The information in this preliminary
pricing supplement is not complete and may be changed. This preliminary pricing supplement is not an offer to sell nor does it
seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion dated February
11, 2016
Pricing supplement no.
To prospectus dated November 7, 2014,
prospectus supplement dated November 7, 2014,
product supplement no. 4a-I dated November 7, 2014 and
underlying supplement no. 1a-I dated November 7, 2014 |
Registration Statement No. 333-199966
Dated February , 2016
Rule 424(b)(2) |
|
Structured Investments |
$
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF due February 15, 2019 |
General
| · | The notes are designed for investors who seek early exit prior to maturity
at a premium if, (1) with respect to any Review Date (other than the final Review Date), the closing price of one share of the
SPDR® S&P® Oil & Gas Exploration & Production ETF on that Review Date is at or above
the Call Price or, (2) with respect to the final Review Date, the Final Share Price is at or above the Call Price applicable to
the final Review Date. If the notes are not automatically called and the Final Share Price is less than the Initial Share Price
by more than the Contingent Buffer Amount of 50%, investors will lose more than 50% of their principal amount at maturity and may
lose all of their principal amount at maturity. |
| · | Investors in the notes should be willing to accept this risk of loss
and be willing to forgo interest and dividend payments, in exchange for the opportunity to receive a premium payment if the notes
are automatically called. |
| · | The earliest date on which an automatic call may be initiated is February
24, 2017†. |
| · | The notes are unsecured and unsubordinated obligations of JPMorgan Chase
& Co. Any payment on the notes is subject to the credit risk of JPMorgan Chase & Co. |
| · | Minimum denominations of $10,000 and integral multiples of $1,000 in
excess thereof |
Key Terms
Fund: |
The SPDR® S&P® Oil & Gas Exploration & Production ETF (Bloomberg ticker: XOP). For additional information about the Fund, see the information set forth in Appendix A to this pricing supplement. |
Automatic Call: |
If (1) with respect to any Review Date (other than the final Review Date), the closing price of one share of the Fund on that Review Date is greater than or equal to the Call Price or, (2) with respect to the final Review Date, the Final Share Price is greater than or equal to the Call Price, the notes will be automatically called for a cash payment per note that will be payable on the applicable Call Settlement Date and that will vary depending on the applicable Review Date and call premium. |
Call Price: |
80% of the Initial Share Price for each Review Date |
Payment if Called: |
For every $1,000 principal amount note, you will receive one
payment of $1,000 plus a call premium amount, calculated as follows:
• at least 16.00%* ×$1,000 if automatically called
on the first Review Date
• at least 32.00%* × $1,000 if automatically called
on the second Review Date
• at least 48.00%* × $1,000 if automatically called
on the final Review Date
*The actual call premiums applicable to the first, second and
final Review Dates will be provided in the pricing supplement, and will not be less than 16.00%, 32.00% and 48.00%, respectively. |
Payment at Maturity: |
If the notes are not automatically called and the Final Share
Price is less than the Initial Share Price by up to 50%, you will receive the principal amount of your notes at maturity.
If the notes are not automatically called and the Final Share
Price is less than the Initial Share Price by more than 50%, you will lose 1% of the principal amount of your notes for every 1%
that the Final Share Price is less than the Initial Share Price. Under these circumstances, your payment at maturity per $1,000
principal amount note will be calculated as follows:
$1,000 + ($1,000 × Fund Return)
If the notes are not automatically called and the Final Share
Price is less than the Initial Share Price by more than 50%, you will lose more than 50% of your principal amount at maturity and
may lose all of your principal amount at maturity. |
Contingent Buffer Amount: |
50% |
Fund Return: |
(Final Share Price – Initial Share Price)
Initial
Share Price |
Initial Share Price: |
The closing price of one share of the Fund on the Pricing Date |
Final Share Price: |
The arithmetic average of the closing prices of one share of the Fund on the Ending Averaging Dates |
Share Adjustment Factor: |
The Share
Adjustment Factor is referenced in determining the closing price of one share of the Fund and is set initially at 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 no.
4a-I for further information about these adjustments. |
Pricing Date: |
On or about February 12, 2016 |
Original Issue Date (Settlement Date): |
On or about February 18, 2016 |
Review Dates†: |
February 24, 2017, February 12, 2018 and February 12, 2019 (final Review Date) |
Ending Averaging Dates†: |
February 6, 2019, February 7, 2019, February 8, 2019, February 11, 2019 and February 12, 2019 |
Call Settlement Date†: |
The third business day after the applicable Review Date, except that if the notes are called on the final Review Date, the Call Settlement Date will be the Maturity Date |
Maturity Date†: |
February 15, 2019 |
CUSIP: |
48128GND8 |
| † | 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)” and “General
Terms of Notes — Postponement of a Payment Date” in the accompanying product supplement no. 4a-I |
Investing in the notes 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 1a-I and “Selected Risk Considerations” beginning on page TS-4
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 |
$ |
$ |
Total |
$ |
$ |
$ |
| (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 Chase & Co., will pay all of the selling commissions it receives from us to other affiliated or unaffiliated dealers.
