|
December
2015
Preliminary
Terms No. 512
Registration
Statement No. 333-199966
Dated
November 25, 2015
Filed
pursuant to Rule 433 |
Structured
Investments
Opportunities in U.S. Equities
Trigger PLUS Based on the Performance of the Vanguard
FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged
Upside SecuritiesSM
Principal at Risk Securities
The Trigger PLUS offered are unsecured and unsubordinated obligations
of JPMorgan Chase & Co., will pay no interest, do not guarantee any return of your principal at maturity and have the terms
described in the accompanying product supplement no. 4a-I, underlying supplement no. 1a-I, the prospectus supplement and the prospectus,
as supplemented or modified by this document. At maturity, if the ETF Shares have increased in price, investors will receive
the stated principal amount of their investment plus leveraged upside performance of the ETF Shares. However, if the ETF Shares
have decreased in price but the final share price is greater than or equal to the trigger level, investors will receive
the stated principal amount of the Trigger PLUS at maturity. If the ETF Shares have decreased in price so that the final
share price is less than the trigger level, at maturity investors will lose a significant portion or all of their investment, resulting
in a 1% loss for every 1% decline in the price of the ETF Shares over the term of the Trigger PLUS. The Trigger PLUS are for investors
who seek an equity-based return and who are willing to risk their principal and forgo current income in exchange for the leverage
feature that applies to any positive performance of the ETF Shares. At maturity, an investor will receive an amount in cash that
may be greater than, equal to, or less than the stated principal amount based upon the closing price of one ETF Share on the valuation
date. All payments on the Trigger PLUS are subject to the credit risk of JPMorgan Chase & Co. The investor may lose
some or all of the stated principal amount of the Trigger PLUS.
SUMMARY TERMS |
Issuer: |
JPMorgan Chase & Co. |
ETF Shares: |
Shares of the Vanguard FTSE Emerging Markets ETF (the “ETF”) |
Aggregate principal amount: |
$ |
Payment at maturity:
|
·
If the final share price is greater than the initial share price, for each $10
stated principal amount Trigger PLUS, |
|
$10 + leveraged upside payment |
|
·
If the final share price is less than or equal to the initial share price, but
is greater than or equal to the trigger level, for each $10 stated principal amount Trigger PLUS, |
|
$10 |
|
·
If the final share price is less than the trigger level, for each $10 stated principal
amount Trigger Plus |
|
$10 × share performance factor |
|
This amount will be less than the stated principal amount of $10 per Trigger
PLUS and will represent a loss of more than 30%, and possibly all, of your investment. |
Leveraged upside
payment: |
$10 × leverage factor × share percent increase |
Share percent increase: |
(final share price – initial share price) / initial share price |
Initial share price:
|
The closing price of one ETF Share on the pricing date |
Final share price:
|
The closing price of one ETF Share on the valuation date |
Share adjustment factor: |
The share adjustment factor is referenced in determining the closing price of
one ETF Share and is set initially at 1.0 on the pricing date. The share adjustment factor is subject to adjustment
in the event of certain events affecting the ETF Shares. See “The Underlyings — Funds — Anti-Dilution
Adjustments” in the accompanying product supplement no. 4a-I. |
Trigger level: |
70% of the initial share price |
Leverage factor:
|
At least 142.50%. The actual leverage factor will be provided in
the pricing supplement and will not be less than 142.50%. |
Share performance
factor: |
final share price / initial share price |
Stated principal
amount: |
$10 per Trigger PLUS |
Issue price: |
$10 per Trigger PLUS (see “Commissions and issue price” below) |
Pricing date: |
December , 2015 (expected
to price on or about December 4, 2015) |
Original issue date (settlement date): |
December , 2015 (3 business days after the pricing date) |
Valuation date: |
December 6, 2021, subject to postponement in the event of certain market disruption
events and as described under “General Terms of Notes — Postponement of a Determination Date — Notes Linked
to a Single Underlying — Notes Linked to a Single Underlying (Other Than a Commodity Index)” in the accompanying
product supplement no. 4a-I |
Maturity date: |
December 9, 2021, subject to postponement in the event of certain market disruption
events and as described under “General Terms of Notes — Postponement of a Payment Date” in the accompanying
product supplement no. 4a-I |
CUSIP / ISIN: |
48127Y136 / US48127Y1367 |
Listing: |
The Trigger PLUS will not be listed on any securities exchange. |
Agent: |
J.P. Morgan Securities LLC (“JPMS”) |
Commissions and issue price: |
Price
to public(1) |
Fees and commissions |
Proceeds to issuer |
Per Trigger PLUS |
$10.00 |
$0.30(2) |
$9.65 |
$0.05(3) |
Total |
$ |
$ |
$ |
| (1) | See “Additional Information
about the Trigger PLUS — Supplemental use of proceeds and hedging” in this
document for information about the components of the price to public of the Trigger PLUS. |
| (2) | JPMS, acting as agent for
JPMorgan Chase & Co., will pay all of the selling commissions it receives from us
to Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”).
In no event will these selling commissions exceed $0.30 per $10 stated principal amount
Trigger PLUS. See “Plan of Distribution (Conflicts of Interest)” beginning
on page PS-87 of the accompanying product supplement no. 4a-I. |
| (3) | Reflects a structuring
fee payable to Morgan Stanley Wealth Management by the agent or its affiliates of $0.05
for each $10 stated principal amount Trigger PLUS |
If the Trigger PLUS priced
today and assuming a maximum payment at maturity equal to the minimum listed above, the estimated value of the Trigger PLUS as
determined by JPMS would be approximately $9.728 per $10 stated principal amount Trigger PLUS. JPMS’s estimated value of
the Trigger PLUS on the pricing date will be provided by JPMS in the pricing supplement and will not be less than $9.60 per $10
stated principal amount Trigger PLUS. See “Additional Information about the Trigger PLUS — JPMS’s estimated
value of the Trigger PLUS” in this document for additional information.
Investing in the Trigger PLUS
involves a number of risks. See “Risk Factors” beginning on page PS-8 of the accompanying product supplement no. 4a-I,
“Risk Factors” beginning on page US-2 of the accompanying underlying supplement no. 1a-I and “Risk Factors”
beginning on page 5 of this document.
Neither the Securities and Exchange
Commission (the “SEC”) nor any state securities commission has approved or disapproved of the Trigger PLUS or passed
upon the accuracy or the adequacy of this document or the accompanying product supplement, underlying supplement, prospectus supplement
and prospectus. Any representation to the contrary is a criminal offense.
The Trigger PLUS are not bank
deposits, are not insured by the Federal Deposit Insurance Corporation or any other governmental agency and are not obligations
of, or guaranteed by, a bank.
You should
read this document together with the related product supplement no. 4a-I, underlying supplement no. 1a-I, prospectus supplement
and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional Information about the
Trigger PLUS” at the end of this document.
