Opportunities in U.S. Equities
Buffered Auto-Callable Securities provide for a minimum payment
at maturity of only 15% of the stated principal amount and do not provide for the regular payment of interest. The securities will
be automatically redeemed if the closing level of the underlying index on any of the determination dates (other than the final
determination date) is greater than or equal to the initial index value, for an early redemption payment that will increase over
the term of the securities and that will correspond to a return of approximately 6.50% per annum, as described below. At maturity,
if the securities have not previously been redeemed and the final index value is greater than or equal to the initial index value,
the payment at maturity due on the securities will correspond to a return of approximately 6.50% per annum. If the final index
value is less than the initial index value but greater than or equal to 85% of the initial index value, which we refer to as the
downside threshold level, the payment at maturity due on the securities will be the stated principal amount. If, however, the final
index value is less than the downside threshold level, investors will lose 1% for every 1% decline of the underlying index beyond
the buffer amount of 15%, subject to the minimum payment at maturity of 15% of the stated principal amount. I
nvestors may lose
up to 85% of the stated principal amount of the securities at maturity.
These securities are for investors who are willing
to risk their principal and forgo current income in exchange for the possibility of receiving an early redemption payment or payment
at maturity greater than the stated principal amount, if the underlying index closes at or above the initial index value on a determination
date. The securities are unsecured and unsubordinated obligations of JPMorgan Chase Financial Company LLC, which we refer to as
JPMorgan Financial, the payment on which is fully and unconditionally guaranteed by JPMorgan Chase & Co., issued as part of
JPMorgan Financial’s Medium-Term Notes, Series A, program.
Any payment on the securities is subject to the credit risk
of JPMorgan Financial, as issuer of the securities and the credit risk of JPMorgan Chase & Co., as guarantor of the securities.
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SUMMARY
TERMS
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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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Underlying index:
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Russell 2000
®
Index
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Aggregate principal amount:
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$
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Automatic early redemption:
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If, on any of the determination dates (other than the final determination date), the index closing level is
greater than or equal to
the initial index value, the securities will be automatically redeemed for a cash payment equal to the early redemption payment payable on the applicable redemption date.
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Early redemption payment:
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The early redemption payment will be an amount equal to the stated
principal amount
plus
an amount in cash per stated principal amount corresponding to a return of approximately 6.50% per
annum, as follows:
·
1
st
determination date: $10.65
·
2
nd
determination date: $11.30
·
3
rd
determination date: $11.95
·
4
th
determination date: $12.60
No further payments will be made on the securities
once they have been redeemed.
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Payment at maturity:
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If the securities have not previously been redeemed, you will receive at maturity a cash payment as follows:
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|
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·
If the final index value is
greater than or equal to
the initial index value:
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the maturity redemption payment, which is an amount in cash per stated principal amount corresponding to a return of approximately 6.50% per annum, or $13.25
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·
If the final index value is
less than
the initial index value but
greater than or equal to
the downside threshold level:
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the stated principal amount
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·
If the final index value is
less than
the downside threshold level:
|
the stated principal amount
x
(index performance factor
+
buffer amount)
Under these circumstances, the payment at maturity will be
less than the stated principal amount, subject to the minimum payment at maturity of $1.50 per security.
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Index performance factor:
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final index value
/
initial index value
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Downside threshold level:
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, which is equal to 85% of the initial index value
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Buffer amount:
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15%
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Stated principal amount:
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$10 per security
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Minimum payment at maturity:
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$1.50 per security
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Issue price:
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$10 per security (see “Commissions and issue price” below)
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Pricing date:
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On or about July , 2016 (expected to price on or about July 29, 2016)
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Original issue date (settlement date):
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August , 2016 (3 business days after the pricing date)
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Maturity date:
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August 3, 2021, subject to postponement in the event of for certain market disruption events and as described under “General Terms of Notes — Postponement of a Payment Date” in the accompanying product supplement
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Agent:
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J.P. Morgan Securities LLC (“JPMS”)
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Commissions and issue price:
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Price to public
(1)
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Fees and commissions
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Proceeds to issuer
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Per security
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$10.00
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$0.25
(2)
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$9.70
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$0.05
(3)
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Total
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$
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$
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$
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(1)
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See “Additional Information about the Securities — Supplemental use of proceeds and hedging” in this document
for information about the components of the price to public of the securities.
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(2)
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JPMS, acting as agent for JPMorgan Financial, will pay all of the selling commissions it receives from us to Morgan Stanley
Smith Barney LLC (“Morgan Stanley Wealth Management”). In no event will these selling commissions exceed $0.25 per
$10 stated principal amount security. See “Plan of Distribution (Conflicts of Interest)” in the accompanying product
supplement.
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(3)
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Reflects a structuring fee payable to Morgan Stanley Wealth Management by the agent or its affiliates of $0.05 for each
$10 stated principal amount security
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If the securities priced today,
the estimated value of the securities would be approximately $9.661 per $10 stated principal amount security. The estimated value
of the securities on the pricing date will be provided in the pricing supplement and will not be less than $9.40 per $10 stated
principal amount security.
See “Additional Information about the Securities — The estimated value of the securities”
in this document for additional information.
