little relation to the historical closing levels of the Underlying and/or the hypothetical
examples set forth elsewhere in this pricing supplement. We cannot predict the future performance of the Underlying or whether
the performance of the Underlying will result in the return of any of your investment.
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ASSUMING NO CHANGES IN MARKET CONDITIONS AND OTHER RELEVANT FACTORS
,
THE PRICE YOU MAY RECEIVE FOR YOUR NOTES IN SECONDARY MARKET TRANSACTIONS WOULD GENERALLY BE LOWER THAN BOTH THE ISSUE PRICE AND
THE ISSUER
’
S ESTIMATED VALUE OF THE NOTES ON THE TRADE
DATE
— While the payment(s) on the notes described in this pricing supplement is based on the full Face Amount of notes,
the Issuer’s estimated value of the notes on the Trade Date (as disclosed on the cover of this pricing supplement) is less
than the Issue Price of the notes. The Issuer’s estimated value of the notes on the Trade Date does not represent the price
at which we or any of our affiliates would be willing to purchase your notes in the secondary market at any time. Assuming no changes
in market conditions or our creditworthiness and other relevant factors, the price, if any, at which we or our affiliates would
be willing to purchase the notes from you in secondary market transactions, if at all, would generally be lower than both the Issue
Price and the Issuer’s estimated value of the notes on the Trade Date. Our purchase price, if any, in secondary market transactions
would be based on the estimated value of the notes determined by reference to (i) the then-prevailing internal funding rate (adjusted
by a spread) or another appropriate measure of our cost of funds and (ii) our pricing models at that time, less a bid spread determined
after taking into account the size of the repurchase, the nature of the assets underlying the notes and then-prevailing market
conditions. The price we report to financial reporting services and to distributors of our notes for use on customer account statements
would generally be determined on the same basis. However, during the period of approximately six months beginning from the Trade
Date, we or our affiliates may, in our sole discretion, increase the purchase price determined as described above by an amount
equal to the declining differential between the Issue Price and the Issuer’s estimated value of the notes on the Trade Date,
prorated over such period on a straight-line basis, for transactions that are individually and in the aggregate of the expected
size for ordinary secondary market repurchases.
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In addition to the factors discussed above, the value
of the notes and our purchase price in secondary market transactions after the Trade Date, if any, will vary based on many economic
and market factors, including our creditworthiness, and cannot be predicted with accuracy. These changes may adversely affect the
value of your notes, including the price you may receive in any secondary market transactions. Any sale prior to the Maturity Date
could result in a substantial loss to you. The notes are not designed to be short-term trading instruments. Accordingly, you should
be able and willing to hold your notes to maturity.
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THE NOTES WILL NOT BE LISTED AND THERE WILL LIKELY BE LIMITED LIQUIDITY
— The notes will not be listed on any
securities exchange. There may be little or no secondary market for the notes. We or our affiliates intend to act as market makers
for the notes but are not required to do so and may cease such market making activities at any time. Even if there is a secondary
market, it may not provide enough liquidity to allow you to sell the notes when you wish to do so or at a price advantageous to
you. Because we do not expect other dealers to make a secondary market for the notes, the price at which you may be able to sell
your notes is likely to depend on the price, if any, at which we or our affiliates are willing to buy the notes. If, at any time,
we or our affiliates do not act as market makers, it is likely that there would be little or no secondary market in the notes.
If you have to sell your notes prior to maturity, you may not be able to do so or you may have to sell them at a substantial loss,
even in cases where the level of the Underlying has increased since the Trade Date.
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MANY ECONOMIC AND MARKET FACTORS WILL AFFECT THE VALUE OF THE NOTES
— While we expect that, generally, the level
of the Underlying will affect the value of the notes more than any other single factor, the value of the notes prior to maturity
will also be affected by a number of other factors that may either offset or magnify each other, including:
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the expected volatility of the Underlying;
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·
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the time remaining to the maturity of the notes;
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the market prices and dividend rates of the stocks composing the Underlying;
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the composition of the Underlying;
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interest rates and yields in the markets generally;
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·
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the Underlying or the
markets generally;
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supply and demand for the notes; and
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our creditworthiness, including actual or anticipated downgrades in our credit ratings.
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During the term of the notes, it is possible that their
value may decline significantly due to the factors described above even if the level of the Underlying remains unchanged from the
Initial Level, and any sale prior to the Maturity Date could result in a substantial loss to you. You must hold the notes to maturity
to receive the stated payout from the Issuer.