Product supplement
no. 4a-I dated November 7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008407/e61359_424b2.pdf
Underlying
supplement no. 1a-I dated November 7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008410/e61337_424b2.pdf
Prospectus supplement
and prospectus, each dated November 7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008397/e61348_424b2.pdf
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Investment Summary
Trigger Performance Leveraged Upside Securities
Principal at Risk Securities
The Trigger PLUS Based on the Performance of the Vanguard FTSE
Emerging Markets ETF due December 9, 2021 (the “Trigger PLUS”) can be used:
| § | As an alternative to direct exposure to the ETF Shares that enhances returns for any positive performance of the ETF Shares. |
| § | To enhance returns and potentially outperform the ETF Shares in a bullish scenario. |
| § | To potentially achieve similar levels of upside exposure to the ETF Shares as a direct investment, while using fewer dollars
by taking advantage of the leverage factor. |
| § | To provide limited market downside protection against a loss of principal in the event
of a decline of the ETF Shares but only if the final share price is greater than or equal to the trigger level. |
Maturity: |
Approximately 6 years |
Leverage factor: |
At least 142.50%. The actual leverage factor will be provided in the pricing supplement. |
Trigger level: |
70% of the initial share price |
Minimum payment at maturity: |
None. Investors may lose their entire initial investment in the Trigger PLUS. |
Supplemental Terms of the PLUS
For purposes of the accompanying product supplement, the Vanguard
FTSE Emerging Markets ETF is a “Fund.”
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Key Investment Rationale
Trigger PLUS offer leveraged exposure to an underlying asset,
which may be equities, commodities and/or currencies. In exchange for enhanced returns from any positive performance of the asset,
investors are exposed to the risk of loss of some or all of their investment due to the trigger feature. At maturity, if the asset
has appreciated, investors will receive the stated principal amount of their investment plus leveraged upside performance of the
underlying asset. At maturity, if the asset has depreciated but is at or above the trigger level, investors will receive the stated
principal amount of their investment. At maturity, if the asset has depreciated below the trigger level, investors are fully exposed
to the negative performance of the asset. Investors may lose some or all of the stated principal amount of the Trigger PLUS.
Leveraged
Performance |
The Trigger PLUS offer investors an opportunity to capture enhanced returns for any positive performance relative to a direct investment in the ETF Shares. |
Trigger
Feature |
At maturity, even if the ETF Shares have declined over the term of the Trigger PLUS, investors will receive their stated principal amount but only if the final share price is greater than or equal to the trigger level. |
Upside
Scenario |
The final share price is greater than the initial share price. At maturity, the Trigger PLUS pay the stated principal amount of $10 plus at least 142.50% of the share percent increase per Trigger PLUS. The actual leverage factor will be provided in the pricing supplement. |
Par
Scenario |
The final share price is less than or equal to the initial share price but is greater than or equal to the trigger level. In this case, the Trigger PLUS pay the stated principal amount of $10 per Trigger PLUS at maturity even when the ETF Shares have depreciated. |
Downside
Scenario |
The final share price is less than the trigger level. In this case, the Trigger PLUS pay an amount that is at least 30% less than the stated principal amount and this decrease will be by an amount that is proportionate to the percentage decline of the final share price from the initial share price. (Example: if the ETF Shares decrease in price by 60%, the Trigger PLUS will pay an amount that is less than the stated principal amount by 60%, or $4 per Trigger PLUS.) |
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
How the Trigger PLUS Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the Trigger PLUS based on the following terms:
Stated principal amount: |
$10 per Trigger PLUS |
Hypothetical leverage factor: |
142.50%* |
Trigger level: |
70% of the initial share price |
*The actual leverage factor will be provided in the
pricing supplement and will not be less than 142.50%.
Trigger
PLUS Payoff Diagram |
|
How it works
| § | Upside Scenario. If the final share price
is greater than the initial share price, for each $10 principal amount Trigger PLUS, investors will receive the $10 stated principal
amount plus a return equal to 142.50% of the appreciation of the ETF Shares over the term of the Trigger PLUS. |
| § | For example, if the ETF Shares appreciate 5%, investors will receive a 7.125% return, or $10.7125 per Trigger PLUS. |
| § | Par Scenario. If the final share price
is less than or equal to the initial share price but is greater than or equal to the trigger level, investors will receive the
stated principal amount of $10 per Trigger PLUS. |
| § | For example, if the ETF Shares depreciate 5%, investors will receive the $10 stated principal amount. |
| § | Downside Scenario. If the final share
price is less than the trigger level, investors will receive an amount that is less than the stated principal amount by an amount
proportionate to the percentage decrease of the final share price from the initial share price. |
| § | For example, if the ETF Shares depreciate 60%, investors will lose 60% of their principal and receive only $4 per Trigger PLUS
at maturity, or 40% of the stated principal amount. |
The hypothetical returns and hypothetical payments
on the Trigger PLUS shown above apply only if you hold the Trigger PLUS for their entire term. These hypotheticals do not
reflect fees or expenses that would be associated with any sale in the secondary market. If these fees and expenses were included,
the hypothetical returns and hypothetical payments shown above would likely be lower.
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Risk Factors
The
following is a non-exhaustive list of certain key risk factors for investors in the Trigger PLUS. For further discussion
of these and other risks, you should read the sections entitled “Risk Factors” beginning on page PS-8 of the accompanying
product supplement no. 4a-I and “Risk Factors” beginning on page US-2 of the accompanying underlying supplement no.
1a-I. We also urge you to consult your investment, legal, tax, accounting and other advisers in connection with your investment
in the Trigger PLUS.
| § | The Trigger PLUS do not pay interest or guarantee the return of
any principal and your investment in the Trigger PLUS may result in a loss. The terms of the Trigger PLUS differ from
those of ordinary debt securities in that the Trigger PLUS do not pay interest or guarantee the payment of any principal amount
at maturity. If the final share price is less than the trigger level (which is 70% of the initial share price), the payment at
maturity will be an amount in cash that is over 30% less than the stated principal amount of each Trigger PLUS and this decrease
will be by an amount that is proportionate to the decrease in the price of the ETF Shares and may be zero. There is no minimum
payment at maturity on the Trigger PLUS, and, accordingly, you could lose your entire initial investment in the Trigger PLUS. |
| § | The Trigger PLUS are subject to the credit risk of JPMorgan Chase
& Co., and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value
of the Trigger PLUS. Investors are dependent on JPMorgan Chase & Co.’s ability
to pay all amounts due on the Trigger PLUS. Any actual or anticipated decline in our credit ratings or increase in the credit spreads
determined by the market for taking our credit risk is likely to adversely affect the market value of the Trigger PLUS. If we were
to default on our payment obligations, you may not receive any amounts owed to you under the Trigger PLUS and you could lose your
entire investment. |
| § | Economic interests of the issuer, the calculation agent, the agent of the offering of the Trigger PLUS and other affiliates
of the issuer may be different from those of investors. We
and our affiliates play a variety of roles in connection with the issuance of the Trigger PLUS, including acting as calculation
agent and as an agent of the offering of the Trigger PLUS, hedging our obligations under the Trigger PLUS and making the
assumptions used to determine the pricing of the Trigger PLUS and the estimated value of the Trigger PLUS, which we refer to as
JPMS’s estimated value. In performing these
duties, our economic interests and the economic interests of the calculation agent and other affiliates of ours are potentially
adverse to your interests as an investor in the Trigger PLUS. The calculation agent will determine the initial share price
and the final share price and will calculate the amount of payment you will receive at maturity, if any. Determinations made by
the calculation agent, including with respect to the occurrence or non-occurrence of market disruption events, the selection of
a successor to the ETF Shares or calculation of the final share price in the event of a discontinuation of the ETF Shares, and
any anti-dilution adjustments, may affect the payment to you at maturity.