Investing in the securities
involves a number of risks. See “Risk Factors” beginning on page PS-10 of the accompanying product supplement, “Risk
Factors” beginning on page US-2 of the accompanying underlying supplement and “Risk Factors” beginning on page
8 of this document.
Neither the Securities and Exchange
Commission (the “SEC”) nor any state securities commission has approved or disapproved of the securities or passed
upon the accuracy or the adequacy of this document or the accompanying product supplement, underlying supplement, prospectus supplement
and prospectus. Any representation to the contrary is a criminal offense.
The securities are not bank
deposits, are not insured by the Federal Deposit Insurance Corporation or any other governmental agency and are not obligations
of, or guaranteed by, a bank.
You should read this document together
with the related product supplement, underlying supplement, prospectus supplement and prospectus, each of which can be accessed
via the hyperlinks below. Please also see “Additional Information about the Securities” at the end of this document.
Product
supplement no. MS-1-I dated June 3, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316013935/crt_dp64833-424b2.pdf
Underlying
supplement no. 1-I dated April 15, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316012649/crt-dp64909_424b2.pdf
Prospectus supplement and prospectus, each
dated April 15, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316012636/crt_dp64952-424b2.pdf
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
Terms continued from previous page:
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Initial index value:
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The closing level of the underlying index on the pricing date
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Final index value:
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The closing level of the underlying index of the underlying index on the final determination date
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Determination dates:
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August 1, 2017, July 30, 2018, July 29, 2019, July 29, 2020 and July 29, 2021, subject to postponement for non-trading days and certain market disruption events
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Redemption dates:
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With respect to each determination date other than the final determination date, the third business day after the related determination date
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CUSIP/ISIN:
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46646X407 / US46646X4079
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Listing:
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The securities will not be listed on any securities exchange.
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JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
Investment Summary
The Buffered Auto-Callable Securities due August 3, 2021 Based
on the Performance of the Russell 2000
®
Index, which we refer to as the securities, provide an opportunity for investors
to earn an early redemption payment, which is an amount that will increase over the term of the securities and that will correspond
to a return of approximately 6.50% per annum of the stated principal amount per security. If the closing level of the underlying
index is greater than or equal to the initial index value on any determination date (other than the final determination date),
the securities will be automatically redeemed for a payment equal to the early redemption payment payable on the applicable redemption
date.
If the securities have not been automatically redeemed prior
to maturity and if the final index value is greater than or equal to the initial index value, the payment at maturity due on the
securities will be an amount in cash per stated principal amount corresponding to a return of approximately 6.50% per annum, or
$13.25. If the final index value is less than the initial index value but greater than or equal to 85% of the initial index value,
which we refer to as the downside threshold level, the payment at maturity due on the securities will be the stated principal amount.
However, if the final index value is less than the downside threshold level, investors will lose 1% for every 1% decline of the
underlying index beyond the buffer amount of 15%, subject to the minimum payment at maturity of 15% of the stated principal amount.
I
nvestors may lose up to 85% of the stated principal amount of the securities at maturity.
In addition, investors will not
participate in any appreciation of the underlying index.
Supplemental Terms of the Securities
For purposes of the accompanying product supplement, the underlying
index is an “Index.”
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
Key Investment Rationale
The securities do not provide
for the regular payment of interest. The securities offer investors an opportunity to earn an early redemption payment, which is
an amount that will increase over the term of the securities and that will correspond to a return of approximately 6.50% per annum
of the stated principal amount per security if the closing level of the underlying index is
greater than or equal to
the
initial index value on any of the determination dates. If the securities have not been automatically redeemed prior to maturity
and if the final index value is greater than the initial index value, the payment at maturity due on the securities will be an
amount in cash per stated principal amount corresponding to a return of approximately 6.50% per annum, or $13.25.
The following scenarios are for illustrative purposes only to
demonstrate how an automatic early redemption or the payment at maturity (if the securities have not previously been redeemed)
are calculated, and do not attempt to demonstrate every situation that may occur. Accordingly, the securities may or may not be
redeemed and the payment at maturity may be less than the stated principal amount of the securities and may be zero.
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Scenario 1
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On any of the first four determination dates,
the closing level of the underlying index is
greater than or equal to
the initial index value.
§
The
securities will be automatically redeemed for the stated principal amount
plus
an amount in cash per stated principal amount
corresponding to a return of approximately 6.50% per annum. No further payments will be made on the securities once they have been
redeemed.
§
Investors
will not participate in any appreciation of the underlying index from the initial index value.
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Scenario 2
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The securities have not been previously redeemed
and the final index value is
greater than or equal to
the initial index value.
§
The
payment due at maturity will be the maturity redemption payment, which is an amount in cash per stated principal amount corresponding
to a return of approximately 6.50% per annum, or $13.25.
§
Investors
will not participate in any appreciation of the underlying index from the initial index value.
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Scenario 3
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The securities have not been previously redeemed
and the final index value is
less than
the initial index value but
greater than or equal to
the downside threshold
level.
§
The
payment due at maturity will be the stated principal amount.
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Scenario 4
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The securities have not been previously redeemed
and the final index value is
less than
the downside threshold level.
§
The
payment due at maturity will be (i) the stated principal amount
multiplied
by (ii) the
sum
of (a) the index performance
factor and (b) the buffer amount of 15%.
