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
August 26, 2016
September , 2016
|
Registration Statement Nos. 333-209682 and 333-209682-01; Rule 424(b)(2)
|
JPMorgan Chase Financial Company LLC
Structured Investments
|
|
Auto Callable Contingent Interest Notes Linked
to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF due December 11, 2017
Fully and Unconditionally Guaranteed by JPMorgan
Chase & Co.
|
·
|
The notes are designed for investors who seek a Contingent Interest Payment with respect to each
Review Date for which the closing price of one share of the
SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF is greater than or equal to 65.00% of the Initial Value, which we refer to as the
Interest Barrier.
|
|
·
|
The notes will be automatically called if the closing price of one share of the Fund on any Review Date (other than the first
and final Review Dates) is greater than or equal to the Initial Value.
|
|
·
|
Investors in the notes should be willing to accept the risk of losing some or all of their principal and the risk that no Contingent
Interest Payment may be made with respect to some or all Review Dates.
|
|
·
|
Investors should also be willing to forgo fixed interest and dividend payments, in exchange for the opportunity to receive
Contingent Interest Payments.
|
|
·
|
The notes 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.
Any payment on the notes
is subject to the credit risk of JPMorgan Financial, as issuer of the notes, and the credit risk of JPMorgan Chase & Co., as
guarantor of the notes.
|
|
·
|
Minimum denominations of $1,000 and integral multiples thereof
|
|
·
|
The notes are expected to price on or about September 6, 2016 and are expected to settle on or about September 9, 2016.
|
Investing in the notes involves a number of risks. See “Risk
Factors” beginning on page PS-10 of the accompanying product supplement, “Risk Factors” beginning on page US-2
of the accompanying underlying supplement and “Selected Risk Considerations” beginning on page PS-6 of this pricing
supplement.
Neither the Securities and Exchange Commission (the “SEC”)
nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or the adequacy of this
pricing supplement or the accompanying product supplement, underlying supplement, prospectus supplement and prospectus. Any representation
to the contrary is a criminal offense.
|
Price to Public (1)
|
Fees and Commissions (2)
|
Proceeds to Issuer
|
Per note
|
$1,000
|
$
|
$
|
Total
|
$
|
$
|
$
|
(1) See “Supplemental Use of Proceeds”
in this pricing supplement for information about the components of the price to public of the notes.
(2) J.P. Morgan Securities LLC, which
we refer to as JPMS, acting as agent for JPMorgan Financial, will pay all of the selling commissions it receives from us to other
affiliated or unaffiliated dealers. If the notes priced today, the selling commissions would be approximately $17.50 per $1,000
principal amount note and in no event will these selling commissions exceed $20.00 per $1,000 principal amount note. See “Plan
of Distribution (Conflicts of Interest)” in the accompanying product supplement.
|
If the notes priced today, the estimated value of the notes
would be approximately $944.70 per $1,000 principal amount note. The estimated value of the notes, when the terms of the notes
are set, will be provided in the pricing supplement and will not be less than $930.00 per $1,000 principal amount note. See “The
Estimated Value of the Notes” in this pricing supplement for additional information.
The notes are not bank deposits, are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency and are not obligations of, or guaranteed by, a bank.
Pricing supplement to product supplement no. 4-I dated April 15, 2016, underlying supplement no. 1-I dated April 15, 2016
and the prospectus and prospectus supplement, each dated April 15, 2016
Key
Terms
Issuer:
JPMorgan Chase Financial Company LLC
Guarantor:
JPMorgan Chase & Co.
Fund:
The
SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF (Bloomberg ticker: XOP)
Contingent Interest Payments:
If the notes have not been automatically called and
the closing price of one share of the Fund on any Review Date is greater than or equal to the Interest Barrier, you will receive
on the applicable Interest Payment Date for each $1,000 principal amount note a Contingent Interest Payment equal to at least
$24.625 (equivalent to a Contingent Interest Rate of at least 9.85% per annum, payable at a rate of 2.4625% per quarter) (to be
provided in the pricing supplement).
If the closing price of one share of the Fund on
any Review Date is less than the Interest Barrier, no Contingent Interest Payment will be made with respect to that Review Date.