|
In
addition, our business activities, including hedging and trading activities, could cause our economic interests to be adverse to
yours and could adversely affect any payment on the Trigger PLUS and the value of the Trigger PLUS. It is possible that hedging
or trading activities of ours or our affiliates in connection with the Trigger PLUS could result in substantial returns for us
or our affiliates while the value of the Trigger PLUS declines. Please refer to “Risk Factors — Risks Relating to Conflicts
of Interest” in the accompanying product supplement no. 4a-I for additional information about these risks.
| § | JPMS’s estimated value of the Trigger PLUS will be lower than the original issue price (price to public) of the Trigger
PLUS. JPMS’s estimated value is only an estimate using
several factors. The original issue price of the Trigger PLUS will exceed JPMS’s estimated value because costs associated
with selling, structuring and hedging the Trigger PLUS are included in the original issue price of the Trigger PLUS. These costs
include the selling commissions, the structuring fee, the projected profits, if any, that our affiliates expect to realize for
assuming risks inherent in hedging our obligations under the Trigger PLUS and the estimated cost of hedging our obligations under
the Trigger PLUS. See “Additional Information about the Trigger PLUS — JPMS’s estimated value of the Trigger
PLUS” in this document. |
| § | JPMS’s estimated value does not represent future values of the Trigger PLUS and may differ from others’
estimates. JPMS’s estimated value of the Trigger PLUS
is determined by reference to JPMS’s internal pricing models. This estimated value is based on market conditions and other
relevant factors existing at the time of pricing and JPMS’s assumptions about market parameters, which can include volatility,
dividend rates, interest rates and other factors. Different pricing models and assumptions could provide valuations for Trigger
PLUS that are greater than or less than JPMS’s estimated value. In addition, |
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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 Trigger PLUS
could change significantly based on, among other things, changes in market conditions, our creditworthiness, interest rate movements
and other relevant factors, which may impact the price, if any, at which JPMS would be willing to buy Trigger PLUS from you in
secondary market transactions. See “Additional Information about the Trigger PLUS — JPMS’s estimated value of
the Trigger PLUS” in this document.
| § | JPMS’s estimated value is not determined by reference to credit spreads for our conventional fixed-rate debt.
The internal funding rate used in the determination of JPMS’s estimated value generally represents a discount
from the credit spreads for our conventional fixed-rate debt. The discount is based on, among other things, our view of the funding
value of the Trigger PLUS as well as the higher issuance, operational and ongoing liability management costs of the Trigger PLUS
in comparison to those costs for our conventional fixed-rate debt. If JPMS were to use the interest rate implied by our conventional
fixed-rate credit spreads, we would expect the economic terms of the Trigger PLUS to be more favorable to you. In addition, JPMS’s
estimated value might be lower if it were based on the interest rate implied by our conventional fixed-rate credit spreads. Consequently,
our use of an internal funding rate would have an adverse effect on the terms of the Trigger PLUS and any secondary market prices
of the Trigger PLUS. See “Additional Information about the Trigger PLUS — JPMS’s estimated value of the Trigger
PLUS” in this document. |
| § | The value of the Trigger PLUS as published by JPMS (and which may be reflected on customer account statements) may be higher
than JPMS’s then-current estimated value of the Trigger PLUS for a limited time period.
We generally expect that
some of the costs included in the original issue price of the Trigger PLUS will be partially paid back to you in connection with
any repurchases of your Trigger PLUS by JPMS in an amount that will decline to zero over an initial predetermined period. These
costs can include selling commissions, the structuring fee, projected hedging profits, if any, and, in some circumstances, estimated
hedging costs and our secondary market credit spreads for structured debt issuances. See “Additional Information about the
Trigger PLUS — Secondary market prices of the Trigger PLUS” in this document for additional information relating to
this initial period. Accordingly, the estimated value of your Trigger PLUS during this initial period may be lower than the value
of the Trigger PLUS as published by JPMS (and which may be shown on your customer account statements). |
| § | Secondary market prices of the Trigger PLUS will likely be lower than the original issue price of the Trigger PLUS.
Any secondary market prices of the Trigger PLUS will likely be lower than the original issue price of the Trigger PLUS
because, among other things, secondary market prices take into account our secondary market credit spreads for structured debt
issuances and, also, because secondary market prices (a) exclude selling commissions and the structuring fee and (b) may exclude
projected hedging profits, if any, and estimated hedging costs that are included in the original issue price of the Trigger PLUS.
As a result, the price, if any, at which JPMS will be willing to buy Trigger PLUS from you in secondary market transactions, if
at all, is likely to be lower than the original issue price. Any sale by you prior to the maturity date could result in a substantial
loss to you. See the immediately following risk factor for information about additional factors that will impact any secondary
market prices of the Trigger PLUS. |
The Trigger PLUS are not designed
to be short-term trading instruments. Accordingly, you should be able and willing to hold your Trigger PLUS to maturity. See “—
Secondary trading may be limited” below.
| § | Secondary market prices of the Trigger PLUS
will be impacted by many economic and market factors. The secondary market price of the Trigger PLUS during their term
will be impacted by a number of economic and market factors, which may either offset or magnify each other, aside from the selling
commissions, structuring fee, projected hedging profits, if any, estimated hedging costs and the price of the ETF Shares, including: |
| § | any actual or potential change in our creditworthiness or credit spreads; |
| § | customary bid-ask spreads for similarly sized trades; |
| § | secondary market credit spreads for structured debt issuances; |
| § | the actual and expected volatility in the prices of the ETF Shares; |
| § | the time to maturity of the Trigger PLUS; |
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
| § | the dividend rates on the ETF Shares and the equity securities underlying the ETF Shares; |
| § | interest and yield rates in the market generally; |
| § | the exchange rates and the volatility of the exchange rates between the U.S. dollar and each of the currencies in which the
equity securities underlying the ETF Shares trade and the correlation among those rates and the price of one ETF Share; |
| § | the occurrence of certain events to the ETF Shares that may or may not require an adjustment to the share adjustment factor;
and |
| § | a variety of other economic, financial, political, regulatory and judicial events. |
Additionally, independent pricing
vendors and/or third party broker-dealers may publish a price for the Trigger PLUS, which may also be reflected on customer account
statements. This price may be different (higher or lower) than the price of the Trigger PLUS, if any, at which JPMS may be willing
to purchase your Trigger PLUS in the secondary market.
| § | Investing in the Trigger PLUS is not equivalent to investing in
the ETF Shares. Investing in the Trigger PLUS is not equivalent to investing in the ETF Shares,
the index tracked by the ETF Shares, which we refer to as the underlying index, or the stocks underlying the ETF Shares or the
underlying index. Investors in the Trigger PLUS will not have voting rights or rights to receive dividends or other distributions
or any other rights with respect to the ETF Shares, the underlying index or the stocks underlying the ETF Shares or the underlying
index. |
| § | Adjustments to the ETF Shares or the underlying index could adversely
affect the value of the Trigger PLUS. Those responsible for calculating and maintaining the
ETF Shares and the underlying index can add, delete or substitute the components of the ETF Shares or the underlying
index, or make other methodological changes that could
change the value of the ETF Shares or the underlying index.