§
Under
these circumstances, the securities pay less than the stated principal amount by an amount proportionate to the decline in the
final index value from the initial index value beyond the buffer amount of 15%, subject to the minimum payment at maturity of $1.50
per security.
§
Investors
will lose up to 85% their principal in this scenario.
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JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the closing level of the underlying index and (2) the final index value.
Diagram #1: Determination Dates (Other Than
the Final Determination Date)
Diagram #2: Payment at Maturity
For more information about the payment at maturity in different
hypothetical scenarios, see “Hypothetical Examples” starting on page 6.
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples are for illustrative purposes
only. Whether you receive an early redemption payment or the maturity redemption payment, as applicable, will be determined on
each determination date. The actual initial index value and downside threshold level will be provided in the pricing supplement.
Any payment on the securities is subject to our and JPMorgan Chase & Co.’s credit risks. The numbers in the hypothetical
examples may be rounded for ease of analysis. The below examples are based on the following terms:
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Stated principal amount:
|
$10 per security
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Hypothetical initial index value:
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1,200
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Hypothetical downside threshold level:
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1,020, which is 85% of the hypothetical initial index value
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Early redemption payment:
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An amount in cash per stated principal amount that increases
over the term of the securities, corresponding to a return of approximately 6.50% per annum, as follows:
·
1
st
determination date: $10.65
·
2
nd
determination date:$11.30
·
3
rd
determination date: $11.95
·
4
th
determination date: $12.60
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Maturity redemption payment:
|
$13.25
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In Examples 1 and 2, the closing level of the underlying index
fluctuates over the term of the securities and the closing level of the underlying index is greater than or equal to the initial
index value on one of the first four determination dates. Because the closing level of the underlying index is greater than or
equal to the initial index value on one of the first four determination dates, the securities are automatically redeemed following
the relevant determination date. In Examples 3, 4 and 5, the closing level of the underlying index on the first four determination
dates is less than the initial index value, and, consequently, the securities are not automatically redeemed prior to, and remain
outstanding until, maturity.
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Example
1
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Example
2
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Determination
Dates
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Hypothetical
Closing Level
|
Early
Redemption Payment
|
Hypothetical
Closing Level
|
Early
Redemption Payment
|
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#1
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1,500
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$10.65
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1,000
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N/A
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#2
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N/A
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N/A
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1,050
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N/A
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#3
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N/A
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N/A
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1,440
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$11.95
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#4
|
N/A
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N/A
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N/A
|
N/A
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Final
Determination Date
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N/A
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N/A
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N/A
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N/A
|
Example 1.
The securities are automatically redeemed following
the first determination date as the closing level of the underlying index on the first determination date is greater than the initial
index value. Following the first determination date, you will receive the early redemption payment with respect to the first determination
date.
In this example, the early redemption feature limits the term
of your investment to approximately one year and you may not be able to reinvest at comparable terms or returns. If the securities
are redeemed early, no further payments will be made on the securities. The total payment on the securities will be $10.65 per
security.
Example 2.
The securities are automatically redeemed following
the third determination date. In this example, the securities are redeemed early following the third determination date as this
is the first determination date on which the closing level of the underlying index is greater than or equal to the initial index
value, even though the closing level is progressively increasing on each successive determination date. Following the third determination
date, you will receive the early redemption payment with respect to the third determination date.
In this example, the early redemption feature limits the term
of your investment to approximately three years and you may not be able to reinvest at comparable terms or returns. If the securities
are redeemed early, no further payments will be made on the securities. Further, although the underlying index has appreciated
by 20% from its initial index value on the third determination date, you receive only $11.95 per security per security upon redemption
and do not benefit from this appreciation. The total payment on the securities will be $11.95 per security.
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
|
|
Example 3
|
Example 4
|
Example 5
|
|
Determination Dates
|
Hypothetical Closing Level
|
Hypothetical Closing Level
|
Hypothetical Closing Level
|
|
#1
|
1,000
|
900
|
900
|
|
#2
|
980
|
1,000
|
800
|
|
#3
|
1,050
|
1,100
|
675
|
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#4
|
1,100
|
990
|
620
|
|
Final Determination Date
|
1,800
|
1,100
|
600
|
|
Payment at Maturity
|
$13.25
|
$10.00
|
$6.50
|
Example 3.
The securities are not automatically redeemed
prior to maturity and the final index value is greater than the initial index value. Following the final determination date, you
will receive the maturity redemption payment with respect to the final determination date.
This example represents the maximum amount payable on the
securities, and illustrates that although the closing level of the underlying index has appreciated significantly, the investor’s
return is limited to the maturity redemption payment, without any participation in the appreciation of the underlying index. The
total payment on the securities will be $13.25 per security.
Example 4.
The securities are not automatically redeemed
prior to maturity. The final index value is 1,100, which is less than the initial index value of 1,200, but greater than the downside
threshold level of 1,020. As the final index value is less than the initial index value but greater than or equal to the downside
threshold level, you will receive the stated principal amount at maturity.
The total payment on the securities is $10 per $10 stated principal
amount security.
Example 5.
The securities are not automatically redeemed
prior to maturity. The final index value is 600, which is less than the downside threshold level of 1,020. As the final index value
is less than the downside threshold level, you would receive a payment at maturity equal to the product of the stated principal
amount and the index performance factor, calculated as follows:
stated principal amount ×
[(final index value / initial index value) + buffer amount] = $10 × [(600 / 1,200) + 15%] = $6.50
The total payment on the securities is $6.50 per security, representing
a substantial loss on your initial investment.