Contingent
Interest Rate:
At least 9.85% per annum, payable at a rate of at least
2.4625% per quarter (to be provided in the pricing supplement)
Interest
Barrier / Trigger Value:
65.00% of the Initial Value
Pricing
Date:
On or about September 6, 2016
Original
Issue Date (Settlement Date):
On or about September 9, 2016
Review
Dates*:
December 6, 2016, March 6, 2017, June 6, 2017, September 6,
2017, and December 6, 2017 (final Review Date)
Interest
Payment Dates*:
December 9, 2016, March 9, 2017, June 9, 2017, September
11, 2017 and the Maturity Date
Maturity
Date*:
December 11, 2017
Call
Settlement Date*:
If the
notes are automatically called on any Review Date (other than the first and final Review Dates), the first Interest Payment Date
immediately following that Review Date
* Subject to postponement in the event of a market disruption
event 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)” and “General Terms
of Notes — Postponement of a Payment Date” in the accompanying product supplement
|
Automatic Call:
If the closing price of one share of the Fund on any
Review Date (other than the first and final Review Dates) is greater than or equal to the Initial Value, the notes will be automatically
called for a cash payment, for each $1,000 principal amount note, equal to (a) $1,000
plus
(b) the Contingent Interest
Payment applicable to that Review Date, payable on the applicable Call Settlement Date. No further payments will be made on the
notes.
Payment at Maturity:
If the notes have not been automatically called and
(i) the Final Value is greater than or equal to the Initial Value or (ii) a Trigger Event has not occurred, you will receive a
cash payment at maturity, for each $1,000 principal amount note, equal to (a) $1,000
plus
(b) the Contingent Interest Payment
applicable to the final Review Date.
If the notes have not been automatically called and
(i) the Final Value is less than the Initial Value and (ii) a Trigger Event has occurred, your payment at maturity per $1,000
principal amount note, in addition to any Contingent Interest Payment, will be calculated as follows:
$1,000 + ($1,000 × Fund Return)
If the notes have not been automatically called and
(i) the Final Value is less than the Initial Value and (ii) a Trigger Event has occurred, you will lose some or all of your principal
amount at maturity.
Trigger
Event:
A Trigger Event occurs if, on any day during the Monitoring
Period, the closing price of one share of the Fund is less than the Trigger Value
Monitoring
Period:
The period from but excluding the Pricing Date to and including the final Review
Date
Fund Return:
(Final
Value – Initial Value)
Initial
Value
Initial
Value:
The closing price of one share of the Fund on the Pricing Date
Final
Value:
The closing price of one share of the Fund on the final Review
Date
Share
Adjustment Factor:
The Share
Adjustment Factor is referenced in determining the closing price of one share of the Fund and is set equal to 1.0 on the Pricing
Date. The Share Adjustment Factor is subject to adjustment upon the occurrence of certain events affecting the Fund. See “The
Underlyings — Funds — Anti-Dilution Adjustments” in the accompanying product supplement for further information.
|
PS-
1
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
|
|
How
the Notes Work
Payment in Connection with the First Review
Date
Payments in Connection with Review Dates
(Other than the First and Final Review Dates)
PS-
2
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
|
|
Payment at Maturity If the Notes Have Not
Been Automatically Called
Total Contingent Interest Payments
The table below illustrates the hypothetical
total Contingent Interest Payments per $1,000 principal amount note over the term of the notes based on a hypothetical Contingent
Interest Rate of 9.85% per annum, depending on how many Contingent Interest Payments are made prior to automatic call or maturity.
The actual Contingent Interest Rate will be provided in the pricing supplement and will be at least 9.85% per annum.
Number of Contingent Interest Payments
|
Total Contingent Interest Payments
|
5
|
$123.125
|
4
|
$98.500
|
3
|
$73.875
|
2
|
$49.250
|
1
|
$24.625
|
0
|
$0.000
|
PS-
3
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
|
|
Hypothetical
Payout Examples
The following examples illustrate payments on
the notes linked to a hypothetical Fund, assuming a range of performances for the hypothetical Fund on the Review Dates. The hypothetical
payments set forth below assume the following:
|
·
|
an Initial Value of $100.00;
|
|
·
|
an Interest Barrier and a Trigger Value of $65.00 (equal to 65.00% of the hypothetical Initial Value); and
|
|
·
|
a Contingent Interest Rate of 9.85% per annum (payable
at a rate of 2.4625% per quarter).
|
The hypothetical Initial Value of $100.00 has
been chosen for illustrative purposes only and may not represent a likely actual Initial Value. The actual Initial Value will be
the closing price of one share of the Fund on the Pricing Date and will be provided in the pricing supplement. For historical data
regarding the actual closing prices of one share of the Fund, please see the historical information set forth under “The
Fund” in this pricing supplement.
Each hypothetical payment set forth below is
for illustrative purposes only and may not be the actual payment applicable to a purchaser of the notes. The numbers appearing
in the following examples have been rounded for ease of analysis.
Example 1 — Notes are automatically
called on the second Review Date.
