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 May 25, 2016
Pricing supplement no.
To prospectus dated April 15, 2016,
prospectus supplement dated April 15, 2016 and product
supplement no. 1-I dated April 15, 2016
|
Pricing Supplement to
Product Supplement No. 1-I
Registration Statement Nos. 333-209682 and 333-209682-01
Dated June , 2016; Rule 424(b)(2)
|
JPMorgan Chase Financial Company LLC
|
|
Structured
Investments
|
|
$
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S.
Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
Fully and Unconditionally Guaranteed by JPMorgan
Chase & Co.
|
General
|
·
|
Unsecured and unsubordinated obligations of JPMorgan Chase Financial
Company LLC, which we refer to as JPMorgan Financial, the payment on which is fully and unconditionally guaranteed by JPMorgan
Chase & Co. maturing June 30, 2031, subject to postponement as described below.
|
|
·
|
The notes are designed for investors who believe that (i) the 30-Year
U.S. Dollar ICE Swap Rate will be greater than the 2-Year U.S. Dollar ICE Swap Rate on each Determination Date, (ii) the Index
Level of the S&P 500
®
Index will remain at or above the Minimum Index Level of 75.00% of the Initial Index Level
on each Accrual Determination Date and (iii) the Index Level of the S&P 500
®
Index will be greater than or equal
to the Barrier Level of 50% of the Initial Index Level on the Observation Date.
|
|
·
|
The notes are designed for investors who seek periodic interest payments
that will accrue (i) for the Initial Interest Periods, at a rate of 10.00% per annum and (ii) for each other Interest Period, at
a
per annum
rate equal to the Spread (the 30-Year ICE Swap Rate
minus
the 2-Year ICE Swap Rate) on the applicable
Determination Date for such Interest Period
multiplied
by the Multiplier, provided that the Closing Level of the S&P
500
®
Index on each Accrual Determination Date during such Interest Period is greater than or equal to the Minimum
Index Level (75.00% of the Index Level of the S&P 500
®
Index on the Pricing Date), and subject to the Maximum
Interest Rate and the Minimum Interest Rate.
|
|
·
|
At maturity, an investor in the notes will lose at least 50.00% of
principal and may lose all of the initial investment in the notes if the Index Level of the S&P 500
®
Index declines
below the Barrier Level on the Observation Date.
|
|
·
|
After the Initial Interest Periods, if either the Spread on the applicable
Determination Date is less than or equal to zero or the level of the S&P 500
®
Index is less than the Minimum
Index Level for an entire Interest Period, the Interest Rate for such Interest Period will be equal to zero. In addition, investors
should be willing to assume the risk that if the Ending Index Level is less than the Barrier Level, they will lose at least 50.00%
of their principal and may lose their entire principal at maturity.
Any payment on the notes is subject to the credit risk of
JPMorgan Financial, as issuer of the notes, and the credit risk of JPMorgan Chase & Co., as guarantor of the notes.
|
|
·
|
Subject to satisfaction of the Accrual Provision, interest on the notes
will be calculated based on the applicable Interest Factor, which will be equal to the Spread times the Multiplier (subject to
the Maximum Interest Rate and the Minimum Interest Rate). In no event will the Interest Rate be greater than the Maximum Interest
Rate as set forth below or less than the Minimum Interest Rate of 0% per annum.
|
|
·
|
At our option, we may call your notes prior to their scheduled Maturity
Date on one of the Redemption Dates set forth below. For more information, see “Key Terms” and “Selected Risk
Considerations” in this pricing supplement.
|
|
·
|
The terms of the notes as set forth below, to the extent they differ
or conflict with those set forth in the accompanying product supplement, will supersede the terms set forth in product supplement.
In particular, whether the Accrual Provision is satisfied will depend on the Index Level on the applicable Accrual Determination
Date (rather than on the Index Level on an Equity Index Determination Date as described in product supplement), as set forth below.
Please refer to “Additional Key Terms — Accrual Provision,” “Additional Key Terms — Accrual Determination
Date,” “Key Terms — Redemption Feature” and “Selected Purchase Considerations — Periodic Interest
Payments” in this pricing supplement for more information.
|
|
·
|
Notes may be purchased in minimum denominations of $1,000 and in integral
multiples of $1,000 thereafter.
|
|
·
|
The notes are expected to price on or about June 27, 2016 and are expected
to settle on or about June 30, 2016.
|
Key Terms
Issuer:
|
JPMorgan Chase Financial Company LLC
|
Guarantor:
|
JPMorgan Chase & Co.
|
Payment at Maturity:
|
If the Ending Index Level is greater than or equal to the Barrier
Level, you will receive the principal amount of your notes at maturity.
If the Ending Index Level is less than the Barrier Level, you will
lose 1% of the principal amount of your notes for every 1% that the Ending Index Level is less than the Initial Index Level, and
your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Index Return)
If the Ending Index Level is less than the Barrier Level, you
will lose at least 50.00% of your principal and may lose your entire principal at maturity.
Regardless of whether the Ending Index Level is greater than, equal
to or less than the Initial Index Level, at maturity you will also receive any accrued and unpaid interest on your notes.
|
Initial Index Level:
|
The Index Level on the Pricing Date
|
Ending Index Level:
|
The Index Level on the Observation Date
|
Index Return:
|
(Ending Index Level - Initial Index Level)
Initial Index Level
|
Barrier Level:
|
50.00% of the Initial Index Level
|
Redemption Feature:
|
On March 30, June 30, September 30 and December 30 of each year, commencing on June 30, 2017 and ending on the Maturity Date (each, a “Redemption Date”), we may redeem your notes in whole but not in part at a price equal to 100% of the principal amount being redeemed plus any accrued and unpaid interest to but excluding the Redemption Date, subject to the Business Day Convention and the Interest Accrual Convention described below and in the accompanying product supplement.
|
Interest:
|
We will pay you interest on each Interest Payment Date based on the applicable Day Count Fraction and subject to the Interest Accrual Convention, as applicable, described below and in the accompanying product supplement.
|
Initial Interest Period(s):
|
The Interest Periods during the period beginning on and including the Original Issue Date of the notes and ending on but excluding June 30, 2017. The Accrual Provision will not be applicable during the Initial Interest Periods.
|
Interest Period:
|
The period beginning on and including the Original Issue Date of the notes and ending on but excluding the first Interest Payment Date, and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date, subject to the Interest Accrual Convention described below and in the accompanying product supplement.
|
Interest Payment Dates:
|
Interest on the notes will be payable in arrears on March 30, June 30, September 30 and December 30 of each year, commencing on September 30, 2016 to and including the Maturity Date, subject to the Business Day Convention and Interest Accrual Convention described below and in the accompanying product supplement.
|
Interest Rate:
|
For each Initial Interest Period, 10.00%.
For each Interest Period (other than an Initial Interest Period), the Calculation Agent will determine the Interest Rate*
per
annum
applicable to each Interest Period, calculated in thousandths of a percent, with five ten-thousandths of a percent
rounded upwards, based on the following formula:
“Actual Days” means, with respect
to each Interest Payment Date, the actual number of calendar days in the immediately preceding Interest Period; and
“Variable Days” means, with
respect to each Interest Payment Date, the actual number of calendar days during the immediately preceding Interest Period on which
the Accrual Provision is satisfied.
|
Investing in the Callable Range Accrual Notes involves a number
of risks. See “Risk Factors” beginning on page PS-10 of the accompanying product supplement, “Risk Factors”
beginning on page US-2 of the accompanying underlying supplement and “Selected Risk Considerations” beginning on page
PS-4 of this pricing supplement.
