The
information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing supplement is
not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion dated
July 28, 2016
|
JPMorgan Chase
Financial Company LLC
|
July
2016
Pricing
Supplement No.
Registration
Statement Nos. 333-209682 and 333-209682-01
Dated
July , 2016
Filed
pursuant to Rule 424(b)(2)
|
Structured
Investments
Opportunities in U.S. Equities
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due
August 5, 2019
Principal at Risk Securities
Fully and Unconditionally Guaranteed by JPMorgan
Chase & Co.
The Enhanced Trigger Jump Securities are unsecured and unsubordinated
obligations of JPMorgan Chase & Co., do not pay interest, and do not guarantee the return of any of the principal at maturity.
At maturity, you will receive for each security that you hold an amount in cash that will vary depending on the performance of
the underlying index, as determined on the valuation date. If the final index value is greater than or equal to 80% of the initial
index value, you will receive for each security that you hold at maturity the greater of a cash payment that reflects the index
percent change and an upside payment in addition to the stated principal amount. However, if the final index value is less
than
80% of the initial index value, the payment due at maturity will be less than the stated principal amount of the securities by
an amount that is proportionate to the percentage decrease in the final index value from the initial index value. This amount
will be less than $8.00 and could be zero.
Accordingly, investors may lose their entire initial investment in the securities.
The Enhanced Trigger Jump Securities are for investors who are willing to risk their principal and forgo current income in
exchange for the upside payment feature that applies to a limited range of the performance of the underlying index. 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.
|
SUMMARY TERMS
|
|
Issuer:
|
JPMorgan Chase Chase Financial Company LLC
|
|
Guarantor:
|
JPMorgan Chase & Co.
|
|
Underlying index:
|
Russell 3000
®
Value Index
|
|
Aggregate principal amount:
|
$
|
|
Payment at maturity:
|
§
If the final index value is
greater than
or
equal to
the downside threshold, you will receive at maturity a cash payment per $10 stated principal amount security equal to:
|
|
|
$10 + the greater of (a) $10 × index percent change and (b) the upside payment
|
|
|
§
If the final index value is less than the downside threshold, meaning the value of the underlying index has declined by more than 20% from the initial index value:
|
|
|
$10 × index performance factor
|
|
|
This amount will be less than the stated principal amount of $10, and will represent a loss of more than 20%, and possibly all, of your principal amount.
|
|
Upside payment:
|
At least $1.10 per $10 stated principal amount security (at least 11.00% of the stated principal amount). The actual upside payment will be provided in the pricing supplement and will not be less than $1.10 per $10 stated principal amount security.
|
|
Downside threshold:
|
, which is 80% of the initial index value
|
|
Index percent change:
|
(final index value – initial index value) / initial index value
|
|
Index performance factor:
|
final index value / initial index value
|
|
Initial index value:
|
The closing level of the underlying index on the pricing date
|
|
Final index value:
|
The closing level of the underlying index on the valuation date
|
|
Stated principal amount:
|
$10 per security
|
|
Issue price:
|
$10 per security (see “Commissions and issue price” below)
|
|
Pricing date:
|
July , 2016 (
expected to price on or about July 29, 2016)
|
|
Original issue date (settlement date):
|
August , 2016 (3 business days after the pricing date)
|
|
Valuation date:
|
July 31, 2019, subject to postponement in the event of certain market disruption events and as described under “General Terms of Notes — Postponement of a Determination Date — Notes Linked to a Single Underlying — Notes Linked to a Single Underlying (Other Than a Commodity Index)” in the accompanying product supplement
|
|
Maturity date:
|
August 5, 2019, subject to postponement in the event of certain market disruption events and as described under “General Terms of Notes — Postponement of a Payment Date” in the accompanying product supplement
|
|
CUSIP / ISIN:
|
46646X605 / US46646X6058
|
|
Listing:
|
The securities will not be listed on any securities exchange.
|
|
Agent:
|
J.P. Morgan Securities LLC (“JPMS”)
|
|
Commissions and issue price:
|
Price to public
(1)
|
Fees and commissions
|
Proceeds to issuer
|
|
Per security
|
$10.00
|
$0.25
(2)
|
$9.70
|
|
|
|
$0.05
(3)
|
|
|
Total
|
$
|
$
|
$
|
|
|
(1)
|
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.
|
|
|
(2)
|
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.
|
|
|
(3)
|
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
|
If the securities priced today and assuming an upside payment
equal to the minimum listed above, the estimated value of the securities would be approximately $9.725 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 $9.50 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 6 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
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
Investment Summary
The Trigger
Jump Securities
The Enhanced Trigger Jump Securities Based on the Value of the
Russell 3000
®
Value Index due August 5, 2019 (the “securities”) can be used:
|
|
§
|
As an alternative to direct exposure to the underlying index that provides a potential return equal to the greater of the index
percent change and at least 11.00% (as reflected in the upside payment of at least $1.10 per $10 stated principal amount security)
if the final index value is greater than or equal to 80% of the initial index value, which we refer to as the downside threshold.