Date
|
Closing Price
|
Payment (per $1,000 principal amount note)
|
First Review Date
|
$105.00
|
$24.625
|
Second Review Date
|
$105.00
|
$1,024.625
|
|
Total Payment
|
$1,049.25 (4.925% return)
|
Because the closing price of one share of the
Fund on the second Review Date is greater than or equal to the Initial Value, the notes will be automatically called for a cash
payment, for each $1,000 principal amount note, of $1,024.625 (or $1,000
plus
the Contingent Interest Payment applicable
to the second Review Date), payable on the applicable Call Settlement Date. The notes are not automatically callable before the
second Review Date, even though the closing price of one share of the Fund on the first Review Date is greater than the Initial
Value. When added to the Contingent Interest Payments received with respect to the prior Review Date, the total amount paid, for
each $1,000 principal amount note, is $1,049.25. No further payments will be made on the notes.
Example 2 — Notes have NOT been automatically
called, the Final Value is greater than or equal to the Initial Value and a Trigger Event has occurred.
Date
|
Closing Price
|
Payment (per $1,000 principal amount note)
|
First Review Date
|
$95.00
|
$24.625
|
Second Review Date
|
$85.00
|
$24.625
|
Third through Fourth Review Dates
|
Less than
Interest Barrier
|
$0
|
Final Review Date
|
$105.00
|
$1,024.625
|
|
Total Payment
|
$1,073.875 (7.3875% return)
|
Because the notes have not been automatically
called and the Final Value is greater than or equal to the Initial Value (and, therefore, the Interest Barrier), even though a
Trigger Event has occurred, the payment at maturity, for each $1,000 principal amount note, will be $1,024.625 (or $1,000
plus
the Contingent Interest Payment applicable to the final Review Date). When added to the Contingent Interest Payments received with
respect to the prior Review Dates, the total amount paid, for each $1,000 principal amount note, is $1,073.875.
PS-
4
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
|
|
Example 3 — Notes have NOT been automatically
called, the Final Value is less than the Initial Value and a Trigger Event has NOT occurred.
Date
|
Closing Price
|
Payment (per $1,000 principal amount note)
|
First Review Date
|
$95.00
|
$24.625
|
Second Review Date
|
$85.00
|
$24.625
|
Third through Fourth Review Dates
|
Greater than
Interest Barrier
|
$24.625
|
Final Review Date
|
$70.00
|
$1,024.625
|
|
Total Payment
|
$1,123.125 (12.3125% return)
|
Because the notes have not been automatically
called, the Final Value is greater than or equal to the Interest Barrier and a Trigger Event has not occurred, even though the
Final Value is less than the Initial Value, the payment at maturity, for each $1,000 principal amount note, will be $1,024.625
(or $1,000
plus
the Contingent Interest Payment applicable to the final Review Date). When added to the Contingent Interest
Payments received with respect to the prior Review Dates, the total amount paid, for each $1,000 principal amount note, is $1,123.125.
Example 4 — Notes have NOT been automatically
called, the Final Value is less than the Initial Value and the Interest Barrier and a Trigger Event has occurred.
Date
|
Closing Price
|
Payment (per $1,000 principal amount note)
|
First Review Date
|
$60.00
|
$0
|
Second Review Date
|
$55.00
|
$0
|
Third through Fourth Review Dates
|
Less than
Interest Barrier
|
$0
|
Final Review Date
|
$50.00
|
$500.00
|
|
Total Payment
|
$500.00 (-50.00% return)
|
Because the notes have not been automatically
called, the Final Value is less than the Initial Value and the Interest Barrier, a Trigger Event has occurred and the Fund Return
is -50.00%, the payment at maturity will be $500.00 per $1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 × (-50.00%)] = $500.00
The hypothetical
returns and hypothetical payments on the notes shown above apply
only if you hold the notes for their entire term
or until automatically called.
These hypotheticals do not reflect the 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.
Selected
Risk Considerations
An investment in the notes involves significant
risks. These risks are explained in more detail in the “Risk Factors” sections of the accompanying product supplement
and underlying supplement.
|
·
|
YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS —
|
The notes do not guarantee any return
of principal. If the notes have not been automatically called and (i) the Final Value is less than the Initial Value and (ii) a
Trigger Event has occurred, you will lose 1% of the principal amount of your notes for every 1% that the Final Value is less than
the Initial Value. Accordingly, under these circumstances, you will lose some or all of your principal amount at maturity.