In no event will these selling commissions exceed $20.00 per $1,000 principal amount note. See “Plan of Distribution (Conflicts
of Interest)” beginning on page PS-87 of the accompanying product supplement no. 4a-I. |
If the notes priced today, the estimated value of the notes
as determined by JPMS would be approximately $939.20 per $1,000 principal amount note. JPMS’s estimated value of the notes,
when the terms of the notes are set, will be provided by JPMS in the pricing supplement and will not be less than $900.00 per $1,000
principal amount note. See “JPMS’s 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.
February , 2016
Additional Terms Specific to the Notes
You may revoke your offer to purchase the notes at any time
prior to the time at which we accept such offer by notifying the applicable agent. We reserve the right to change the terms of,
or reject any offer to purchase, the notes prior to their issuance. In the event of any changes to the terms of the notes, 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 pricing supplement 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
notes 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 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 “Risk Factors” in the accompanying product supplement no. 4a-I and “Risk Factors” in the accompanying
underlying supplement no. 1a-I, 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 19617.
As used in this pricing supplement, “we,” “us” and “our” refer to JPMorgan Chase & Co.
JPMorgan Structured Investments — | PS-1 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
Hypothetical Examples of Amount Payable
upon Automatic Call or at Maturity
The following table illustrates the hypothetical simple total
return (i.e., not compounded) on the notes that could be realized with respect to the applicable Review Date for a range
of movements in the Fund as shown under the columns “Fund Price Appreciation/Depreciation at Review Date” and “Fund
Return.” The following table assumes a hypothetical Initial Share Price of $25 and a hypothetical Call Price of $20 (equal
to 80% of the hypothetical Initial Share Price) and reflects the Contingent Buffer Amount of 50%. The table assumes that the call
premiums used to calculate the call premium amount applicable to the first, second and final Review Dates are 16.00%, 32.00% and
48.00%, respectively, regardless of the appreciation of the Fund, which may be significant. The actual call premiums will be provided
in the pricing supplement and will not be less than 16.00%, 32.00% and 48.00%, respectively. There will be only one payment on
the notes whether called or at maturity. An entry of “N/A” indicates that the notes would not be called on the applicable
Review Date and no payment would be made on the applicable Call Settlement Date. Each hypothetical return set forth below is for
illustrative purposes only and may not be the actual total return applicable to a purchaser of the notes. The numbers appearing
in the following table have been rounded for ease of analysis.
Review Dates Prior to the Final Review Date |
Final Review Date |
Closing Price at Review Date |
Fund Price
Appreciation/
Depreciation at
Review Date |
Total
Return at First
Call Settlement Date |
Total
Return at
Second
Call Settlement Date |
Final Share Price (1) |
Fund Return |
Total Return
at
Maturity |
$45.0000 |
80.00% |
16.00% |
32.00% |
$45.0000 |
80.00% |
48.00% |
$42.5000 |
70.00% |
16.00% |
32.00% |
$42.5000 |
70.00% |
48.00% |
$40.0000 |
60.00% |
16.00% |
32.00% |
$40.0000 |
60.00% |
48.00% |
$37.5000 |
50.00% |
16.00% |
32.00% |
$37.5000 |
50.00% |
48.00% |
$35.0000 |
40.00% |
16.00% |
32.00% |
$35.0000 |
40.00% |
48.00% |
$32.5000 |
30.00% |
16.00% |
32.00% |
$32.5000 |
30.00% |
48.00% |
$30.0000 |
20.00% |
16.00% |
32.00% |
$30.0000 |
20.00% |
48.00% |
$27.5000 |
10.00% |
16.00% |
32.00% |
$27.5000 |
10.00% |
48.00% |
$25.0000 |
0.00% |
16.00% |
32.00% |
$25.0000 |
0.00% |
48.00% |
$23.7500 |
-5.00% |
16.00% |
32.00% |
$23.7500 |
-5.00% |
48.00% |
$22.5000 |
-10.00% |
16.00% |
32.00% |
$22.5000 |
-10.00% |
48.00% |
$20.0000 |
-20.00% |
16.00% |
32.00% |
$20.0000 |
-20.00% |
48.00% |
$17.5000 |
-30.00% |
N/A |
N/A |
$17.5000 |
-30.00% |
0.00% |
$15.0000 |
-40.00% |
N/A |
N/A |
$15.0000 |
-40.00% |
0.00% |
$12.5000 |
-50.00% |
N/A |
N/A |
$12.5000 |
-50.00% |
0.00% |
$12.4975 |
-50.01% |
N/A |
N/A |
$12.4975 |
-50.01% |
-50.01% |
$10.0000 |
-60.00% |
N/A |
N/A |
$10.0000 |
-60.00% |
-60.00% |
$7.5000 |
-70.00% |
N/A |
N/A |
$7.5000 |
-70.00% |
-70.00% |
$5.0000 |
-80.00% |
N/A |
N/A |
$5.0000 |
-80.00% |
-80.00% |
$2.5000 |
-90.00% |
N/A |
N/A |
$2.5000 |
-90.00% |
-90.00% |
$0.0000 |
-100.00% |
N/A |
N/A |
$0.0000 |
-100.00% |
-100.00% |
(1) The Final Share Price is equal to the arithmetic average
of the closing prices of one share of the Fund on the Ending Averaging Dates.