The actual upside payment will be provided in the pricing supplement and will not be less than $1.10 per $10 stated principal amount
security.
|
|
|
§
|
To enhance returns and potentially outperform the underlying index for a limited ranged of performance of the underlying index,
but only if the final index value is greater than or equal to the downside threshold.
|
|
|
§
|
To obtain limited market downside protection against the loss of principal in the event of a decline of the underlying index
as of the valuation date, subject to the credit risk of JPMorgan Chase & Co., but only if the final index value is greater
than or equal to the downside threshold.
|
If the final index value is less than the downside
threshold, the securities are exposed on a 1-to-1 basis to any percentage decline of the final index value from the initial index
value. Accordingly, investors may lose their entire initial investment in the securities.
|
Maturity:
|
Approximately 3 years
|
|
Upside payment:
|
At least $1.10 per $10 stated principal amount security (at least 11.00% of the stated principal amount). The actual upside payment will be provided in the pricing supplement and will not be less than $1.10 per $10 stated principal amount security.
|
|
Downside threshold:
|
80% of the initial index value
|
|
Minimum payment at maturity:
|
None. Investors may lose their entire initial investment in the securities
|
|
Interest:
|
None
|
Supplemental Terms of the Securities
For purposes of the accompanying
product supplement, the underlying index is an “Index.”
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
Key Investment Rationale
This investment offers a potential return at maturity based on
full participation in the positive performance of the underlying index, subject to a contingent minimum return, if the final index
value is greater than or equal to 80% of the initial index value, which we refer to as the downside threshold. However, if the
final index value is less than the downside threshold, the payment at maturity will be less than $8 and could be zero.
|
Upside Scenario
|
If the final index value is greater than or equal to the downside threshold,
the payment at maturity for each security will be equal to $10.00
plus
the greater of (a) $10 × the index percent change and (b) the upside payment of at least $1.10 per $10 stated principal amount security. The actual upside payment will be provided in the pricing supplement and will not be less than $1.10 per $10 stated principal amount security.
|
|
Downside Scenario
|
If the final index value is less than the downside threshold
, which means that the underlying index has
depreciated by more than 20% from the initial index value
, you will lose 1% for every 1% decline of the level of the underlying index from the initial index value to the final index value (
e.g.
, a 50% depreciation of the underlying index will result in the payment at maturity that is less than the stated principal amount by 50%, or $5 per security).
|
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
How the Enhanced Trigger Jump Securities Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the securities based on the following terms:
|
Stated principal amount:
|
$10 per security
|
|
Hypothetical upside payment:
|
$1.10 (11.00% of the stated principal amount) per $10 stated principal amount security*
|
|
Downside threshold:
|
80% of the initial index value (-20% percent change in the final index value compared with the initial index value)
|
*The actual upside payment will be provided in
the pricing supplement and will not be less than $1.10 per $10 stated principal amount security.
|
Enhanced Trigger Jump Securities Payoff Diagram
|
|
How it works
|
|
§
|
Upside Scenario:
If the final index value is
greater than or equal to
the
downside threshold, the payment at maturity is equal to the $10 stated principal amount
plus
the greater of (a) $10 ×
the index percent change and (b) the upside payment. Under the hypothetical terms of the securities, in the payoff diagram, an
investor would receive the payment at maturity of $11.10 per security if the index percent change is no more than 11.00% and would
receive $10
plus
an amount that represents a 1-to-1 participation in the appreciation of the underlying index if the index
percent change is greater than 11.00%.
|
|
|
o
|
For example, if the underlying index appreciates 5%, investors will receive an 11.00% return, or $11.10 per $10 stated principal
amount security.
|
|
|
o
|
For example, if the underlying index depreciates 10%, investors will receive an 11.00% return, or $11.10 per $10 stated principal
amount security.
|
|
|
o
|
For example, if the underlying index appreciates 30%, investors will receive a 30% return, or $13.00 per $10 stated principal
amount security.
|
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
|
|
§
|
Downside Scenario:
If the final index value is
less than
the downside threshold,
investors will receive an amount that is less than the stated principal amount by an amount proportionate to the percentage decrease
of the final index value from the initial index value.
|
|
|
o
|
For example, if the final index value declines by 50% from the initial index value, investors will lose 50% of their principal
and the payment at maturity will be $5 per $10 stated principal amount security (50% of the stated principal amount).
|
The hypothetical returns and hypothetical payments
on the securities shown above apply
only if you hold the securities 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 Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
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 also 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 or guarantee the return of any
principal and your investment in the securities may result in a loss.
