Key Terms
Issuer:
|
JPMorgan Chase Financial Company LLC
|
Guarantor:
|
JPMorgan Chase & Co.
|
Reference Rate:
|
10-Year U.S. Dollar ICE Swap Rate (the “ICE Swap Rate”) determined as set forth under “Supplemental Terms of the Notes” in this pricing supplement
|
Interest Rate:
|
7.30% per annum, payable at a rate of 1.825% per quarter.
The Interest Rate is a fixed rate and is not linked to the Reference Rate.
|
Interest Payment Dates
†
:
|
August 31, 2016, November 30, 2016, February 28, 2017 and the Maturity Date
|
Payment at Maturity:
|
If the Final Reference Rate is greater than or equal to the Initial Reference Rate or is less than the Initial Reference Rate by up to the Buffer Amount, you will receive a cash payment at maturity, for each $1,000 principal amount note, equal to $1,000
plus
any accrued and unpaid interest.
|
If the Final Reference Rate is less than the Initial Reference Rate
by more than the Buffer Amount, at maturity you will lose 1.25% of the principal amount of your notes for every 1% that the Final
Reference Rate is less than the Initial Reference Rate by more than the Buffer Amount. Under these circumstances, your payment
at maturity per $1,000 principal amount note, in addition to any accrued and unpaid interest, will be calculated as follows:
$1,000 + [$1,000 × (Reference Rate Return
+ Buffer Amount) × Downside Leverage Factor]
If the Final Reference Rate is less than the Initial Reference
Rate by more than the Buffer Amount, you will lose some or all of your principal amount at maturity.
|
Buffer Amount:
|
20%
|
Downside Leverage Factor:
|
1.25
|
Reference Rate Return:
|
Final Reference Rate – Initial Reference Rate
Initial Reference Rate
|
|
In no event, however, will the Reference Rate Return be less than -100%.
|
Initial Reference Rate:
|
The Reference Rate on the Pricing Date, which was 1.716%
|
Final Reference Rate:
|
The Reference Rate on the Observation Date
|
Pricing Date:
|
May 25, 2016
|
Original Issue Date:
|
On or about May 31, 2016 (Settlement Date)
|
Observation Date
††
:
|
May 25, 2017
|
Maturity Date
†
:
|
May 31, 2017
|
CUSIP:
|
46646EDM1
|
|
†
|
Subject to postponement as described under “General Terms of Notes — Postponement of a Payment Date” in the
accompanying product supplement
|
|
††
|
Subject to adjustment as described
under “Supplemental Terms of the Notes” in this pricing supplement
|
Investing in the notes involves a number of risks. See
“Risk Factors” beginning on page PS-10 of the accompanying product supplement and “Selected Risk Considerations”
beginning on page PS-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, prospectus supplement and prospectus. Any representation to the contrary
is a criminal offense.
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Price to Public (1)
|
Fees and Commissions (2)
|
Proceeds to Issuer
|
Per note
|
$1,000
|
$10
|
$990
|
Total
|
$6,380,000
|
$63,800
|
$6,316,200
|
|
(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 of $10.00 per $1,000 principal amount note it receives from us to other affiliated or unaffiliated dealers. See “Plan
of Distribution (Conflicts of Interest)” in the accompanying product supplement.
|
The estimated value of the
notes, when the terms of the notes were set, was $973.00 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, are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency and are not obligations of, or guaranteed by, a bank.
May 25, 2016
Additional Terms Specific to
the Notes
You should read this pricing supplement together
with the accompanying prospectus, as supplemented by the accompanying prospectus supplement, relating to our Series A medium-term
notes of which these notes are a part, and the more detailed information contained in the accompanying product supplement.
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” section of the accompanying
product 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):
·
Prospectus supplement and prospectus, each dated April 15, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316012636/crt_dp64952-424b2.pdf
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.
Supplemental Terms of the Notes
The Observation Date is a Determination Date for
purposes of the accompanying product supplement, but is not subject to postponement under “General Terms of Notes —
Postponement of a Determination Date.” Instead, it is subject to adjustment as described below.
