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 December 1, 2016
|
JPMorgan Chase Financial Company LLC
|
December
2016
Pricing
Supplement
Registration
Statement Nos. 333-209682 and 333-209682-01
Dated
December , 2016
Filed
pursuant to Rule 424(b)(2)
|
Structured Investments
Opportunities in U.S. Equities
Contingent Income Callable Securities due December
17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
Fully and Unconditionally Guaranteed by JPMorgan
Chase & Co.
Contingent Income Callable Securities do
not guarantee the payment of interest or the repayment of principal. Instead, the securities offer the opportunity for investors
to earn a contingent quarterly payment equal to at least 1.7625% of the stated principal amount with respect to each determination
date on which the closing level of the underlying index is greater than or equal to 75% of the initial index value, which we refer
to as the coupon barrier level. However, if, on any determination date, the closing level of the underlying index is less than
the coupon barrier level, you will not receive any contingent quarterly payment for that quarterly period. In addition,
we
will have the right to redeem the securities at our discretion on any contingent payment date
(other than the first, second,
third and final contingent payment dates) for an early redemption payment equal to the stated principal amount
plus
any
contingent quarterly payment with respect to the related determination date. Any early redemption of the securities will be at
our discretion and will not automatically occur based on the performance of the underlying index. If the securities have not been
redeemed prior to maturity and the final index value is greater than or equal to 60% of the initial index value, which we refer
to as the downside threshold level, the payment at maturity due on the securities will be the stated principal amount
plus,
if the final index value is also greater than or equal to the coupon barrier level, the contingent quarterly payment with
respect to the final determination date. If, however, the securities have not been redeemed prior to maturity and the final index
value is less than the downside threshold level, you will be exposed to the decline in the underlying index, as compared to the
initial index value, on a 1-to-1 basis and will receive a cash payment at maturity that is less than 60% of the stated principal
amount of the securities and could be zero. The securities are for investors who are willing to risk their principal and seek
an opportunity to earn interest at a potentially above-market rate in exchange for the risk of receiving few or no contingent
quarterly payments during the ten-year term of the securities and also the risk of receiving a cash payment at maturity that is
significantly less than the stated principal amount of the securities and could be zero.
Accordingly, investors could lose
their entire initial investment in the securities.
Investors will not participate in any appreciation 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 Financial Company LLC
|
|
Guarantor:
|
JPMorgan Chase & Co.
|
|
Underlying index:
|
S&P 500
®
Index
|
|
Aggregate principal amount:
|
$
|
|
Optional early redemption:
|
We,
at our discretion
, may redeem the securities early, in whole but not in part, on any of the contingent payment dates (other than the first, second, third and final contingent payment dates) for the early redemption payment. If we intend to redeem your securities early, we will deliver notice to The Depository Trust Company, or DTC, at least three business days before the applicable contingent payment date. Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the underlying index. No further payments will be made on the securities after they have been redeemed. No further payments will be made on the securities once they have been redeemed.
|
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount
plus
(ii) any contingent quarterly payment with respect to the related determination date.
|
|
Contingent quarterly payment:
|
·
If,
on any determination date, the closing level is greater than or equal to the coupon barrier level, we will pay a contingent quarterly
payment of at least $17.625 (at least 1.7625% of the stated principal amount) per security on the related contingent payment date.
The actual contingent quarterly payment will be provided in the pricing supplement.
·
If,
on any determination date, the closing level is less than the coupon barrier level, no contingent quarterly payment will be made
with respect to that determination date.
|
|
Determination dates:
|
March 14, 2017, June 14, 2017, September 14, 2017, December 14, 2017, March 14, 2018, June 14, 2018, September 14, 2018, December 14, 2018, March 14, 2019, June 14, 2019, September 16, 2019, December 16, 2019, March 16, 2020, June 15, 2020, September 14, 2020, December 14, 2020, March 15, 2021, June 14, 2021, September 14, 2021, December 14, 2021, March 14, 2022, June 14, 2022, September 14, 2022, December 14, 2022, March 14, 2023, June 14, 2023, September 14, 2023, December 14, 2023, March 14, 2024, June 14, 2024, September 16, 2024, December 16, 2024, March 14, 2025, June 16, 2025, September 15, 2025, December 15, 2025, March 16, 2026, June 15, 2026, September 14, 2026 and December 14, 2026, subject to postponement for non-trading days and certain market disruption events.