|
·
|
THE NOTES DO NOT GUARANTEE THE PAYMENT OF INTEREST AND MAY NOT PAY ANY INTEREST AT ALL —
|
If the notes have not been automatically
called, we will make a Contingent Interest Payment with respect to a Review Date only if the closing price of one share of the
Fund on that Review Date is greater than or equal to the Interest Barrier. If the closing price of one share of the Fund on that
Review Date is less than the Interest Barrier, no Contingent Interest Payment will be made with
PS-
5
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
|
|
respect to that Review Date. Accordingly,
if the closing price of one share of the Fund on each Review Date is less than the Interest Barrier, you will not receive any interest
payments over the term of the notes.
|
·
|
CREDIT RISKS OF JPMORGAN FINANCIAL AND JPMORGAN CHASE & CO. —
|
Investors are dependent on our and
JPMorgan Chase & Co.’s ability to pay all amounts due on the notes. Any actual or potential change in our or JPMorgan
Chase & Co.’s creditworthiness or credit spreads, as determined by the market for taking that credit risk, is likely
to adversely affect the value of the notes. If we and JPMorgan Chase & Co. were to default on our payment obligations, you
may not receive any amounts owed to you under the notes and you could lose your entire investment.
|
·
|
AS A FINANCE SUBSIDIARY, JPMORGAN FINANCIAL HAS NO INDEPENDENT OPERATIONS AND HAS LIMITED ASSETS —
|
As a finance subsidiary of JPMorgan
Chase & Co., we have no independent operations beyond the issuance and administration of our securities. Aside from the initial
capital contribution from JPMorgan Chase & Co., substantially all of our assets relate to obligations of our affiliates to
make payments under loans made by us or other intercompany agreements. As a result, we are dependent upon payments from our affiliates
to meet our obligations under the notes. If these affiliates do not make payments to us and we fail to make payments on the notes,
you may have to seek payment under the related guarantee by JPMorgan Chase & Co., and that guarantee will rank pari passu with
all other unsecured and unsubordinated obligations of JPMorgan Chase & Co.
|
·
|
THE APPRECIATION POTENTIAL OF THE NOTES IS LIMITED TO THE SUM OF ANY CONTINGENT INTEREST PAYMENTS THAT MAY BE PAID OVER THE
TERM OF THE NOTES,
|
regardless of any appreciation in
the price of the Fund, which may be significant. You will not participate in any appreciation in the price of the Fund.
We and our affiliates play a variety
of roles in connection with the notes. In performing these duties, our and JPMorgan Chase & Co.’s economic interests
are potentially adverse to your interests as an investor in the notes. It is possible that hedging or trading activities of ours
or our affiliates in connection with the notes could result in substantial returns for us or our affiliates while the value of
the notes declines. Please refer to “Risk Factors — Risks Relating to Conflicts of Interest” in the accompanying
product supplement.
|
·
|
THE BENEFIT PROVIDED BY THE TRIGGER VALUE MAY TERMINATE ON ANY DAY DURING THE MONITORING PERIOD —
|
If, on any day during the Monitoring
Period, the closing price of one share of the Fund is less than the Trigger Value (
i.e.
, a Trigger Event occurs) and the
notes have not been automatically called, the benefit provided by the Trigger Value will terminate and you will be fully exposed
to any depreciation in the closing price of one share of the Fund. You will be subject to this potential loss of principal even
if the Fund subsequently recovers such that the closing price of one share of the Fund is greater than or equal to the Trigger
Value.
|
·
|
THE AUTOMATIC CALL FEATURE MAY FORCE A POTENTIAL EARLY EXIT —
|
If your notes are automatically called,
the term of the notes may be reduced to as short as approximately six months and you will not receive any Contingent Interest Payments
after the applicable Call Settlement Date. There is no guarantee that you would be able to reinvest the proceeds from an investment
in the notes at a comparable return and/or with a comparable interest rate for a similar level of risk. Even in cases where the
notes are called before maturity, you are not entitled to any fees and commissions described on the front cover of this pricing
supplement.
|
·
|
YOU WILL NOT RECEIVE DIVIDENDS ON THE FUND OR THE SECURITIES HELD BY THE FUND OR HAVE ANY RIGHTS WITH RESPECT TO THE FUND OR
THOSE SECURITIES.
|
|
·
|
THERE ARE RISKS ASSOCIATED WITH THE FUND —
|
The Fund is subject to management
risk, which is the risk that the investment strategies of the Fund’s investment adviser, the implementation of which is subject
to a number of constraints, may not produce the intended results. These constraints could adversely affect the market price of
the shares of the Fund and, consequently, the value of the notes.