The following examples illustrate how the payment upon an automatic
call or at maturity in different hypothetical scenarios is calculated.
Example 1: The price of one share of the Fund increases
from the Initial Share Price of $25 to a closing price of $27.50 on the first Review Date. Because the closing price of one
share of the Fund on the first Review Date of $27.50 is greater than the Call Price of $20, the notes are automatically called,
and the investor receives a single payment of $1,160 per $1,000 principal amount note on the first Call Settlement Date.
Example 2: The price of one share of the Fund decreases
from the Initial Share Price of $25 to a closing price of $20 on the first Review Date. Because the closing price of one share
of the Fund on the first Review Date is equal to the Call Price, the notes are automatically called, and the investor receives
a single payment of $1,160 per $1,000 principal amount note.
Example 3: The price of one share of the Fund decreases
from the Initial Share Price of $25 to closing prices of $17.50 and $15 on the first and second Review Dates, respectively, and
increases from the Initial Share Price of $25 to a Final Share Price of $27.50. Because the closing price of one share of the
Fund on each of the first two Review Dates ($17.50 and $15) is less than the Call Price of $20, the notes are not automatically
called on these Review Dates. However, because the Final Share Price of $27.50 is greater than the Call Price of $20, the notes
are automatically called on the final Review Date, and the investor receives a single payment at maturity of $1,480 per $1,000
principal amount note.
Example 4: The price of one share of the Fund decreases
from the Initial Share Price of $25 to closing prices of $17.50 and $15 on the first and second Review Dates, respectively, and
to a Final Share Price of $12.50. Because
JPMorgan Structured Investments — | PS-2 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
(a) the closing price of one share of the Fund on each of the
first two Review Dates ($17.50 and $15) is less than the Call Price of $20 and (b) the Final Share Price of $12.50 is less than
the Initial Share Price by up to the Contingent Buffer Amount of 50%, the notes are not automatically called and the payment at
maturity is the principal amount of $1,000 per $1,000 principal amount note.
Example 5: The price of one share of the Fund decreases
from the Initial Share Price of $25 to closing prices of $17.50 and $15 on the first and second Review Dates, respectively, and
to a Final Share Price of $7.50. Because (a) the closing price of one share of the Fund on each of the first two Review Dates
($17.50 and $15) is less than the Call Price of $20, and (b) the Final Share Price of $7.50 is less than the Initial Share Price
by more than the Contingent Buffer Amount of 50%, the notes are not automatically called and the investor receives a payment at
maturity that is less than the principal amount for each $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × -70%) = $300
The hypothetical returns and hypothetical payments on the notes
shown above apply only if you hold the notes for their entire term or until automatically called. These hypotheticals do
not reflect fees or expenses that would be associated with any sale in the secondary market. If these fees and expenses were included,
the hypothetical returns and hypothetical payments shown above would likely be lower.