|
|
Contingent payment dates:
|
With respect to each determination date other than the final determination date, the third business day after the related determination date. The payment of the contingent quarterly payment, if any, with respect to the final determination date will be made on the maturity date.
|
|
Payment at maturity:
|
·
If the final index value is
greater than or equal to
the downside threshold level:
|
(i) the stated principal amount
plus,
(ii) if the final index value is also greater than or equal to the coupon barrier level, the contingent quarterly payment with respect to the final determination date
|
|
|
·
If the final index value is
less than
the downside threshold level:
|
(i) the stated principal amount
times
(ii) the index performance factor. This amount will be less than 60% of the stated principal amount of the securities and could be zero.
|
|
Coupon barrier level:
|
, which is equal to 75% of the initial index value
|
|
Downside threshold level:
|
, which is equal to 60% of the 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 final determination date
|
|
Index performance factor:
|
final index value / initial index value
|
|
Stated principal amount:
|
$1,000 per security
|
|
Issue price:
|
$1,000 per security (see “Commissions and issue price” below)
|
|
Pricing date:
|
December , 2016 (expected to price on or about December 14, 2016)
|
|
Original issue date (settlement date):
|
December , 2016 (3 business days after the pricing date)
|
|
Maturity date:
|
December 17, 2026, 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:
|
46646QDW2 / US46646QDW24
|
|
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
|
|
$1,000.00
|
$30.00
(2)
|
$965.00
|
|
|
|
|
$5.00
(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 $30.00 per $1,000 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 $5.00 for each $1,000 stated principal amount security
|
If the securities priced
today and assuming a contingent quarterly payment equal to the minimum listed above, the estimated value of the securities would
be approximately $953.90 per $1,000 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 $900.00 per $1,000 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
9 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
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
Investment Summary
The Contingent Income Callable Securities due
December 17, 2026 Based on the Value of the S&P 500
®
Index, which we refer to as the securities, provide an
opportunity for investors to earn a contingent quarterly payment, which is an amount equal to at least $17.625 (at least 1.7625%
of the stated principal amount) per security, with respect to each quarterly determination date on which the closing level is greater
than or equal to 75% of the initial index value, which we refer to as the coupon barrier level. The actual contingent quarterly
payment will be provided in the pricing supplement. The contingent quarterly payment, if any, will be payable quarterly on the
relevant contingent payment date, which is the fifth business day after the related determination date. It is possible that the
closing level of the underlying index could remain below the coupon barrier level for extended periods of time or even throughout
the term of the securities so that you may receive few or no contingent quarterly payments.
In addition,
we will have the right to redeem
the securities at our discretion
on any contingent payment date (other than the first, second, third and final contingent payment
dates) for the early redemption payment equal to the stated principal amount
plus
any contingent quarterly payment with
respect to the related determination date. Any early redemption of the securities will be at our discretion and will not automatically
occur based on the performance of the underlying index. If the securities have not previously been redeemed and the final index
value is greater than or equal to 60% of the initial index value, which we refer to as the downside threshold level, the payment
at maturity will be the sum of the stated principal amount
plus,
if the final index value is also greater than or equal
to the coupon barrier level, the contingent quarterly payment with respect to the final determination date. However, if the securities
have not previously been redeemed and the final index value is less than the downside threshold level, investors will be exposed
to the decline in the closing level of the underlying index, as compared to the initial index value, on a 1-to-1 basis. Under these
circumstances, the payment at maturity will be (i) the stated principal amount
times
(ii) the index performance factor,
which will be less than 60% of the stated principal amount of the securities and could be zero. Investors in the securities must
be willing to accept the risk of losing their entire principal and also the risk of receiving few or no contingent quarterly payments
over the term of the securities. In addition, investors will not participate in any appreciation of the underlying index.