Although the closing level of the underlying index of the
underlying index may have been greater than or equal to the downside threshold level throughout the term of the securities prior
to the final determination date, because the final index value is less than the downside threshold level, the investor loses some
of the principal amount in an amount proportionate to the decline in the final index value from the initial index value beyond
the buffer amount of 15% .
The hypothetical returns and hypothetical payments on the securities
shown above apply
only if you hold the securities for their entire term or until early redemption.
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 Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the sections entitled
“Risk Factors” of the accompanying product supplement and the accompanying underlying supplement. We urge you to consult
your investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
|
|
§
|
The securities do not pay interest and you could
lose up to 85% of your principal amount at maturity.
The terms of the securities differ from those of ordinary debt securities
in that the securities do not guarantee the payment of regular interest and provide a minimum payment at maturity of only 15% of
your principal, subject to the credit risks of JPMorgan Financial and JPMorgan Chase & Co.. Instead, if the securities have
not been automatically redeemed prior to maturity and the final index value is less than the downside threshold level, you will
receive for each security that you hold a payment at maturity that is less than the stated principal amount of each security by
an amount proportionate to the decline in the value of the underlying index beyond the buffer amount of 15%. Accordingly, you could
lose up to 85% of your principal.
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|
|
§
|
The appreciation potential of the securities is
limited.
Your potential gain on the securities will be limited to the fixed early redemption payments specified for each determination
date (other than the final determination date) or the maturity redemption payment with respect to the final determination date,
as applicable, regardless of the appreciation in the value of the underlying index, which may be significant. You may receive a
lower payment if the securities are automatically redeemed or at maturity, as the case may be, than you would have if you had invested
directly in the underlying index.
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§
|
The securities are subject to the credit risks
of JPMorgan Financial and JPMorgan Chase & Co., and any actual or anticipated changes to our or JPMorgan Chase & Co.’s
credit ratings or credit spreads may adversely affect the market value of the securities. Investors are dependent on our and JPMorgan
Chase & Co.’s ability to pay all amounts due on the securities.
Any actual or anticipated decline in our or JPMorgan
Chase & Co.’s credit ratings or increase in our or JPMorgan Chase & Co.’s credit spreads determined by the
market for taking that credit risk is likely to adversely affect the market value of the securities. If we and JPMorgan Chase &
Co. were to default on our payment obligations, you may not receive any amounts owed to you under the securities 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 securities. If these affiliates do not make payments to us and we fail to make payments on the securities, 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.
|
|
|
§
|
Investors will not participate in any appreciation
in the value of the underlying index.
Investors will not participate in any appreciation in the value of the underlying index
from the initial index value, and the return on the securities will be limited to the early redemption payment or the maturity
redemption payment, as applicable, that is paid with respect to the first determination date on which the closing level of the
underlying index or the final index value, as applicable, is greater than or equal to the initial index value. It is possible that
the closing level of the underlying index could be below the initial index value on all of the determination dates prior to the
final determination date so that you will receive no early redemption payment, or on the final determination date, so that you
will not receive the maturity redemption payment. If you do not receive an early redemption payment or the maturity redemption
payment, the overall return on the securities may be less than the amount that would be paid on a conventional debt security of
the issuer of comparable maturity.
|
|
|
§
|
Early redemption risk.
The term of your investment
in the securities may be limited to as short as approximately one year by the automatic early redemption feature of the securities.
If the securities are redeemed prior to maturity, you will receive no further payments on the securities and may be forced to reinvest
in a lower interest rate environment and may not be able to reinvest the proceeds from an investment in the securities at a comparable
return for a similar level of risk.
|
|
|
§
|
Economic interests of the issuer, the guarantor,
the calculation agent, the agent of the offering of the securities and other affiliates of the issuer may be different from those
of investors.
We and our affiliates play a variety of roles in connection with the issuance of the securities, including acting
as calculation agent and as an agent of the offering of the securities, hedging our obligations under the securities and making
the assumptions
|
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
used to determine the pricing of the securities and
the estimated value of the securities, which we refer to as the estimated value of the securities. 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 securities. The calculation agent will determine the initial
index value, the downside threshold level and the final index value and whether the closing level of the underlying index on any
determination date (other than the final determination date) is below the initial index value and whether the final index value
is below the initial index value and/or the downside threshold level. Determinations made by the calculation agent, including with
respect to the occurrence or non-occurrence of market disruption events, may affect the payment to you at maturity or whether the
securities are redeemed early.
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 securities and the value of
the securities. It is possible that hedging or trading activities of ours or our affiliates in connection with the securities could
result in substantial returns for us or our affiliates while the value of the securities declines. Please refer to “Risk
Factors — Risks Relating to Conflicts of Interest” in the accompanying product supplement for additional information
about these risks.
|
|
§
|
The estimated value of the securities will be lower
than the original issue price (price to public) of the securities.
The estimated value of the securities is only an estimate
determined by reference to several factors. The original issue price of the securities will exceed the estimated value of the securities
because costs associated with selling, structuring and hedging the securities are included in the original issue price of the securities.