Selected Purchase Considerations
| · | APPRECIATION POTENTIAL — If (1) with respect to any Review
Date (other than the final Review Date), the closing price of one share of the Fund is greater than or equal to the Call Price
on that Review Date or, (2) with respect to the final Review Date, the Final Share Price is greater than or equal to the Call Price,
your investment will yield a payment per $1,000 principal amount note of $1,000 plus: (i) at least 16.00%* × $1,000
if automatically called on the first Review Date, (ii) at least 32.00%* × $1,000 if automatically called on the second Review
Date; or (iii) at least 48.00%* × $1,000 if automatically called on the final Review Date. Because the notes are our unsecured
and unsubordinated obligations, payment of any amount on the notes is subject to our ability to pay our obligations as they become
due. |
*The actual call premiums applicable
to the first, second and final Review Dates will be provided in the pricing supplement and will not be less than 16.00%, 32.00%
and 48.00%, respectively.
| · | POTENTIAL FOR A RETURN BASED ON THE CALL PREMIUM EVEN
IF THE FUND RETURN IS NEGATIVE — The Call Price is set at 80% of the Initial Share Price. Accordingly, on any Review
Date, you will receive the applicable Call Premium even if, (1) with respect to any Review Date (other than the final Review Date),
the closing price of one share of the Fund on that Review Date is less than the Initial Share Price by up to 20% or, (2) with
respect to the final Review Date, the Final Share Price is less than the Initial Share Price by up to 20%. |
| · | Potential Early Exit With Appreciation
As a Result of Automatic Call Feature — While the original
term of the notes is approximately three years, the notes will be automatically called before maturity if, (1) with respect to
any Review Date (other than the final Review Date), the closing price of one share of the Fund on that Review Date is at or above
the Call Price or, (2) with respect to the final Review Date, the Final Share Price is at or above the Call Price, and you will
be entitled to the applicable payment corresponding to the relevant Review Date as set forth on the cover of this pricing supplement. |
| · | LIMITED PROTECTION AGAINST LOSS — If the notes are not
automatically called and the Final Share Price is less than the Initial Share Price by up to the Contingent Buffer Amount of 50%,
you will be entitled to the full repayment of your principal at maturity. If the Final Share Price is less than the Initial Share
Price by more than 50%, for every 1% that the Final Share Price is less than the Initial Share Price, you will lose an amount equal
to 1% of the principal amount of your notes. Under these circumstances, you will lose more than 50% of your principal amount at
maturity and may lose all of your principal amount at maturity. |
| · | RETURN LINKED TO THE SPDR® S&P®
OIL & GAS EXPLORATION & PRODUCTION ETF — The return on the notes is linked to the SPDR® S&P®
Oil & Gas Exploration & Production ETF. The SPDR® S&P® Oil & Gas Exploration &
Production ETF is an exchange-traded fund of the SPDR® Series Trust, a registered investment company, that seeks
to provide investment results that, before fees and expenses, correspond generally to the total return performance of an index
derived from the oil and gas exploration and production segment of a U.S. total market composition index, which we refer to as
the Underlying Index with respect to the Fund. The Underlying Index for the Fund is currently the S&P® Oil &
Gas Exploration & Production Select Industry Index®. For additional information about the SPDR®
S&P® Oil & Gas Exploration & Production ETF, see the information set forth in Appendix A to this pricing
supplement. |
| · | TAX TREATMENT — 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, 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 notes. |
Based on current market conditions, in the opinion of
our special tax counsel it is reasonable to treat the notes 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
JPMorgan Structured Investments — | PS-3 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
Open Transactions That Are Not Debt Instruments”
in the accompanying product supplement no. 4a-I. Assuming this treatment is respected, the gain or loss on your notes should be
treated as long-term capital gain or loss if you hold your notes for more than a year, whether or not you are an initial purchaser
of notes at the issue price. However, the IRS or a court may not respect this treatment, in which case the timing and character
of any income or loss on the notes 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, which very generally can operate
to recharacterize certain long-term capital gain as ordinary income and impose a notional interest charge. While the notice requests
comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration
of these issues could materially and adversely affect the tax consequences of an investment in the notes, possibly with retroactive
effect. You should consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the notes, including
possible alternative treatments and the issues presented by this notice.
Withholding under legislation commonly referred to as
“FATCA” may (if the notes are recharacterized as debt instruments) apply to amounts treated as interest paid with respect
to the notes, as well as to payments of gross proceeds of a taxable disposition, including an automatic call or redemption at maturity,
of a note. 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 notes.
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 notes.
Selected Risk Considerations
An investment in the notes involves significant risks. Investing
in the notes is not equivalent to investing directly in the Fund or any of the equity securities held by the Fund. These risks
are explained in more detail in the “Risk Factors” section of the accompanying product supplement no. 4a-I and the
“Risk Factors” section of the accompanying underlying supplement 1a-I.
| · | YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The
notes do not guarantee any return of principal. If the notes are not automatically called, the return on the notes at maturity
is linked to the performance of the Fund and will depend on whether, and the extent to which, the Fund Return is positive or negative.