Neither the U.S. Securities and Exchange Commission, or 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, the accompanying product supplement, the accompanying underlying supplement or the accompanying 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 Financial, will pay all of the selling commissions it receives from us to other affiliated or unaffiliated
dealers. If the notes priced today, the selling commissions would be approximately $42.50 per $1,000 principal amount note and
in no event will these selling commissions exceed $50.00 per $1,000 principal amount note. See “Plan of Distribution (Conflicts
of Interest)” in the accompanying product supplement.
If the notes priced today the estimated value of the notes
would be approximately $895.00 per $1,000 principal amount note. The estimated value of the notes, when the terms of the notes
are set, will be provided in the pricing supplement and will not be less than $870.00 per $1,000 principal amount note. See “The
Estimated Value of the Notes” in this pricing supplement for additional information.
The notes are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a
bank.
June , 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 accompanying
prospectus, as supplemented by the accompanying prospectus supplement, relating to our Series A medium-term notes of which these
notes are a part, and the more detailed information contained in the accompanying product supplement and the accompanying underlying
supplement. This pricing supplement, together with the documents listed below, contains the terms of the notes and supersedes all
other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing
terms, correspondence, trade ideas, structures for implementation, sample structures, fact sheets, brochures or other educational
materials of ours. You should carefully consider, among other things, the matters set forth in the “Risk Factors” sections
of the accompanying product supplement and the accompanying underlying supplement, as the notes involve risks not associated with
conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest
in the notes.
You may access
these documents on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the
relevant date on the SEC website):
Our Central Index Key, or CIK, on the SEC website is 1665650, and
JPMorgan Chase & Co.’s CIK is 19617. As used in this pricing supplement, “we,” “us” and “our”
refer to JPMorgan Financial.
Additional Key Terms
Interest Rate (Continued):
|
*
The Interest Rate as described above is a rate
per annum
, may not equal the Interest Factor during any Interest Period and is subject to the Minimum Interest Rate and a Maximum Interest Rate. The Interest Rate will depend on the number of calendar days during any given Interest Period on which the Accrual Provision is satisfied. See the definition for “Variable Days” and “Accrual Provision” herein, as well as the formula for Interest Rate set forth above.
|
Other Key Terms:
|
Please see “Additional Key Terms” in this pricing supplement for other key terms.
|
Interest Factor:
|
With respect to each Interest Period (other than an Initial Interest Period), the Spread
times
the Multiplier, subject to the Maximum Interest Rate and the Minimum Interest Rate.
The Interest Rate is a
per annum
rate
and may or may not equal the Interest Factor during any Interest Period. The Interest Rate will depend on the number of calendar days during any given Interest Period on which the Accrual Provision is satisfied. See the definition for “Variable Days” and “Accrual Provision” herein, as well as the formula for Interest Rate set forth above.
|
Spread:
|
With respect to each Interest Period (after the Initial Interest Periods), the 30-Year ICE Swap Rate
minus
the 2-Year ICE Swap Rate as determined on the applicable Determination Date.
If, on the applicable Determination Date, the Spread is equal to or less than zero, interest will accrue at a rate of 0.00% for that Interest Period.
|
Multiplier:
|
12.0
|
Minimum Interest Rate:
|
With respect to each Interest Period (other than an Initial Interest Period), 0.00% per annum
|
Maximum Interest Rate:
|
With respect to each Interest Period (other than an Initial Interest Period), 10.00% per annum
|
Accrual Provision:
|
For each Interest Period, the Accrual Provision shall be deemed to have been satisfied on each calendar day during such Interest Period on which the Index Level of the S&P 500
®
Index, as determined on the Accrual Determination Date relating to such calendar day, is greater than or equal to the Minimum Index Level. If the Index Level of the S&P 500
®
Index as determined on the Accrual Determination Date relating to such calendar day is less than the Minimum Index Level, then the Accrual Provision shall be deemed not to have been satisfied for such calendar day. Notwithstanding the foregoing and anything to the contrary in the accompanying product supplement, the Accrual Provision will be deemed to have not been satisfied on a calendar day if a market disruption event occurred or was continuing, as applicable, on the originally scheduled Accrual Determination Date for that calendar day (including any originally scheduled Accrual Determination Date relating to an Exclusion Period).
|
Accrual Determination Date:
|
For each calendar day during an Interest Period, the second Trading Day prior to such calendar day. Notwithstanding the foregoing, for all calendar days in the Exclusion Period, the Accrual Determination Date will be the first Trading Day that precedes such Exclusion Period. The Accrual Provision will be deemed to have not been satisfied on a calendar day if a market disruption event occurred or was continuing, as applicable, on the originally scheduled Accrual Determination Date for that calendar day.
|
Exclusion Period:
|
For each Interest Period, the period commencing on the sixth Business Day prior to but excluding each Interest Payment Date.
|
Index Level:
|
On any Trading Day, the official closing level of the S&P 500
®
Index (the “Index”) published following the regular official weekday close of trading for the S&P 500
®
Index as published by Bloomberg Financial Services on such Trading Day. If a market disruption event exists with respect to the S&P 500
®
Index on any Accrual Determination Date, the Index Level on the immediately preceding Accrual Determination Date for which no market disruption event occurs or is continuing will be the Index Level for such disrupted Accrual Determination Date (and will also be the Index Level for the originally scheduled Accrual Determination Date). In certain circumstances, the Index Level will be based on the alternative calculation of the S&P 500
®
Index as described under “General Terms of Notes — Discontinuation of an Equity Index; Alteration of Method of Calculation” in the accompanying product supplement.
|
Minimum Index Level:
|
75.00% of the Index Level of the S&P 500
®
Index on the Pricing Date.
|
Trading Day:
|
A day, as determined by the calculation agent, on which trading is generally conducted on (i) the relevant exchanges for securities underlying the S&P 500
®
Index or the relevant successor index, if applicable, and (ii) the exchanges on which futures or options contracts related to the S&P 500
®
Index or the relevant successor index, if applicable, are traded, other than a day on which trading on such relevant exchange or exchange on which such futures or options contracts are traded is scheduled to close prior to its regular weekday closing time.
|
Business Day:
|
Any day other than a day on which banking institutions in the City of New York are authorized or required by law, regulation or executive order to close or a day on which transactions in dollars are not conducted
|
Determination Date:
|
For each Interest Period (other than the Initial Interest Periods), the second U.S. Government Securities Business Day immediately preceding the beginning of the applicable Interest Period.
|
U.S. Government Securities Business Day:
|
Any day, other than a Saturday, Sunday or a day on which the Securities Industry and Financial Markets Association (“SIFMA”) recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in U.S. government securities.
|
30-Year ICE Swap Rate:
|
With respect to any Determination Date, the 30-Year U.S. Dollar ICE Swap Rate, which is the rate for a U.S. dollar swap with a designated maturity of 30 years that appears on Reuters page “ICESWAP1” (or any successor page) at approximately 11:00 a.m., New York City time, on the Determination Date, as determined by the Calculation Agent. On the applicable Determination Date, if the 30-Year ICE Swap Rate cannot be determined by reference to Reuters page “ICESWAP1” (or any successor page),
|
JPMorgan Structured Investments —
|
PS-
1
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
|
then the Calculation Agent will determine the 30-Year ICE Swap Rate in accordance with the fallbacks set forth under “What is an ICE Swap Rate?” below.
|
2-Year ICE Swap Rate:
|
With respect to any Determination Date, the 2-Year U.S. Dollar ICE
Swap Rate, which is the rate for a U.S. dollar swap with a designated maturity of 2 years that appears on Reuters page “ICESWAP1”
(or any successor page) at approximately 11:00 a.m., New York City time, on the Determination Date, as determined by the Calculation
Agent. On the applicable Determination Date, if the 2-Year ICE Swap Rate cannot be determined by reference to Reuters page “ICESWAP1”
(or any successor page), then the Calculation Agent will determine the 2-Year ICE Swap Rate in accordance with the fallbacks set
forth under “What is an ICE Swap Rate?” below.
