September 28, 2022 |
Registration Statement
Nos. 333-236659 and 333-236659-01; Rule 424(b)(2)
|
JPMorgan
Chase Financial Company LLC
Structured Investments
$718,000
Auto Callable Contingent Interest Notes Linked to
the Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index due October 2, 2025
Fully
and Unconditionally Guaranteed by JPMorgan Chase & Co.
| ● | The notes are designed for investors who seek a Contingent Interest Payment with respect to each Review Date for which the closing
value of each of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index, which we refer to as the Underlyings, is greater than or equal to 70.00% of its Initial Value, which we refer to as an Interest
Barrier. |
| ● | The notes will be automatically called if the closing value of each Underlying on any Review Date (other than the first, second, third,
fourth, fifth and final Review Dates) is greater than or equal to its Initial Value. |
| ● | The earliest date on which an automatic call may be initiated is March 28, 2023. |
| ● | Investors should be willing to accept the risk of losing some or all of their principal and the risk that no Contingent Interest Payment
may be made with respect to some or all Review Dates. |
| ● | Investors should also be willing to forgo fixed interest and dividend payments, in exchange for the opportunity to receive Contingent
Interest Payments. |
| ● | The notes are unsecured and unsubordinated obligations of JPMorgan Chase Financial Company LLC, which we refer to as JPMorgan Financial,
the payment on which is fully and unconditionally guaranteed by JPMorgan Chase & Co. Any payment on the notes is subject to the
credit risk of JPMorgan Financial, as issuer of the notes, and the credit risk of JPMorgan Chase & Co., as guarantor of the notes. |
| ● | Payments on the notes are not linked to a basket composed of the Underlyings. Payments on the notes are linked to the performance
of each of the Underlyings individually, as described below. |
| ● | Minimum denominations of $1,000 and integral multiples thereof |
| ● | The notes priced on September 28, 2022 and are expected to settle on or about October 3, 2022. |
Investing in the notes involves a number of risks. See “Risk
Factors” beginning on page S-2 of the accompanying prospectus supplement, “Risk Factors” beginning on page PS-12 of
the accompanying product supplement, “Risk Factors” beginning on page US-3 of the accompanying underlying supplement and “Selected
Risk Considerations” beginning on page PS-7 of this pricing supplement.
Neither the Securities and Exchange Commission (the “SEC”)
nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or the adequacy of this pricing
supplement or the accompanying product supplement, underlying supplement, prospectus supplement and prospectus. Any representation to
the contrary is a criminal offense.
|
Price to Public (1) |
Fees and Commissions (2) |
Proceeds to Issuer |
Per note |
$1,000 |
$7.8078 |
$992.1922 |
Total |
$718,000 |
$5,606 |
$712,394 |
(1) See “Supplemental Use
of Proceeds” in this pricing supplement for information about the components of the price to public of the notes.
(2) J.P. Morgan Securities LLC,
which we refer to as JPMS, acting as agent for JPMorgan Financial, will pay all of the selling commissions it receives from us to other
affiliated or unaffiliated dealers. These selling commissions will vary and will be up to $9.50 per $1,000 principal amount note. See
“Plan of Distribution (Conflicts of Interest)” in the accompanying product supplement. |
The estimated value of the notes,
when the terms of the notes were set, was $952.80 per $1,000 principal amount note. See “The Estimated Value of the Notes”
in this pricing supplement for additional information.
The notes are not bank deposits, are
not insured by the Federal Deposit Insurance Corporation or any other governmental agency and are not obligations of, or guaranteed by,
a bank.
Pricing supplement to product supplement no. 4-II dated
November 4, 2020, underlying supplement no. 1-II dated November 4, 2020 and the prospectus and prospectus supplement, each dated April
8, 2020
Key
Terms
Issuer: JPMorgan
Chase Financial Company LLC, an indirect, wholly owned finance subsidiary of JPMorgan Chase & Co.
Guarantor: JPMorgan
Chase & Co.
Underlyings: The
Russell 2000® Index (Bloomberg
ticker: RTY) and the S&P 500® Index
(Bloomberg ticker: SPX) (each an “Index” and collectively, the “Indices”) and the iShares®
Russell 2000 Value ETF (Bloomberg ticker: IWN)
(the “Fund”) (each of the Indices and the Fund, an “Underlying” and collectively, the “Underlyings”)
Contingent Interest Payments:
If the
notes have not been automatically called and the closing value of each Underlying on any Review Date is greater than or equal to its Interest
Barrier, you will receive on the applicable Interest Payment Date for each $1,000 principal amount note a Contingent Interest Payment
of $8.7917 (equivalent to a Contingent Interest Rate of 10.55% per annum, payable at a rate of 0.87917% per month).
If the closing value of
any Underlying on any Review Date is less than its Interest Barrier, no Contingent Interest Payment will be made with respect to that
Review Date.