If the Final Share Price is less than the Initial Share Price by more than the Contingent Buffer Amount of 50%, the benefit provided
by the Contingent Buffer Amount will terminate and for every 1% that the Final Share Price is less than the Initial Share Price,
you will lose an amount equal to 1% of the principal amount of your notes. Under these circumstances, you will lose more than 50%
of your principal amount at maturity and may lose all of your principal amount at maturity. |
| · | CREDIT RISK OF JPMORGAN CHASE & CO. — The notes are
subject to the credit risk of JPMorgan Chase & Co. and our credit ratings and credit spreads may adversely affect the market
value of the notes. Investors are dependent on JPMorgan Chase & Co.’s ability to pay all amounts due on the notes. Any
actual or potential change in our creditworthiness or credit spreads, as determined by the market for taking our credit risk, is
likely to adversely affect the value of the notes. If we 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. |
| · | POTENTIAL CONFLICTS — We and our affiliates play a variety
of roles in connection with the issuance of the notes, including acting as calculation agent and as an agent of the offering of
the notes, hedging our obligations under the notes and making the assumptions used to determine the pricing of the notes and the
estimated value of the notes when the terms of the notes are set, which we refer to as 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 notes. 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 notes and the value of
the notes. It is possible that hedging or trading activities of ours or our affiliates in connection with the notes could result
in substantial returns for us or our affiliates while the value of the notes declines. Please refer to “Risk Factors —
Risks Relating to Conflicts of Interest” in the accompanying product supplement no. 4a-I for additional information about
these risks. |
| · | LIMITED RETURN ON THE NOTES — Your potential gain on the
notes will be limited to the call premium applicable to the Review Dates, as set forth on the cover of this pricing supplement,
regardless of the appreciation in the Fund, which may be significant. Because the closing price of one share of the Fund at various
times during the term of the notes could be higher than on the Review Dates, you may receive a lower payment upon an automatic
call or at maturity, as the case may be, than you would have if you had invested directly in the Fund. |
JPMorgan Structured Investments — | PS-4 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
| · | REINVESTMENT RISK — If your notes are automatically called
early, the term of the notes may be reduced to as short as approximately one year. There is no guarantee that you would be able
to reinvest the proceeds from an investment in the notes at a comparable return for a similar level of risk in the event the notes
are automatically called prior to the Maturity Date. |
| · | THE BENEFIT PROVIDED BY THE CONTINGENT BUFFER AMOUNT MAY TERMINATE
ON THE FINAL REVIEW DATE — If the notes have not been automatically called previously and the Final Share Price is less
than the Initial Share Price by more than the Contingent Buffer Amount, the benefit provided by the Contingent Buffer Amount will
terminate and you will be fully exposed to any depreciation in the Fund. |
| · | JPMS’S ESTIMATED VALUE OF THE NOTES WILL BE LOWER THAN THE
ORIGINAL ISSUE PRICE (PRICE TO PUBLIC) OF THE NOTES — JPMS’s estimated value is only an estimate using several
factors. The original issue price of the notes will exceed JPMS’s estimated value 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 “JPMS’s Estimated Value of the Notes”
in this pricing supplement. |
| · | JPMS’S ESTIMATED VALUE DOES NOT REPRESENT FUTURE VALUES OF
THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES — JPMS’s estimated value of the notes is determined by reference
to JPMS’s internal pricing models when the terms of the notes are set. This estimated value is based on market conditions
and other relevant factors existing at that time 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 notes that
are greater than or less than JPMS’s estimated value. 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 creditworthiness, interest rate movements and other relevant factors,
which may impact the price, if any, at which JPMS would be willing to buy notes from you in secondary market transactions. See
“JPMS’s Estimated Value of the Notes” in this pricing supplement. |
| · | 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 notes as well as the higher issuance, operational and ongoing liability management
costs of the notes 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 notes to be more favorable to you. Consequently,
our use of an internal funding rate would have an adverse effect on the terms of the notes and any secondary market prices of the
notes. See “JPMS’s 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 JPMS’S THEN-CURRENT ESTIMATED VALUE OF THE NOTES FOR A LIMITED TIME PERIOD
— We generally expect that some of the costs included in the original issue price of the notes will be partially paid back
to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined
period. These costs can include projected hedging profits, if any, and, in some circumstances, estimated hedging costs and our
secondary market credit spreads for structured debt issuances. See “Secondary Market Prices of the Notes” in this pricing
supplement for additional information relating to this initial period. Accordingly, the estimated value of your notes during this
initial period may be lower than the value of the notes as published by JPMS (and which may be shown on your customer account statements). |
| · | SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE
ORIGINAL ISSUE PRICE OF THE NOTES — Any secondary market prices of the notes will likely be lower than the original issue
price of the notes because, among other things, secondary market prices take into account our secondary market credit spreads for
structured debt issuances and, also, because secondary market prices (a) exclude selling commissions and (b) may exclude projected
hedging profits, if any, and estimated hedging costs that are included in the original issue price of the notes. As a result, the
price, if any, at which JPMS will be willing to buy notes from you in secondary market transactions, if at all, is likely to be
lower than the original issue price. Any sale by you prior to the Maturity Date could result in a substantial loss to you. See
the immediately following risk consideration for information about additional factors that will impact any secondary market prices
of the notes. |
The notes are not designed to be short-term
trading instruments. Accordingly, you should be able and willing to hold your notes to maturity. See “— Lack of Liquidity”
below.