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TRADING AND OTHER TRANSACTIONS BY US
,
JPMORGAN CHASE &
CO. OR OUR OR ITS AFFILIATES IN THE EQUITY AND EQUITY DERIVATIVE MARKETS MAY IMPAIR THE VALUE OF THE NOTES
— We or our
affiliates expect to hedge our exposure from the notes by entering into equity and equity derivative transactions, such as over-the-counter
options, futures or exchange-traded instruments. We, JPMorgan Chase & Co. or our or its affiliates may also engage in trading
in instruments linked or related to the Underlying on a regular basis as part of our or their general broker-dealer and other businesses,
for proprietary accounts, for other accounts under management or to facilitate transactions for customers, including block transactions.
Such trading and hedging activities may adversely affect the level of the Underlying and, therefore, make it less likely that you
will receive a positive return on your investment in the notes. It is possible that we, JPMorgan Chase & Co. or our or its
affiliates could receive substantial returns from these hedging and trading activities while the value of the notes declines. We,
JPMorgan Chase & Co. or our or its affiliates may also issue or underwrite other securities or financial or derivative instruments
with returns linked or related to the Underlying. To the extent that we, JPMorgan Chase & Co. or our or its affiliates serve
as issuer, agent or underwriter for such securities or financial or derivative instruments, our, JPMorgan Chase & Co.’s
or our or its affiliates’ interests with respect to such products may be adverse to those of the holders of the notes. Introducing
competing products into the marketplace in this manner could adversely affect the level of the Underlying and the value of the
notes. Any of the foregoing activities described in this paragraph may reflect trading strategies that differ from, or are in direct
opposition to, investors’ trading and investment strategies related to the notes.
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WE
,
JPMORGAN CHASE & CO
.
OR OUR OR ITS AFFILIATES MAY PUBLISH RESEARCH
,
EXPRESS OPINIONS
OR PROVIDE RECOMMENDATIONS THAT ARE INCONSISTENT WITH INVESTING IN OR HOLDING THE NOTES
.
ANY SUCH RESEARCH
,
OPINIONS OR RECOMMENDATIONS COULD ADVERSELY AFFECT
THE LEVEL OF THE UNDERLYING AND THE VALUE OF THE NOTES
— We, JPMorgan Chase & Co. or our or its affiliates may publish
research from time to time on financial markets and other matters that could adversely affect the level of the Underlying and the
value of the notes, or express opinions or provide recommendations that are inconsistent with purchasing or holding the notes.
Any research, opinions or recommendations expressed by us, JPMorgan Chase & Co. or our or its affiliates may not be consistent
with each other and may be modified from time to time without notice. You should make your own independent investigation of the
merits of investing in the notes and the Underlying.
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POTENTIAL CONFLICTS OF INTEREST
— We and our affiliates play a variety of roles in connection with the issuance
of the notes, including acting as calculation agent, hedging our obligations under the notes and determining the Issuer’s
estimated value of the notes on the Trade Date and the price, if any, at which we or our affiliates would be willing to purchase
the notes from you in secondary market transactions. In performing these roles, our economic interests and those of our affiliates
are potentially adverse to your interests as an investor in the notes. The calculation agent will determine, among other things,
all values, prices and levels required to be determined for the purposes of the notes on any relevant date or time. The calculation
agent will also be responsible for determining whether a market disruption event has occurred. Any determination by the calculation
agent could adversely affect the return on the notes.
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THE U
.
S
.
FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE NOTES ARE UNCERTAIN
— There is no direct legal authority regarding
the proper U.S. federal income tax treatment of the notes, and we do not plan to request a ruling from the IRS. Consequently, significant
aspects of the tax treatment of the notes are uncertain, and the IRS or a court might not agree with the treatment of the notes
as prepaid financial contracts that are not debt. If the IRS were successful in asserting an alternative treatment for the notes,
the tax consequences of ownership and disposition of the notes could be materially and adversely affected.
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Even if the treatment of the notes as prepaid financial
contracts is respected, purchasing a note could be treated as entering into a “constructive ownership transaction.”
In that case, all or a portion of any long-term capital gain you would otherwise recognize on the taxable disposition of the note
would be recharacterized as ordinary income to the extent such gain exceeded the “net underlying long-term capital gain,”
and a notional interest charge would apply with respect to the deemed tax liability that would have been incurred if such income
had accrued at a constant rate over the period you held the note.
As described above under “Tax Consequences,”
in 2007 the U.S. Treasury Department and the IRS released a notice requesting comments on various issues regarding the U.S. federal
income tax treatment of “prepaid forward contracts” and similar instruments. Any Treasury regulations or other guidance
promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in
the notes, possibly with retroactive effect. You should review carefully the section of the accompanying product supplement entitled
“U.S. Federal Income Tax Consequences,” and consult your tax adviser regarding the U.S. federal tax consequences of
an investment in the notes (including possible alternative treatments, the potential application of the “constructive ownership”
regime and the issues presented by the 2007 notice), as well as tax consequences arising under the laws of any state, local or
non-U.S. taxing jurisdiction.