Contingent Interest Rate: 10.55%
per annum, payable at a rate of 0.87917% per month
Pricing Date: September
28, 2022
Original Issue Date (Settlement Date):
On or about October 3, 2022
Review Dates*: October
28, 2022, November 28, 2022, December 28, 2022, January 30, 2023, February 28, 2023, March 28, 2023, April 28, 2023, May 30, 2023, June
28, 2023, July 28, 2023, August 28, 2023, September 28, 2023, October 30, 2023, November 28, 2023, December 28, 2023, January 29, 2024,
February 28, 2024, March 28, 2024, April 29, 2024, May 28, 2024, June 28, 2024, July 29, 2024, August 28, 2024, September 30, 2024, October
28, 2024, November 29, 2024, December 30, 2024, January 28, 2025, February 28, 2025, March 28, 2025, April 28, 2025, May 28, 2025, June
30, 2025, July 28, 2025, August 28, 2025 and September 29, 2025 (final Review Date)
Interest Payment Dates*: November
2, 2022, December 1, 2022, January 3, 2023, February 2, 2023, March 3, 2023, March 31, 2023, May 3, 2023, June 2, 2023, July 3, 2023,
August 2, 2023, August 31, 2023, October 3, 2023, November 2, 2023, December 1, 2023, January 3, 2024, February 1, 2024, March 4, 2024,
April 3, 2024, May 2, 2024, May 31, 2024, July 3, 2024, August 1, 2024, September 3, 2024, October 3, 2024, October 31, 2024, December
4, 2024, January 3, 2025, January 31, 2025, March 5, 2025, April 2, 2025, May 1, 2025, June 2, 2025, July 3, 2025, July 31, 2025, September
3, 2025 and the Maturity Date
Maturity Date*: October
2, 2025
Call Settlement Date*: If
the notes are automatically called on any Review Date (other than the first, second, third, fourth, fifth and final Review Dates), the
first Interest Payment Date immediately following that Review Date
* Subject to postponement in
the event of a market disruption event and as described under “General Terms of Notes — Postponement of a Determination Date
— Notes Linked to Multiple Underlyings” and “General Terms of Notes — Postponement of a Payment Date” in
the accompanying product supplement |
|
Automatic Call:
If the closing value of each
Underlying on any Review Date (other than the first, second, third, fourth, fifth and final Review Dates) is greater than or equal to
its Initial Value, the notes will be automatically called for a cash payment, for each $1,000 principal amount note, equal to (a) $1,000
plus (b) the Contingent Interest Payment applicable to that Review Date, payable on the applicable Call Settlement Date. No further
payments will be made on the notes.
Payment at Maturity:
If the notes have not been
automatically called and the Final Value of each Underlying is greater than or equal to its Trigger Value, you will receive a cash payment
at maturity, for each $1,000 principal amount note, equal to (a) $1,000 plus (b) the Contingent Interest Payment, if any, applicable
to the final Review Date.
If the
notes have not been automatically called and the Final Value of any Underlying is less than its Trigger Value, your payment at maturity
per $1,000 principal amount note will be calculated as follows:
$1,000
+ ($1,000 × Least Performing Underlying Return)
If the notes have not been
automatically called and the Final Value of any Underlying is less than its Trigger Value, you will lose more than 40.00% of your principal
amount at maturity and could lose all of your principal amount at maturity.
Least Performing Underlying: The
Underlying with the Least Performing Underlying Return
Least Performing Underlying Return: The
lowest of the Underlying Returns of the Underlyings
Underlying Return: With
respect to each Underlying,
(Final
Value – Initial Value)
Initial Value
Initial Value: With
respect to each Underlying, the closing value of that Underlying on the Pricing Date, which was $133.10 for the iShares®
Russell 2000 Value ETF, 1,715.243 for the Russell
2000® Index and 3,719.04
for the S&P 500® Index
Final Value: With
respect to each Underlying, the closing value of that Underlying on the final Review Date
Interest Barrier: With
respect to each Underlying, 70.00% of its Initial Value, which is $93.17 for the iShares® Russell
2000 Value ETF, 1,200.6701 for the Russell 2000® Index
and 2,603.328 for the S&P 500® Index
Trigger Value: With respect to each
Underlying, 60.00% of its Initial Value, which is $79.86 for the iShares® Russell
2000 Value ETF, 1,029.1458 for the Russell 2000® Index
and 2,231.424 for the S&P 500® Index
Share Adjustment Factor: The
Share Adjustment Factor is referenced in determining the closing value of the Fund and is set equal to 1.0 on the Pricing Date. The Share
Adjustment Factor is subject to adjustment upon the occurrence of certain events affecting the Fund. See “The Underlyings –
Funds – Anti-Dilution Adjustments” in the accompanying product supplement for further information.
|
PS-1
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
How
the Notes Work
Payments in Connection with the First, Second,
Third, Fourth and Fifth Review Dates
Payments in Connection with Review Dates (Other
than the First, Second, Third, Fourth, Fifth and Final Review Dates)
PS-2
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
Payment at Maturity If the Notes Have Not
Been Automatically Called
PS-3 | Structured Investments Auto Callable Contingent Interest Notes Linked to the Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500® Index | |
Total Contingent Interest Payments
The table below illustrates the total Contingent
Interest Payments per $1,000 principal amount note over the term of the notes based on the Contingent Interest Rate of 10.55% per annum,
depending on how many Contingent Interest Payments are made prior to automatic call or maturity.