| · | 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 closing price of one share of the Fund , including: |
| · | any actual or potential change in our creditworthiness or credit spreads; |
JPMorgan Structured Investments — | PS-5 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
| · | customary bid-ask spreads for similarly sized trades; |
| · | secondary market credit spreads for structured debt issuances; |
| · | the actual and expected volatility of the Fund; |
| · | the time to maturity of the notes; |
| · | the likelihood of an automatic call being triggered; |
| · | the dividend rates on the Fund and the equity securities held by the
Fund; |
| · | interest and yield rates in the market generally; |
| · | the occurrence of certain events to the Fund 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 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.
| · | NO
INTEREST OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive interest payments, and
you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of shares
of the Fund or securities held by the Fund or included in the Underlying Index would have. |
| · | THERE
ARE RISKS ASSOCIATED WITH THE FUND — Although the shares of the Fund are listed for trading on NYSE Arca, Inc. and a
number of similar products have been traded on NYSE Arca, Inc. and other securities exchanges for varying periods of time, there
is no assurance that an active trading market will continue for the shares of the Fund or that there will be liquidity in the
trading market. 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 described under “Appendix A”
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 in 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.
| · | RISKS ASSOCIATED WITH THE OIL AND GAS EXPLORATION AND PRODUCTION
INDUSTRY — All or substantially all of the equity securities underlying the Fund are issued by companies whose primary
business is associated with the exploration and production of oil and gas. As a result, the value of the securities
may be subject to greater volatility and may be more adversely affected by a single economic, political or regulatory occurrence
affecting this industry than a different investment linked to securities of a more broadly diversified group of issuers or issuers
in a less volatile industry. The oil and gas industry is significantly affected by a number of factors that influence
worldwide economic conditions and oil and gas prices, such as natural disasters, supply disruptions, geopolitical events and other
factors that may offset or magnify each other, including: |
| · | worldwide and domestic supplies of, and demand for, crude oil and natural
gas; |
| · | the cost of exploring for, developing, producing, refining and marketing
crude oil and natural gas; |
| · | changes in weather patterns and climatic changes; |
| · | the ability of the members of Organization of Petroleum Exporting Countries
(OPEC) and other producing nations to agree to and maintain production levels; |
JPMorgan Structured Investments — | PS-6 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
| · | the worldwide military and political environment, uncertainty or instability
resulting from an escalation or additional outbreak of armed hostilities or further acts of terrorism in the United States, or
elsewhere; |
| · | the price and availability of alternative and competing fuels; |
| · | domestic and foreign governmental regulations and taxes; |
| · | employment levels and job growth; and |
| · | general economic conditions worldwide. |
These or other factors or the absence
of such factors could cause a downturn in the oil and natural gas industries generally or regionally and could cause the value
of some or all of the component stocks included in the underlying index and tracked by the Fund to decline during the term of the
notes.
For example, the Fund suffered significant
negative performance in 2014 and 2015 while the broader U.S. equities markets achieved positive returns for the same period.
| · | VOLATILITY RISK — Greater expected volatility with respect
to the Fund indicates a greater likelihood as of the Pricing Date that the Final Share Price could be below its Call Price or below
its Initial Share Price by more than the Contingent Buffer Amount. The Fund’s volatility, however, can change significantly
over the term of the notes. The closing price of one share of the Fund could fall sharply between the Pricing Date and the final
Review Date, which could result in a significant loss of principal. |
| · | LACK OF LIQUIDITY — The notes will not be listed on any
securities exchange. JPMS intends to offer to purchase the notes in the secondary market but is not required to do so. Even if
there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Because other
dealers are not likely to make a secondary market for the notes, the price at which you may be able to trade your notes is likely
to depend on the price, if any, at which JPMS is willing to buy the notes. |
| · | THE ANTI-DILUTION PROTECTION FOR THE FUND IS LIMITED —
The calculation agent will make adjustments to the Share Adjustment Factor 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 FINAL TERMS AND VALUATION OF THE NOTES WILL BE PROVIDED IN THE
PRICING SUPPLEMENT — The final terms of the notes will be based on relevant market conditions when the terms of the notes
are set and will be provided in the pricing supplement. In particular, each of JPMS’s estimated value and the call premium
will be provided in the pricing supplement and each may be as low as the applicable minimum set forth on the cover of this pricing
supplement. Accordingly, you should consider your potential investment in the notes based on the minimums for JPMS’s estimated
value and the call premium. |
JPMorgan Structured Investments — | PS-7 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
Historical Information
The following graph sets forth the historical performance of the
Fund based on the weekly historical closing prices of one share of the Fund from January 7, 2011 through February 5, 2016. The
closing price of one share of the Fund on February 10, 2016 was $24.40.