Supplemental Terms of the Securities
For purposes of the accompanying product supplement,
the underlying index is an “Index.”
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
Key Investment Rationale
The securities offer investors an opportunity to earn a contingent
quarterly payment equal to at least 1.7625% of the stated principal amount with respect to each determination date on which the
closing level is greater than or equal to 75% of the initial index value, which we refer to as the coupon barrier level. The actual
contingent quarterly payment will be provided in the pricing supplement. The securities may be redeemed prior to maturity for the
stated principal amount per security
plus
any applicable contingent quarterly payment, and the payment at maturity will
vary depending on the final index value, as follows:
|
Scenario 1
|
On any contingent payment date
(other than the first, second, third and final contingent payment dates), we elect to redeem the securities.
§
The
securities will be redeemed for (i) the stated principal amount
plus
(ii) any contingent quarterly payment with respect
to the related determination date.
§
Investors
will not participate in any appreciation of the underlying index from the initial index value.
Any early redemption of
the securities will be at our discretion and will not automatically occur based on the performance of the underlying index. It
is more likely that we will redeem the securities when it would otherwise be advantageous for you to continue to hold the securities.
As such, we will be more likely to redeem the securities when the closing level of the underlying index on the determination dates
is at or above the downside threshold level, which would otherwise result in an amount of interest payable on the securities that
is greater than instruments issued by us of a comparable maturity and credit rating trading in the market. In other words, we
will be more likely to redeem the securities when the securities are paying above-market interest.
If the securities are redeemed
prior to maturity, you will receive no more contingent quarterly payments and may be forced to reinvest in a lower interest rate
environment. Under these circumstances, you may not be able to reinvest the proceeds from an investment in the securities at a
comparable return for a similar level of risk. On the other hand, we will be less likely to exercise our redemption right when
the closing level of the underlying index on the determination dates is below the downside threshold level, such that you will
receive no contingent quarterly payments and/or that you will suffer a significant loss on your investment in the securities at
maturity. Therefore, if we do not exercise our redemption right, it is more likely that you will receive few or no contingent
quarterly payments and that you will suffer a significant loss on your investment at maturity.
|
|
Scenario 2
|
The securities are not redeemed
prior to maturity, and the final index value is
greater than or equal to
the downside threshold level.
§
The
payment due at maturity will be (i) the stated principal amount
plus,
(ii) if the final index value is also greater than
or equal to the coupon barrier level, the contingent quarterly payment with respect to the final determination date.
§
Investors
will not participate in any appreciation of the underlying index from the initial index value.
|
|
Scenario 3
|
The securities are not redeemed
prior to maturity, and the final index value is
less than
the downside threshold level.
§
The
payment due at maturity will be (i) the stated principal amount
times
(ii) the index performance factor.
§
Investors
will lose some, and may lose all, of their principal in this scenario.
|
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the closing level, (2) the final index value and (3) whether we exercise our option to redeem the
securities.
Diagram #1: First, Second and Third Determination
Dates
Diagram #2: Determination Dates (Other Than
the First, Second, Third and Final Determination Dates)
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
Diagram #3: Payment at Maturity if No Early
Redemption Occurs
For more information about payments on the securities in different
hypothetical scenarios, see “Hypothetical Examples” starting on page 6.
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
Hypothetical Examples
The below examples are based on the following terms:
|
Stated principal amount:
|
$1,000 per security
|
|
Hypothetical initial index value:
|
2,200.00
|
|
Hypothetical coupon barrier level:
|
1,650.00, which is 75% of the hypothetical initial index value
|
|
Hypothetical downside threshold level:
|
1,320.00, which is 60% of the hypothetical initial index value
|
|
Hypothetical contingent quarterly payment:
|
$17.625 (1.7625% of the stated principal amount) per security
|
In Examples 1 and 2, the closing level of the
underlying index fluctuates over the term of the securities and we elect to call the securities on one of the contingent payment
dates (other than the first, second, third and final contingent payment dates). In Examples 3 and 4, the securities are not redeemed
prior to, and remain outstanding until, maturity. Any redemption of the securities will be at our discretion and will not automatically
occur based on the performance of the underlying index.