Number of Contingent
Interest Payments |
Total Contingent Interest
Payments |
36 |
$316.5000 |
35 |
$307.7083 |
34 |
$298.9167 |
33 |
$290.1250 |
32 |
$281.3333 |
31 |
$272.5417 |
30 |
$263.7500 |
29 |
$254.9583 |
28 |
$246.1667 |
27 |
$237.3750 |
26 |
$228.5833 |
25 |
$219.7917 |
24 |
$211.0000 |
23 |
$202.2083 |
22 |
$193.4167 |
21 |
$184.6250 |
20 |
$175.8333 |
19 |
$167.0417 |
18 |
$158.2500 |
17 |
$149.4583 |
16 |
$140.6667 |
15 |
$131.8750 |
14 |
$123.0833 |
13 |
$114.2917 |
12 |
$105.5000 |
11 |
$96.7083 |
10 |
$87.9167 |
9 |
$79.1250 |
8 |
$70.3333 |
7 |
$61.5417 |
6 |
$52.7500 |
5 |
$43.9583 |
4 |
$35.1667 |
3 |
$26.3750 |
2 |
$17.5833 |
1 |
$8.7917 |
0 |
$0.0000 |
PS-4
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
Hypothetical
Payout Examples
The following examples illustrate payments on
the notes linked to three hypothetical Underlyings, assuming a range of performances for the hypothetical Least Performing Underlying
on the Review Dates. Each hypothetical payment set forth below assumes that the closing value of each Underlying that is not the Least
Performing Underlying on each Review Date is greater than or equal to its Initial Value (and therefore its Interest Barrier and Trigger
Value).
In addition, the hypothetical payments set forth
below assume the following:
| ● | an Initial Value for the Least Performing Underlying of 100.00; |
| ● | an Interest Barrier for the Least Performing Underlying of 70.00 (equal to 70.00% of its hypothetical Initial Value); |
| ● | a Trigger Value for the Least Performing Underlying of 60.00 (equal to 60.00% of its hypothetical Initial Value); and |
| ● | a Contingent Interest Rate of 10.55% per annum (payable at a rate of 0.87917% per month). |
The hypothetical Initial Value of the Least
Performing Underlying of 100.00 has been chosen for illustrative purposes only and does not represent the actual Initial Value
of any Underlying.
The actual Initial Value of each Underlying
is the closing value of that Underlying on the Pricing
Date and is specified under “Key Terms - Initial Value” in this pricing supplement. For historical data regarding the actual
closing values of each Underlying, please see the
historical information set forth under “The Underlyings” in this pricing supplement.
Each hypothetical payment set forth below is
for illustrative purposes only and may not be the actual payment applicable to a purchaser of the notes. The numbers appearing in the
following examples have been rounded for ease of analysis.
Example 1 — Notes are automatically
called on the sixth Review Date.
Date |
Closing Value of Least
Performing Underlying |
Payment (per $1,000 principal amount note) |
First Review Date |
105.00 |
$8.7917 |
Second Review Date |
110.00 |
$8.7917 |
Third Review Date |
110.00 |
$8.7917 |
Fourth Review Date |
105.00 |
$8.7917 |
Fifth Review Date |
110.00 |
$8.7917 |
Sixth Review Date |
120.00 |
$1,008.7917 |
|
Total Payment |
$1,052.75 (5.275% return) |
Because the closing value of each Underlying
on the sixth Review Date is greater than or equal to its Initial Value, the notes will be automatically called for a cash payment, for
each $1,000 principal amount note, of $1,008.7917 (or $1,000 plus the Contingent Interest Payment applicable to the sixth Review
Date), payable on the applicable Call Settlement Date. The notes are not automatically callable before the sixth Review Date, even though
the closing value of each Underlying on each of the first, second, third, fourth and fifth Review Dates is greater than its Initial Value.
When added to the Contingent Interest Payments received with respect to the prior Review Dates, the total amount paid, for each $1,000
principal amount note, is $1,052.75. No further payments will be made on the notes.
PS-5
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
Example 2 — Notes have NOT been
automatically called and the Final Value of the Least Performing Underlying is greater than or equal to its Trigger Value and its Interest
Barrier.
Date |
Closing Value of Least
Performing Underlying |
Payment (per $1,000 principal amount note) |
First Review Date |
95.00 |
$8.7917 |
Second Review Date |
85.00 |
$8.7917 |
Third through Thirty-Fifth Review Dates |
Less than Interest Barrier |
$0 |
Final Review Date |
90.00 |
$1,008.7917 |
|
Total Payment |
$1,026.375 (2.6375% return) |
Because the notes have not been automatically
called and the Final Value of the Least Performing Underlying is greater than or equal to its Trigger Value and its Interest Barrier,
the payment at maturity, for each $1,000 principal amount note, will be $1,008.7917 (or $1,000 plus the Contingent Interest Payment
applicable to the final Review Date). When added to the Contingent Interest Payments received with respect to the prior Review Dates,
the total amount paid, for each $1,000 principal amount note, is $1,026.375.
Example 3 — Notes have NOT been
automatically called and the Final Value of the Least Performing Underlying is less than its Interest Barrier but is greater than or equal
to its Trigger Value.
Date |
Closing Value of Least
Performing Underlying |
Payment (per $1,000 principal amount note) |
First Review Date |
80.00 |
$8.7917 |
Second Review Date |
75.00 |
$8.7917 |
Third through Thirty-Fifth Review Dates |
Less than Interest Barrier |
$0 |
Final Review Date |
60.00 |
$1,000.00 |
|
Total Payment |
$1,017.5833 (1.75833% return) |
Because the notes have not been automatically
called and the Final Value of the Least Performing Underlying is less than its Interest Barrier but is greater than or equal to its Trigger
Value, the payment at maturity, for each $1,000 principal amount note, will be $1,000.00. When added to the Contingent Interest Payments
received with respect to the prior Review Dates, the total amount paid, for each $1,000 principal amount note, is $1,017.5833.
Example 4 — Notes have NOT been
automatically called and the Final Value of the Least Performing Underlying is less than its Trigger Value.