These costs include the selling commissions, the structuring fee, the projected profits, if any, that our affiliates expect to
realize for assuming risks inherent in hedging our obligations under the securities and the estimated cost of hedging our obligations
under the securities. See “Additional Information about the Securities — The estimated value of the securities”
in this document.
|
|
|
§
|
The estimated value of the securities does not
represent future values of the securities and may differ from others’ estimates.
The estimated value of the securities
is determined by reference to internal pricing models of our affiliates. This estimated value of the securities is based on market
conditions and other relevant factors existing at the time of pricing and assumptions about market parameters, which can include
volatility, dividend rates, interest rates and other factors. Different pricing models and assumptions could provide valuations
for the securities that are greater than or less than the estimated value of the securities. 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
securities 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 securities from you in secondary market transactions. See “Additional Information about the Securities —
The estimated value of the securities” in this document.
|
|
|
§
|
The estimated value of the securities is derived
by reference to an internal funding rate.
The internal funding rate used in the determination of the estimated value of the
securities is based on, among other things, our and our affiliates’ view of the funding value of the securities as well as
the higher issuance, operational and ongoing liability management costs of the securities 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 securities and any secondary market prices of the securities. See “Additional
Information about the Securities — The estimated value of the securities” in this document.
|
|
|
§
|
The value of the securities as published by JPMS
(and which may be reflected on customer account statements) may be higher than the then-current estimated value of the securities
for a limited time period.
We generally expect that some of the costs included in the original issue price of the securities
will be partially paid back to you in connection with any repurchases of your securities by JPMS in an amount that will decline
to zero over an initial predetermined period. These costs can include selling commissions, the structuring fee, projected hedging
profits, if any, and, in some circumstances, estimated hedging costs and our internal secondary market funding rates for structured
debt issuances. See “Additional Information about the Securities — Secondary market prices of the securities”
in this document for additional information relating to this initial period. Accordingly, the estimated value of your securities
during this initial period may be lower than the value of the securities as published by JPMS (and which may be shown on your customer
account statements).
|
|
|
§
|
Secondary market prices of the securities will
likely be lower than the original issue price of the securities.
Any secondary market prices of the securities will likely
be lower than the original issue price of the securities 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 the structuring fee and (b) may exclude projected hedging profits, if any, and estimated hedging costs
that are
|
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
included in the original issue price of the securities.
As a result, the price, if any, at which JPMS will be willing to buy securities from you in secondary market transactions, if at
all, is likely to be lower than the original issue price. Any sale by you prior to the maturity date could result in a substantial
loss to you. See the immediately following risk factor for information about additional factors that will impact any secondary
market prices of the securities.
The securities are not designed to be short-term trading
instruments. Accordingly, you should be able and willing to hold your securities to maturity. See “— Secondary trading
may be limited” below.
|
|
§
|
Secondary market prices of the securities will
be impacted by many economic and market factors.
The secondary market price of the securities during their term will
be impacted by a number of economic and market factors, which may either offset or magnify each other, aside from the selling commissions,
structuring fee, projected hedging profits, if any, estimated hedging costs and the closing level of the underlying index, including:
|
|
|
o
|
any actual or potential change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads;
|
|
|
o
|
customary bid-ask spreads for similarly sized trades;
|
|
|
o
|
our internal secondary market funding rates for structured debt issuances;
|
|
|
o
|
the actual and expected volatility in the closing level of the underlying index;
|
|
|
o
|
the time to maturity of the securities;
|
|
|
o
|
whether the final index value is expected to be less than the downside threshold level;
|
|
|
o
|
the likelihood of an early redemption being triggered;
|
|
|
o
|
the dividend rates on the equity securities included in the underlying index;
|
|
|
o
|
interest and yield rates in the market generally; and
|
|
|
o
|
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 securities, which may also be reflected on customer account statements. This price
may be different (higher or lower) than the price of the securities, if any, at which JPMS may be willing to purchase your securities
in the secondary market.
|
|
§
|
Investing in the securities is not equivalent to
investing in the underlying index.
Investing in the securities is not equivalent to investing in the underlying index or its
component stocks. Investors in the securities will not have voting rights or rights to receive dividends or other distributions
or any other rights with respect to stocks that constitute the underlying index.
|
|
|
§
|
Adjustments to the underlying index could adversely
affect the value of the securities.
The underlying index publisher may discontinue or suspend calculation or publication of
the underlying index at any time. In these circumstances, the calculation agent will have the sole discretion to substitute a successor
index that is comparable to the discontinued underlying index and is not precluded from considering indices that are calculated
and published by the calculation agent or any of its affiliates.
|
|
|
§
|
An investment in the securities is subject to risks
associated with small capitalization stocks.
The stocks that constitute the underlying index are issued by companies with relatively
small market capitalization. The stock prices of smaller companies may be more volatile than stock prices of large capitalization
companies. Small capitalization companies may be less able to withstand adverse economic, market, trade and competitive conditions
relative to larger companies. Small capitalization companies are less likely to pay dividends on their stocks, and the presence
of a dividend payment could be a factor that limits downward stock price pressure under adverse market conditions.
|
|
|
§
|
Hedging and trading activities by the issuer and
its affiliates could potentially affect the value of the securities.