We refer to the 30-Year ICE Swap Rate and the 2-Year ICE Swap Rate
each as a “ICE Swap Rate” and together as the “ICE Swap Rates”.
|
Pricing Date:
|
June 27, 2016, subject to the Business Day Convention.
|
Original Issue Date (Settlement Date):
|
On or about June 30, 2016, subject to the Business Day Convention.
|
Observation Date*:
|
June 25, 2031
|
Maturity Date*:
|
June 30, 2031, subject to the Business Day Convention.
|
Business Day Convention:
|
Following
|
Interest Accrual Convention:
|
Unadjusted
|
Day Count Fraction:
|
30/350
|
CUSIP:
|
46646EDY5
|
* Subject to postponement in the event
of a market disruption event and as described under “Description of Notes—Payment on the Notes—Payment At Maturity”
and “Description of Notes—Payment on the Notes—Postponement of an Observation Date” in the accompanying
product supplement.
JPMorgan Structured Investments —
|
PS-
2
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
Selected Purchase Considerations
|
·
|
LIMITED
PROTECTION AGAINST LOSS -
We will pay you your principal back at maturity if the Ending Index Level is not less than the Barrier
Level. If the Ending Index Level is less than the Barrier Level, for every 1% that the Ending Index Level is less than the Initial
Index Level, you will lose an amount equal to 1% of the principal amount of your notes.
If the Ending Index Level is less than
the Barrier Level, you will lose at least 50.00% of your principal and may lose your entire principal at maturity.
|
|
·
|
RETURN
LINKED TO THE S&P 500
®
INDEX -
The S&P 500
®
Index consists of 500 component stocks selected
to provide a performance benchmark for the U.S. equity markets. For additional information about the S&P 500
®
Index, see the information set forth under “Equity Index Descriptions — The S&P 500
®
Index”
in the accompanying underlying supplement.
|
|
·
|
PRESERVATION OF CAPITAL UPON EARLY REDEMPTION
— Regardless
of the performance of the ICE Swap Rates or the S&P 500
®
Index, we will pay you at least the principal amount
of your notes upon early redemption. Because the notes are our unsecured and unsubordinated obligations, the payment of which is
fully and unconditionally guaranteed by JPMorgan Chase & Co., payment of any amount upon early redemption is subject to our
ability to pay our obligations as they become due and JPMorgan Chase & Co.’s ability to pay its obligations as they become
due.
|
|
·
|
PERIODIC INTEREST PAYMENTS
— The notes offer periodic interest
payments on each Interest Payment Date. For the Initial Interest Periods, the notes will pay at a fixed Interest Rate. After the
Initial Interest Periods, the notes will pay at the applicable variable Interest Rate, which takes into account the Accrual Provision.
The interest payments for all Interest Periods after the Initial Interest Periods will be affected by both the levels of the ICE
Swap Rates and the official closing level of the S&P 500
®
Index as described under “Interest Rate”
on the cover of this pricing supplement, but will not reflect the performance of such rates or such Index. In no event will the
Interest Rate during any Interest Period other than the Initial Interest Periods be greater than the Maximum Interest Rate of 10.00%
per annum or less than the Minimum Interest Rate of 0.00% per annum. The yield on the notes may be less than the overall return
you would receive from a conventional debt security that you could purchase today with the same maturity as the notes.
|
|
·
|
POTENTIAL EARLY REDEMPTION BY US AT OUR OPTION
— At our
option, we may redeem the notes, in whole but not in part, on each of the Redemption Dates set forth above, commencing on June
30, 2017, at a price equal to 100% of the principal amount being redeemed plus any accrued and unpaid interest, subject to the
Business Day Convention and the Interest Accrual Convention described on the cover of this pricing supplement and in the accompanying
product supplement. Any accrued and unpaid interest on notes redeemed will be paid to the person who is the holder of record of
such notes at the close of business on the Business Day immediately preceding the applicable Redemption Date. Even in cases where
the notes are called before maturity, noteholders are not entitled to any fees or commissions described on the front cover of 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. 1-I. Based on the advice
of Sidley Austin LLP, our special tax counsel, and on current market conditions, in determining our reporting responsibilities
we intend to treat the notes for U.S. federal income tax purposes as income-bearing pre-paid derivative contracts. By purchasing
the notes, you agree (in the absence of an administrative determination or judicial ruling to the contrary) to follow this treatment.
However, there are other reasonable treatments that the Internal Revenue Service (the “IRS”) or a court may adopt,
in which case the timing and character of any income or loss on the notes could be significantly and adversely affected. In addition,
in 2007, the Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of
“prepaid forward contracts” and similar instruments. While it is not clear whether the notes would be viewed as similar
to the typical prepaid forward contract described in the notice, it is possible that 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. The notice focuses on a number of issues, the most relevant of which for holders of
the notes are the character of income or loss and the degree, if any, to which income realized by Non-U.S. Holders should be subject
to withholding tax.
|
Assuming that the treatment of the
notes as income-bearing pre-paid derivative contracts is respected, interest payments that you receive should be included in ordinary
income at the time you receive the payments or when the payments accrue, in accordance with your regular method of accounting for
U.S. federal income tax purposes.
Under this treatment, any gain or
loss recognized upon the sale, exchange or maturity of the notes should be treated as capital gain or loss. Any such capital gain
or loss should be treated as long-term capital gain or loss if you held the notes for more than one year.
Non-U.S. Holders should note that
because the United States federal income tax treatment (including the applicability of withholding) of the interest payments on
the notes is uncertain, and although the Company believes it is reasonable to take a position that the interest payments are not
subject to U.S. withholding tax (at least if the applicable IRS Form W-8 is provided), a withholding agent could possibly nonetheless
withhold on these payments (generally at a rate of 30%, subject to the possible reduction or elimination of that rate under an
applicable income tax treaty), unless income from your notes is effectively connected with your conduct of a trade or business
in the United States (and, if an
JPMorgan Structured Investments —
|
PS-
3
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
applicable treaty so requires, attributable
to a permanent establishment in the United States). In the event of any withholding, we will not be required to pay any additional
amounts with respect to amounts so withheld. If you are a Non-U.S. Holder, you are urged to consult your tax advisor regarding
the U.S. federal income tax consequences of an investment in the notes in light of your particular circumstances.
Non-U.S. Holders should also note
that final Treasury regulations were released on legislation that imposes a withholding tax of 30% on payments to certain foreign
entities unless information reporting and diligence requirements are met, as described in “Material U.S. Federal Income Tax
Consequences-Tax Consequences to Non-U.S. Holders” in the accompanying product supplement. Pursuant to the final regulations,
such withholding tax will generally apply to obligations that are issued on or after July 1, 2014; therefore, the notes will generally
be subject to this withholding tax. The withholding tax described above will not apply to payments of gross proceeds from the sale,
exchange or other disposition of the notes made before January 1, 2019.
Both U.S. and Non-U.S. Holders should
consult their tax advisors regarding all aspects of the U.S. federal income tax consequences of an investment in the notes, including
possible alternative treatments and the issues presented by the 2007 notice. Purchasers who are not initial purchasers of notes
at the issue price should also consult their tax advisors with respect to the tax consequences of an investment in the notes, including
possible alternative treatments.