With respect to the Observation Date, the Reference
Rate refers to the 10-Year U.S. Dollar ICE Swap Rate, which is the rate for a U.S. dollar interest rate swap with a designated
maturity of 10 years that appears on Reuters page “ICESWAP1” (or any successor page) at approximately 11:15 a.m., New
York City time, on the Observation Date, as determined by the calculation agent. This rate is administered by ICE Benchmark Administration.
If on the Observation Date, the Reference Rate cannot be determined by reference to Reuters page “ICESWAP1” (or any
successor page), then the calculation agent will determine the Reference Rate for the Observation Date on the basis of the mid-market,
semi-annual swap rate quotations provided to the calculation agent by up to five leading swap dealers in the New York City interbank
market at approximately 3:00 p.m., New York City time, on the Observation Date. 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 10-year term commencing on the Observation 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 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
three-month U.S. Dollar London Interbank Offered Rate (ICE Benchmark Administration). The calculation agent will select the five
swap dealers and will request the principal New York City office of each of those dealers to provide a quotation of its rate. If
at least three quotations are provided, the Reference Rate for the Observation Date 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 leading swap dealers selected by the calculation agent provide quotations
as described above, the Reference Rate will be determined by the calculation agent, in good faith and in a commercially reasonable
manner.
JPMorgan Structured Investments —
|
PS-
1
|
Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
|
Selected Purchase Considerations
|
·
|
THE NOTES OFFER A HIGHER INTEREST RATE
THAN THE YIELD ON DEBT SECURITIES OF COMPARABLE MATURITY ISSUED BY US
— The notes will pay interest at the Interest Rate
specified on the cover of this pricing supplement, which is higher than the yield currently available on debt securities of comparable
maturity issued by us.
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 on the notes 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.
|
·
QUARTERLY INTEREST PAYMENTS
— The notes offer quarterly
interest payments as specified on the cover of this pricing supplement. Interest will be payable to the holders of record at the
close of business on the business day immediately preceding the applicable Interest Payment Date. If an Interest Payment Date is
not a business day, payment will be made on the next business day immediately following such day, but no additional interest will
accrue as a result of the delayed payment.
|
·
|
THE NOTES DO NOT GUARANTEE THE RETURN
OF YOUR PRINCIPAL
— We will pay you your principal back at maturity only if the Final Reference Rate is greater than
or equal to the Initial Reference Rate or is less than the Initial Reference Rate by up to the Buffer Amount.
However, if the
Final Reference Rate is less than the Initial Reference Rate by more than the Buffer Amount, you will lose some or all of your
principal amount at maturity.
Even if the Final Reference Rate is negative, your payment at maturity per $1,000 principal amount
note, excluding the final Interest Payment, will not be less than $0.
|
|
·
|
RETURN LINKED TO THE 10-YEAR U.S. DOLLAR
ICE SWAP RATE
—
The
ICE Swap Rate is the “constant maturity swap rate” that measures the annual fixed rate of interest payable on a hypothetical
fixed-for-floating U.S. dollar interest rate swap transaction with a 10-year maturity. In such a hypothetical swap transaction,
the fixed rate of interest, payable semi-annually on the basis of a 360-day year consisting of twelve 30-day months, is exchangeable
for a floating three-month USD London Interbank Offered Rate (“three-month USD LIBOR”) based payment stream that is
payable quarterly on the basis of the actual number of days elapsed during a quarterly period in a 360-day year. Three-month USD
LIBOR reflects the rate at which banks lend U.S. dollars to each other for a term of three months in the London interbank market.