The terms of the
securities
differ from those of ordinary debt securities in that the
securities
do not pay interest or guarantee the payment of any stated principal amount at maturity. If the final index value is less than
the downside threshold, you will receive for each security that you hold a payment at maturity that is less than the $10 stated
principal amount of each
security
by an amount
proportionate to the decline in the closing level of the underlying index on the valuation date from the initial index value. There
is no minimum payment at maturity on the securities and, accordingly, you could lose your entire principal amount.
|
|
|
§
|
Your ability to receive the upside payment may terminate on the
valuation date.
If the final index value is less than the downside threshold, you will not
be entitled to receive the upside payment at maturity. Under these circumstances, you will lose more than 20% of your principal
amount and may lose all of your principal amount at maturity.
|
|
|
§
|
The benefit provided by the downside threshold may terminate on
the valuation date.
If the final index value is less than the downside threshold, the benefit
provided by the downside threshold will terminate and you will be fully exposed to any depreciation of the underlying index.
|
|
|
§
|
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.
|
|
|
§
|
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 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 and the final index value and will calculate the amount of payment
you will receive at maturity, if any. Determinations made by the calculation agent, including with respect to the occurrence or
non-occurrence of market disruption events, the selection of a successor to the underlying index or calculation of the final index
value in the event of a discontinuation or material change in method of calculation of the underlying index, may affect the payment
to you at maturity.
|
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
In addition, JPMorgan Chase &
Co. is currently one of the companies that make up the underlying index. JPMorgan Chase & Co. will not have any obligation
to consider your interests as a holder of the securities in taking any corporate action that might affect the value of the underlying
index or the securities.
Moreover,
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 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
|
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
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 of the underlying index;
|
|
|
o
|
the time to maturity of the securities;
|
|
|
o
|
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 the 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.
Some of 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 and, as a result,
could decrease the amount an investor may receive on the securities at maturity, if any. Any of these hedging or trading activities
on or prior to the pricing date could potentially affect the initial index value and the downside threshold and, therefore, could
potentially increase the level that the final index value must reach before you receive a payment at maturity that exceeds the
issue price of the securities or so that you do not suffer a loss on your initial investment in the securities. Additionally, these
hedging or trading activities during the term of the securities, including on the valuation date, could adversely affect the final
index value and, accordingly, the amount of cash an investor will receive at maturity, if any. 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.
|
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
|
|
§
|
Secondary trading may be limited.
Th
e
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, each of the estimated value of the securities and the upside payment
will be provided in the pricing supplement and each may be as low as the applicable minimum set forth on the cover of this document.
Accordingly, you should consider your potential investment in the securities based on the minimums for the estimated value of the
securities and the upside payment.
|
|
|
§
|
The 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
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
Russell 3000
®
Value Index Overview
The Russell 3000
®
Value Index
is designed to represent the value segment of the broad U.S. equity market and consists of those companies in the Russell 3000
®
Index with lower price-to-book ratios and lower expected growth values. The Russell 3000
®
Index is designed to represent
the broad U.S. equity market and consists of the 3,000 companies included in the Russell 1000
®
Index and the Russell
2000
®
Index, which are subsets of the Russell 3000E
TM
Index. For additional information on the Russell
3000
®
Value Index, see the information set forth under “Annex A” in this document.
Information as of market close on July 26,
2016:
|
Bloomberg Ticker Symbol:
|
RAV
|
|
Current Closing Level:
|
1,368.544
|
|
52 Weeks Ago (on 7/27/2015):
|
1,309.148
|
|
52 Week High (on 7/22/2016):
|
1,371.129
|
|
52 Week Low (on 2/11/2016):
|
1,125.861
|
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 3, 2011 through
July 26, 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 26, 2016 was 1,368.544. We obtained the closing level information above and the
information 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 on the valuation date. 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 the payment at maturity.