|
·
|
THE PERFORMANCE AND MARKET VALUE OF THE FUND, PARTICULARLY DURING PERIODS OF MARKET VOLATILITY, MAY NOT CORRELATE WITH THE
PERFORMANCE OF THE FUND’S UNDERLYING INDEX AS WELL AS THE NET ASSET VALUE PER SHARE —
|
The Fund does not fully replicate
its Underlying Index (as defined under “The Fund” below) and may hold securities different from those included in its
Underlying Index. In addition, the performance of the Fund will reflect additional transaction costs and fees that are not included
in the calculation of its Underlying Index. All of these factors may lead to a lack of correlation between the performance of the
Fund and its Underlying Index. In addition, corporate actions with respect to the equity securities underlying the Fund (such as
mergers and spin-offs) may impact the variance between the performances of the Fund and its Underlying
PS-
6
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
|
|
Index. Finally, because the shares
of the Fund are traded on a securities exchange and are subject to market supply and investor demand, the market value of one
share of the Fund may differ from the net asset value per share of the Fund.
During periods of market volatility,
securities underlying the Fund may be unavailable in the secondary market, market participants may be unable to calculate accurately
the net asset value per share of the Fund and the liquidity of the Fund may be adversely affected. This kind of market volatility
may also disrupt the ability of market participants to create and redeem shares of the Fund. Further, market volatility may adversely
affect, sometimes materially, the prices at which market participants are willing to buy and sell shares of the Fund. As a result,
under these circumstances, the market value of shares of the Fund may vary substantially from the net asset value per share of
the Fund. For all of the foregoing reasons, the performance of the Fund may not correlate with the performance of its Underlying
Index as well as the net asset value per share of the Fund, which could materially and adversely affect the value of the notes
in the secondary market and/or reduce any payment on the notes.
|
·
|
RISKS ASSOCIATED WITH THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY —
|
All or substantially
all of the equity securities underlying the Fund are issued by companies whose primary business is associated with the exploration
and production of oil and gas. As a result, the value of the notes may be subject to greater volatility and may be
more adversely affected by a single economic, political or regulatory occurrence affecting this industry than a different investment
linked to securities of a more broadly diversified group of issuers or issuers in a less volatile industry. The oil
and gas industry is significantly affected by a number of factors that influence worldwide economic conditions and oil and gas
prices, such as natural disasters, supply disruptions, geopolitical events and other factors that may offset or magnify each other,
including:
|
·
|
worldwide and domestic supplies of, and demand for, crude oil and natural gas;
|
|
·
|
the cost of exploring for, developing, producing, refining and marketing crude oil and natural gas;
|
|
·
|
changes in weather patterns and climatic changes;
|
|
·
|
the ability of the members of Organization of Petroleum Exporting Countries (OPEC) and other producing nations to agree to
and maintain production levels;
|
|
·
|
the worldwide military and political environment, uncertainty or instability resulting from an escalation or additional outbreak
of armed hostilities or further acts of terrorism in the United States, or elsewhere;
|
|
·
|
the price and availability of alternative and competing fuels;
|
|
·
|
domestic and foreign governmental regulations and taxes;
|
|
·
|
employment levels and job growth; and
|
|
·
|
general economic conditions worldwide.
|
These or other
factors or the absence of such factors could cause a downturn in the oil and natural gas industries generally or regionally and
could cause the value of some or all of the component stocks included in the Underlying Index and held by the Fund to decline
during the term of the notes.
For example, the
Fund suffered significant negative performance in 2014 and 2015 while the broader U.S equities markets achieved positive returns
for the same period.
|
·
|
THE ANTI-DILUTION PROTECTION FOR THE FUND IS LIMITED —
|
The calculation agent will make adjustments
to the Share Adjustment Factor for certain events affecting the shares of the Fund. However, the calculation agent will not make
an adjustment in response to all events that could affect the shares of the Fund. If an event occurs that does not require the
calculation agent to make an adjustment, the value of the notes may be materially and adversely affected.
|
·
|
THE RISK OF THE CLOSING PRICE OF THE FUND FALLING BELOW THE INTEREST BARRIER OR THE TRIGGER VALUE IS GREATER IF THE PRICE OF
THE FUND IS VOLATILE.
|
The notes will not be listed on any
securities exchange. Accordingly, the price at which you may be able to trade your notes is likely to depend on the price, if any,
at which JPMS is willing to buy the notes. You may not be able to sell your notes. The notes are not designed to be short-term
trading instruments. Accordingly, you should be able and willing to hold your notes to maturity.