The Interest Rate is a fixed rate and is not linked to the Reference Rate.
|
|
·
|
TAX TREATMENT
— You should
review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement
no. 4-I. Based on the advice of Davis Polk & Wardwell 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 units each comprising: (x)
a derivative contract (the “Derivative Contract”) that requires you to pay us at maturity an amount equal to the Deposit
in exchange for your receipt of an amount equal to the Payment at Maturity and the Derivative Payments as described below and (y)
a Deposit of $1,000 per $1,000 principal amount note to secure your obligation under the Derivative Contract. Under this approach,
a portion of each Interest Payment will be treated as interest on the Deposit, and the remainder as a payment to you under the
Derivative Contract (a “Derivative Payment”). You should review the discussion in
“Material
U.S. Federal Income Tax Consequences — Tax Consequences to U.S. Holders — Notes Treated as Units Each Comprising a
Put Option and a Deposit – Notes with a Term of More than One Year” in the accompanying product supplement, reading
all references therein to a “Put Option” and “Put Premium” as references to a “Derivative Contract”
and “Derivative Payment.” T
o the extent the discussion in this section is inconsistent with the tax treatment
described in
that section, the discussion herein is controlling. The remainder of this discussion
assumes this treatment is respected, unless otherwise indicated.
|
Under the treatment described
above, your tax consequences of owning and disposing of a note are unclear. Our special tax counsel is of the view that one
reasonable treatment of the Derivative Contract is as a notional principal contract, in which case you may be required to accrue
the Derivative Payments into income under applicable Treasury regulations periodically (prior to the receipt of the corresponding
cash), although it is possible that this income could be offset in whole or part by an imputed deduction, as described in the preamble
to certain proposed Treasury regulations governing notional principal contracts with contingent nonperiodic payments (which might
affect the treatment of the Derivative Contract at maturity, as discussed further below). To the extent that we have reporting
obligations with respect to the notes, we intend to treat the Derivative Contract as a notional principal contract, and the remainder
of this discussion assumes that this treatment is respected, unless otherwise indicated.
In determining our reporting
responsibilities, we intend to allocate approximately 17.26% of each Interest Payment to interest on the Deposit and the remainder
to the related Derivative Payment. Assuming that the treatment of the notes as units each comprising a Derivative Contract and
a Deposit is respected, amounts treated as interest on the Deposit will be taxed as ordinary income, while the treatment of the
Derivative Payments is unclear, as described above.
Tax Treatment at Maturity
.
If a note is held to maturity, any gain or loss recognized by you with respect to the Derivative Contract will be ordinary income
or loss to you. In the event of a loss, if you are an individual, your deduction may be subject to the 2% floor on “miscellaneous
itemized deductions.” You should consult your tax adviser regarding the application of the relevant rules to the maturity
of the Derivative Contract, including certain rules relating to the treatment of “nonperiodic payments.”
JPMorgan Structured Investments —
|
PS-
2
|
Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
|
Sale or Exchange of a Note
.
Upon sale or exchange of a note prior to maturity, the Deposit will be treated as sold for its fair market value, excluding any
accrued but unpaid interest, which will be treated as described above. The amount of gain or loss on the Deposit will equal the
amount realized that is attributable to the Deposit, minus your tax basis in the Deposit. That gain or loss will be short-term
capital gain or loss.
The rules related to the “termination”
of a notional principal contract under these circumstances are complex, and depend in part upon how the Derivative Payments have
been treated prior to the termination. Moreover, it is unclear whether any resulting gain or loss would be ordinary or capital
in character. You should consult your tax adviser concerning the tax consequences of a sale or exchange of a note prior to maturity.
Alternative Treatments of
the Notes.
The tax treatment of the notes is unclear. There are other reasonable treatments that the IRS or a court may adopt,
in which case the timing and character of any income or loss on the notes could be materially and adversely affected. For instance,
the Derivative Payment could be viewed as in the nature of consideration for entry into a derivative position with respect to the
ICE Swap Rate, in which case you might not be required to recognize income prior to maturity. However, the character of any gain
or loss recognized in respect of the Derivative Contract would be unclear under this treatment.
Other alternative treatments
are possible, under which you could be required to include amounts in income during the term of your notes different from those
described above, and/or to treat all or a portion of the gain or loss on the sale or exchange of your notes as ordinary income
or loss or as short-term capital gain or loss, without regard to how long you have held the notes. You should consult your tax
adviser regarding all aspects of the U.S. federal income tax consequences of an investment in the notes, including the alternative
treatments described herein.
Risks Relating to the 2007
Notice
. 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 on a number of issues, the most relevant
of which for investors in the notes are the character of income or loss (including whether the Derivative Payment might be currently
included as ordinary income) and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. 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.