The hedging or trading activities of the issuer’s
affiliates and of any other hedging counterparty with respect to the securities on or prior to the pricing date and prior to maturity
could adversely affect the value of the underlying index. Any of these hedging or trading activities on or prior to the pricing
date could potentially affect the initial index value, which is the value at or above which the underlying index must close on
any determination date in order for you to receive a redemption payment, and, as a result, the downside threshold level, which
is the value at or above which the underlying index must close on the final determination date in order for you to avoid being
exposed to the negative price performance of the underlying index. Additionally, these hedging or trading activities during the
term of the securities could potentially affect the closing level of the underlying index on the determination dates and, accordingly,
whether you will be entitled to an early redemption payment on any determination date
|
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
(other than the final determination date) and the
payment to you at maturity. It is possible that these hedging or trading activities could result in substantial returns for us
or our affiliates while the value of the securities declines.
|
|
§
|
Secondary trading may be limited.
The securities
will not be listed on a securities exchange. There may be little or no secondary market for the securities. Even if there is a
secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily. JPMS may act as a market
maker for the securities, but is not required to do so. Because we do not expect that other market makers will participate significantly
in the secondary market for the securities, the price at which you may be able to trade your securities is likely to depend on
the price, if any, at which JPMS is willing to buy the securities. If at any time JPMS or another agent does not act as a market
maker, it is likely that there would be little or no secondary market for the securities.
|
|
|
§
|
The final terms and valuation of the securities
will be provided in the pricing supplement.
The final terms of the securities will be provided in the pricing supplement. In
particular, the estimated value of the securities will be provided in the pricing supplement and may be as low as the minimum for
the estimated value of the securities set forth on the cover of this document. Accordingly, you should consider your potential
investment in the securities based on the minimum for the estimated value of the securities.
|
|
|
§
|
The U.S. federal income tax consequences of an
investment in the securities are uncertain.
There is no direct legal authority as to the proper U.S. federal income tax characterization
of the securities, and we do not intend to request a ruling from the IRS. The IRS might not accept, and a court might not
uphold, the treatment of the securities described in “Additional Information about the securities ― Additional Provisions
― Tax considerations” in this document and in “Material U.S. Federal Income Tax Consequences” in the accompanying
product supplement. If the IRS were successful in asserting an alternative treatment for the securities, the timing and character
of any income or loss on the securities could differ materially and adversely from our description herein. In addition, in
2007 Treasury and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward
contracts” and similar instruments. The notice focuses in particular on whether to require investors in these instruments
to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the
character of income or loss with respect to these instruments; the relevance of factors such as the nature of the underlying property
to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S.
investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive
ownership” regime, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and
impose a notional interest charge. While the notice requests comments on appropriate transition rules and effective dates,
any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect
the tax consequences of an investment in the securities, possibly with retroactive effect. You should review carefully the
section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement and consult
your tax adviser regarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative
treatments and the issues presented by this notice.
|
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
Russell 2000
®
Index Overview
The Russell 2000
®
Index consists of the middle
2,000 companies included in the Russell 3000E
TM
Index and, as a result of the index calculation methodology, consists
of the smallest 2,000 companies included in the Russell 3000
®
Index. The Russell 2000
®
Index is designed
to track the performance of the small capitalization segment of the U.S. equity market. For additional information on the Russell
2000
®
Index, see the information set forth under “Equity Index Descriptions — The Russell Indices”
in the accompanying underlying supplement.
Information as of market close on July 21, 2016:
|
Bloomberg Ticker Symbol:
|
RTY
|
|
Current Closing Level:
|
1,203.860
|
|
52 Weeks Ago (on 7/21/2015):
|
1,254.574
|
|
52 Week High (on 7/22/2015):
|
1,258.350
|
|
52 Week Low (on 2/11/2016):
|
953.715
|
The following table sets forth the published high and low closing
levels, as well as end-of-quarter closing levels, of the underlying index for each quarter in the period from January 1, 2011 through
July 21, 2016. The graph following the table sets forth the daily closing levels of the underlying index during the same period.
The closing level of the underlying index on July 21, 2016 was 1,203.860. We obtained the closing level information above and in
the table and graph below from the Bloomberg Professional
®
service (“Bloomberg”), without independent
verification. The historical levels of the underlying index should not be taken as an indication of future performance, and no
assurance can be given as to the closing level of the underlying index at any time, including on the determination dates. The payment
of dividends on the stocks that constitute the underlying index are not reflected in its closing level and, therefore, have no
effect on the calculation of any payment on the securities.