|
|
Example
1
|
Example
2
|
|
Determination
Dates
|
Hypothetical
Closing Level
|
Contingent
Quarterly Payment
|
Early
Redemption Payment*
|
Hypothetical
Closing Level
|
Contingent
Quarterly Payment
|
Early
Redemption Payment*
|
|
#1
|
1,100.00
|
$0
|
N/A
|
1,895.00
|
$17.625
|
N/A
|
|
#2
|
1,200.00
|
$0
|
N/A
|
1,100.00
|
$0
|
N/A
|
|
#3
|
1,300.00
|
$0
|
N/A
|
1,050.00
|
$0
|
N/A
|
|
#4
|
2,750.00
|
—*
|
$1,017.625
|
1,100.00
|
$0
|
N/A
|
|
#5
|
N/A
|
N/A
|
N/A
|
1,800.00
|
$17.625
|
N/A
|
|
#6
|
N/A
|
N/A
|
N/A
|
1,700.00
|
$17.625
|
N/A
|
|
#7
|
N/A
|
N/A
|
N/A
|
1,150.00
|
$0
|
N/A
|
|
#8
|
N/A
|
N/A
|
N/A
|
1,700.00
|
$17.625
|
N/A
|
|
#9
|
N/A
|
N/A
|
N/A
|
1,800.00
|
$17.625
|
N/A
|
|
#10
|
N/A
|
N/A
|
N/A
|
1,100.00
|
$0
|
N/A
|
|
#11
|
N/A
|
N/A
|
N/A
|
1,050.00
|
$0
|
N/A
|
|
#12
|
N/A
|
N/A
|
N/A
|
1,000.00
|
—*
|
$1,000.00
|
|
#13
to #39
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Final
Determination Date
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
* The early redemption payment includes any
unpaid contingent quarterly payment with respect to the related determination date.
|
|
§
|
In
Example 1
, we elect to redeem the securities on the fourth contingent payment date. As the closing level on each
of the first, second and third determination dates is less than the coupon barrier level, no contingent quarterly payment was made
with respect to that date. As the closing level on the fourth determination date is greater than the coupon barrier level, the
early redemption payment you receive on the fourth contingent payment date includes the contingent quarterly payment due with respect
to that determination date, and the early redemption payment is calculated as follows:
|
stated principal
amount + contingent quarterly payment = $1,000 + $17.625 = $1,017.625
In this example, the optional early redemption
feature limits the term of your investment to approximately 12 months and you may not be able to reinvest at comparable terms or
returns. If the securities are redeemed early, you will stop receiving contingent quarterly payments. Further, although the underlying
index has appreciated by 25% from its initial index value on the fourth determination date, you only receive $1,017.625 per security
upon redemption and do not benefit from this appreciation.
|
|
§
|
In
Example 2
, we elect to redeem the securities on the 12
th
contingent payment date. As the closing level
on each of the first, fifth, sixth, eighth and ninth determination dates is greater than the coupon barrier level, you receive
the
|
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
contingent quarterly payment of
$17.625 with respect to each of those determination dates. However, because the closing level of the index is below the coupon
barrier level on the 12
th
determination date, the early redemption payment you receive on the 12
th
contingent
payment date does not include any contingent quarterly payment with respect to that determination date, and the early redemption
payment is equal to the stated principal amount of $1,000.