FATCA
. Withholding under
legislation commonly referred to as “FATCA” will apply to amounts treated as interest or other “fixed or determinable
annual or periodical” income (“FDAP Income”) for U.S. federal income tax purposes paid with respect to the notes.
Under a recent IRS notice, withholding under FATCA will not apply to payments of gross proceeds (other than any amount treated
as FDAP Income) of a taxable disposition of the notes. You should consult your tax adviser regarding the potential application
of FATCA to the notes.
You should consult your tax
adviser 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 advisers with respect to the tax consequences of an investment in the notes, including possible alternative
treatments, as well as the allocation of the purchase price of the notes between the Deposit and the Derivative Contract.
JPMorgan Structured Investments —
|
PS-
3
|
Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
|
Selected Risk
Considerations
An investment in the notes involves significant
risks. These risks are explained in more detail in the “Risk Factors” section of the accompanying product supplement
and below.
|
·
|
YOUR INVESTMENT IN THE NOTES MAY RESULT
IN A LOSS
— The notes do not guarantee any return of principal. If the Final Reference Rate is less than the Initial
Reference Rate by more than the Buffer Amount, you will lose 1.25% of your principal amount at maturity for every 1% that the Final
Reference Rate, which may be a negative rate, is less than the Initial Reference Rate by more than the Buffer Amount. In no event,
however, will the Reference Rate Return be less than -100%.
Accordingly, under these circumstances, you will lose some or all
of your principal amount at maturity.
|
|
·
|
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.
|
|
·
|
THE APPRECIATION POTENTIAL OF THE NOTES IS LIMITED, AND YOU WILL
NOT PARTICIPATE IN ANY INCREASE IN THE REFERENCE RATE
— The appreciation potential of the notes is limited to the sum
of the interest payments, regardless of any increase in the Reference Rate, which may be significant.
The Interest Rate is a
fixed rate and is not linked to the Reference Rate.
You will not participate in any increase in the Reference Rate. Accordingly,
the return on the notes may be significantly less than the return on a direct investment in the Reference Rate during the term
of the notes.
|
|
·
|
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, 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 Conflicts of Interest” in the accompanying product supplement for additional information about these risks.
|
In addition, the ICE Swap Rate is administered by
ICE Benchmark Administration, and we are represented on the ICE Swap Rate Oversight Committee, which is responsible for monitoring
the administration of the ICE Swap Rate. We and our affiliates will have no obligation to consider your interests as a holder of
the notes in taking any actions in connection with participation on the ICE Swap Rate Oversight Committee that might affect the
ICE Swap Rate or the notes.
|
·
|
THE ESTIMATED VALUE OF THE NOTES IS LOWER THAN THE ORIGINAL ISSUE
PRICE (PRICE TO PUBLIC) OF THE NOTES
— The estimated value of the notes is only an estimate determined by reference to
several factors. The original issue price of the notes exceeds the estimated value of the notes because costs associated with selling,
structuring and hedging the notes are included in the original issue price of the notes. These costs include the selling commissions,
the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under
the notes and the estimated cost of hedging our obligations under the notes. See “The Estimated Value of the Notes”
in this pricing supplement.
|
|
·
|
THE ESTIMATED VALUE OF THE NOTES DOES NOT REPRESENT FUTURE VALUES
OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES
— 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,
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.
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JPMorgan Structured Investments —
|
PS-
4
|
Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
|
|
·
|
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 and any secondary market prices of the notes. See “The Estimated Value of the Notes” in this pricing supplement.
|
|
·
|
THE VALUE OF THE NOTES AS PUBLISHED BY JPMS (AND WHICH MAY BE REFLECTED
ON CUSTOMER ACCOUNT STATEMENTS) MAY BE HIGHER THAN THE THEN-CURRENT ESTIMATED VALUE OF THE NOTES FOR A LIMITED TIME PERIOD
— We generally expect that some of the costs included in the original issue price of the notes will be partially paid back
to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined
period. 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).
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|
·
|
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.