|
Russell 2000
®
Index
|
High
|
Low
|
Period End
|
|
2011
|
|
|
|
|
First Quarter
|
843.549
|
773.184
|
843.549
|
|
Second Quarter
|
865.291
|
777.197
|
827.429
|
|
Third Quarter
|
858.113
|
643.421
|
644.156
|
|
Fourth Quarter
|
765.432
|
609.490
|
740.916
|
|
2012
|
|
|
|
|
First Quarter
|
846.129
|
747.275
|
830.301
|
|
Second Quarter
|
840.626
|
737.241
|
798.487
|
|
Third Quarter
|
864.697
|
767.751
|
837.450
|
|
Fourth Quarter
|
852.495
|
769.483
|
849.350
|
|
2013
|
|
|
|
|
First Quarter
|
953.068
|
872.605
|
951.542
|
|
Second Quarter
|
999.985
|
901.513
|
977.475
|
|
Third Quarter
|
1,078.409
|
989.535
|
1,073.786
|
|
Fourth Quarter
|
1,163.637
|
1,043.459
|
1,163.637
|
|
2014
|
|
|
|
|
First Quarter
|
1,208.651
|
1,093.594
|
1,173.038
|
|
Second Quarter
|
1,192.964
|
1,095.986
|
1,192.964
|
|
Third Quarter
|
1,208.150
|
1,101.676
|
1,101.676
|
|
Fourth Quarter
|
1,219.109
|
1,049.303
|
1,204.696
|
|
2015
|
|
|
|
|
First Quarter
|
1,266.373
|
1,154.709
|
1,252.772
|
|
Second Quarter
|
1,295.799
|
1,215.417
|
1,253.947
|
|
Third Quarter
|
1,273.328
|
1,083.907
|
1,100.688
|
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
|
Russell 2000
®
Index
|
High
|
Low
|
Period End
|
|
Fourth Quarter
|
1,204.159
|
1,097.552
|
1,135.889
|
|
2016
|
|
|
|
|
First Quarter
|
1,114.028
|
935.715
|
1,114.028
|
|
Second Quarter
|
1,188.954
|
1,089.646
|
1,151.923
|
|
Third Quarter (through July 21, 2016)
|
1,209.745
|
1,139.453
|
1,203.860
|
|
Russell 2000
®
Index Historical Performance – Daily Closing Levels
January 3,
2011 to July 21, 2016
|
|
License Agreement.
The “Russell 2000
®
Index” is a trademark of FTSE Russell and has been licensed for use by JPMorgan Chase Bank, National Association and its
affiliates. For more information, see “Equity Index Descriptions — The Russell Indices — Disclaimers”
in the accompanying underlying supplement.
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
Additional Information about the Securities
T
Please read this information in conjunction with the summary
terms on the front cover of this document.
|
Additional Provisions
|
|
|
Postponement of maturity date:
|
If the scheduled maturity date is not a business day, then the maturity date will be the following business day. If the scheduled final determination date is not a trading day or if a market disruption event occurs on that day so that the final determination date is postponed and falls less than three business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the third business day following that final determination date as postponed.
|
|
Minimum ticketing size:
|
$1,000 / 100 securities
|
|
Trustee:
|
Deutsche Bank Trust Company Americas (formerly Bankers Trust Company)
|
|
Calculation agent:
|
JPMS
|
|
The estimated value of the securities:
|
The estimated value of the securities set forth on the cover
of this document is equal to the sum of the values of the following hypothetical components: (1) a fixed-income debt component
with the same maturity as the securities, valued using the internal funding rate described below, and (2) the derivative or derivatives
underlying the economic terms of the securities. The estimated value of the securities does not represent a minimum price at which
JPMS would be willing to buy your securities in any secondary market (if any exists) at any time. The internal funding rate used
in the determination of the estimated value of the securities is based on, among other things, our and our affiliates’ view
of the funding value of the securities as well as the higher issuance, operational and ongoing liability management costs of the
securities in comparison to those costs for the conventional fixed-rate debt of JPMorgan Chase & Co. For additional information,
see “Risk Factors — The estimated value of the securities is derived by reference to an internal funding rate”
in this document. The value of the derivative or derivatives underlying the economic terms of the securities is derived from internal
pricing models of our affiliates. These models are dependent on inputs such as the traded market prices of comparable derivative
instruments and on various other inputs, some of which are market-observable, and which can include volatility, dividend rates,
interest rates and other factors, as well as assumptions about future market events and/or environments. Accordingly, the estimated
value of the securities on the pricing date is based on market conditions and other relevant factors and assumptions existing at
that time. See “Risk Factors — The estimated value of the securities does not represent future values of the securities
and may differ from others’ estimates” in this document.
The estimated value of the securities will be lower than the
original issue price of the securities because costs associated with selling, structuring and hedging the securities are included
in the original issue price of the securities. These costs include the selling commissions paid to JPMS and other affiliated or
unaffiliated dealers, the structuring fee, the projected profits, if any, that our affiliates expect to realize for assuming risks
inherent in hedging our obligations under the securities and the estimated cost of hedging our obligations under the securities.
Because hedging our obligations entails risk and may be influenced by market forces beyond our control, this hedging may result
in a profit that is more or less than expected, or it may result in a loss. We or one or more of our affiliates will retain any
profits realized in hedging our obligations under the securities. See “Risk Factors — The estimated value of the securities
will be lower than the original issue price (price to public) of the securities” in this document.
|
|
Secondary market prices of the securities:
|
For information about factors that will impact any secondary market prices of the securities, see “Risk Factors — Secondary market prices of the securities will be impacted by many economic and market factors” in this document. In addition, we generally expect that some of the costs included in the original issue price of the securities will be partially paid back to you in connection with any repurchases of your securities by JPMS in an amount that will decline to zero over an initial predetermined period that is intended to be the shorter of six months and one-half of the stated term of the securities. The length of any such initial period reflects the structure of the securities, whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated costs of hedging the securities and when these costs are incurred, as determined by our affiliates. See “Risk Factors — The value of the securities as published by JPMS (and which may be reflected on customer account statements) may be higher than the then-current estimated value of the securities for a limited time period.”
|
|
Tax considerations:
|
You should review carefully the section entitled “Material
U.S. Federal Income Tax Consequences” in the accompanying product supplement no. MS-1-I. The following discussion, when read
in combination with that section, constitutes the full opinion of our special tax counsel, Davis Polk & Wardwell LLP, regarding
the material U.S. federal income tax consequences of owning and disposing of the securities.