Date |
Closing Value of Least
Performing Underlying |
Payment (per $1,000 principal amount note) |
First Review Date |
50.00 |
$0 |
Second Review Date |
55.00 |
$0 |
Third through Thirty-Fifth Review Dates |
Less than Interest Barrier |
$0 |
Final Review Date |
50.00 |
$500.00 |
|
Total Payment |
$500.00 (-50.00% return) |
Because the notes have not been automatically
called, the Final Value of the Least Performing Underlying is less than its Trigger Value and the Least Performing Underlying Return is
-50.00%, the payment at maturity will be $500.00 per $1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 × (-50.00%)] = $500.00
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 the 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.
PS-6
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
Selected
Risk Considerations
An investment in the notes involves significant risks. These
risks are explained in more detail in the “Risk Factors” sections of the accompanying prospectus supplement, product supplement
and underlying supplement.
| ● | YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS —
The notes do not guarantee any return of principal. If the notes have not been automatically called and the Final Value of any Underlying
is less than its Trigger Value, you will lose 1% of the principal amount of your notes for every 1% that the Final Value of the Least
Performing Underlying is less than its Initial Value. Accordingly, under these circumstances, you will lose more than 40.00% of your principal
amount at maturity and could lose all of your principal amount at maturity. |
| ● | THE NOTES DO NOT GUARANTEE THE PAYMENT OF INTEREST AND MAY NOT PAY ANY INTEREST AT ALL —
If the notes have not been automatically called, we will make a Contingent Interest Payment with respect to a Review Date only if the
closing value of each Underlying on that Review Date is greater than or equal to its Interest Barrier. If the closing value of any Underlying
on that Review Date is less than its Interest Barrier, no Contingent Interest Payment will be made with respect to that Review Date. Accordingly,
if the closing value of any Underlying on each Review Date is less than its Interest Barrier, you will not receive any interest payments
over the term of the notes. |
| ● | CREDIT RISKS OF JPMORGAN FINANCIAL AND JPMORGAN CHASE & CO. —
Investors are dependent on our and JPMorgan Chase & Co.’s ability to pay all amounts due on the notes. Any actual or potential
change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads, as determined by the market for taking that credit
risk, is likely to adversely affect the value of the notes. If we and JPMorgan Chase & Co. were to default on our payment obligations,
you may not receive any amounts owed to you under the notes and you could lose your entire investment. |
| ● | AS A FINANCE SUBSIDIARY, JPMORGAN FINANCIAL HAS NO INDEPENDENT OPERATIONS AND HAS 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. |
| ● | THE APPRECIATION POTENTIAL OF THE NOTES IS LIMITED TO THE SUM OF ANY CONTINGENT INTEREST PAYMENTS THAT MAY BE PAID OVER THE TERM
OF THE NOTES,
regardless of any appreciation of any Underlying, which may be significant. You will not participate in any appreciation of any Underlying. |
| ● | POTENTIAL CONFLICTS —
We and our affiliates play a variety of roles in connection with the notes. In performing these duties, our and JPMorgan Chase & Co.’s
economic interests are potentially adverse to your interests as an investor in 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. |
| ● | JPMORGAN CHASE & CO. IS CURRENTLY ONE OF THE COMPANIES THAT MAKE UP THE S&P 500® INDEX,
but JPMorgan Chase & Co. will not have any obligation to consider your interests in taking any corporate action that might affect
the level of the S&P 500® Index. |
| ● | AN INVESTMENT IN THE NOTES IS SUBJECT TO RISKS ASSOCIATED WITH SMALL CAPITALIZATION STOCKS WITH RESPECT TO THE ISHARES®
RUSSELL 2000 VALUE ETF AND THE RUSSELL 2000® INDEX —
Small capitalization companies may be less able to withstand adverse economic, market, trade and competitive conditions relative to larger
companies. Small capitalization companies are less likely to pay dividends on their stocks, and the presence of a dividend payment could
be a factor that limits downward stock price pressure under adverse market conditions. |
| ● | THE INVESTMENT STRATEGY REPRESENTED BY THE FUND MAY NOT BE SUCCESSFUL —
The Fund seeks to track the investment results, before fees and expenses, of an index composed of small capitalization U.S. equities that
exhibit value characteristics, which is currently the Russell 2000® Value Index. The Russell 2000®
Value Index measures the capitalization-weighted price performance of the stocks included in the Russell 2000® Index that
are determined by FTSE Russell to be value oriented, with lower price-to-book ratios and lower forecasted growth values. A “value”
investment strategy is premised on the goal of investing in stocks that are determined to be relatively cheap or “undervalued”
under the assumption that the value of those stocks will increase over time as the market comes to reflect the “fair” market
value of those stocks. However, the value characteristics referenced by the Russell 2000® Value Index may not be
accurate predictors of undervalued stocks, and there is no guarantee that undervalued stocks will appreciate. In addition, the Russell
2000® Value Index’s selection methodology includes a significant bias against stocks with strong growth characteristics,
and stocks with strong growth characteristics may outperform stocks with weak growth characteristics. There is no assurance that
the Fund will outperform any other index, exchange-traded fund or strategy that tracks U.S. stocks selected using other criteria and may
underperform the Russell 2000® Index as a whole. It is possible that the stock selection methodology of the Russell
2000® Value Index will adversely affect its return and, consequently, the level of the Russell 2000® Value
Index, the price of one share of the Fund and the value and return of the notes. |
PS-7
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
| ● | YOU ARE EXPOSED TO THE RISK OF DECLINE IN THE VALUE OF EACH UNDERLYING—
Payments on the notes are not linked to a basket composed of the Underlyings and are contingent upon the performance of each individual
Underlying. Poor performance by any of the Underlyings over the term of the notes may result in the notes not being automatically called
on a Review Date, may negatively affect whether you will receive a Contingent Interest Payment on any Interest Payment Date and your payment
at maturity and will not be offset or mitigated by positive performance by any other Underlying. |
| ● | YOUR PAYMENT AT MATURITY WILL BE DETERMINED BY THE LEAST PERFORMING UNDERLYING. |
| ● | THE BENEFIT PROVIDED BY THE TRIGGER VALUE MAY TERMINATE ON THE FINAL REVIEW DATE—
If the Final Value of any Underlying is less than its Trigger Value and the notes have not been automatically called, the benefit provided
by the Trigger Value will terminate and you will be fully exposed to any depreciation of
the Least Performing Underlying. |
| ● | THE AUTOMATIC CALL FEATURE MAY FORCE A POTENTIAL EARLY EXIT —
If your notes are automatically called, the term of the notes may be reduced to as short as approximately six months and you will not
receive any Contingent Interest Payments after the applicable Call Settlement Date. 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.