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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 Reference Rate, including:
|
|
·
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any actual or potential change in our or
JPMorgan Chase & Co.’s creditworthiness or credit spreads;
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·
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customary bid-ask spreads for similarly
sized trades;
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·
|
our internal secondary market funding rates
for structured debt issuances;
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|
·
|
the actual and expected volatility of the
Reference Rate;
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|
·
|
the time to maturity of the notes;
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·
|
interest and yield rates in the market
generally; and
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|
·
|
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.
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·
|
THE REFERENCE RATE WILL BE AFFECTED
BY A NUMBER OF FACTORS
— The Reference Rate will depend on the a number of factors, including, but not limited to:
|
|
·
|
changes in, or perceptions about, future
Reference Rate levels;
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|
·
|
general economic conditions: the economic,
financial, political, regulatory and judicial events that affect financial markets generally will affect the Reference Rate;
|
|
·
|
prevailing interest rates: the Reference
Rate is subject to daily fluctuations depending on the levels of prevailing interest rates in the market generally; and
|
|
·
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policy of the Federal Reserve Board regarding
interest rates.
|
These and other factors may have
a negative effect on the performance of the Reference Rate.
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·
|
THE REFERENCE RATE MAY BE VOLATILE
— The Reference Rate is subject to volatility due to a variety of factors affecting interest rates generally, including:
|
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·
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sentiment regarding underlying strength
in the U.S. and global economies;
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·
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expectations regarding the level of price
inflation;
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·
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sentiment regarding credit quality in U.S.
and global credit markets;
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·
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central bank policy regarding interest
rates; and
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|
·
|
performance of capital markets.
|
The Reference Rate may be negative.
A Final Reference Rate that is less than the Initial Reference Rate by more than the Buffer Amount will result in a reduction of
principal payment at maturity. In addition, these and other factors may have a negative impact on the value of your notes in the
secondary market.
JPMorgan Structured Investments —
|
PS-
5
|
Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
|
|
·
|
THE ICE SWAP RATE AND THE MANNER IN
WHICH IT IS CALCULATED MAY CHANGE IN THE FUTURE
— There can be no assurance that the method by which the ICE Swap Rate
is calculated will continue in its current form. Any changes in the method of calculation could reduce the Reference Rate.
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|
·
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THE REFERENCE RATE MAY BE CALCULATED
BASED ON DEALER QUOTATIONS OR BY THE CALCULATION AGENT IN GOOD FAITH AND IN A COMMERCIALLY REASONABLE MANNER
— If on
the Observation Date, the Reference Rate cannot be determined by reference to Reuters page “ICESWAP1” (or any successor
page), then the calculation agent will determine the Reference Rate for the Observation Date on the basis of the mid-market, semi-annual
swap rate quotations provided to the calculation agent by up to five leading swap dealers in the New York City interbank market
at approximately 3:00 p.m., New York City time, on the Observation Date. If fewer than three leading swap dealers selected by the
calculation agent provide quotations as described above, the Reference Rate will be determined by the calculation agent, in good
faith and in a commercially reasonable manner. The Reference Rate determined in this manner may be different from the rate that
would have been published on the applicable Reuters page and may be different from other published levels, or other estimated levels,
of the ICE Swap Rate.
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·
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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.
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JPMorgan Structured Investments —
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Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
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What Are the Total Return
and Total Payments on the Notes, Assuming a Range of Performances for the Reference Rate?
The following table and examples illustrate the
hypothetical total return and total payments on the notes. The “total return” as used in this pricing supplement is
the number, expressed as a percentage, that results from comparing the total payments on the notes per $1,000 principal amount
note to $1,000. Each hypothetical total return or total payment set forth below assumes an Initial Reference Rate of 1.70% and
reflects the Interest Rate of 7.30% per annum and the Buffer Amount of 20%. Each hypothetical total return or total payment set
forth below is for illustrative purposes only and may not be the actual total return or total payment applicable to a purchaser
of the notes. The numbers appearing in the following table and examples have been rounded for ease of analysis.