Any of these actions could adversely affect the price of the ETF Shares and, consequently, the value of the Trigger PLUS. |
| § | There are risks associated with the ETF Shares. Although the ETF Shares are listed for trading on NYSE Arca, Inc. and
a number of similar products have been traded on various national securities exchanges for varying periods of time, there is no
assurance that an active trading market will continue for the ETF Shares or that there will be liquidity in the trading market.
The ETF Shares are subject to management risk, which is the risk that the investment strategy of the investment adviser to the
ETF Shares, 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 ETF Shares and, consequently, the value of the Trigger PLUS. |
| § | The performance and market value of the ETF Shares, particularly
during periods of market volatility, may not correlate with the performance of the underlying index as well as the net asset value
per ETF Share. The ETF does not fully replicate the underlying index and may hold securities different from those included
in the underlying index. In addition, the performance of the ETF Shares will reflect additional transaction costs and fees that
are not included in the calculation of the underlying index. All of these factors may lead to a lack of correlation between the
performance of the ETF Shares and the underlying index. In addition, corporate actions with respect to the equity securities underlying
the ETF (such as mergers and spin-offs) may impact the variance between the performances of the ETF Shares and the underlying index.
Finally, because the ETF Shares are traded on a securities exchange and are subject to market supply and investor demand, the market
value of one ETF Share may differ from the net asset value per ETF Share. |
During periods of market volatility,
securities underlying the ETF may be unavailable in the secondary market, market participants may be unable to calculate accurately
the net asset value per ETF Share and the liquidity of the ETF Shares may be adversely affected. This kind of market volatility
may also disrupt the ability of market participants to create and redeem ETF Shares. Further, market volatility may adversely affect,
sometimes materially, the prices at which market participants are willing to buy and sell ETF Shares. As a result, under these
circumstances, the market value of ETF Shares may vary substantially from the net asset value per ETF Share. For all of the foregoing
reasons, the performance of
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
the ETF Shares may not correlate
with the performance of the underlying index as well as its net asset value per ETF Share, which could materially and adversely
affect the value of the securities in the secondary market and/or reduce any payment on the notes.
| § | The ETF recently completed a process of transition to tracking a
new underlying index and is currently in a process of transition to tracking another new underlying index.
Prior to January 2013, the ETF tracked the MSCI Emerging Markets Index. In January 2013, Vanguard announced that
the Fund would transition to track the FTSE Emerging Index, which does not include South Korean equity exposure. On June 28, 2013,
the ETF completed its process of transition and began tracking the FTSE Emerging Index. As a result of this transition, the ETF
no longer seeks to track, and therefore does not benefit from any future appreciation in, the South Korean equity markets. Moreover,
the historical performance of the ETF Shares prior to June 28, 2013 reflected the contribution of the South Korean equity markets,
and investors in the Trigger PLUS should bear this difference in mind when evaluating the historical data. |
Additionally, on June 2, 2015, The
Vanguard Group, Inc. announced that the ETF would soon transition to track a new underlying index. On November 2, 2015, the ETF
ceased tracking the FTSE Emerging Index and began temporarily to track the FTSE Emerging Markets All Cap China A Inclusion Transition
Index. By using this transition index, over a period of approximately 12 months, the ETF will move gradually from tracking the
FTSE Emerging Index to tracking the FTSE Emerging Markets All Cap China A Inclusion Index. As part of the transition, China A-shares
and small capitalization companies will gradually increase in weight by an equal amount after the third Friday each month over
the 12-month period, while the weights of the stocks already in the index will be proportionately reduced. The FTSE Emerging Markets
All Cap China A Inclusion Index is a market-capitalization weighted index representing the performance of large-, mid- and small-capitalization
stocks in emerging markets. The principal differences between the FTSE Emerging Index and the FTSE Emerging Markets All Cap China
A Inclusion Index are that the former represents the performance of large- and mid-capitalization companies in emerging markets,
excluding China A-shares, whereas the latter also represents the performance of small-capitalization companies in emerging markets
and includes China A-shares. As a result of this transition, the ETF will be exposed to risks associated with investing both in
mainland China and in small-capitalization stocks.
The adjustments to the ETF’s
holdings are expected to result in temporary increases in the ETF Shares’ transaction costs and turnover rate. The ETF’s
actual transaction costs and turnover rate will be dependent upon a number of factors, including the market environment at the
time of the portfolio adjustments. These factors could reduce the ETF Shares’ performance and the return on the Trigger PLUS.
Because the ETF has begun tracking
an index that includes China A-shares, the Trigger PLUS are subject to increased risk exposure to Chinese incorporated companies
that trade on either the Shanghai or Shenzhen stock exchange. Furthermore, in order to trade in China A-shares, a foreign investor
must have access to a quota through a QFII or Renminbi QFII license holder. In order to trade in China A-shares, the ETF must obtain
a quota from the Chinese regulator prior to investing and then must continue to apply for additional quotas to meet its investment
needs. There is no guarantee that the Chinese regulator will continue to give the ETF any or all of its requested quotas. If the
ETF were to be denied any or all of a requested trade quota, the ETF would likely have difficulty trading and valuing its China
A-shares. Such circumstance would likely cause the ETF to have difficulty tracking the FTSE Emerging Markets All Cap China A Inclusion
Transition Index or FTSE Emerging Markets All Cap China A Inclusion Index, as applicable, and may adversely affect the price of
the Fund and the value of the Trigger PLUS.