Even in cases where the notes are called before maturity, you are not entitled to any fees and commissions described on the front cover
of this pricing supplement. |
| ● | YOU WILL NOT RECEIVE DIVIDENDS ON THE FUND OR THE SECURITIES INCLUDED IN OR HELD BY ANY UNDERLYING OR HAVE ANY RIGHTS WITH RESPECT
TO THE FUND OR THOSE SECURITIES. |
| ● | THERE ARE RISKS ASSOCIATED WITH THE FUND—
The Fund is subject to management risk, which is the risk that the investment strategies of the Fund’s investment adviser, the implementation
of which is subject to a number of constraints, may not produce the intended results. These constraints could adversely affect the market
price of the shares of the Fund and, consequently, the value of the notes. |
| ● | THE PERFORMANCE AND MARKET VALUE OF THE FUND, PARTICULARLY DURING PERIODS OF MARKET VOLATILITY, MAY NOT CORRELATE WITH THE PERFORMANCE
OF THE FUND’S UNDERLYING INDEX AS WELL AS THE NET ASSET VALUE PER SHARE —
The Fund does not fully replicate its Underlying Index (as defined under “The Underlyings” below) and may hold securities
different from those included in its Underlying Index. In addition, the performance of the Fund will reflect additional transaction costs
and fees that are not included in the calculation of its Underlying Index. All of these factors may lead to a lack of correlation between
the performance of the Fund and its Underlying Index. In addition, corporate actions with respect to the equity securities underlying
the Fund (such as mergers and spin-offs) may impact the variance between the performances of the Fund and its Underlying Index. Finally,
because the shares of the Fund are traded on a securities exchange and are subject to market supply and investor demand, the market value
of one share of the Fund may differ from the net asset value per share of the Fund.
During periods of market volatility, securities underlying the Fund may be unavailable in the secondary market, market participants may
be unable to calculate accurately the net asset value per share of the Fund and the liquidity of the Fund may be adversely affected. This
kind of market volatility may also disrupt the ability of market participants to create and redeem shares of the Fund. Further, market
volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell shares of the
Fund. As a result, under these circumstances, the market value of shares of the Fund may vary substantially from the net asset value per
share of the Fund. For all of the foregoing reasons, the performance of the Fund may not correlate with the performance of its Underlying
Index as well as the net asset value per share of the Fund, which could materially and adversely affect the value of the notes in the
secondary market and/or reduce any payment on the notes. |
| ● | THE ANTI-DILUTION PROTECTION FOR THE FUND IS LIMITED —
The calculation agent will make adjustments to the Share Adjustment Factor for the Fund for certain events affecting the shares of the
Fund. However, the calculation agent will not make an adjustment in response to all events that could affect the shares of the Fund. If
an event occurs that does not require the calculation agent to make an adjustment, the value of the notes may be materially and adversely
affected. |
| ● | THE RISK OF THE CLOSING VALUE OF AN UNDERLYING FALLING BELOW ITS INTEREST BARRIER OR TRIGGER VALUE IS GREATER IF THE VALUE OF THAT
UNDERLYING IS VOLATILE. |
| ● | LACK OF LIQUIDITY—
The notes will not be listed on any securities exchange. Accordingly, 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. You may not be able to sell your 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. |
| ● | THE ESTIMATED VALUE OF THE NOTES IS LOWER THAN THE ORIGINAL ISSUE PRICE (PRICE TO PUBLIC) OF THE NOTES —
The estimated value of the notes is only an estimate determined by reference to several factors. The original issue price of the notes
exceeds the estimated value of the notes because costs associated with selling, structuring and hedging the notes are included in the
original issue price of the notes. These costs include the selling commissions, the projected profits, if any, that our affiliates expect
to realize for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under
the notes. See “The Estimated Value of the Notes” in this pricing supplement. |
| ● | THE ESTIMATED VALUE OF THE NOTES DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES —
See “The Estimated Value of the Notes” in this pricing supplement. |
PS-8
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Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
| ● | 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 may differ from the market-implied funding rate
for vanilla fixed income instruments of a similar maturity issued by JPMorgan Chase & Co. or its affiliates. Any difference may be
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 income instruments of JPMorgan
Chase & Co. This internal funding rate is based on certain market inputs and assumptions, which may prove to be incorrect, and is
intended to approximate the prevailing market replacement funding rate for the notes. 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. 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 may exclude selling commissions, 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 the 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. |
| ● | SECONDARY MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS —
The secondary market price of the notes during their term will be impacted by a number of economic and market factors, which may either
offset or magnify each other, aside from the selling commissions, projected hedging profits, if any, estimated hedging costs and the values
of the Underlyings. 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. See “Risk Factors — Risks Relating to the Estimated
Value and Secondary Market Prices of the Notes — Secondary market prices of the notes will be impacted by many economic and market
factors” in the accompanying product supplement. |
The
Underlyings
The Fund is an exchange-traded fund of iShares®
Trust, a registered investment company, that seeks to track the investment results, before fees and expenses, of an index composed of
small capitalization U.S. equities that exhibit value characteristics, which we refer to as the Underlying Index with respect to the Fund.