Final Reference Rate
|
Reference Rate Return
|
Total Return
|
Total Payments Over the Term of the Notes
|
3.06000%
|
80.00%
|
7.30%
|
$1,073.00
|
2.80500%
|
65.00%
|
7.30%
|
$1,073.00
|
2.55000%
|
50.00%
|
7.30%
|
$1,073.00
|
2.38000%
|
40.00%
|
7.30%
|
$1,073.00
|
2.21000%
|
30.00%
|
7.30%
|
$1,073.00
|
2.04000%
|
20.00%
|
7.30%
|
$1,073.00
|
1.87000%
|
10.00%
|
7.30%
|
$1,073.00
|
1.78500%
|
5.00%
|
7.30%
|
$1,073.00
|
1.70000%
|
0.00%
|
7.30%
|
$1,073.00
|
1.61500%
|
-5.00%
|
7.30%
|
$1,073.00
|
1.53000%
|
-10.00%
|
7.30%
|
$1,073.00
|
1.44500%
|
-15.00%
|
7.30%
|
$1,073.00
|
1.36000%
|
-20.00%
|
7.30%
|
$1,073.00
|
1.27500%
|
-25.00%
|
1.05%
|
$1,010.50
|
1.26072%
|
-25.84%
|
0.00%
|
$1,000.00
|
1.19000%
|
-30.00%
|
-5.20%
|
$948.00
|
1.02000%
|
-40.00%
|
-17.70%
|
$823.00
|
0.85000%
|
-50.00%
|
-30.20%
|
$698.00
|
0.68000%
|
-60.00%
|
-42.70%
|
$573.00
|
0.51000%
|
-70.00%
|
-55.20%
|
$448.00
|
0.34000%
|
-80.00%
|
-67.70%
|
$323.00
|
0.17000%
|
-90.00%
|
-80.20%
|
$198.00
|
0.00000%
|
-100.00%
|
-92.70%
|
$73.00
|
-0.17000%
|
-100.00%
|
-92.70%
|
$73.00
|
-0.34000%
|
-100.00%
|
-92.70%
|
$73.00
|
-0.51000%
|
-100.00%
|
-92.70%
|
$73.00
|
Hypothetical Examples of Amounts
Payable on the Notes
The following examples illustrate how the total
payments on the notes in different hypothetical scenarios are calculated.
Example 1: The Reference Rate increases from
the Initial Reference Rate of 1.70% to a Final Reference Rate of 1.87%.
Because the Final Reference Rate of 1.87% is greater
than the Initial Reference Rate of 1.70%, the investor receives total payments over the term of the notes of $1,073 per $1,000
principal amount note. These payments consist of interest payments of $73 per $1,000 principal amount note over the term of the
notes and repayment of principal at maturity equal to $1,000 per $1,000 principal amount note.
Example 2: The Reference Rate decreases from
the Initial Reference Rate of 1.70% to a Final Reference Rate of 1.53%.
Although the Final Reference Rate of 1.53% is less
than the Initial Reference Rate of 1.70%, because the Final Reference Rate is not less than the Initial Reference Rate by more
than the Buffer Amount of 20%, the investor receives total payments over the term of the notes of $1,073 per $1,000 principal amount
note. These payments consist of interest payments of $73 per $1,000 principal amount note over the term of the notes and repayment
of principal at maturity equal to $1,000 per $1,000 principal amount note.
Example 3: The Reference Rate decreases from
the Initial Reference Rate of 1.70% to a Final Reference Rate of 0.51%.
Because the Final Reference Rate of 0.51% is less than
the Initial Reference Rate of 1.70% by more than the Buffer Amount of 20% and the Reference Rate Return is -70%, the investor receives
total payments over the term of the notes of $448 per $1,000 principal amount note. These payments consist of interest payments
of $73 per $1,000 principal amount note over the term of the notes and a payment at maturity of $375, calculated as follows:
$1,000 + [$1,000 × (-70%
+ 20%) × 1.25] + $73 = $448
Example 4: The Reference Rate decreases from
the Initial Reference Rate of 1.70% to a Final Reference Rate of
-0.17%.