During both the transition and final
benchmark phases, the ETF will invest by sampling the relevant index, meaning that it will hold a broadly diversified collection
of securities that, in the aggregate, approximates the full index in terms of key characteristics. In addition, the addition of
small-capitalization stocks and China A-Shares may adversely affect the performance of the ETF Shares. Moreover, the historical
performance of the ETF Shares prior to November 2, 2015 will not reflect the contribution of small-capitalization stocks and China
A-shares and investors in the Trigger PLUS should bear this difference in mind when evaluating the historical data. See “Vanguard
FTSE Emerging Markets ETF Overview” below.
| § | The Trigger PLUS are subject to risks associated with securities issued by non-U.S. companies. The equity securities
underlying the ETF Shares have been issued by non-U.S. companies. Investments |
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
in Trigger PLUS linked to the value
of such non-U.S. equity securities involve risks associated with the securities markets in the home countries of the issuers of
those non-U.S. equity securities, including risks of volatility in those markets, governmental intervention in those markets and
cross shareholdings in companies in certain countries. Also, there is generally less publicly available information about companies
in some of these jurisdictions than there is about U.S. companies that are subject to the reporting requirements of the SEC.
| § | The Trigger PLUS entail emerging markets risk. The equity securities underlying
the ETF Shares have been issued by non-U.S. companies located in emerging markets countries. Countries with emerging markets may
have relatively unstable governments, may present the risks of nationalization of businesses, restrictions on foreign ownership
and prohibitions on the repatriation of assets, and may have less protection of property rights than more developed countries.
The economies of countries with emerging markets may be based on only a few industries, may be highly vulnerable to changes in
local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities markets
may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making
prompt liquidation of holdings difficult or impossible at times. |
| § | An investment in the Trigger PLUS is subject to risks associated with small capitalization
stocks. Some of the stocks that constitute the FTSE Emerging Markets All Cap China A Inclusion Index
are issued by companies with relatively small market capitalization. The stock prices of smaller companies may be more volatile
than stock prices of large capitalization companies. Small capitalization companies may be less able to withstand adverse economic,
market, trade and competitive conditions relative to larger companies. 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 Trigger PLUS are subject to currency exchange risk. Because the prices of
the equity securities underlying the ETF Shares are converted into U.S. dollars for the purposes of calculating the net asset value
of the ETF Shares, holders of the Trigger PLUS will be exposed to currency exchange rate risk with respect to each of the currencies
in which securities underlying the ETF Shares are traded. Your net exposure will depend on the extent to which those currencies
strengthen or weaken against the U.S. dollar and the relative weight of the equity securities underlying the ETF shares denominated
in each of those currencies. If, taking into account the relative weightings, the U.S. dollar strengthens against those currencies,
the price of the ETF Shares will be adversely affected and the amount we pay you at maturity, if any, may be reduced. Of particular
importance to potential currency exchange risk are: |
| o | existing and expected rates of inflation; |
| o | existing and expected interest rate levels; |
| o | the balance of payments in the countries issuing those currencies and the United States
and between each country and its major trading partners; |
| o | political, civil or military unrest in the countries issuing those currencies and the
United States; and |
| o | the extent of government surpluses or deficits in the countries issuing those currencies
and the United States. |
All
of these factors are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of the countries issuing
those currencies and the United States and other countries important to international trade and finance.
| § | Owning the Trigger PLUS is not the same as owning the ETF
Shares. Owning the Trigger PLUS is not
the same as owning the ETF Shares. Accordingly, changes in the closing price of one ETF Share may not result in a comparable change
of the market value of the Trigger PLUS. If
the closing price of one ETF Share on any trading day increases above the initial share price, the value of the Trigger PLUS may
not increase comparably, if at all. It is possible for the closing price of the ETF Shares to increase moderately while the value
of the Trigger PLUS declines. |
| § | The anti-dilution protection for the ETF Shares is limited. The
calculation agent will make adjustments to the share adjustment factor for certain events affecting the ETF Shares.
However, the calculation agent |
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
will
not make an adjustment in response to all events that could affect the ETF Shares.
If an event occurs that does not require the calculation
agent to make an adjustment, the value of the Trigger PLUS may be materially and adversely affected.
| § | Hedging and trading activities by the issuer and its affiliates could potentially affect the value of the Trigger
PLUS. The hedging or trading activities of the issuer’s affiliates and of any other hedging counterparty with
respect to the Trigger PLUS on
or prior to the pricing date and prior to maturity could adversely affect the value of the ETF Shares, and, as a result, could
decrease the amount an investor may receive on the Trigger PLUS at maturity, if any. Any of these hedging or trading activities
on or prior to the pricing date could potentially affect the initial share price and the trigger level and, therefore, could potentially
increase the level that the final share price must reach before you receive a payment at maturity that exceeds the issue price
of the Trigger PLUS or so that you do not suffer a loss on your initial investment in the Trigger PLUS. Additionally, these hedging
or trading activities during the term of the Trigger
PLUS, including on the valuation date, could adversely affect the final share price and, accordingly, the amount of cash
an investor will receive at maturity. It is possible that these hedging or trading activities could result in substantial returns
for us or our affiliates while the value of the Trigger PLUS declines. |
| § | Secondary trading may be limited.
The Trigger PLUS will not be listed on a securities exchange. There may be little or no secondary market for the
Trigger PLUS. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Trigger
PLUS easily. JPMS may act as a market maker
for the Trigger PLUS, but is not required to do so. Because we do not expect that other market makers will participate significantly
in the secondary market for the Trigger PLUS, the price at which you may be able to trade your Trigger PLUS is likely to depend
on the price, if any, at which JPMS is willing
to buy the Trigger PLUS. If at any time JPMS
or another agent does not act as a market maker, it is likely that there would be little or no secondary market for the Trigger
PLUS. |
| § | The final terms and valuation of the Trigger PLUS will be provided in the pricing supplement. The final terms of the
Trigger PLUS will be provided in the pricing supplement. In particular, each of JPMS’s estimated value and the leverage factor
will be provided in the pricing supplement and each may be as low as the applicable minimum set forth on the cover of this document.
Accordingly, you should consider your potential investment in the Trigger PLUS based on the minimums for JPMS’s estimated
value and the leverage factor. |
| § | The tax consequences of an investment in the Trigger PLUS are uncertain. There is no direct legal authority as to the
proper U.S. federal income tax characterization of the Trigger PLUS, and we do not intend to request a ruling from the IRS regarding
the Trigger PLUS. The IRS might not accept, and a court might not uphold, the treatment of the Trigger PLUS described in “Additional
Information about the Trigger PLUS ― Additional Provisions ― Tax considerations” in this document and in “Material
U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4a-I. If the IRS was successful in asserting
an alternative treatment, the timing and character of any income or loss on the Trigger PLUS could differ materially and adversely
from our description herein. |
Even if the treatment of the Trigger
PLUS is respected, the IRS may assert that the Trigger PLUS constitute “constructive ownership transactions” within
the meaning of Section 1260 of the Internal Revenue Code of 1986, as amended (the “Code”), in which case any gain recognized
in respect of the Trigger PLUS that would otherwise be long-term capital gain and that is in excess of the “net underlying
long-term capital gain” (as defined in Section 1260) would be treated as ordinary income, and a notional interest charge
would apply as if that income had accrued for tax purposes at a constant yield over the term of the Trigger PLUS. Our special tax
counsel has not expressed an opinion with respect to whether the constructive ownership rules apply to the Trigger PLUS.
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; 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. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the constructive ownership regime described above.