The Underlying Index for the Fund is currently the Russell 2000® Value Index. The Russell 2000® Value Index
measures the capitalization-weighted price performance of the stocks included in the Russell 2000® Index that are determined
by FTSE Russell to be value oriented, with lower price-to-book ratios and lower forecasted growth values. For additional information about
the Fund, see “Fund Descriptions — The iShares® ETFs” in the accompanying underlying supplement. For
purposes of the accompanying underlying supplement, the Fund is an “iShares® ETF.” For additional information
about the Russell 2000® Value Index, see Annex A in this pricing supplement.
The Russell 2000® Index consists of the
middle 2,000 companies included in the Russell 3000E™ Index and, as a result of the index calculation methodology, consists
of the smallest 2,000 companies included in the Russell 3000® Index. The Russell 2000® Index is designed
to track the performance of the small capitalization segment of the U.S. equity market. For additional information about the Russell 2000®
Index, see “Equity Index Descriptions — The Russell Indices” in the accompanying underlying supplement.
The S&P 500® Index consists of stocks
of 500 companies selected to provide a performance benchmark for the U.S. equity markets. For additional information about the S&P
500® Index, see “Equity Index Descriptions — The S&P U.S. Indices” in the accompanying underlying
supplement.
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Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
Historical Information
The following graphs set forth the historical performance
of each Underlying based on the weekly historical closing values from January 6, 2017 through September 23, 2022. The closing value of
the iShares® Russell 2000 Value ETF on September 28, 2022 was $133.10. The closing value of the Russell 2000®
Index on September 28, 2022 was 1,715.243. The closing value of the S&P 500® Index on September 28, 2022 was 3,719.04.
We obtained the closing values above and below from the Bloomberg Professional® service (“Bloomberg”), without
independent verification. The closing values of the Fund above and below may have been adjusted by Bloomberg for actions taken by the
Fund, such as stock splits.
The historical closing values of each Underlying should
not be taken as an indication of future performance, and no assurance can be given as to the closing value of any Underlying on any Review
Date. There can be no assurance that the performance of the Underlyings will result in the return of any of your principal amount or the
payment of any interest.
Historical Performance
of the iShares® Russell 2000 Value ETF
Source: Bloomberg |
Historical Performance
of the Russell 2000® Index
Source: Bloomberg |
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Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
Historical Performance
of the S&P 500® Index
Source: Bloomberg |
Tax
Treatment
You should review carefully the section entitled
“Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4-II. 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 Interest Payments as ordinary income, as described in the section entitled “Material U.S. Federal
Income Tax Consequences — Tax Consequences to U.S. Holders — Notes Treated as Prepaid Forward Contracts with Associated Contingent
Coupons” in the accompanying product supplement. 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, 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. The discussions
above and in the accompanying product supplement do not address the consequences to taxpayers subject to special tax accounting rules
under Section 451(b) of the Code. 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 the notice described above.
Non-U.S. Holders — Tax Considerations.
The U.S. federal income tax treatment of Contingent Interest Payments is uncertain, and although we believe it is reasonable to take a
position that Contingent Interest Payments are not subject to U.S. withholding tax (at least if an applicable Form W-8 is provided), a
withholding agent may nonetheless withhold on these payments (generally at a rate of 30%, subject to the possible reduction of that rate
under an applicable income tax treaty), unless income from your 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.
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Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
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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. Additionally, a recent IRS notice
excludes from the scope of Section 871(m) instruments issued prior to January 1, 2025 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.
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.
The
Estimated Value of the Notes
The estimated value of the notes set forth on
the cover of this pricing supplement is equal to the sum of the values of the following hypothetical components: (1) a fixed-income debt
component with the same maturity as the notes, valued using the internal funding rate described below, and (2) the derivative or derivatives
underlying the economic terms of the notes. The estimated value of the notes does not represent a minimum price at which JPMS would be
willing to buy your notes in any secondary market (if any exists) at any time. The internal funding rate used in the determination of
the estimated value of the notes may differ from the market-implied funding rate for vanilla fixed income instruments of a similar maturity
issued by JPMorgan Chase & Co. or its affiliates. Any difference may be 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 income instruments of JPMorgan Chase & Co. This internal funding rate is based
on certain market inputs and assumptions, which may prove to be incorrect, and is intended to approximate the prevailing market replacement
funding rate for the notes. 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. For additional information, see “Selected Risk Considerations —
The Estimated Value of the Notes Is Derived by Reference to an Internal Funding Rate” in this pricing supplement.
The value of the derivative or derivatives underlying
the economic terms of the notes is derived from internal pricing models of our affiliates. These models are dependent on inputs such as
the traded market prices of comparable derivative instruments and on various other inputs, some of which are market-observable, and which
can include volatility, dividend rates, interest rates and other factors, as well as assumptions about future market events and/or environments.
