Key Terms
Issuer:
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JPMorgan Chase Financial Company LLC
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Guarantor:
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JPMorgan Chase & Co.
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Reference Rate:
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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
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Interest Rate:
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At least 6.80%* per annum, payable at a rate of at least 1.70%* per quarter.
The Interest Rate is a fixed rate and is not linked to the Reference Rate.
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*The actual Interest Rate will be provided in the pricing supplement and will not be less than 6.80% per annum.
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Interest Payment Dates
†
:
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September 2, 2016 and the Maturity Date
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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.
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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.
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Buffer Amount:
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20%
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Downside Leverage Factor:
|
1.25
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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%.
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Initial Reference Rate:
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The Reference Rate on the Pricing Date
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Final Reference Rate:
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The Reference Rate on the Observation Date
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Pricing Date:
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On or about May 27, 2016
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Original Issue Date:
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On or about June 2, 2016 (Settlement Date)
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Observation Date
††
:
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November 29, 2016
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Maturity Date
†
:
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December 2, 2016
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CUSIP:
|
46646EEC2
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†
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Subject to postponement as described under “General Terms of Notes — Postponement of a Payment Date” in the
accompanying product supplement
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††
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Subject to adjustment as described under “Supplemental Terms of the Notes” in this pricing supplement
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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)
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Fees and Commissions (2)
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Proceeds to Issuer
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Per note
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$1,000
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$
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$
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Total
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$
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$
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$
|
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(1)
|
See “Supplemental Use of Proceeds” in this pricing supplement for information about the components of the price
to public of the notes.
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(2)
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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. In no event will these selling commissions exceed
$7.00 per $1,000 principal amount note. See “Plan of Distribution (Conflicts of Interest)” in the accompanying product
supplement.
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If the notes priced today,
the estimated value of the notes would be approximately $977.00 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 $970.00 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 , 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.
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):
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.
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·
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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.
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·
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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.
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·
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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.
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·
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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.
We
will determine the portion of each Interest Payment on the notes that we will allocate to interest on the Deposit and to the related
Derivative Payment, respectively, and will provide that allocation in the pricing supplement for the notes. If the notes had priced
on May 26, 2016, we would have allocated approximately 13.24% of each Interest Payment to interest on the Deposit and the remainder
to the related Derivative Payment. The actual allocation that we will determine for the notes may differ from this hypothetical
allocation, and will depend upon a variety of factors, including actual market conditions and our borrowing costs for debt instruments
of comparable maturities on the Pricing Date. 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. 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
JPMorgan Structured Investments
|
PS-
2
|
Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
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.”
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.
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·
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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.
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|
·
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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.
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·
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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.
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·
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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.
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·
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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.
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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.
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·
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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.
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·
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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
|
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·
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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.
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·
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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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·
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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.
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·
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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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·
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any
actual or potential change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads;
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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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·
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the
actual and expected volatility of the Reference Rate;
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·
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the
time to maturity of the notes;
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·
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interest
and yield rates in the market generally; and
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·
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a
variety of other economic, financial, political, regulatory and judicial events.
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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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·
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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:
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·
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changes
in, or perceptions about, future Reference Rate levels;
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·
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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;
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·
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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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·
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policy
of the Federal Reserve Board regarding interest rates.
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These
and other factors may have a negative effect on the performance of the Reference Rate.
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·
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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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sentiment
regarding credit quality in U.S. and global credit markets;
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central
bank policy regarding interest rates; and
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performance
of capital markets.
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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
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PS-
5
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Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
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·
|
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.
|
|
·
|
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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·
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THE
FINAL TERMS AND VALUATION OF THE NOTES WILL BE PROVIDED IN THE PRICING SUPPLEMENT
— The final terms of the notes will
be based on relevant market conditions when the terms of the notes are set and will be provided in the pricing supplement. In
particular, each of the estimated value of the notes and the Interest Rate will be provided in the pricing supplement and each
may be as low as the applicable minimum set forth on the cover of this pricing supplement. Accordingly, you should consider your
potential investment in the notes based on the minimums for the estimated value of the notes and the Interest Rate.
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JPMorgan Structured Investments
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PS-
6
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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 an Interest Rate of 6.80% per annum and reflects the Buffer Amount of 20%. The actual Interest Rate
will be provided in the pricing supplement and will not be less than 6.80% per annum. 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%
|
3.40%
|
$1,034.00
|
2.80500%
|
65.00%
|
3.40%
|
$1,034.00
|
2.55000%
|
50.00%
|
3.40%
|
$1,034.00
|
2.38000%
|
40.00%
|
3.40%
|
$1,034.00
|
2.21000%
|
30.00%
|
3.40%
|
$1,034.00
|
2.04000%
|
20.00%
|
3.40%
|
$1,034.00
|
1.87000%
|
10.00%
|
3.40%
|
$1,034.00
|
1.78500%
|
5.00%
|
3.40%
|
$1,034.00
|
1.70000%
|
0.00%
|
3.40%
|
$1,034.00
|
1.61500%
|
-5.00%
|
3.40%
|
$1,034.00
|
1.53000%
|
-10.00%
|
3.40%
|
$1,034.00
|
1.44500%
|
-15.00%
|
3.40%
|
$1,034.00
|
1.36000%
|
-20.00%
|
3.40%
|
$1,034.00
|
1.32736%
|
-21.92%
|
1.00%
|
$1,010.00
|
1.31376%
|
-22.72%
|
0.00%
|
$1,000.00
|
1.19000%
|
-30.00%
|
-9.10%
|
$909.00
|
1.02000%
|
-40.00%
|
-21.60%
|
$784.00
|
0.85000%
|
-50.00%
|
-34.10%
|
$659.00
|
0.68000%
|
-60.00%
|
-46.60%
|
$534.00
|
0.51000%
|
-70.00%
|
-59.10%
|
$409.00
|
0.34000%
|
-80.00%
|
-71.60%
|
$284.00
|
0.17000%
|
-90.00%
|
-84.10%
|
$159.00
|
0.00000%
|
-100.00%
|
-96.60%
|
$34.00
|
-0.17000%
|
-100.00%
|
-96.60%
|
$34.00
|
-0.34000%
|
-100.00%
|
-96.60%
|
$34.00
|
-0.51000%
|
-100.00%
|
-96.60%
|
$34.00
|
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 $1,034 per $1,000 principal amount note. These payments consist of interest payments of $34 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 $1,034 per $1,000 principal amount note. These payments consist of interest payments of $34 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 $409 per $1,000 principal amount note.
These payments consist of interest payments of $34 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] + $34 = $409
JPMorgan Structured Investments
|
PS-
7
|
Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
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 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 $34
per $1,000 principal amount note. These payments consist solely of interest payments of $68 per $1,000 principal amount note over
the term of the notes, calculated as follows:
$1,000
+ [$1,000 × (-100% + 20%) × 1.25] + $34 = $34
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
|
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 26, 2016 was 1.703%. 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 Pricing Date or 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 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. 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 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
JPMorgan Structured Investments
|
PS-
9
|
Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
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.
JPMorgan Structured Investments
|
PS-
10
|
Yield Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
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