In this example, the optional early redemption
feature limits the term of your investment to approximately 36 months and you may not be able to reinvest at comparable terms or
returns. If the securities are redeemed early, you will stop receiving contingent quarterly payments. The total payments on the
securities will amount to $1,088.125 per security.
|
|
Example
3
|
Example
4
|
|
Determination
Dates
|
Hypothetical
Closing Level
|
Contingent
Quarterly Payment
|
Early
Redemption Payment
|
Hypothetical
Closing Level
|
Contingent
Quarterly Payment
|
Early
Redemption Payment
|
|
#1
|
1,050.00
|
$0
|
N/A
|
900.00
|
$0
|
N/A
|
|
#2
|
1,100.00
|
$0
|
N/A
|
1,100.00
|
$0
|
N/A
|
|
#3
|
1,100.00
|
$0
|
N/A
|
1,050.00
|
$0
|
N/A
|
|
#4
|
1,000.00
|
$0
|
N/A
|
1,100.00
|
$0
|
N/A
|
|
#5
|
900.00
|
$0
|
N/A
|
1,150.00
|
$0
|
N/A
|
|
#6
|
950.00
|
$0
|
N/A
|
1,100.00
|
$0
|
N/A
|
|
#7
|
1,000.00
|
$0
|
N/A
|
1,100.00
|
$0
|
N/A
|
|
#8
|
1,100.00
|
$0
|
N/A
|
950.00
|
$0
|
N/A
|
|
#9
|
1,050.00
|
$0
|
N/A
|
900.00
|
$0
|
N/A
|
|
#10
|
1,100.00
|
$0
|
N/A
|
1,175.00
|
$0
|
N/A
|
|
#11
|
1,000.00
|
$0
|
N/A
|
1,150.00
|
$0
|
N/A
|
|
#12
|
1,100.00
|
$0
|
N/A
|
1,175.00
|
$0
|
N/A
|
|
#13
to #39
|
Various
(below downside threshold level)
|
$0
|
N/A
|
Various
(below downside threshold level)
|
$0
|
N/A
|
|
Final
Determination Date
|
1,210.00
|
$0
|
N/A
|
1,320.00
|
—
|
N/A
|
|
Payment
at Maturity
|
$550.00
|
$1,000.00
|
Examples 3 and 4 illustrate the payment at
maturity per security based on the final index value.
|
|
§
|
In
Example 3
, the securities are not redeemed prior to maturity and the closing level of the underlying index remains
below the coupon barrier level throughout the term of the securities. As a result, you do not receive any contingent quarterly
payment during the term of the securities and because the final index value is less than the downside threshold level, at maturity,
you are fully exposed to the decline in the closing level of the underlying index. As the final index value is less than the downside
threshold level, you receive at maturity (i) the stated principal amount
times
(ii) the index performance factor, calculated
as follows:
|
$1,000 × 1,210.00
/ 2,200.00 = $550.00
In this example, the amount you receive
at maturity is significantly less than the stated principal amount.
|
|
§
|
In
Example 4
, the securities are not redeemed prior to maturity and the closing level of the underlying index decreases
to a final index value of 1,320.00. Although the final index value is less than the initial index value, because the final index
value is still not less than the downside threshold level, you receive the stated principal amount at maturity. However, because
the final index value is below the coupon barrier level, no contingent quarterly payment is payable with respect to the final determination
date. Your payment at maturity is equal to the stated principal amount of $1,000.
|
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
In this example, although the final index
value represents a 40% decline from the initial index value, you receive the stated principal amount per security.
The hypothetical returns and hypothetical payments
on the securities shown above apply
only if you hold the securities for their entire term or until early redemption.
These
hypotheticals do not reflect fees or expenses that would be associated with any sale in the secondary market. If these fees and
expenses were included, the hypothetical returns and hypothetical payments shown above would likely be lower.
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the sections entitled
“Risk Factors” of the accompanying product supplement and the accompanying underlying supplement. We urge you to consult
your investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
|
|
§
|
The securities do not 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 guarantee the return of
any of the principal amount at maturity. Instead, if the securities have not been redeemed prior to maturity and if the final index
value is less than the downside threshold level, you will be exposed to the decline in the closing level of the underlying index,
as compared to the initial index value, on a 1-to-1 basis and you will receive for each security that you hold at maturity a cash
payment equal to the stated principal amount
times
the index performance factor. In this case, your payment at maturity
will be less than 60% of the stated principal amount and could be zero.
|
|
|
§
|
You will not receive any contingent quarterly payment for any quarterly period where the closing level on the relevant determination
date is less than the coupon barrier level.