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 Trigger PLUS, possibly with retroactive effect.
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
You should review carefully the
section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4a-I and
consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the Trigger PLUS, including the
potential application of the constructive ownership rules, possible alternative treatments and the issues presented by this notice.
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Vanguard FTSE
Emerging Markets ETF Overview
The Vanguard FTSE Emerging Markets ETF is an exchange-traded
fund of Vanguard International Equity Index Funds, a registered investment company. The Vanguard FTSE Emerging Markets ETF seeks
to track the performance of a benchmark index that measures the investment return of stocks issued by companies located in emerging
market countries, which we refer to as the underlying index with respect to the Vanguard FTSE Emerging Markets ETF. The underlying
index is currently the FTSE Emerging Markets All Cap China A Inclusion Transition Index (the “Interim Index”). After
a transition period of approximately 12 months, the Vanguard FTSE Emerging Markets ETF will track the performance of the FTSE Emerging
Markets All Cap China A Inclusion Index (the “Target Index”). Prior to November 2, 2015, the Vanguard FTSE Emerging
Markets ETF sought to track the performance of the FTSE Emerging Index, a market-capitalization weighted index representing the
performance of large- and mid-cap companies in emerging markets. For more information about the FTSE Emerging Index, please
see “Equity Index Descriptions — The FTSE GEIS Indices” in the accompanying underlying supplement no. 1a-I. Information
provided to or filed with the SEC by Vanguard International Equity Index Funds pursuant to the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, can be located by reference to the SEC file numbers 333-32548 and 811-05972, respectively, through
the SEC’s website at http://www.sec.gov. In addition, information may be obtained from other sources including, but not limited
to, press releases, newspaper articles and other publicly disseminated documents.
For additional information about the Interim Index and the Target
Index, see the information set forth under “— The FTSE Emerging Markets All Cap China A Inclusion Transition Index
” and “— The FTSE Emerging Markets All Cap China A Inclusion Index” below.
On November 2, 2015, the Vanguard FTSE Emerging Markets ETF ceased
tracking the FTSE Emerging Index and began tracking the Interim Index. Over a period of approximately 12 months, through gradually
increasing exposure to small-capitalization stocks and China A-Shares to the FTSE Emerging Index, the Interim Index will eventually
replicate the Target Index. China A-shares, which are securities of Chinese incorporated companies that are quoted in Renminbi,
can only be traded by either residents of the People’s Republic of China or under the qualified foreign institutional investor
(“QFII”) rules and stock connect schemes. After the transition period when the Vanguard FTSE Emerging Markets ETF tracks
the Interim Index, the Vanguard FTSE Emerging Markets ETF will begin to track the Target Index, which will be quota-adjusted by
FTSE to take into account the quota amount allocated to foreign investors by the Chinese regulator.
During both the transition and final benchmark phases, the Vanguard
FTSE Emerging Markets ETF will invest by sampling the relevant index, meaning that it will hold a broadly diversified collection
of securities that, in the aggregate, approximates the full index in terms of key characteristics.
For additional information about the Vanguard FTSE Emerging Markets
ETF, see the information set forth under “Fund Descriptions — The Vanguard FTSE Emerging Markets ETF” in the
accompanying underlying supplement no. 1a-I.
Information as of market close
on November 24, 2015:
Bloomberg Ticker Symbol: |
VWO |
Current Closing Price: |
$35.02 |
52 Weeks Ago (on 11/24/2014): |
$42.78 |
52 Week High (on 4/28/2015): |
$44.97 |
52 Week Low (on 9/28/2015): |
$31.96 |
The following table sets forth the published high and low closing
prices, as well as end-of-quarter closing prices, of the ETF Shares for each quarter in the period from January 1, 2010 through
November 24, 2015. The closing price of one ETF Share on November 24, 2015 was $35.02. The associated graph shows the
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
closing prices of one ETF Share for each day in the same period.
We obtained the closing price information above and the information in the table and graph below from the Bloomberg Professional®
service (“Bloomberg”), without independent verification. The closing prices may have been adjusted by Bloomberg for
actions taken relating to the ETF Shares such as stock splits. The historical closing prices of the ETF Shares should not be taken
as an indication of future performance, and no assurance can be given as to the closing price of one ETF Share on the valuation
date.
Vanguard
FTSE Emerging Markets ETF |
High |
Low |
Period
End |
2010 |
|
|
|
First Quarter |
$42.80 |
$36.85 |
$42.18 |
Second Quarter |
$43.98 |
$36.38 |
$37.99 |
Third Quarter |
$45.40 |
$38.22 |
$45.40 |
Fourth Quarter |
$49.32 |
$45.54 |
$48.15 |
2011 |
|
|
|
First Quarter |
$48.92 |
$45.00 |
$48.92 |
Second Quarter |
$50.71 |
$46.44 |
$48.62 |
Third Quarter |
$49.52 |
$35.89 |
$35.89 |
Fourth Quarter |
$43.47 |
$35.20 |
$38.21 |
2012 |
|
|
|
First Quarter |
$45.09 |
$38.57 |
$43.47 |
Second Quarter |
$43.99 |
$37.08 |
$39.95 |
Third Quarter |
$43.25 |
$38.28 |
$41.75 |
Fourth Quarter |
$44.53 |
$40.44 |
$44.53 |
2013 |
|
|
|
First Quarter |
$45.45 |
$42.24 |
$42.89 |
Second Quarter |
$44.79 |
$36.53 |
$38.78 |
Third Quarter |
$42.94 |
$37.16 |
$40.11 |
Fourth Quarter |
$42.91 |
$39.96 |
$41.14 |
2014 |
|
|
|
First Quarter |
$40.58 |
$36.67 |
$40.58 |
Second Quarter |
$43.86 |
$40.46 |
$43.13 |
Third Quarter |
$46.49 |
$41.62 |
$41.71 |
Fourth Quarter |
$43.09 |
$37.71 |
$40.02 |
2015 |
|
|
|
First Quarter |
$42.02 |
$38.74 |
$40.87 |
Second Quarter |
$44.97 |
$40.34 |
$40.88 |
Third Quarter |
$41.07 |
$31.96 |
$33.09 |
Fourth Quarter (through November 24, 2015) |
$36.41 |
$33.20 |
$35.02 |
Shares
of the Vanguard FTSE Emerging Markets ETF
Daily
Closing Prices
January
4, 2010 to November 24, 2015 |
|
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
This document relates only to the Trigger PLUS offered hereby
and does not relate to the ETF Shares. We have derived all disclosures contained in this document regarding the Vanguard FTSE Emerging
Markets ETF from the publicly available documents described in the first paragraph under this “Vanguard FTSE Emerging Markets
ETF Overview” section, without independent verification. In connection with the offering of the Trigger PLUS, neither we
nor the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the Vanguard
FTSE Emerging Markets ETF. Neither we nor the agent makes any representation that such publicly available documents or any other
publicly available information regarding the Vanguard FTSE Emerging Markets ETF is accurate or complete. Furthermore, we cannot
give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness
of the publicly available documents described in the first paragraph under this “Vanguard FTSE Emerging Markets ETF Overview”
section) that would affect the trading price of the ETF Shares (and therefore the price of the ETF Shares at the time we price
the Trigger PLUS) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose
material future events concerning the Vanguard FTSE Emerging Markets ETF could affect the value received at maturity with respect
to the Trigger PLUS and therefore the trading prices of the Trigger PLUS.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the ETF Shares.