Accordingly, the estimated value of the notes is determined when the terms of the notes are set based on market conditions and other relevant
factors and assumptions existing at that time.
The estimated value of the notes does not represent
future values of the notes and may differ from others’ estimates. 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.
The estimated value of the notes is lower than
the original issue price of the notes because costs associated with selling, structuring and hedging the notes are included in the original
issue price of the notes. These costs include the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, the projected
profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes and the
estimated cost of hedging our obligations under the notes. Because hedging our obligations entails risk and may be influenced by market
forces beyond our control, this hedging may result in a profit that is more or less than expected, or it may result in a loss. A portion
of the profits, if any, realized in hedging our obligations under the notes may be allowed to other affiliated or unaffiliated dealers,
and we or one or more of our affiliates will retain any remaining hedging profits. See “Selected Risk Considerations — The
Estimated Value of the Notes Is Lower Than the Original Issue Price (Price to Public) of the Notes” in this pricing supplement.
PS-12
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
Secondary
Market Prices of the Notes
For information about factors that will impact
any secondary market prices of the notes, see “Risk Factors — Risks Relating to the Estimated Value and Secondary Market Prices
of the Notes — Secondary market prices of the notes will be impacted by many economic and market factors” in the accompanying
product supplement. In addition, we generally expect that some of the costs included in the original issue price of the notes will be
partially paid back to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial
predetermined period. 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. This initial predetermined time period is
intended to be the shorter of six months and one-half of the stated term of the notes. The length of any such initial period reflects
the structure of the notes, whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated costs
of hedging the notes and when these costs are incurred, as determined by our affiliates. See “Selected Risk Considerations —
The Value of the Notes as Published by JPMS (and Which May Be Reflected on Customer Account Statements) May Be Higher Than the Then-Current
Estimated Value of the Notes for a Limited Time Period” in this pricing supplement.
Supplemental
Use of Proceeds
The notes are offered to meet investor demand
for products that reflect the risk-return profile and market exposure provided by the notes. See “How the Notes Work” and
“Hypothetical Payout Examples” in this pricing supplement for an illustration of the risk-return profile of the notes and
“The Underlyings” in this pricing supplement for a description of the market exposure provided by the notes.
The original issue price of the notes is equal
to the estimated value of the notes plus the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, plus (minus)
the projected profits (losses) that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the
notes, plus the estimated cost of hedging our obligations under the notes.
Supplemental
Plan of Distribution
We expect that delivery of the notes will be
made against payment for the notes on or about the Original Issue Date set forth on the front cover of this pricing supplement, which
will be the third business day following the Pricing Date of the notes (this settlement cycle being referred to as “T+3”).
Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended, trades in the secondary market generally are required to settle
in two business days, unless the parties to that trade expressly agree otherwise. Accordingly, purchasers who wish to trade notes on any
date prior to two business days before delivery will be required to specify an alternate settlement cycle at the time of any such trade
to prevent a failed settlement and should consult their own advisors.
Supplemental
Information About the Form of the Notes
The notes will initially be represented by a
type of global security that we refer to as a master note. A master note represents multiple securities that may be issued at different
times and that may have different terms. The trustee and/or paying agent will, in accordance with instructions from us, make appropriate
entries or notations in its records relating to the master note representing the notes to indicate that the master note evidences the
notes.
Validity
of the Notes and the Guarantee
In the opinion of Davis Polk & Wardwell LLP,
as special products counsel to JPMorgan Financial and JPMorgan Chase & Co., when the notes offered by this pricing supplement have
been issued by JPMorgan Financial pursuant to the indenture, the trustee and/or paying agent has made, in accordance with the instructions
from JPMorgan Financial, the appropriate entries or notations in its records relating to the master global note that represents such notes
(the “master note”), and such notes have been delivered against payment as contemplated herein, such notes will be valid and
binding obligations of JPMorgan Financial and the related guarantee will constitute a valid and binding obligation of JPMorgan Chase &
Co., enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’
rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts
of good faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to (i) the effect of
fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above or (ii) any provision
of the indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law
by limiting the amount of JPMorgan Chase & Co.’s obligation under the related guarantee. This opinion is given as of the date
hereof and is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited
Liability Company Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution
and delivery of the indenture and its authentication of the master note and the validity, binding nature and enforceability of the indenture
with respect to the trustee, all as stated in the letter of such counsel dated May 6, 2022, which was filed as an exhibit to a Current
Report on Form 8-K by JPMorgan Chase & Co. on May 6, 2022.
PS-13
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
|
Additional
Terms Specific to 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
prospectus supplement, the accompanying product supplement and the accompanying underlying supplement, as the notes involve risks not
associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before
you invest in the notes.
You may access these
documents on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date
on the SEC website):
Our Central Index Key, or
CIK, on the SEC website is 1665650, and JPMorgan Chase & Co.’s CIK is 19617. As used in this pricing supplement, “we,”
“us” and “our” refer to JPMorgan Financial.
PS-14
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Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
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Annex
A
The Russell 2000® Value
Index
All information contained in this pricing supplement
regarding the Russell 2000® Value Index (the “Value Index”), including, without limitation, its make-up, method
of calculation and changes in its components, has been derived from publicly available information, without independent verification.
This information reflects the policies of, and is subject to change by, FTSE Russell. The Value Index is calculated, maintained and published
by FTSE Russell. FTSE Russell has no obligation to publish, and may discontinue the publication of, the Value Index.