|
Russell
3000
®
Value Index
|
High
|
Low
|
Period
End
|
|
2011
|
|
|
|
|
First Quarter
|
850.050
|
767.990
|
849.000
|
|
Second Quarter
|
904.240
|
852.170
|
899.050
|
|
Third Quarter
|
920.890
|
853.300
|
887.820
|
|
Fourth Quarter
|
906.200
|
728.520
|
735.560
|
|
2012
|
|
|
|
|
First Quarter
|
921.240
|
840.200
|
914.430
|
|
Second Quarter
|
920.520
|
824.430
|
887.900
|
|
Third Quarter
|
960.700
|
867.350
|
939.220
|
|
Fourth Quarter
|
961.160
|
889.050
|
948.060
|
|
2013
|
|
|
|
|
First Quarter
|
1,058.189
|
970.640
|
1,058.189
|
|
Second Quarter
|
1,120.984
|
1,034.463
|
1,085.125
|
|
Third Quarter
|
1,156.633
|
1,089.416
|
1,124.387
|
|
Fourth Quarter
|
1,229.044
|
1,109.175
|
1,229.044
|
|
2014
|
|
|
|
|
First Quarter
|
1,257.824
|
1,156.505
|
1,257.824
|
|
Second Quarter
|
1,316.854
|
1,221.574
|
1,311.887
|
|
Third Quarter
|
1,330.936
|
1,268.528
|
1,292.838
|
|
Fourth Quarter
|
1,373.290
|
1,224.978
|
1,353.650
|
|
2015
|
|
|
|
|
First Quarter
|
1,367.275
|
1,297.854
|
1,338.787
|
|
Second Quarter
|
1,372.317
|
1,328.994
|
1,331.058
|
|
Third Quarter
|
1,355.480
|
1,180.808
|
1,209.081
|
|
Fourth Quarter
|
1,320.596
|
1,208.816
|
1,266.261
|
|
2016
|
|
|
|
|
First Quarter
|
1,280.367
|
1,125.861
|
1,278.278
|
|
Second Quarter
|
1,340.245
|
1,258.235
|
1,328.220
|
|
Third Quarter (through July 26, 2016)
|
1,371.129
|
1,315.240
|
1,368.544
|
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
|
Russell
3000
®
Value Index Historical Performance – Daily Closing Levels
January
3, 2011 to July 26, 2016
|
|
License Agreement.
The “Russell 3000
®
Value Index” is a trademark of FTSE Russell and we expect that one of our affiliates will enter into a license to use it.
For more information, see “Equity Index Descriptions — The Russell Indices — Disclaimers” in the accompanying
underlying supplement.
Additional Information about the Securities
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 valuation date is not a trading day or if a market disruption event occurs on that day so that the valuation 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 the valuation 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.
|
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
|
|
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
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 redemption at maturity, of the securities. 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
|
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
|
|
profile and market exposure provided by the securities.
See “How the Enhanced Trigger Jump Securities Work” in this document for an illustration of the risk-return
profile of the securities and “Annex A” 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 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” sections 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.
|
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
Annex A
The Russell 3000
®
Value Index
All information contained in this document regarding the Russell
3000
®
Value Index, including, without limitation, its make up, method of calculation and changes in its components,
has been derived from publicly available information, without independent verification. This information reflects the policies
of, and is subject to change by, FTSE Russell, a company wholly owned by London Stock Exchange Group plc (“the LSEG”).
The Russell 3000
®
Value Index was developed by Russell Investment Group and is calculated, maintained and published
by FTSE Russell. FTSE Russell has no obligation to publish, and may discontinue the publication of, the Russell 3000
®
Value Index.
The Russell 3000
®
Value Index is reported by Bloomberg
under the ticker symbol “RAV.”
The Russell 3000
®
Value Index measures the capitalization-weighted
price performance of the stocks included in the Russell 3000
®
Index (each, a “Russell 3000 Component Stock”
and collectively, the “Russell 3000 Component Stocks”) that are determined by Russell to be value oriented, with lower
price-to-book ratios and lower forecasted growth values. For more information about the Russell 3000
®
Index, see
“Equity Index Descriptions — The Russell Indices” in the accompanying underlying supplement.
Russell uses a “non-linear probability” method to
assign stocks to the Russell 3000
®
Growth Index and the Russell 3000
®
Value Index, an index that
measures the capitalization-weighted price performance of the Russell 3000 Component Stocks determined by Russell to be growth
oriented, with higher price-to-book ratios and higher forecasted growth values. The term “probability” is used to indicate
the degree of certainty that a stock is value or growth based on its relative book-to-price (“B/P”) ratio, I/B/E/S
forecast medium-term growth (2 year) and sales per share historical growth (5 year). This method allows stocks to be represented
as having both growth and value characteristics, while preserving the additive nature of the indexes.