Use of Proceeds and Hedging
Part of the net proceeds we receive from the sale of the notes
will be used in connection with hedging our obligations under the notes through one or more of our affiliates. The hedging or trading
activities of our affiliates on or prior to the Trade Date or an Averaging Date could adversely affect the level of the Underlying
and, as a result, could decrease the amount you may receive on the notes at maturity.
The PHLX Semiconductor Sector Index
Sm
We have derived all information contained in this pricing supplement
regarding the PHLX Semiconductor Sector
SM
Index (the
“
PHLX
Index
”
), including, without limitation, information concerning
its make-up, method of calculation and changes in its components, from publicly available information. We have not participated
in the preparation of, or verified, such information. Such information reflects the policies of, and is subject to change by, NASDAQ
OMX (
“
OMX
”
).
The PHLX Index is calculated, maintained and published by OMX. OMX has no obligation to continue to publish, and may discontinue
or suspend the publication of, the PHLX Index at any time. The PHLX Index is reported by Bloomberg L.P. under the ticker symbol
“SOX.”
The PHLX Index is a modified capitalization-weighted index that
is designed to track the performance of a set of companies that are engaged in the design, distribution, manufacture and sale of
semiconductors. The level of the PHLX Index equals the aggregate value of the share weights for each of the securities included
in the PHLX Index (the
“
Index Weights
”
)
multiplied by
each such security’s last sale price on its primary U.S. listing market and
divided by
the divisor
of the PHLX Index (adjustments to the divisor are described below.) The divisor serves the purpose of scaling the level of the
PHLX Index to a lower order of magnitude, which is more desirable for reporting purposes. The PHLX Index was initially calculated
on December 1, 1993 at a base level of 100.00, as adjusted.
The level of the PHLX Index is calculated in accordance with
the following formula:
Aggregate Adjusted Market Value
Divisor
The PHLX Index is a price return index, which is ordinarily calculated
without regard to cash dividends on securities included in the PHLX Index, but does reflect extraordinary cash dividends.
Index Eligibility
Only specific types of securities are eligible for inclusion
in the PHLX Index, including common stock, ordinary shares, american depository receipts, and shares of beneficial interest or
limited partnership interests. Only one class of security is eligible for inclusion per issuer; if an issuer has multiple securities,
the security with the largest market capitalization will be selected for possible inclusion. In addition, to be eligible for inclusion
in the PHLX Index, a security must:
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be listed on The NASDAQ Stock Market (
“
NASDAQ
”
),
the New York Stock Exchange (
“
NYSE
”
)
or NYSE MKT;
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·
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be issued by a company whose primary business is involved in the design, distribution, manufacture and sale of semiconductors
as classified under the Industry Classification Benchmark (ICB) code 9576 published by FTSE International Limited;
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|
have a minimum market capitalization of at least $100 million;
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have traded at least 1.5 million shares in each of the last six months;
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·
|
have listed options on a recognized options market in the U.S. (or be eligible for listed-options trading on such a market);
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·
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be issued by a company that is not currently in bankruptcy proceedings;
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·
|
be issued by a company that has not entered into a definitive agreement (or other arrangement) that would likely result in
the security no longer being eligible for inclusion;
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·
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be issued by a company that has currently withdrawn an audit opinion from its annual financial statements; and
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have “seasoned” on a recognized market for at least 3 months.
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The securities included in the PHLX Index are evaluated annually
in September, at which time the above eligibility criteria are applied using market data as of the end of July. Eligible securities
that satisfy the criteria are then ranked by market capitalization. The top 30 securities ranked by market capitalization are included
in the PHLX Index. Security additions and deletions are made effective after the close of trading on the third Friday in September.
Additionally, if, at any time other than during such annual review,
a security included in the PHLX Index is determined to have become ineligible for continued inclusion in the PHLX Index, or at
the end of January, April, July or October does not have a last sale price of $3.00, such security will be replaced with the largest
market capitalization security not currently included in the PHLX Index that satisfies the above eligibility criteria as well as
the $3.00 last sale price. Ordinarily, a security will be removed from the PHLX Index at its last sale price. If, however, at the
time of its removal a security is halted from trading on its primary U.S. listing market and an official closing price cannot readily
be determined, then such security may, in OMX’s discretion, be removed at a zero price. The zero price will be applied to
such security after the close of the market but prior to the time that the official closing level of the PHLX Index is disseminated.