Based on current market conditions, in the opinion of our special
tax counsel, your securities should be treated as “open transactions” that are not debt instruments for U.S. federal
income tax purposes, as more fully described in “Material U.S. Federal Income Tax Consequences — Tax Consequences to
|
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
|
|
U.S. Holders — Notes Treated as Open Transactions That
Are Not Debt Instruments” in the accompanying product supplement. Assuming this treatment is respected, the gain or loss
on your securities should be treated as long-term capital gain or loss if you hold your securities for more than a year, whether
or not you are an initial purchaser of securities at the issue price. However, the IRS or a court may not respect this treatment
of the securities, in which case the timing and character of any income or loss on the securities could be materially and adversely
affected. In addition, in 2007 Treasury and the IRS released a notice requesting comments on the U.S. federal income tax treatment
of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require investors
in these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics,
including the character of income or loss with respect to these instruments; the relevance of factors such as the nature of the
underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals)
realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to
the “constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gain
as ordinary income and impose a notional interest charge. While the notice requests comments on appropriate transition rules and
effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. You should consult
your tax adviser regarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative
treatments and the issues presented by this notice.
Withholding under legislation commonly referred to as “FATCA”
may (if the securities are recharacterized as debt instruments) apply to amounts treated as interest paid with respect to the securities,
as well as to payments of gross proceeds of a taxable disposition, including an early redemption or redemption at maturity, of
a security. However, under a recent IRS notice, this regime will not apply to payments of gross proceeds (other than any amount
treated as interest) with respect to dispositions occurring before January 1, 2019. You should consult your tax adviser regarding
the potential application of FATCA to the securities.
Non-U.S. holders should also note that recently promulgated Treasury
regulations imposing a withholding tax on certain “dividend equivalents” under certain “equity linked instruments”
will not apply to the securities.
|
|
Supplemental use of proceeds and hedging:
|
The securities are offered to meet investor demand for products
that reflect the risk-return profile and market exposure provided by the securities. See “How the Securities Work”
and “Hypothetical Examples” in this document for an illustration of the risk-return profile of the securities and “Russell
2000
®
Index Overview” in this document for a description of the market exposure provided by the securities.
The original issue price of the securities is equal to the estimated
value of the securities plus the selling commissions paid to JPMS and other affiliated or unaffiliated dealers and the structuring
fee, plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming risks inherent in hedging our
obligations under the securities, plus the estimated cost of hedging our obligations under the securities.
|
|
Benefit plan investor considerations:
|
See “Benefit Plan Investor Considerations” in the accompanying product supplement
|
|
Supplemental plan of distribution:
|
Subject to regulatory constraints, JPMS intends to use its reasonable
efforts to offer to purchase the securities in the secondary market, but is not required to do so. JPMS, acting as agent for JPMorgan
Financial, will pay all of the selling commissions it receives from us to Morgan Stanley Wealth Management. In addition, Morgan
Stanley Wealth Management will receive a structuring fee as set forth on the cover of this document for each security.
We or our affiliate may enter into swap agreements or related
hedge transactions with one of our other affiliates or unaffiliated counterparties in connection with the sale of the securities
and JPMS and/or an affiliate may earn additional income as a result of payments pursuant to the swap or related hedge transactions.
See “— Supplemental use of proceeds and hedging” above and “Use of Proceeds and Hedging” in the accompanying
product supplement.
|
|
Contact:
|
Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or Morgan Stanley’s principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (800) 869-3326).
|
Where you can find more information:
|
You may revoke your offer to purchase the securities 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 securities prior to their issuance. In the event of any changes to the terms of the securities,
we will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject
such changes in which case we may reject your offer to purchase.
You should read this document together with the accompanying
prospectus, as supplemented by the accompanying prospectus supplement, relating to our Series A medium-term notes of which these
securities are a part, and the more detailed information contained in the accompanying product
|
JPMorgan Chase Financial Company LLC
Buffered Auto-Callable Securities due August 3, 2021
Based on the Performance of the Russell 2000
®
Index
Principal at Risk Securities
|
|
supplement and the accompanying underlying supplement.
This document, together with the documents listed below, contains
the terms of the securities and supersedes all other prior or contemporaneous oral statements as well as any other written materials
including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures,
stand-alone fact sheets, brochures or other educational materials of ours. You should carefully consider, among other things, the
matters set forth in the “Risk Factors” section of the accompanying product supplement and the accompanying underlying
supplement, as the securities 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 securities.
You may access these documents on the SEC website at www.sec.gov
as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
• Product supplement no. MS-1-I dated June 3, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316013935/crt_dp64833-424b2.pdf
• Underlying supplement no. 1-I dated April 15, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316012649/crt-dp64909_424b2.pdf
• 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 document, “we,” “us,”
and “our” refer to JPMorgan Financial.
|