PS-
7
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
|
|
|
·
|
THE FINAL TERMS AND VALUATION OF THE NOTES WILL BE PROVIDED IN THE PRICING SUPPLEMENT —
|
You should consider your potential
investment in the notes based on the minimums for the estimated value of the notes and the Contingent Interest Rate.
|
·
|
THE ESTIMATED VALUE OF THE NOTES WILL BE LOWER THAN THE ORIGINAL ISSUE PRICE (PRICE TO PUBLIC) OF THE NOTES —
|
The estimated value of the notes is
only an estimate determined by reference to several factors. The original issue price of the notes will exceed the estimated value
of the notes because costs associated with selling, structuring and hedging the notes are included in the original issue price
of the notes. These costs include the selling commissions, the projected profits, if any, that our affiliates expect to realize
for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under
the notes. See “The Estimated Value of the Notes” in this pricing supplement.
|
·
|
THE ESTIMATED VALUE OF THE NOTES DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES
—
|
See “The Estimated Value of
the Notes” in this pricing supplement.
|
·
|
THE ESTIMATED VALUE OF THE NOTES IS DERIVED BY REFERENCE TO AN INTERNAL FUNDING RATE —
|
The internal funding rate used in
the determination of the estimated value of the notes is based on, among other things, our and our affiliates’ view of the
funding value of the notes as well as the higher issuance, operational and ongoing liability management costs of the notes in comparison
to those costs for the conventional fixed-rate debt of JPMorgan Chase & Co. The use of an internal funding rate and any potential
changes to that rate may have an adverse effect on the terms of the notes and any secondary market prices of the notes. See “The
Estimated Value of the Notes” in this pricing supplement.
|
·
|
THE VALUE OF THE NOTES AS PUBLISHED BY JPMS (AND WHICH MAY BE REFLECTED ON CUSTOMER ACCOUNT STATEMENTS) MAY BE HIGHER THAN
THE THEN-CURRENT ESTIMATED VALUE OF THE NOTES FOR A LIMITED TIME PERIOD —
|
We generally expect that some of the
costs included in the original issue price of the notes will be partially paid back to you in connection with any repurchases of
your notes by JPMS in an amount that will decline to zero over an initial predetermined period. See “Secondary Market Prices
of the Notes” in this pricing supplement for additional information relating to this initial period. Accordingly, the estimated
value of your notes during this initial period may be lower than the value of the notes as published by JPMS (and which may be
shown on your customer account statements).
|
·
|
SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE ORIGINAL ISSUE PRICE OF THE NOTES —
|
Any secondary market prices of the
notes will likely be lower than the original issue price of the notes because, among other things, secondary market prices take
into account our internal secondary market funding rates for structured debt issuances and, also, because secondary market prices
(a) exclude selling commissions and (b) may exclude projected hedging profits, if any, and estimated hedging costs that are included
in the original issue price of the notes. As a result, the price, if any, at which JPMS will be willing to buy the notes from you
in secondary market transactions, if at all, is likely to be lower than the original issue price. Any sale by you prior to the
Maturity Date could result in a substantial loss to you.
|
·
|
SECONDARY MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS —
|
The secondary market price of the
notes during their term will be impacted by a number of economic and market factors, which may either offset or magnify each other,
aside from the selling commissions, projected hedging profits, if any, estimated hedging costs and the price of the Fund. Additionally,
independent pricing vendors and/or third party broker-dealers may publish a price for the notes, which may also be reflected on
customer account statements. This price may be different (higher or lower) than the price of the notes, if any, at which JPMS may
be willing to purchase your notes in the secondary market. See “Risk Factors — Risks Relating to the Estimated Value
and Secondary Market Prices of the Notes — Secondary market prices of the notes will be impacted by many economic and market
factors” in the accompanying product supplement.
PS-
8
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
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The
Fund
The SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF is an exchange-traded fund of the SPDR
®
Series
Trust, a registered investment company. The SPDR
®
S&P
®
Oil & Gas Exploration & Production
ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of
an index derived from the oil and gas exploration and production segment of a U.S. total market composition index, which we refer
to as the Underlying Index with respect to the SPDR
®
S&P
®
Oil & Gas Exploration & Production
ETF. The Underlying Index with respect to the SPDR
®
S&P
®
Oil & Gas Exploration & Production
ETF is currently the S&P
®
Oil & Gas Exploration & Production Select Industry Index
®
.
The S&P
®
Oil & Gas Exploration & Production Select Industry Index
®
is a modified equal-weighted
index that is designed to measure the performance of the following GICS
®
sub-industries: integrated oil & gas,
oil & gas exploration & mining and oil & gas refining & marketing. For additional information about the Fund, see
the information set forth under “Fund Descriptions — The SPDR
®
S&P
®
Industry ETFs”
in the accompanying underlying supplement.