Subject to certain assumptions and
representations received from us, the discussion in this section entitled “Tax Treatment”, when read in combination
with the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement, constitutes
the full opinion of Sidley Austin LLP regarding the material U.S. federal income tax treatment of owning and disposing of the notes.
Selected Risk Considerations
An investment in the notes involves significant risks.
These risks are explained in more detail in the “Risk Factors” sections of the accompanying product supplement and
the accompanying underlying supplement.
|
·
|
YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS —
The
notes do not guarantee any return of principal. The return on the notes at maturity is linked to the performance of the Index and
will depend on whether, and the extent to which, the Index Return is positive or negative. Your investment will be exposed to loss
if the Ending Index Level is less than the Barrier Level. For every 1% that the Ending Index Level is less than the Barrier Level,
you will lose an amount equal to 1% of the principal amount of your notes.
Accordingly, if the Ending Index Level is less than
the Barrier Level, you will lose at least 50.00% of your principal and may lose your entire principal at maturity.
|
|
·
|
THE NOTES ARE NOT ORDINARY DEBT SECURITIES AND ARE SUBJECT TO AN INTEREST
ACCRUAL PROVISION; AFTER THE INITIAL INTEREST PERIODS,
THE
INTEREST RATE ON THE
NOTES IS VARIABLE AND WILL NOT EXCEED THE MAXIMUM INTEREST RATE AS SET FORTH ABOVE AND MAY BE EQUAL TO 0.00% —
The terms
of the notes differ from those of ordinary debt securities in that the rate of interest you will receive after the Initial Interest
Periods is not fixed, but will vary based on both the level of the S&P 500
®
Index over the course of each Interest
Period and the Spread on the applicable Determination Date. For each Interest Period after the Initial Interest Periods, there
is a Maximum Interest Rate per annum equal to the Interest Factor set forth above on the cover of this pricing supplement. This
is because the variable Interest Rate on the notes, while determined by reference to the Spread on the applicable Determination
Date and the official closing level of the S&P 500
®
Index as described on the cover of this pricing supplement,
does not actually pay an amount based directly on such levels. Your return on the notes for any Interest Period (other than an
Initial Interest Period) will not exceed the applicable Interest Factor for such Interest Period, regardless of the Spread or appreciation
in the S&P 500
®
Index, which may be significant. Moreover, each calendar day during an Interest Period (other
than an Initial Interest Period) for which the Index Level of the S&P 500
®
Index is less than the Minimum Index
Level (as determined based on the level of the S&P 500
®
Index on the applicable Accrual Determination Date)
will result in a reduction of the Interest Rate per annum payable for the corresponding Interest Period. For Interest Periods other
than the Initial Interest Periods, if the official closing level of S&P 500
®
Index is less than the Minimum
Index Level for an entire Interest Period, the Interest Rate for such Interest Period will be equal to 0.00% and you will not receive
any interest payment for such Interest Period. In that event, you will not be compensated for any loss in value due to inflation
and other factors relating to the value of money over time during such period.
|
|
·
|
THE NOTES REFERENCE AN EQUITY INDEX AND THE ICE SWAP RATES —
After the Initial Interest Periods, if the Index Level of the S&P 500
®
Index is less than the Minimum Index
Level on any Accrual Determination Date, the notes will not accrue interest on that day. If the notes do not satisfy the Accrual
Provision for each calendar day in an Interest Period, the Interest Rate payable on the notes will be equal to 0.00% per annum
for such Interest Period. Similarly, after the Initial Interest Periods, if the 30-Year ICE Swap Rate is less than or equal to
the 2-Year ICE Swap Rate on the Determination Date, interest on the notes will accrue at 0.00% per annum for such Interest Period.
You should carefully consider the movement, current level and overall trend in equity markets and swap rates, prior to purchasing
these notes. Although the notes do not directly reference the level of the S&P 500
®
Index or the ICE Swap Rates,
the interest, if any, payable on your notes is contingent upon, and related to, each of these levels.
|
JPMorgan Structured Investments —
|
PS-
4
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
|
·
|
THE INTEREST RATE ON THE NOTES AFTER THE INITIAL INTEREST PERIODS
IS SUBJECT TO A MAXIMUM INTEREST RATE —
After the Initial Interest Periods, the rate of interest payable on the notes
is variable; however, it is still subject to a Maximum Interest Rate. The Interest Rate on the notes after the Initial Interest
Periods will not exceed the Maximum Interest Rate of 10.00% per annum. Although the notes are subject to an Accrual Provision,
the interest (if any) payable on the notes accrues at a rate based on the applicable Interest Factor set forth above, and therefore
the amount of interest payable on the notes remains subject to the Maximum Interest Rate.
|
|
·
|
You Are Exposed to Performance Risk of
Each THE ICE Swap Rates and the S&P 500
®
Index
—
Your Interest Rate applicable to each Interest Period
after the Initial Interest Periods is not linked to the aggregate performance of the ICE Swap Rates and the S&P 500
®
Index. For instance, whether or not a calendar day is a Variable Day within an Interest Period (other than an Initial Interest
Period) will be contingent upon the performance of the S&P 500
®
Index as determined on the applicable Accrual
Determination Date. Further, the Interest Factor that is to be used to determine the Interest Rate will be determined by the ICE
Swap Rates on the applicable Determination Date. Unlike an investment in an instrument with a return linked to a basket of underlying
assets, in which risk is mitigated through diversification among all of the components of the basket, an investment in the notes
will expose you to the risks related to each of the ICE Swap Rates and the S&P 500
®
Index. Poor performance
of the 30-Year ICE Swap Rate, as compared to the 2-Year ICE Swap Rate (meaning that the Spread would be lower), or the S&P
500
®
Index (meaning that it decreases to be less than the Minimum Index Level) during the term of the notes may
negatively affect your return on the notes and will not be offset or mitigated by a positive performance of the other. Accordingly,
your investment is subject to the performance risk of each of the ICE Swap Rates and the S&P 500
®
Index.
|
|
·
|
THE INTEREST RATE ON THE NOTES MAY BE BELOW
THE RATE OTHERWISE PAYABLE ON SIMILAR VARIABLE RATE notes ISSUED BY US
—
The value of the notes will depend on the Interest Rate on the notes, which after the Initial Interest Periods will
be affected by the Spread and the level of the S&P 500
®
Index. If the Spread is less than or equal to zero on
any Determination Date or the level of the S&P 500
®
Index is less than the Minimum Index Level on any Accrual
Determination Date, the Interest Rate on the notes may be less than returns on similar variable rate notes issued by us that are
not linked to the ICE Swap Rates and the S&P 500
®
Index, or that are only linked to one of the ICE Swap Rates
or the S&P 500
®
Index. We have no control over any fluctuations in the ICE Swap Rates or the S&P 500
®
Index.
|
|
·
|
THE RETURN OF ANY PRINCIPAL COMPONENT OF YOUR PAYMENT AT MATURITY
WILL BE DETERMINED BY THE PERFORMANCE OF THE INDEX
—
If the notes are not called and the Ending Index Level is
less than the Barrier Level, you will lose at least 50.00% of your investment in the notes and may lose all of your investment.