We obtained the closing prices of one share of the
Fund above and below from the Bloomberg Professional® service (“Bloomberg”), without independent verification.
The closing prices above and below may have been adjusted by Bloomberg for actions taken by the Fund, such as stock splits. The
historical closing prices of one share of the Fund should not be taken as an indication of future performance, and no assurance
can be given as to the closing price of one share of the Fund on the Pricing Date or any Review Date or Ending Averaging Date.
We cannot give you assurance that the performance of the Fund will result in the return of any of your principal amount.
JPMS’s Estimated Value of
the Notes
JPMS’s 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 our internal funding rate for structured debt described below,
and (2) the derivative or derivatives underlying the economic terms of the notes. JPMS’s estimated value 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 JPMS’s estimated value generally represents a discount from the credit spreads
for our conventional fixed-rate debt. For additional information, see “Selected Risk Considerations — 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 notes 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 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.
See “Selected Risk Considerations — JPMS’s Estimated Value Does Not Represent Future Values of the Notes and
May Differ from Others’ Estimates.”
JPMS’s estimated value of the notes will be 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. We or one or more of our affiliates will retain any profits realized in hedging our obligations under
the notes. See “Selected Risk Considerations — JPMS’s Estimated Value of the Notes Will Be Lower Than the Original
Issue Price (Price to Public) of the Notes” in this pricing supplement.
Secondary Market Prices of the
Notes
For information about factors that will impact any
secondary market prices of the notes, see “Selected Risk Considerations — Secondary Market Prices of the Notes Will
Be Impacted by Many Economic and Market Factors” in this pricing 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 that is intended to be the shorter
of six months and one-half of
JPMorgan Structured Investments — | PS-8 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
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 JPMS. 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 JPMS’s Then-Current Estimated Value of the Notes for a Limited Time Period.”
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 “Hypothetical Examples of Amount Payable
upon Automatic Call or at Maturity” in this pricing supplement for an illustration of the risk-return profile of the notes
and Appendix A 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 JPMS’s
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.
JPMorgan Structured Investments — | PS-9 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
Appendix A
The SPDR®
S&P® Oil & Gas Exploration & Production ETF
We have derived all information contained in this pricing supplement
regarding the SPDR® S&P® Oil & Gas Exploration & Production ETF (the “Fund”)
from publicly available information, without independent verification. This information reflects the policies of, and is subject
to change by, SPDR® Series Trust and SSGA Funds Management, Inc. (“SSFM”). The Fund is an investment
portfolio maintained and managed by SSFM. SSFM is the investment adviser to the Fund. The Fund is an exchange-traded fund that
trades on the NYSE Arca, Inc. under the ticker symbol “XOP.” The inception date of the Fund was June 19, 2006.
The SPDR® Series Trust consists of separate
investment portfolios (each, a “SPDR® Series Fund”). Each SPDR® Series Fund is an index
fund that invests in a particular industry or group of industries represented by one of the S&P Select Industry Indices (the
“Select Industry Indices” and each, a “Select Industry Index”). The companies included in each Select Industry
Index are selected on the basis of Global Industry Classification Standards (“GICS”) from a universe of companies defined
by the S&P® Total Market Index (the “S&P TM Index”), a U.S. total market composite index. The
investment objective of each Select Industry SPDR® Fund is to provide investment results that, before expenses,
correspond generally to the price and yield performance of an index derived from a particular industry or group of industries,
as represented by the relevant Select Industry Index.
SPDR® Series Trust is a registered investment
company that consists of numerous separate investment portfolios, including the Fund. Information provided to or filed with the
SEC by SPDR® Series Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located
by reference to SEC file numbers 333-57793 and 811-08839, respectively, through the SEC’s website at http://www.sec.gov.