Historical Information
The following graph sets forth the historical
performance of the Fund based on the weekly historical closing prices of one share of the Fund from January 7, 2011 through August
19, 2016. The closing price of one share of the Fund on August 25, 2016 was $37.17. We obtained the closing prices above and below
from the Bloomberg Professional
®
service (“Bloomberg”), without independent verification. The closing
prices below may have been adjusted by Bloomberg for actions taken by the Fund, such as stock splits.
The historical closing prices of one share of
the Fund should not be taken as an indication of future performance, and no assurance can be given as to the closing price of one
share of the Fund on the Pricing Date or any Review Date. There can be no assurance that the performance of the Fund will result
in the return of any of your principal amount or the payment of any interest.
Tax
Treatment
You should review carefully the section entitled
“Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4-I. In determining our
reporting responsibilities we intend to treat (i) the notes for U.S. federal income tax purposes as prepaid forward contracts with
associated contingent coupons and (ii) any Contingent Interest Payments as ordinary income, as described in the section entitled
“Material U.S. Federal Income Tax Consequences — Tax Consequences to U.S. Holders — Notes Treated as Prepaid
Forward Contracts with Associated Contingent Coupons” in the accompanying product supplement. Based on the advice of Davis
Polk & Wardwell LLP, our special tax counsel, we believe that this is a reasonable treatment, but that there are other reasonable
treatments that the IRS or a court may adopt, in which case the timing and character of any income or loss on the notes could be
materially 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 and the relevance of factors such
as the nature of the underlying property to which the instruments are linked. 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 affect the
PS-
9
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
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tax consequences of an investment in the notes,
possibly with retroactive effect. You should consult your tax adviser regarding the U.S. federal income tax consequences of an
investment in the notes, including possible alternative treatments and the issues presented by this notice.
Non-U.S. Holders — Tax Considerations
.
The U.S. federal income tax treatment of Contingent Interest Payments is uncertain, and although we believe it is reasonable to
take a position that Contingent Interest Payments are not subject to U.S. withholding tax (at least if an applicable Form W-8 is
provided), a withholding agent may nonetheless withhold on these payments (generally at a rate of 30%, subject to the possible
reduction of that rate under an applicable income tax treaty), unless income from your notes is effectively connected with your
conduct of a trade or business in the United States (and, if an applicable treaty so requires, attributable to a permanent establishment
in the United States). If you are not a United States person, you are urged to consult your tax adviser regarding the U.S. federal
income tax consequences of an investment in the notes in light of your particular circumstances.
Non-U.S. holders should also note that recently
promulgated Treasury regulations imposing a withholding tax on certain “dividend equivalents” under certain “equity
linked instruments” will not apply to the notes.
FATCA.
Withholding under legislation commonly
referred to as “FATCA” could apply to payments with respect to the notes that are treated as U.S.-source “fixed
or determinable annual or periodical” income (“FDAP Income”) for U.S. federal income tax purposes (such as interest,
if the notes are recharacterized, in whole or in part, as debt instruments, or Contingent Interest Payments if they are otherwise
treated as FDAP Income). Under a recent IRS notice, withholding under FATCA will not apply to payments of gross proceeds (other
than any amount treated as FDAP Income) of a taxable disposition, including an early redemption or redemption at maturity, of the
notes. You should consult your tax adviser regarding the potential application of FATCA to the notes.
In
the event of any withholding on the notes, we will not be required to pay any additional amounts with respect to amounts so withheld.
The Estimated Value of the Notes
The estimated value of the notes set forth on
the cover of this pricing supplement is equal to the sum of the values of the following hypothetical components: (1) a fixed-income
debt component with the same maturity as the notes, valued using the internal funding rate described below, and (2) the derivative
or derivatives underlying the economic terms of the notes. The estimated value of the notes does not represent a minimum price
at which JPMS would be willing to buy your notes in any secondary market (if any exists) at any time. The internal funding rate
used in the determination of the estimated value of the notes is based on, among other things, our and our affiliates’ view
of the funding value of the notes as well as the higher issuance, operational and ongoing liability management costs of the notes
in comparison to those costs for the conventional fixed-rate debt of JPMorgan Chase & Co. For additional information, see “Selected
Risk Considerations — The Estimated Value of the Notes Is Derived by Reference to an Internal Funding Rate” in this
pricing supplement.