|
|
·
|
THE METHOD OF DETERMINING WHETHER THE ACCRUAL PROVISION HAS BEEN SATISFIED
MAY NOT DIRECTLY CORRELATE TO
THE ACTUAL
LEVEL OF
the
S&P 500
®
Index
—
After the Initial Interest
Periods, the determination of the Interest Rate per annum payable for any Interest Period will be based on the actual number of
days in that Interest Period on which the Accrual Provision is satisfied, as determined on each Accrual Determination Date. However,
we will use the same Index Level of the S&P 500
®
Index to determine whether the Accrual Provision is satisfied
for the period commencing on the sixth Business Day prior to but excluding each applicable Interest Payment Date, which period
we refer to as the Exclusion Period. The Index Level used will be the Index Level of the S&P 500
®
Index on the
first Trading Day immediately preceding the Exclusion Period, regardless of what the actual closing level of the S&P 500
®
Index is for the calendar days in that period or whether the Accrual Provision could have otherwise been satisfied if actually
tested in the Exclusion Period. As a result, the determination as to whether the Accrual Provision has been satisfied for any Interest
Period (other than an Initial Interest Period) may not directly correlate to the actual Index Levels of the S&P 500
®
Index, which will in turn affect the Interest Rate calculation.
|
|
·
|
YOUR RETURN ON THE NOTES IS LIMITED TO THE PRINCIPAL AMOUNT PLUS ACCRUED
INTEREST REGARDLESS OF ANY APPRECIATION IN THE VALUE OF THE INDEX
—
If the notes are not called and the Ending
Index Level is greater than or equal to the Barrier Level, for each $1,000 principal amount note, you will receive $1,000 at maturity
plus any accrued and unpaid interest, regardless of any appreciation in the value of the Index, which may be significant. In addition,
if the notes are called, for each $1,000 principal amount note, you will receive $1,000 plus any accrued and unpaid interest, regardless
of the appreciation in the value of the Index, which may be significant. Accordingly, the return on the notes may be significantly
less than the return on a direct investment in the Index during the term of the notes.
|
|
·
|
LONGER DATED NOTES MAY BE MORE RISKY THAN SHORTER DATED NOTES
—
By purchasing a note with a longer tenor, you are more exposed to fluctuations in interest rates than if you purchased
a note with a shorter tenor. Specifically, you may be negatively affected if certain interest rate scenarios occur or if the Index
Level of the S&P 500
®
Index is less than the Minimum Index Level for an entire Interest Period. The applicable
discount rate, which is the prevailing rate in the market for notes of the same tenor, will likely be higher for notes with longer
tenors than if you had purchased a note with a shorter tenor. Therefore, assuming the notes have not been called and that short
term rates rise, as described above, the market value of a longer dated note will be lower than the market value of a comparable
short term note with similar terms.
|
|
·
|
WE MAY CALL YOUR NOTES PRIOR TO THEIR SCHEDULED MATURITY DATE —
We may choose to call the notes early or choose not to call the notes early on any Redemption Date in our sole discretion. If the
notes are called
|
JPMorgan Structured Investments —
|
PS-
5
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
early, you will receive the principal
amount of your notes plus accrued and unpaid interest to, but not including the Redemption Date. The aggregate amount that you
will receive through and including the Redemption Date may be less than the aggregate amount that you would have received had the
notes not been called early. If we call the notes early, you will not receive interest payments after the applicable Redemption
Date. There is no guarantee that you would be able to reinvest the proceeds from an investment in the notes at a comparable return
and/or with a comparable interest rate for a similar level of risk in the event the notes are redeemed prior to the Maturity Date.
We may choose to call the notes early, for example, if U.S. interest rates decrease significantly or if volatility of U.S. interest
rates decreases significantly.
|
·
|
NO DIVIDEND PAYMENTS OR VOTING RIGHTS
—
As a holder
of the notes you will not have voting rights, or rights to receive cash dividends or other distributions, or other rights that
holders of securities composing the S&P 500
®
Index would have.
|
|
·
|
REINVESTMENT RISK
—
If we redeem the notes, the term
of the notes may be reduced and you will not receive interest payments after the applicable Redemption Date. There is no guarantee
that you would be able to reinvest the proceeds from an investment in the notes at a comparable return and/or with a comparable
interest rate for a similar level of risk in the event the notes are redeemed prior to the Maturity Date.
|
|
·
|
VARIABLE RATE NOTES DIFFER FROM FIXED RATE NOTES —
After
the Initial Interest Periods of the notes, the variable Interest Rate for all Interest Periods will be determined in part based
on the Spread and the Accrual Provision set forth on the cover of this pricing supplement, which is contingent upon the Index Level
of the S&P 500
®
Index and may be less than returns otherwise payable on debt securities issued by us with similar
maturities. You should consider, among other things, the overall potential annual percentage rate of interest to maturity of the
notes as compared to other investment alternatives.
|
|
·
|
AFTER THE INITIAL INTEREST PERIODS, MARKET DISRUPTION EVENTS MAY ADVERSELY
AFFECT THE RATE AT WHICH THE NOTES ACCRUE INTEREST —
After
the Initial Interest Periods, the rate at which the notes accrue interest for an Interest Period will be based on the Index Level
of the S&P 500
®
Index on the applicable Accrual Determination Date and the Spread on the applicable Determination
Date, subject to the Maximum Interest Rate. Notwithstanding anything to the contrary herein or in the accompanying product supplement,
if a market disruption event occurs or is continuing on any Accrual Determination Date, the Accrual Provision will be deemed to
have not been satisfied on such Accrual Determination Date (including any originally scheduled Accrual Determination Date relating
to an Exclusion Period). Because, after the Initial Interest Periods, your notes will not accrue interest unless the Accrual Provision
is satisfied, if a market disruption event continues for an extended period of time after the Initial Interest Periods, the amount
of interest that accrues on the notes may be severely limited.
|
|
·
|
CREDIT
RISKS OF JPMORGAN
FINANCIAL AND JPMORGAN CHASE & CO.
— The notes are subject to our and JPMorgan Chase & Co.’s credit risks,
and our and JPMorgan Chase & Co.’s credit ratings and credit spreads may adversely
affect the market value of the notes. Investors are dependent on our and JPMorgan
Chase & Co.’s ability to pay all amounts due on the notes. Any actual or potential
change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads,
as determined by the market for taking that credit risk, is likely to adversely affect
the value of the notes. If we and JPMorgan Chase & Co. were to default on our
payment obligations, you may not receive any amounts owed to you under the notes and
you could lose your entire investment.
|
|
·
|
AS A FINANCE SUBSIDIARY, JPMORGAN FINANCIAL HAS NO INDEPENDENT OPERATIONS
AND HAS LIMITED ASSETS —
As a finance subsidiary of JPMorgan Chase & Co., we have no independent operations beyond
the issuance and administration of our securities. Aside from the initial capital contribution from JPMorgan Chase & Co., substantially
all of our assets relate to obligations of our affiliates to make payments under loans made by us or other intercompany agreements.