The FTSE Emerging Markets All Cap China A Inclusion Transition
Index. We have derived all information contained in this document regarding the Interim Index, including, without limitation,
its make-up, method of calculation and changes in its components, from publicly available information, without independent verification.
This information reflects the policies of, and is subject to change by, FTSE International Limited (“FTSE”). FTSE has
no obligation to continue to publish, and may discontinue publication of, the Interim Index.
The Interim Index will be calculated over twelve months and at
the start of the transition will contain only constituents of the FTSE Emerging Index. On a monthly basis, a proportion of small-capitalization
and China A-share companies will be added until at the end of the year-long transition, the composition is aligned with the Target
Index. The weight of China A-shares and small-capitalization companies will be adjusted after the third Friday of each month using
a factor approach. At the start of the index calculation, China A-shares and small-capitalization companies will have a factor
of 0 applied to their free-float adjusted market capitalizations. Each month, the factor will be increased by 8.33%. At month 12,
the full weight of China A-shares and small cap companies will have been added to the Interim Index and the index constituents
and weightings will be aligned with the Target Index.
The constituents’ weights in the Interim Index are neutralized
between transition reviews when a corporate event leads to a rise or fall in index weighting for a constituent could potentially
be reversed at the next monthly transition review. This may cause FTSE to adjust the factor applied to an index constituent’s
market capitalization.
The FTSE Emerging Markets All Cap China A Inclusion Index.
We have derived all information contained in this document regarding the Target Index, including, without limitation, its make-up,
method of calculation and changes in its components, from publicly available information, without independent verification. This
information reflects the policies of, and is subject to change by, FTSE. FTSE has no obligation to continue to publish, and may
discontinue publication of, the Target Index.
The Target Index is a market-capitalization weighted index representing
the performance of large, mid and small-cap companies in emerging markets. The Target Index was launched on June 5, 2015, with
a base date of December 31, 2005 and a base value of 1,000.
The Target Index will apply the same methodology as the FTSE
Emerging Index, except the Target Index will include small capitalization stocks and China A-shares at a weighting equivalent to
the aggregate QFII and/or Renminbi QFII (“RQFII”) approved quota for international investors. The China A-shares weighting
will
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
increase as total QFII and RQFII allocations increase. A built-in
mechanism ensures that the allocation of China A-shares is adjusted proportional to the changes in the approved quota and is in
line with the accessibility available to international investors.
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Additional Information about the Trigger PLUS
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Provisions: |
Postponement
of maturity date: |
If the scheduled maturity date is not a business day, then the maturity date will be the following business day. If the scheduled valuation date is not a trading day or if a market disruption event occurs on that day so that the valuation date is postponed and falls less than three business days prior to the scheduled maturity date, the maturity date of the Trigger PLUS will be postponed to the third business day following the valuation date as postponed. |
Minimum
ticketing size: |
$1,000 / 100 Trigger PLUS |
Trustee: |
Deutsche Bank Trust Company Americas (formerly Bankers Trust Company) |
Calculation
agent: |
JPMS |
JPMS’s
estimated value of the Trigger PLUS: |
JPMS’s estimated value of the Trigger PLUS set forth on
the cover of this document is equal to the sum of the values of the following hypothetical components: (1) a fixed-income debt
component with the same maturity as the Trigger PLUS, valued using our internal funding rate for structured debt described below,
and (2) the derivative or derivatives underlying the economic terms of the Trigger PLUS. JPMS’s estimated value does not
represent a minimum price at which JPMS would be willing to buy your Trigger PLUS in any secondary market (if any exists) at any
time. The internal funding rate used in the determination of JPMS’s estimated value generally represents a discount from
the credit spreads for our conventional fixed-rate debt. For additional information, see “Risk Factors — JPMS’s
estimated value is not determined by reference to credit spreads for our conventional fixed-rate debt.” The value of the
derivative or derivatives underlying the economic terms of the Trigger PLUS is derived from JPMS’s internal pricing models.
These models are dependent on inputs such as the traded market prices of comparable derivative instruments and on various other
inputs, some of which are market-observable, and which can include volatility, dividend rates, interest rates and other factors,
as well as assumptions about future market events and/or environments. Accordingly, JPMS’s estimated value of the Trigger
PLUS on the pricing date is based on market conditions and other relevant factors and assumptions existing at that time. See “Risk
Factors — JPMS’s estimated value does not represent future values of the Trigger PLUS and may differ from others’
estimates.”
JPMS’s estimated value of
the Trigger PLUS will be lower than the original issue price of the Trigger PLUS because costs associated with selling, structuring
and hedging the Trigger PLUS are included in the original issue price of the Trigger PLUS. These costs include the selling commissions
paid to JPMS and other affiliated or unaffiliated dealers, the structuring fee, the projected profits, if any,
that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the Trigger PLUS and the estimated
cost of hedging our obligations under the Trigger PLUS. Because hedging our obligations entails risk and may be influenced by market
forces beyond our control, this hedging may result in a profit that is more or less than expected, or it may result in a loss.
We or one or more of our affiliates will retain any profits realized in hedging our obligations under the Trigger PLUS. See “Risk
Factors — JPMS’s estimated value of the Trigger PLUS will be lower than the original issue price (price to public)
of the Trigger PLUS” in this document.
|
Secondary
market prices of the Trigger PLUS: |
For information about factors that will impact any secondary market prices of the Trigger PLUS, see “Risk Factors — Secondary market prices of the Trigger PLUS will be impacted by many economic and market factors” in this document. In addition, we generally expect that some of the costs included in the original issue price of the Trigger PLUS will be partially paid back to you in connection with any repurchases of your Trigger PLUS by JPMS in an amount that will decline to zero over an initial predetermined period that is intended to be the shorter of six months and one-half of the stated term of the Trigger PLUS. The length of any such initial period reflects the structure of the Trigger PLUS, whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated costs of hedging the Trigger PLUS and when these costs are incurred, as determined by JPMS. See “Risk Factors — The value of the Trigger PLUS as published by JPMS (and which may be reflected on customer account statements) may be higher than JPMS’s then-current estimated value of the Trigger PLUS for a limited time period.” |
Tax
considerations: |
You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4a-I. The following discussion, |
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
when read in combination with that section, constitutes the full
opinion of our special tax counsel, Davis Polk & Wardwell LLP, regarding the material U.S. federal income tax consequences
of owning and disposing of the Trigger PLUS.