The process for assigning growth and value weights is applied
separately to the stocks in the Russell 1000
®
Index and Russell 2000
®
Index. Stocks in the Russell
1000
®
Index and Russell 2000
®
Index are ranked by their adjusted book-to-price ratio (B/P), their
I/B/E/S forecast medium-term growth (2 year) and sales per share historical growth (5 year). These rankings are converted to standardized
units and combined to produce a Composite Value Score (“CVS”).
Stocks in the Russell 1000
®
Index and Russell
2000
®
Index are then ranked by their CVS, and a probability algorithm is applied to the CVS distribution to assign
growth and value weights to each stock. In general, stocks with a lower CVS are considered growth, stocks with a higher CVS are
considered value, and stocks with a CVS in the middle range are considered to have both growth and value characteristics and are
weighted proportionately in the growth and value index. Stocks are always fully represented by the combination of their growth
and value weights (
e.g.
, a stock that is given a 20% weight in the Russell 3000
®
Growth Index will have an
80% weight in the Russell 3000
®
Value Index).
Stock A, in the figure below, is a security with 20% of its available
shares assigned to a growth index and the remaining 80% assigned to a value index. Hence, the sum of a stock’s market capitalization
in the growth index and the value index will always equal its market capitalization in the Russell 1000
®
Index or
Russell 2000
®
Index, as applicable.
JPMorgan Chase Financial Company LLC
Enhanced Trigger Jump Securities Based on the Value of the Russell 3000
®
Value Index due August 5, 2019
Principal at Risk Securities
In the figure above, the quartile breaks are calculated such
that approximately 25% of the available market capitalization lies in each quartile. Stocks at the median are divided 50% in each
of the growth index and the value index. Stocks below the first quartile are 100% in the growth index. Stocks above the third quartile
are 100% in the value index. Stocks falling between the first and third quartile breaks are in both the growth index and the value
index to varying degrees depending on how far they are above or below the median and how close they are to the first or third quartile
breaks.
Roughly 70% of the available market capitalization is classified
as all growth or all value. The remaining 30% have some portion of their market value in either the Russell 3000
®
Growth Index or the Russell 3000
®
Value Index, depending on their relative distance from the median value score.
Note that there is a small position cutoff rule. If a stock’s weight is more than 95% in one index, its weight is increased
to 100% in that index.
In an effort to mitigate unnecessary turnover, FTSE Russell implements
a banding methodology at the CVS level of the growth and value style algorithm. If a company’s CVS change from the previous
year is greater than or equal to +/- 0.10 and if the company remains in the same core index (
i.e.
, the Russell 1000
®
Index or Russell 2000
®
Index), then the CVS remains unchanged during the next reconstitution process. Keeping the
CVS static for these companies does not mean the probability (growth/value) will remain unchanged in all cases due to the relation
of a CVS score to the overall index. However, this banding methodology is intended to reduce turnover caused by smaller, less meaningful
movements while continuing to allow the larger, more meaningful changes to occur, signaling a true change in a company’s
relation to the market.
In calculating growth and value weights, stocks with missing
or negative values for B/P, or missing values for I/B/E/S growth, or missing sales per share historical growth (6 years of quarterly
numbers are required), are allocated by using the mean value score of the base index (the Russell 1000
®
Index or
Russell 2000
®
Index), the Russell Global Sectors (“RGS”) industry, subsector or sector group into which
the company falls. Each missing (or negative B/P) variable is substituted with the industry, subsector or sector group independently.
An industry must have five members or the substitution reverts to the subsector, and so forth to the sector. In addition, a weighted
value score is calculated for securities with low analyst coverage for I/B/E/S medium-term growth. For securities with coverage
by a single analyst, 2/3 of the industry, subsector, or sector group value score is weighted with 1/3 the security’s independent
value score. For those securities with coverage by two analysts, 2/3 of the independent security’s value score is used and
only 1/3 of the industry, subsector, or sector group is weighted. For those securities with at least three analysts contributing
to the I/B/E/S medium-term growth, 100% of the independent security’s value score is used.
For more information about the index calculation methodology
for the Russell 3000
®
Value Index, see “Equity Index Descriptions — The Russell Indices” in the
accompanying underlying supplement. For purposes of this document, all references to the Russell Indices contained in the above-referenced
section are deemed to include the Russell 3000
®
Value Index.
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