As a result, we are dependent upon payments from our affiliates to meet our obligations under the notes. If these affiliates do
not make payments to us and we fail to make payments on the notes, you may have to seek payment under the related guarantee by
JPMorgan Chase & Co., and that guarantee will rank
pari passu
with all other unsecured and unsubordinated obligations
of JPMorgan Chase & Co.
|
|
·
|
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 the estimated value of the notes. In performing
these duties, our
and JPMorgan Chase & Co.’s
economic
interests and the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests
as an investor in the notes. In addition, our
and JPMorgan Chase
& Co.’s
business activities, including hedging and trading
activities as well as modeling and structuring the economic terms of the notes, could cause our
and
JPMorgan Chase & Co.’s
economic interests to be adverse
to yours and could adversely affect any payment on the notes and the value of the notes. It is possible that hedging or trading
activities of ours or our affiliates in connection with the notes could result in substantial returns for us or our affiliates
while the value of the notes declines. Please refer to “Risk Factors — Risks Relating to the Notes Generally”
in the accompanying product supplement for additional information about these risks.
|
JPMorgan Structured Investments —
|
PS-
6
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
In
addition, JPMorgan Chase & Co. is currently one of the companies that make up
the S&P 500
®
Index
,
but JPMorgan Chase & Co. will have no obligation to consider your interests as a holder of the notes in taking any corporate
action that might affect the value of
the S&P 500
®
Index
.
|
·
|
THE INTEREST RATE ON THE NOTES IS BASED, IN PART, ON THE SPREAD, AND
THEREFORE ON THE PERFORMANCE AND RELATIVE PERFORMANCE OF LONGER AND SHORTER TERM INTEREST RATES, WHICH MAY RESULT IN THE APPLICATION
OF THE MINIMUM INTEREST RATE —
The Spread is calculated as (a) the 30-Year ICE Swap Rate
minus
(b) the 2-Year
ICE Swap Rate. The ICE Swap Rates may be influenced by a number of factors, including (but not limited to) monetary policies, fiscal
policies, inflation, general economic conditions and public expectations with respect to such factors. The effect that any single
factor may have on the ICE Swap Rates or may be partially offset by other factors. We cannot predict the factors that may cause
the ICE Swap Rates, and consequently the Spread, to increase or decrease. Either a zero or negative Spread (indicating that the
30-Year ICE Swap Rate is equal to or less than the 2-Year ICE Swap Rate) on a Determination Date will cause the Interest Rate for
the corresponding Interest Period to be equal to the Minimum Interest Rate. The amount of interest you accrue on the notes in any
Interest Period (other than an Initial Interest Period) may therefore decrease even if either or both of the ICE Swap Rates increase.
Under these circumstances, particularly if short term interest rates rise significantly relative to long term interest rates, the
Interest Rate during any Interest Period (other than an Initial Interest Period) may be equal to 0.00% per annum, and you will
not be compensated for any loss in value due to inflation and other factors relating to the value of money over time during such
period.
|
|
·
|
THE ESTIMATED VALUE OF THE NOTES WILL BE LOWER THAN THE ORIGINAL ISSUE
PRICE (PRICE TO PUBLIC) OF THE NOTES
—
The
estimated value of the notes is only an estimate determined by reference to several factors. The original issue price of the notes
will exceed the estimated value of the notes because costs associated with selling, structuring and hedging the notes are included
in the original issue price of the notes. These costs include the selling commissions, the projected profits, if any, that our
affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging
our obligations under the notes. See “The Estimated Value of the Notes” in this pricing supplement.
|
|
·
|
THE ESTIMATED VALUE OF THE NOTES DOES NOT REPRESENT FUTURE VALUES
OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES
— The estimated value of the notes is determined by reference
to internal pricing models of our affiliates when the terms of the notes are set. This estimated value of the notes is based on
market conditions and other relevant factors existing at that time and assumptions about market parameters, which can include volatility,
dividend rates, interest rates and other factors. Different pricing models and assumptions could provide valuations for notes that
are greater than or less than the estimated value of the notes. In addition, market conditions and other relevant factors in the
future may change, and any assumptions may prove to be incorrect. On future dates, the value of the notes could change significantly
based on, among other things, changes in market conditions, our or JPMorgan Chase & Co.’s creditworthiness, interest
rate movements and other relevant factors, which may impact the price, if any, at which JPMS would be willing to buy notes from
you in secondary market transactions. See “The Estimated Value of the Notes” in this pricing supplement.
|
|
·
|
THE ESTIMATED VALUE OF THE NOTES IS DERIVED BY REFERENCE TO AN INTERNAL
FUNDING RATE
— The internal funding rate used in the determination of the estimated value of the notes is based on, among
other things, our and our affiliates’ view of the funding value of the notes as well as the higher issuance, operational
and ongoing liability management costs of the notes in comparison to those costs for the conventional fixed-rate debt of JPMorgan
Chase & Co. The use of an internal funding rate and any potential changes to that rate may have an adverse effect on the terms
of the notes
|
|
·
|
THE VALUE OF THE NOTES AS PUBLISHED BY JPMS (AND WHICH MAY BE REFLECTED
ON CUSTOMER ACCOUNT STATEMENTS) MAY BE HIGHER THAN THE THEN-CURRENT ESTIMATED VALUE OF THE NOTES FOR A LIMITED TIME PERIOD
—
We generally expect that some of the costs included in the original issue price of the notes will be partially paid
back to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined
period. These costs can include projected hedging profits, if any, and, in some circumstances, estimated hedging costs and our
internal secondary market funding rates for structured debt issuances. See “Secondary Market Prices of the Notes” in
this pricing supplement for additional information relating to this initial period. Accordingly, the estimated value of your notes
during this initial period may be lower than the value of the notes as published by JPMS (and which may be shown on your customer
account statements).
|
|
·
|
SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE
ORIGINAL ISSUE PRICE OF THE NOTES
—
Any secondary market prices of the
notes will likely be lower than the original issue price of the notes because, among other things, secondary market prices take
into account our internal secondary market funding rates for structured debt issuances and, also, because secondary market prices
(a) exclude selling commissions and (b) may exclude projected hedging profits, if any, and estimated hedging costs that are included
in the original issue price of the notes. As a result, the price, if any, at which JPMS will be willing to buy notes from you in
secondary market transactions, if at all, is likely to be lower than the original issue price. Any sale by you prior to the maturity
date could result in a substantial loss to you. See the immediately following risk consideration for information about additional
factors that will impact any secondary market prices of the notes.
|
JPMorgan Structured Investments —
|
PS-
7
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
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, and estimated hedging costs, including, but not limited to:
|
|
·
|
the performance of the ICE Swap Rates;
|
|
·
|
the performance of the Index;
|
|
·
|
any actual or potential change in our
or JPMorgan Chase & Co.’s creditworthiness or credit spreads;
|
|
·
|
customary bid-ask spreads for similarly
sized trades;
|
|
·
|
our internal secondary market funding
rates for structured debt issuances;
|
|
·
|
the time to maturity of the notes;
|
|
·
|
dividend rates on the equity securities underlying the Index;
|
|
·
|
the expected positive or negative correlation between the ICE Swap Rates
and the S&P 500
®
Index or the expected absence of such correlation;
|
|
·
|
interest and yield rates in the market
generally, as well as the volatility of those rates;
|
|
·
|
the likelihood, or expectation, that the
notes will be redeemed by us, based on prevailing market interest rates or otherwise; and
|
|
·
|
a variety of other economic, financial,
political, regulatory and judicial events.
|
Like many long- term notes with short
term call dates, secondary prices can drop sharply if the market shifts from assuming a call to assuming the note will be left
outstanding indefinitely, particularly when after the call date passes, the payout shifts from fixed rate to floating.
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.
|
·
|
SECONDARY MARKET PRICES OF THE NOTES ARE SENSITIVE TO BOTH INTEREST
RATES AND THE PERFORMANCE OF THE INDEX
—
If interest rates
rise generally, the secondary market prices of the notes will be adversely impacted because of the relatively long term of the
notes and the increased probability that that the Interest Rate for the notes will be less than such rates. Additionally,
if the Index Level declines, even if the Index Level has not declined below the Barrier Level, the secondary market prices of the
notes will also be adversely impacted because of the increased probability that the Accrual Provision may not be satisfied over
the remaining term of the notes and the increased probability that you may lose some or all of your principal at maturity.