The value of the derivative or derivatives underlying
the economic terms of the notes is derived from internal pricing models of our affiliates. These models are dependent on inputs
such as the traded market prices of comparable derivative instruments and on various other inputs, some of which are market-observable,
and which can include volatility, dividend rates, interest rates and other factors, as well as assumptions about future market
events and/or environments. Accordingly, the estimated value of the notes is determined when the terms of the notes are set based
on market conditions and other relevant factors and assumptions existing at that time.
The estimated value of the notes does not represent
future values of the notes and may differ from others’ estimates. Different pricing models and assumptions could provide
valuations for the notes that are greater than or less than the estimated value of the notes. In addition, market conditions and
other relevant factors in the future may change, and any assumptions may prove to be incorrect. On future dates, the value of the
notes could change significantly based on, among other things, changes in market conditions, our or JPMorgan Chase & Co.’s
creditworthiness, interest rate movements and other relevant factors, which may impact the price, if any, at which JPMS would be
willing to buy notes from you in secondary market transactions.
The estimated value of the notes will be lower
than the original issue price of the notes because costs associated with selling, structuring and hedging the notes are included
in the original issue price of the notes. These costs include the selling commissions paid to JPMS and other affiliated or unaffiliated
dealers, the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations
under the notes and the estimated cost of hedging our obligations under the notes. Because hedging our obligations entails risk
and may be influenced by market forces beyond our control, this hedging may result in a profit that is more or less than expected,
or it may result in a loss. A portion of the profits, if any, realized in hedging our obligations under the notes may be allowed
to other affiliated or unaffiliated dealers, and we or one or more of our affiliates will retain any remaining hedging profits.
See “Selected Risk Considerations — The Estimated Value of the Notes Will Be Lower Than the Original Issue Price (Price
to Public) of the Notes” in this pricing supplement.
PS-
10
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
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Secondary
Market Prices of the Notes
For information about factors that will impact
any secondary market prices of the notes, see “Risk Factors — Risks Relating to the Estimated Value and Secondary Market
Prices of the Notes — Secondary market prices of the notes will be impacted by many economic and market factors” in
the accompanying product supplement. In addition, we generally expect that some of the costs included in the original issue price
of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS in an amount that will
decline to zero over an initial predetermined period. These costs can include projected hedging profits, if any, and, in some circumstances,
estimated hedging costs and our internal secondary market funding rates for structured debt issuances. This initial predetermined
time period is intended to be the shorter of six months and one-half of the stated term of the notes. The length of any such initial
period reflects the structure of the notes, whether our affiliates expect to earn a profit in connection with our hedging activities,
the estimated costs of hedging the notes and when these costs are incurred, as determined by our affiliates. See “Selected
Risk Considerations — The Value of the Notes as Published by JPMS (and Which May Be Reflected on Customer Account Statements)
May Be Higher Than the Then-Current Estimated Value of the Notes for a Limited Time Period” in this pricing supplement.
Supplemental
Use of Proceeds
The notes are offered to meet investor demand
for products that reflect the risk-return profile and market exposure provided by the notes. See
“How the Notes Work”
and “Hypothetical Payout Examples” in this pricing supplement for an illustration of the risk-return profile of the
notes and “The Fund” in this pricing supplement for a description of the market exposure provided by the notes.
The original issue price of the notes is equal
to the estimated value of the notes plus the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, plus
(minus) the projected profits (losses) that our affiliates expect to realize for assuming risks inherent in hedging our obligations
under the notes, plus the estimated cost of hedging our obligations under the notes.
Additional
Terms Specific to the Notes
You may revoke your offer to purchase the notes
at any time prior to the time at which we accept such offer by notifying the applicable agent. We reserve the right to change the
terms of, or reject any offer to purchase, the notes prior to their issuance. In the event of any changes to the terms of the notes,
we will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject
such changes, in which case we may reject your offer to purchase.
You should read this pricing supplement together
with the accompanying prospectus, as supplemented by the accompanying prospectus supplement, relating to our Series A medium-term
notes of which these notes are a part, and the more detailed information contained in the accompanying product supplement and the
accompanying underlying supplement. This pricing supplement, together with the documents listed below, contains the terms of the
notes and supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary
or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, fact sheets, brochures
or other educational materials of ours. You should carefully consider, among other things, the matters set forth in the “Risk
Factors” sections of the accompanying product supplement and the accompanying underlying supplement, as the notes involve
risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other
advisers before you invest in the notes.
You may access these documents on the SEC
website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
Our
Central Index Key, or CIK, on the SEC website is 1665650, and JPMorgan Chase & Co.’s CIK is 19617. As used in this pricing
supplement, “we,” “us” and “our” refer to JPMorgan Financial.
PS-
11
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the SPDR® S&P® Oil & Gas Exploration & Production ETF.
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