For additional information regarding SPDR® Series Trust, SSFM or the Fund, please see the SPDR® Series
Trust’s prospectus. In addition, information about SPDR® Series Trust, SSFM and the Fund may be obtained from
other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents and the
SPDR® Series Trust website at https://www.spdrs.com. Information contained in the SPDR® Series Trust
website is not incorporated by reference in, and should not be considered a part of, this pricing supplement.
Investment Objective
The Fund seeks to provide investment results that, before fees
and expenses, correspond generally to the total return performance of the S&P® Oil & Gas Exploration &
Production Select Industry Index® (the “Underlying Index”). For more information about the Underlying
Index, please see “ — The S&P® Oil & Gas Exploration & Production Select Industry Index®”
below.
Investment Strategy — Sampling
In seeking to track the performance of the Underlying Index,
the Fund employs a “sampling” strategy, which means that the Fund is not required to purchase all of the securities
represented in the Underlying Index. Instead, the Fund may purchase a subset of the securities in the Underlying Index in an effort
to hold a portfolio of securities with generally the same risk and return characteristics of the Underlying Index. The quantity
of holdings in the Fund will be based on a number of factors, including asset size of the Fund. Based on its analysis of these
factors, SSFM may invest the Fund’s assets in a subset of securities in the Underlying Index or may invest the Fund’s
assets in substantially all of the securities represented in the Underlying Index in approximately the same proportions as the
Underlying Index. Under normal market conditions, the Fund generally invests substantially all, but at least 80%, of its total
assets in the securities included in the Underlying Index. In addition, the Fund may invest in equity securities that are not included
in the Underlying Index, cash and cash equivalents or money market instruments, such as repurchase agreements and money market
funds (including money market funds advised by SSFM).
Correlation
The Underlying Index is a theoretical financial calculation,
while the Fund is an actual investment portfolio. The Fund seeks to track the performance of the Underlying Index as closely as
possible (i.e., achieve a high degree of correlation with the Underlying Index). However, the Fund’s return may not match
the return of the Underlying Index. The Fund incurs a number of operating expenses not applicable to the Underlying Index and incurs
costs in buying and selling securities. In addition, the Fund may not be fully invested at times, generally as a result of cash
flows into or out of the Fund or reserves of cash held by the Fund to meet redemptions. The Fund may attempt to replicate the Underlying
Index return by investing in fewer than all of the securities in the Underlying Index, or in some securities not included in the
Underlying Index, potentially increasing the risk of divergence between the Fund’s return and that of the Underlying Index.
Holdings Information
As of February 10, 2016, the Fund included 60 securities. The
following tables summarize the Fund’s top 10 holdings in individual securities and holdings by sub-industry as of that date.
Top 10 holdings in
individual securities as of February 10, 2016
Security |
Percentage of Total Holdings |
Southwestern Energy Company |
3.59% |
JPMorgan Structured Investments — | PS-10 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
Security |
Percentage of Total Holdings |
Antero Resources Corporation |
3.30% |
Gulfport Energy Corporation |
3.18% |
Cabot Oil & Gas Corporation |
3.03% |
Range Resources Corporation |
2.93% |
EQT Corporation |
2.89% |
Exxon Mobil Corporation |
2.64% |
Occidental Petroleum Corporation |
2.46% |
Chevron Corporation |
2.37% |
Phillips 66 |
2.25% |
Top Holdings by sub-industry
as of February 10, 2016
Sub-industry |
Percentage of Total Holdings |
Oil & Gas Exploration & Production |
75.20% |
Oil & Gas Refining & Marketing |
17.13% |
Integrated Oil & Gas |
7.47% |
Unassigned |
0.17% |
The information above was compiled from the SPDR®
Series Trust website, without independent verification. Information contained in the SPDR® Series Trust website
is not incorporated by reference in, and should not be considered a part of, this pricing supplement.
The S&P® Oil &
Gas Exploration & Production Select Industry Index®
The Underlying Index is a modified equal-weighted index that
is designed to measure the performance of the oil and gas exploration and production sub-industry portion of the S&P TM Index,
a benchmark that measures the performance of the U.S. equity market. The Underlying Index includes common stocks of leading oil
& gas companies listed on the NYSE or another U.S. national securities exchange, or NASDAQ/NMS. Each of the companies in the
Underlying Index is a constituent company within the oil and gas exploration and production sub-industry of the S&P TM Index.
The Underlying Index is reported by Bloomberg under the ticker symbol “SPSIOP.” For more information about the Underlying
Index, please see “Equity Index Descriptions — The S&P Select Industry Indices” in the accompanying underlying
supplement. For the purposes of the accompanying underlying supplement, the Underlying Index is a “Select Industry Index.”
JPMorgan Structured Investments — | PS-11 |
Review Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF |
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