If both interest rates rise and the Index Level declines, the secondary market prices of the notes may decline more rapidly than
other securities that are only linked to the ICE Swap Rates or the Index, or if the amount payable at maturity was not linked to
the performance of the Index relative to the Barrier Level.
|
|
·
|
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.
|
|
·
|
MARKET FACTORS MAY INFLUENCE WHETHER WE EXERCISE OUR RIGHT TO REDEEM THE NOTES PRIOR TO THEIR SCHEDULED MATURITY —
We
have the right to redeem the notes prior to the Maturity Date, in whole but not in part, on the specified Redemption Dates. It
is more likely that we will redeem the notes prior to the Maturity Date if the Closing Level of the S&P 500
®
Index is greater than or equal to the Minimum Index Level on the applicable Accrual Determination Date and the Spread is greater
than or equal to 0.00% on the applicable Determination Date. If the notes are called prior to the Maturity Date, you may be unable
to invest in certificates of deposit with similar risk and yield as the notes. Your ability to realize a higher than market yield
on the notes is limited by our right to redeem the notes prior to their scheduled maturity, which may adversely affect the value
of the notes in the secondary market, if any.
|
|
·
|
The INTEREST RATE will be affected by a
number of factors —
After the Initial Interest Periods,
the interest rate will depend primarily on the ICE Swap Rates. A number of factors can affect the value of your notes and/or the
amount of interest that you will receive, including, but not limited to:
|
|
·
|
changes in, or perceptions, about the future ICE Swap Rates;
|
|
·
|
general economic conditions;
|
|
·
|
prevailing interest rates; and
|
|
·
|
policies of the Federal Reserve Board regarding interest rates.
|
These and other factors may have a
negative impact on the payment of interest on the notes and on the value of the notes in the secondary market.
|
·
|
The ICE Swap Rates may be volatile
—
The ICE Swap Rates are subject to volatility due to a
variety of factors affecting interest rates generally, including but not limited to:
|
|
·
|
sentiment regarding the U.S. and global economies;
|
JPMorgan Structured Investments —
|
PS-
8
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
|
·
|
expectation regarding the level of price inflation;
|
|
·
|
sentiment regarding credit quality in U.S. and global credit markets;
|
|
·
|
central bank policy regarding interest rates; and
|
|
·
|
performance of capital markets.
|
|
·
|
The 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, the estimated value of the notes will be provided in the pricing supplement, and the
estimated value of the notes may be equal to the low end of the applicable range set forth on the cover of this pricing supplement.
Accordingly, you should consider your potential investment in the notes based on the low end of the range for the estimated value
of the notes.
|
|
·
|
TAX DISCLOSURE
—
The information under “Tax
Treatment" in this pricing supplement remains subject to confirmation by our tax counsel. We will notify you of any revisions
to the information under “Tax Treatment" in a supplement to this pricing supplement on or before the business day immediately
preceding the issue date, or if the information cannot be confirmed by our tax counsel, we may terminate this offering of notes.
|
JPMorgan Structured Investments —
|
PS-
9
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
Hypothetical Examples of Calculation of
the Interest Rate on the Notes for an Interest Period
The following examples illustrate how to calculate the Interest
Rate on the notes for four hypothetical Interest Periods after the Initial Interest Periods. The following examples assume that
we have not called the notes prior to their scheduled Maturity Date, the Multiplier for the Interest Period is 12 and the actual
number of days in the applicable Interest Period is 90. The hypothetical Interest Rates in the following examples are for illustrative
purposes only and may not correspond to the actual Interest Rates for any Interest Period applicable to a purchaser of the notes.
The numbers appearing in the following examples have been rounded for ease of analysis.
Example 1: On the applicable Determination Date, the
30-Year ICE Swap Rate is 4.00% and the 2-Year ICE Swap Rate is 3.25%. In addition, the number of Variable Days in the Interest
Period is 81. Because the 30-Year ICE Swap Rate (4.00%) is greater than the 2-Year ICE Swap Rate (3.25%), the Spread is positive
and is equal to 0.75%. Accordingly, the Interest Factor is 9.00% calculated as follows:
MAX [0, 12 × (4.00% - 3.25%)]
= 9.00% per annum
Therefore, the Interest Rate per annum for the Interest
Period is equal to 8.10% per annum calculated as follows:
9.00% × (81/90) = 8.10% per
annum
Example 2: On the applicable Determination Date, the
30-Year ICE Swap Rate is 5.00% and the 2-Year ICE Swap Rate is 1.00%. In addition, the number of Variable Days in the Interest
Period is 90. Because the 30-Year ICE Swap Rate (5.00%) is greater than the 2-Year ICE Swap Rate (1.00%), the Spread is positive
and is equal to 4.00%. However, because the Spread times the Multiplier is greater than the Maximum Interest Rate of 10.00% per
annum, the Interest Factor is equal to the Maximum Interest Rate.
Therefore, the Interest Rate per annum for the Interest
Period is equal to the Maximum Interest Rate of 10.00% per annum, calculated as follows:
10.00% × (90 / 90) = 10.00%
per annum
Example 3: On the applicable Determination Date, the
30-Year ICE Swap Rate is 1.00% and the 2-Year ICE Swap Rate is 5.00%. In addition, the number of Variable Days in the Interest
Period is 90. Because the 30-Year ICE Swap Rate (1.00%) is less than the 2-Year ICE Swap Rate (5.00%), the Spread is negative
and is equal to -4.00%. However, because the Spread times the Multiplier is less than the Minimum Interest Rate of 0.00% per annum,
the Interest Factor is equal to the Minimum Interest Rate.
Therefore, the Interest Rate per annum for the Interest
Period is equal to the Minimum Interest Rate of 0.00% per annum, calculated as follows:
0.00% × (90 / 90) = 0.00% per
annum
Example 4: For an Interest Period the Accrual Provision
is not met on any calendar day during the Interest Period, and therefore, the number of Variable Days is 0. Regardless of the
Interest Factor, because the Accrual Provision is not satisfied on any calendar day, the Interest Rate per annum for the Interest
Period will be equal to 0.00% per annum.
JPMorgan Structured Investments —
|
PS-
10
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
Hypothetical Examples of Amounts Payable
at Maturity
The following examples illustrate how to calculate the payment
at maturity. For purposes of the following examples, we have assumed an Initial Index Level of 2,000 and a Barrier Level of 1,000,
and that the notes are not called prior to their scheduled Maturity Date. Each hypothetical payment at maturity set forth below
is for illustrative purposes only and may not be the actual payment at maturity applicable to a purchaser of the notes. In addition,
the effect of any accrued and unpaid interest has been excluded.
Example 1: The level of the Index increases from the Initial
Index Level of 2,000 to an Ending Index Level of 2,500.
Because the Ending Index Level of 2,500 is greater than the Initial
Index Level of 2,000, the investor receives a payment at maturity of $1,000 per $1,000 principal amount note.
Example 2: The level of the Index decreases from the Initial
Index Level of 2,000 to an Ending Index Level of 1,500.
Although the Index Return is negative, because the Ending Index Level
of 1,500 is not less than the Barrier Level of 1,000, the investor receives a payment at maturity of $1,000 per $1,000 principal
amount note.
Example 3: The level of the Index decreases from the Initial
Index Level of 2,000 to an Ending Index Level of 900.
Because the Index Return is negative and the Ending Index Level of 900
is less than the Barrier Level of 1,000, the investor receives a payment at maturity of $450.00 per $1,000 principal amount note,
calculated as follows:
$1,000 + ($1,000 × -55.00%) = $450.00
Example 4: The level of the Index decreases from the Initial
Index Level of 2,000 to an Ending Index Level of 0.
Because the Index Return is negative and the Ending Index Level of 0 is
less than the Barrier Level of 1,000, the investor receives a payment at maturity of $0.00 per $1,000 principal amount note, calculated
as follows:
$1,000 + ($1,000 × -100%) = $0.00
The hypothetical payments on the notes shown above apply
only if the notes are not called prior to maturity and you hold the notes 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 payments shown above would likely be lower.