The Value Index is reported by Bloomberg under
the ticker symbol “RUJ.”
The Value Index measures the capitalization-weighted
price performance of the stocks included in the Russell 2000® Index (each, a “Russell 2000 Component Stock”
and collectively, the “Russell 2000 Component Stocks”) that are determined by FTSE Russell to be value oriented, with lower
price-to-book ratios and lower forecasted growth values. The Russell 2000® Index measures the capitalization-weighted price
performance of 2,000 U.S. small-capitalization stocks listed on eligible U.S. exchanges. For more information about the Russell 2000®
Index, see “Equity Index Descriptions — The Russell Indices” in the accompanying underlying supplement.
FTSE Russell uses a “non-linear probability”
method to assign stocks to the Value Index and the Russell 2000® Growth Index (the “Growth Index”), an index
that measures the capitalization-weighted price performance of the Russell 2000 Component Stocks determined by FTSE Russell to be growth
oriented, with higher price-to-book ratios and higher forecasted growth values. The term “probability” is used to indicate
the degree of certainty that a stock is value or growth based on its relative book-to-price (B/P) ratio, I/B/E/S forecast medium-term
growth (2 year) and sales per share historical growth (5 year). This method allows stocks to be represented as having both growth and
value characteristics, while preserving the additive nature of the indices.
The process for assigning growth and value weights
is applied separately to the Russell 2000 Component Stocks. The Russell 2000 Component Stocks are ranked by their adjusted book-to-price
ratio (B/P), their I/B/E/S forecast medium-term growth (2 year) and sales per share historical growth (5 year). These rankings are converted
to standardized units, where the value variable represents 50% of the score and the two growth variables represent the remaining 50%.
They are then combined to produce a Composite Value Score (“CVS”).
The Russell 2000 Component Stocks are then ranked
by their CVS, and a probability algorithm is applied to the CVS distribution to assign growth and value weights to each stock. In general,
a stock with a lower CVS is considered growth, a stock with a higher CVS is considered value, and a stock with a CVS in the middle range
is considered to have both growth and value characteristics, and is weighted proportionately in the growth and value indices. Stocks are
always fully represented by the combination of their growth and value weights (e.g., a stock that is given a 20% weight in the Value Index
will have an 80% weight in the Growth Index).
Stock A, in the figure below, is a security with
20% of its available shares assigned to the Value Index and the remaining 80% assigned to the Growth Index. Hence, the sum of a stock’s
market capitalization in the Value Index and the Growth Index will always equal its market capitalization in the Russell 2000®
Index.
In the figure above, the quartile breaks are
calculated such that approximately 25% of the available market capitalization lies in each quartile. Stocks at the median are divided
50% in each of the Value Index and the Growth Index. Stocks below the first quartile are 100% in the Growth Index. Stocks above the third
quartile are 100% in the Value Index. Stocks falling between the first and third quartile breaks are in both the Value Index and the Growth
Index to varying degrees, depending on how far they are above or below the median and how close they are to the first or third quartile
breaks.
PS-15
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Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
Index |
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Roughly 70% of the available market capitalization
is classified as all growth or all value. The remaining 30% have some portion of their market value in either the Value Index or the Growth
Index, depending on their relative distance from the median value score. Note that there is a small position cutoff rule. If a stock’s
weight is more than 95% in one index, its weight is increased to 100% in that index.
In an effort to mitigate unnecessary turnover,
FTSE Russell implements a banding methodology at the CVS level of the growth and value style algorithm. If a company’s CVS change
from the previous year is greater than or equal to +/- 0.10 and if the company remains in the same core index (i.e., the Russell 2000®
Index), then the CVS remains unchanged during the next reconstitution process. Keeping the CVS static for these companies does not mean
the probability (growth/value) will remain unchanged in all cases due to the relation of a CVS score to the overall index. However, this
banding methodology is intended to reduce turnover caused by smaller, less meaningful movements while continuing to allow the larger,
more meaningful changes to occur, signaling a true change in a company’s relation to the market.
In calculating growth and value weights, stocks
with missing or negative values for B/P, or missing values for I/B/E/S growth, or missing sales per share historical growth (6 years of
quarterly numbers are required), are allocated by using the mean value score of the base index (the Russell 2000® Index),
the Russell Global Sectors (ICB) industry, subsector or sector group into which the company falls. Each missing (or negative B/P) variable
is substituted with the industry, subsector or sector group independently. An industry must have five members or the substitution reverts
to the subsector, and so forth to the sector. In addition, a weighted value score is calculated for securities with low analyst coverage
for I/B/E/S medium-term growth. For securities with coverage by a single analyst, 2/3 of the industry, subsector, or sector group value
score is weighted with 1/3 the security’s independent value score. For those securities with coverage by two analysts, 2/3 of the
independent security’s value score is used and only 1/3 of the industry, subsector, or sector group is weighted. For those securities
with at least three analysts contributing to the I/B/E/S medium-term growth, 100% of the independent security’s value score is used.
For more information about the index calculation
methodology used for the Value Index, see “Equity Index Descriptions — The Russell Indices” in the accompanying underlying
supplement. For purposes of this pricing supplement, all references to the Russell Indices contained in the above-referenced section are
deemed to include the Value Index.
PS-16
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Auto Callable Contingent Interest Notes Linked to the
Least Performing of the iShares® Russell 2000 Value ETF, the Russell 2000® Index and the S&P 500®
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