Because the Final Reference Rate of -0.17% is less than the Initial Reference Rate of 1.70% by more than the
JPMorgan Structured Investments —
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Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
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Buffer Amount of 20% and the Reference Rate Return
would have been less than -100% but for the floor on the Reference Rate Return of -100%, the Reference Rate Return is -100%. As
a result, the investor receives total payments over the term of the notes of $73 per $1,000 principal amount note. These payments
consist solely of interest payments of $73 per $1,000 principal amount note over the term of the notes, calculated as follows:
$1,000 + [$1,000 × (-100%
+ 20%) × 1.25] + $73 = $73
The hypothetical returns and hypothetical payments
on the notes shown above apply
only if 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
returns and hypothetical payments shown above would likely be lower.
JPMorgan Structured Investments —
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Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
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Historical Information
The following graph sets forth the historical weekly
performance of the Reference Rate from January 7, 2011 through May 20, 2016. The Reference Rate on May 25, 2016 was 1.716%. We
obtained the levels of the Reference Rate above and below from the Bloomberg Professional
®
service (“Bloomberg”),
without independent verification.
The historical levels of the Reference Rate should
not be taken as an indication of future performance, and no assurance can be given as to the level of the Reference Rate on the
Observation Date. There can be no assurance that the performance of the Reference Rate will result in the return of any of your
principal amount.
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, interest rates
and other factors, as well as assumptions about future market events and/or environments. Accordingly, the estimated value of the
notes is determined when the terms of the notes are set based on market conditions and other relevant factors and assumptions existing
at that time. 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 is lower than the
original issue price of the notes because costs associated with selling, structuring and hedging the notes are included in the
original issue price of the notes. These costs include the selling commissions paid to JPMS and other affiliated or unaffiliated
dealers, the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations
under the notes and the estimated cost of hedging our obligations under the notes. Because hedging our obligations entails risk
and may be influenced by market forces beyond our control, this hedging may result in a profit that is more or less than expected,
or it may result in a loss. A portion of the profits, if any, realized in hedging our obligations under the notes may be allowed
to other affiliated or unaffiliated dealers, and we or one or more of our affiliates will retain any remaining hedging profits.
See “Selected Risk Considerations — The Estimated Value of the Notes Is Lower Than the Original Issue Price (Price
to Public) of the Notes” in this pricing supplement.
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
JPMorgan Structured Investments —
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Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
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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 notes are offered to meet investor demand for
products that reflect the risk-return profile and market exposure provided by the notes. See “What Are the Total Return and
Payment at Maturity on the Notes, Assuming a Range of Performances for the Reference Rate?” and “Hypothetical Examples
of Amounts Payable on the Notes” in this pricing supplement for an illustration of the risk-return profile of the notes and
“Selected Purchase Considerations — Return Linked to the 10-Year U.S. Dollar ICE Swap Rate” in this pricing supplement
for a description of the market exposure provided by the notes.
The original issue price of the notes is equal to
the estimated value of the notes plus the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, plus (minus)
the projected profits (losses) that our affiliates expect to realize for assuming risks inherent in hedging our obligations under
the notes, plus the estimated cost of hedging our obligations under the notes.
Validity of the Notes and the
Guarantee
In the opinion of Davis Polk & Wardwell LLP,
as special products counsel to JPMorgan Financial and JPMorgan Chase & Co., when the notes offered by this pricing supplement
have been executed and issued by JPMorgan Financial and authenticated by the trustee pursuant to the indenture, and delivered against
payment as contemplated herein, such notes will be valid and binding obligations of JPMorgan Financial and the related guarantee
will constitute a valid and binding obligation of JPMorgan Chase & Co., enforceable in accordance with their terms, subject
to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and
equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack
of bad faith),
provided
that such counsel expresses no opinion as to the effect of fraudulent conveyance, fraudulent transfer
or similar provision of applicable law on the conclusions expressed above. This opinion is given as of the date hereof and is limited
to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company
Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery
of the indenture and its authentication of the notes and the validity, binding nature and enforceability of the indenture with
respect to the trustee, all as stated in the letter of such counsel dated February 24, 2016, which was filed as an exhibit to the
Registration Statement on Form S-3 by JPMorgan Financial and JPMorgan Chase & Co. on February 24, 2016.
JPMorgan Structured Investments —
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PS-
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Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
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