JPMorgan Structured Investments —
|
PS-
11
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
What is an ICE Swap Rate?
An ICE Swap Rate is a rate for a U.S. dollar swap with a Designated
Maturity and which appears on Reuters page “ICESWAP1” (or any successor page) at approximately 11:00 a.m., New York
City time, on each Determination Date, as determined by the Calculation Agent.
On each Determination Date, if the 30-Year ICE Swap Rate or
the 2-Year ICE Swap Rate cannot be determined by reference to Reuters page “ICESWAP1” (or any successor page), then
the Calculation Agent will determine the 30-Year ICE Swap Rate or the 2-Year ICE Swap Rate, as applicable, for such day on the
basis of the mid-market semi-annual swap rate quotations to the Calculation Agent provided by five leading swap dealers in the
New York City interbank market (the “Reference Banks”) at approximately 11:00 a.m., New York City time, on such Determination
Date, and, for this purpose, the mid-market semi-annual swap rate means the mean of the bid and offered rates for the semi-annual
fixed leg, calculated on a 30/360 day count basis, of a fixed-for-floating U.S. Dollar interest rate swap transaction with a term
equal to the applicable 30 year or 2 year maturity commencing on such Determination Date and in an amount, as determined by the
Calculation Agent, that is representative for a single transaction in the relevant market at the relevant time (the “Representative
Amount”) with an acknowledged dealer of good credit in the swap market, where the floating leg, calculated on an actual/360
day count basis, is equivalent to USD LIBOR with a designated maturity of three months. The Calculation Agent will request the
principal New York City office of each of the Reference Banks to provide a quotation of its rate. If at least three quotations
are provided, the rate for that day will be the arithmetic mean of the quotations, eliminating the highest quotation (or, in the
event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest). If fewer than
three quotations are provided as requested, the rate will be determined by the Calculation Agent in good faith and in a commercially
reasonable manner.
The “Designated Maturity” is 2 years or 30 years,
as the case may be, depending on whether the 2-Year ICE Swap Rate or the 30-Year ICE Swap Rate is being calculated.
What is the S&P 500
®
Index?
The S&P 500
®
Index consists of 500 component
stocks selected to provide a performance benchmark for the U.S. equity markets. For additional information on the S&P 500
®
Index, see the information set forth under “Equity Index Descriptions — The S&P U.S. Indices” in the accompanying
underlying supplement.
JPMorgan Structured Investments —
|
PS-
12
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
Historical Information
The following graphs set forth the weekly historical
performance of the ICE Swap Rates and the Spread from January 7, 2011 through May 20, 2016. We obtained the rates used to construct
the graph below from Bloomberg Financial Markets. We make no representation or warranty as to the accuracy or completeness of the
information obtained from Bloomberg Financial Markets.
The 30-Year ICE Swap Rate, as it appeared on Reuters
page “ICESWAP1” on May 24, 2016 was 2.178%.The 2-Year ICE Swap Rate, as it appeared on Reuters page “ICESWAP1”
on May 24, 2016 was 1.059%. The Spread on May 24, 2016 was 1.119%.
The ICE Swap Rates and the Spread data in the following
graphs were obtained from Bloomberg Financial Markets at approximately 3:30 p.m. on the relevant dates and may not be indicative
of the Spread, which is determined on any date of determination by reference to the ICE Swap Rates published on Reuters page "ICESWAP1"
at approximately 11:00 a.m., New York City time.
The historical ICE Swap Rates and the Spread should not be taken as an indication
of future performance, and no assurance can be given as to the ICE Swap Rates or the Spread on any Determination Date. We cannot
give you assurance that the performance of the ICE Swap Rates and the Spread will result in any positive interest payments in any
Interest Period subsequent to the final Initial Interest Period.
JPMorgan Structured Investments —
|
PS-
13
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
The following graph sets forth the weekly historical performance of the S&P 500
®
Index for the period from January
7, 2011 through May 20, 2016. The Index closing level on May 24, 2016 was 2,076.06.
We obtained the Index Levels used to construct the graph
below from Bloomberg Financial Markets. We make no representation or warranty as to the accuracy or completeness of the information
obtained from Bloomberg Financial Markets. The historical levels of the Index should not be taken as an indication of future performance,
and no assurance can be given as to the Index Level on any of the Accrual Determination Dates. We cannot give you assurance that
the performance of the Index will result in any positive interest payments or return of principal at maturity.
The Estimated Value of the Notes
The estimated value of the notes set forth on the cover of
this pricing supplement is equal to the sum of the values of the following hypothetical components: (1) a fixed-income debt component
with the same maturity as the notes, valued using the internal funding rate described below, and (2) the derivative or derivatives
underlying the economic terms of the notes. The estimated value of the notes does not represent a minimum price at which JPMS would
be willing to buy your notes in any secondary market (if any exists) at any time. The internal funding rate used in the determination
of the estimated value of the notes is based on, among other things, our and our affiliates’ view of the funding value of
the notes as well as the higher issuance, operational and ongoing liability management costs of the notes in comparison to those
costs for the conventional fixed-rate debt of JPMorgan Chase & Co. For additional information, see “Selected Risk Considerations
— The Estimated Value of the Notes Is Derived by Reference to an Internal Funding Rate” in this pricing supplement.
The value of the derivative or derivatives underlying the economic terms of the notes is derived from internal pricing models of
our affiliates. These models are dependent on inputs such as the traded market prices of comparable derivative instruments and
on various other inputs, some of which are market-observable, and which can include volatility, dividend rates, interest rates
and other factors, as well as assumptions about future market events and/or environments.
JPMorgan Structured Investments —
|
PS-
14
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
Accordingly, the estimated value of the notes is determined
when the terms of the notes are set based on market conditions and other relevant factors and assumptions existing at that time.
See “Selected Risk Considerations — The Estimated Value of the Notes Does Not Represent Future Values of the Notes
and May Differ from Others’ Estimates” in this pricing supplement.
The 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 — The 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 the stated term of the notes. The length of any such initial period reflects the structure of the notes,
whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated costs of hedging the notes
and when these costs are incurred, as determined by our affiliates. See “Selected Risk Considerations — The Value of
the Notes as Published by JPMS (and Which May Be Reflected on Customer Account Statements) May Be Higher Than The Then-Current
Estimated Value of the Notes for a Limited Time Period.”
Supplemental Use of Proceeds
The net proceeds we receive from the sale of the notes will
be used for general corporate purposes and, in part, by us or one or more of our affiliates in connection with hedging our obligations
under the notes.
The notes are offered to meet investor demand for products
that reflect the risk-return profile and market exposure provided by the notes. See “Selected Purchase Considerations”
and “Hypothetical Examples of Calculation of the Interest Rate on the Notes for an Interest Period” in this pricing
supplement for a description of the risk-return profile and market exposure payable under the notes.
The original issue price of the notes is equal to the estimated
value of the notes plus the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, plus (minus) the projected
profits (losses) that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes,
plus the estimated cost of hedging our obligations under the notes.
For purposes of the notes offered by this pricing supplement,
the first and second paragraph of the section entitled “Use of Proceeds and Hedging” on page PS-37 of the accompanying
product supplement are deemed deleted in their entirety. Please refer instead to the discussion set forth above.
JPMorgan Structured Investments —
|
PS-
15
|
Callable Range Accrual Notes linked to the 30-Year U.S. Dollar ICE Swap Rate, the 2-Year U.S. Dollar ICE Swap Rate and the S&P 500
®
Index
due June 30, 2031
|
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