Index Maintenance
Changes in the level of the PHLX Index and/or the Index Weights
that are driven by corporate events, such as stock dividends, stock splits and certain spin-offs and rights issuances, are adjusted
on the ex-date. If the change in total shares outstanding arising from other corporate actions is greater than or equal to 10%,
the change is made as soon as practicable. Otherwise, if the change in total shares outstanding is less than 10%, then all such
changes are accumulated through the end of February, May, August and November and made effective at one time on a quarterly basis
after the close of trading on the third Friday in March, June, September and December, respectively. The Index Weights are adjusted
by the same percentage amount by which the total shares outstanding have changed.
A special cash dividend announced by the listing exchange will
result in an adjustment to the last sale price of a security included in the PHLX Index prior to market open on the ex-date for
the special amount distributed. A special dividend may also be referred to as extra, extraordinary, non-recurring, one-time, unusual,
etc.
Ordinarily, whenever there is a change in Index Weights, a change
in a security included in the PHLX Index or a change in the price of such a security due to spin-offs, rights issuances or special
cash dividends as mentioned above, the divisor is adjusted to ensure that there is no discontinuity in the level of the PHLX Index
that might otherwise be caused by any such change. All changes are announced in advance and are reflected in the PHLX Index prior
to the opening of markets on the effective date.
Index Rebalancing
The PHLX Index employes a modified market capitalization weighting
methodology. On a quarterly basis, the PHLX Index is rebalanced such that (1) the maximum weight of any security included in the
PHLX Index does not exceed 8% and (2) no more than five securities are at that cap. The excess weight of any capped security is
distributed proportionally across the remaining securities included in the PHLX Index. If, after redistribution, any of the five
highest-ranked securities included in the PHLX Index are weighted below 8%, those securities are not capped. Next, any remaining
securities included in the PHLX Index in excess of 4% are capped at 4% and the excess weight is redistributed proportionally across
the remaining securities included in the PHLX Index. The process is repeated, if necessary, to derive the final weights.
The modified market capitalization weighting methodology is applied
to the capitalization of each security included in the PHLX Index, using the last sale price of the security at the close of trading
on the last trading day in February, May, August and November. Index Weights are then calculated by
multiplying
the weight
of the security derived above by the new level of the PHLX Index and
dividing
the modified market capitalization for each
security included in the PHLX Index by its corresponding last sale price. The changes become effective after trading on the third
Friday in March, June, September and December.
OMX may, from time to time, exercise reasonable discretion as
it deems appropriate in order to ensure the integrity of the PHLX Index.
Historical
Information
The following graph sets forth the historical performance of
the PHLX Semiconductor Sector Index
sm
based on its daily closing levels
from July 14, 2012 through July 14, 2017. The closing level of the Underlying on July 14, 2017 was 1,104.3154. We obtained the
historical closing levels of the Underlying below from Bloomberg L.P. and we have not participated in the preparation of, or verified,
such information.
The historical closing levels of the Underlying should not
be taken as an indication of future performance and no assurance can be given as to the closing level of the Underlying on any
of the Averaging Dates
.
We cannot give you assurance that the performance
of the Underlying will result in the return of any of your initial investment
.
Supplemental Plan of Distribution
JPMorgan Chase Bank, N.A. and JPMS LLC or one of its affiliates,
acting as placement agents for the notes, will receive a fee from the Issuer of $10.00 per $1,000 Face Amount of notes. See “Plan
of Distribution (Conflicts of Interest)” in the accompanying product supplement.
Validity of the Notes
In the opinion of Davis Polk & Wardwell LLP, as special United
States products counsel to the Issuer, when the notes offered by this pricing supplement have been executed and issued by the Issuer
and authenticated by the authenticating agent, acting on behalf of the trustee pursuant to the Indenture, and delivered against
payment as contemplated herein, such notes will be valid and binding obligations of the Issuer, enforceable in accordance with
their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts
of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair
dealing and the lack of bad faith) and possible judicial or regulatory actions giving effect to governmental actions or foreign
laws affecting creditors’ rights, provided that such counsel expresses no opinion as to the effect of fraudulent conveyance,
fraudulent transfer or similar provision of applicable law on the conclusions expressed above. This opinion is given as of the
date hereof and is limited to the laws of the State of New York. Insofar as this opinion involves matters governed by German law,
Davis Polk & Wardwell LLP has relied, without independent investigation, on the opinion of Group Legal Services of Deutsche
Bank AG, dated as of January 1, 2016, filed as an exhibit to the opinion of Davis Polk & Wardwell LLP, and this opinion is
subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in such opinion of
Group
Legal Services of Deutsche Bank AG. In addition, this opinion
is subject to customary assumptions about the trustee’s authorization, execution and delivery of the Indenture and the authentication
of the notes by the authenticating agent and the validity, binding nature and enforceability of the Indenture with respect to the
trustee, all as stated in the opinion of Davis Polk & Wardwell LLP dated as of January 1, 2016, which has been filed by the
Issuer on Form 6-K dated January 4, 2016.
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