Based on current market conditions, in the opinion of our special
tax counsel, your Trigger PLUS should be treated as “open transactions” that are not debt instruments for U.S. federal
income tax purposes, as more fully described in “Material U.S. Federal Income Tax Consequences — Tax Consequences to
U.S. Holders — Notes Treated as Open Transactions That Are Not Debt Instruments” in the accompanying product supplement
no. 4a-I. Assuming this treatment is respected, subject to the possible application of the “constructive ownership”
rules, the gain or loss on your Trigger PLUS should be treated as long-term capital gain or loss if you hold your Trigger PLUS
for more than a year, whether or not you are an initial purchaser of Trigger PLUS at the issue price. The Trigger PLUS could be
treated as “constructive ownership transactions” within the meaning of Section 1260 of the Code, in which case any
gain recognized in respect of the Trigger PLUS that would otherwise be long-term capital gain and that was in excess of the “net
underlying long-term capital gain” (as defined in Section 1260) would be treated as ordinary income, and a notional interest
charge would apply as if that income had accrued for tax purposes at a constant yield over the term of the Trigger PLUS. Our special
tax counsel has not expressed an opinion with respect to whether the constructive ownership rules apply to the Trigger PLUS. Accordingly,
U.S. Holders should consult their tax advisers regarding the potential application of the constructive ownership rules.
The IRS or a court may not respect the treatment of the Trigger
PLUS described above, in which case the timing and character of any income or loss on the Trigger PLUS could be materially and
adversely 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; 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. investors should be subject to withholding tax; and whether these instruments are or should be subject
to the constructive ownership regime described above. 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 Trigger PLUS, possibly with retroactive effect. You should consult your tax
adviser regarding the U.S. federal income tax consequences of an investment in the Trigger PLUS, including the potential application
of the constructive ownership rules, possible alternative treatments and the issues presented by this notice.
Withholding under legislation commonly referred to as “FATCA”
may (if the Trigger PLUS are recharacterized as debt instruments) apply to amounts treated as interest paid with respect to the
Trigger PLUS, as well as to payments of gross proceeds of a taxable disposition, including redemption at maturity, of a Trigger
PLUS. However, under a recent IRS notice, this regime will not apply to payments of gross proceeds (other than any amount
treated as interest) with respect to dispositions occurring before January 1, 2019. You should consult your tax adviser regarding
the potential application of FATCA to the Trigger PLUS.
Non-U.S. holders should also note that, notwithstanding anything
to the contrary in the accompanying product supplement no. 4a-I, recently promulgated Treasury regulations imposing a withholding
tax on certain “dividend equivalents” under certain “equity linked instruments” will not apply to the Trigger
PLUS.
|
Supplemental use of proceeds and hedging: |
The Trigger PLUS are offered to meet investor demand for products
that reflect the risk-return profile and market exposure provided by the Trigger PLUS. See “How the Trigger PLUS Work”
in this document for an illustration of the risk-return profile of the Trigger PLUS and “Vanguard FTSE Emerging Markets ETF
Overview” in this document for a description of the market exposure provided by the Trigger PLUS.
The original issue price of the Trigger PLUS is equal
to JPMS’s estimated value of the Trigger PLUS plus the selling commissions paid to JPMS and other affiliated or unaffiliated
dealers and the structuring fee, plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming
risks inherent in hedging our obligations under the Trigger PLUS, plus the estimated cost of hedging our obligations under the
Trigger PLUS. |
Benefit plan investor considerations: |
See “Benefit Plan Investor Considerations” in the accompanying product supplement no. 4a-I. |
Trigger PLUS Based on the Performance of the Vanguard FTSE Emerging Markets ETF due December 9, 2021
Trigger Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Supplemental plan of distribution: |
Subject to regulatory constraints, JPMS intends to use its reasonable
efforts to offer to purchase the Trigger PLUS in the secondary market, but is not required to do so. JPMS, acting as agent for
JPMorgan Chase & Co., will pay all of the selling commissions it receives from us to Morgan Stanley Wealth Management. In addition,
Morgan Stanley Wealth Management will receive a structuring fee as set forth on the cover of this document for each Trigger PLUS.
We or our affiliate may enter into swap agreements or
related hedge transactions with one of our other affiliates or unaffiliated counterparties in connection with the sale of the
Trigger PLUS and JPMS and/or an affiliate may earn additional income as a result of payments pursuant to the swap or related hedge
transactions. See “— Supplemental use of proceeds and hedging” above and “Use of Proceeds and Hedging”
on page PS-42 of the accompanying product supplement no. 4a-I. |
Contact: |
Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or Morgan Stanley’s principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (800) 869-3326). |
Where
you can find more information: |
JPMorgan Chase & Co. has filed a registration statement (including
a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus
in that registration statement and the other documents relating to this offering that JPMorgan Chase & Co. has filed with the
SEC for more complete information about JPMorgan Chase & Co. and this offering. You may get these documents without cost by
visiting EDGAR on the SEC website at www.sec.gov. Alternatively, JPMorgan Chase & Co., any agent or any dealer participating
in this offering will arrange to send you the prospectus, the prospectus supplement, product supplement no. 4a-I, underlying supplement
no. 1a-I and this communication if you so request by calling toll-free (800)-869-3326.
You may revoke your offer to purchase the Trigger PLUS 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 Trigger PLUS prior to their issuance. In the event of any changes to the terms of the
Trigger PLUS, we will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose
to reject such changes in which case we may reject your offer to purchase.
You should read this document together with the prospectus, as
supplemented by the prospectus supplement, each dated November 7, 2014, relating to our Series E medium-term notes of which these
Trigger PLUS are a part, and the more detailed information contained in product supplement no. 4a-I dated November 7, 2014 and
underlying supplement no. 1a-I dated November 7, 2014.
This document, together with the documents listed below, contains
the terms of the Trigger PLUS and supersedes all other prior or contemporaneous oral statements as well as any other written materials
including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures,
stand-alone fact sheets, brochures or other educational materials of ours. You should carefully consider, among other things, the
matters set forth in “Risk Factors” in the accompanying product supplement no. 4a-I and “Risk Factors”
in the accompanying underlying supplement no. 1a-I, as the Trigger PLUS 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 Trigger PLUS.
You may access these documents on the SEC website at www.sec.gov
as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
• Product supplement no. 4a-I dated November 7, 2014:
http://www.sec.gov/Archives/edgar/data/19617/000089109214008407/e61359_424b2.pdf
• Underlying supplement no. 1a-I dated November 7, 2014:
http://www.sec.gov/Archives/edgar/data/19617/000089109214008410/e61337_424b2.pdf
• Prospectus supplement and prospectus, each
dated November 7, 2014:
http://www.sec.gov/Archives/edgar/data/19617/000089109214008397/e61348_424b2.pdf
Our Central Index Key, or CIK, on the SEC website is 19617.
As used in this document, “we,” “us,”
and “our” refer to JPMorgan Chase & Co.
“Performance Leveraged Upside SecuritiesSM”
and “PLUSSM” are service marks of Morgan Stanley. |
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