The terms of the securities differ from those of ordinary debt securities in that
the securities do not guarantee the payment of regular interest. Instead, a contingent quarterly payment will be made with respect
to a quarterly period only if the closing level on the relevant determination date is greater than or equal to the coupon barrier
level. If the closing level remains below the coupon barrier level on each determination date over the term of the securities,
you will not receive any contingent quarterly payment during the ten-year term of the securities.
It
is possible that the closing level of the underlying index could be below the
coupon barrier
level
on most or all of the determination dates so that you will
receive
few
or no contingent quarterly payments. If you do not earn sufficient contingent quarterly payments over the term of the securities,
the overall return on the securities may be less than the amount that would be paid on a conventional debt security of the issuer
of comparable maturity.
|
|
|
§
|
The contingent quarterly payment is based solely on the closing levels on the specified determination dates
.
Whether the contingent quarterly payment will be made with respect to a determination date will be based on the closing
level on that determination date. As a result, you will not know whether you will receive the contingent quarterly payment until
the related determination date. Moreover, because the contingent quarterly payment is based solely on the closing level on a specific
determination date if that closing level is less than the coupon barrier level, you will not receive any contingent quarterly payment
with respect to that determination date, even if the closing level of the underlying index was higher on other days during the
term of the securities.
|
|
|
§
|
The securities are subject to the credit risks of JPMorgan Financial
and JPMorgan Chase & Co., and any actual or anticipated changes to our or JPMorgan Chase & Co.’s credit ratings or
credit spreads may adversely affect the market value of the securities.
Investors are dependent on our and JPMorgan
Chase & Co.’s ability to pay all amounts due on the securities. Any actual or anticipated decline in our or JPMorgan
Chase & Co.’s credit ratings or increase in our or JPMorgan Chase & Co.’s credit spreads determined by the
market for taking that credit risk is likely to adversely affect the market value of the securities. If we and JPMorgan Chase &
Co. were to default on our payment obligations, you may not receive any amounts owed to you under the securities and you could
lose your entire investment.
|
|
|
§
|
As a finance subsidiary, JPMorgan Financial has no independent operations and has limited assets.
As a finance subsidiary
of JPMorgan Chase & Co., we have no independent operations beyond the issuance and administration of our securities. Aside
from the initial capital contribution from JPMorgan Chase & Co., substantially all of our assets relate to obligations of our
affiliates to make payments under loans made by us or other intercompany agreements. As a result, we are dependent upon payments
from our affiliates to meet our obligations under the securities. If these affiliates do not make payments to us and we fail to
make payments on the securities, you may have to seek payment under the related guarantee by JPMorgan Chase & Co., and that
guarantee will rank pari passu with all other unsecured and unsubordinated obligations of JPMorgan Chase & Co.
|
|
|
§
|
Investors will not participate in any appreciation in the level
of the underlying index.
Investors will not participate in any appreciation in the level
of the underlying index from the initial index value, and the return on the securities will be limited to the contingent quarterly
payment that is paid with respect to each determination date on which the closing level is greater than or equal to the
coupon
barrier
level.
|
|
|
§
|
Early redemption risk.
The term of your investment in
the securities may be limited to as short as approximately one year by the optional early redemption feature of the securities.
Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the
underlying index. It is more likely that
|
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
we will redeem the securities when
it would otherwise be advantageous for you to continue to hold the securities. As such, we will be more likely to redeem the securities
when the closing level of the underlying index on the determination dates is at or above the coupon barrier level, which would
otherwise potentially result in an amount of interest payable on the securities that is greater than instruments issued by us of
a comparable maturity and credit rating trading in the market. In other words, we will be more likely to redeem the securities
when the securities are paying above-market interest.
If the securities are redeemed prior
to maturity, you will receive no more contingent quarterly payments and may be forced to reinvest in a lower interest rate environment.
Under these circumstances, you may not be able to reinvest the proceeds from an investment in the securities at a comparable return
for a similar level of risk. On the other hand, we will be less likely to exercise our redemption right when the closing level
of the underlying index on the determination dates is below the coupon barrier level, such that you will receive no contingent
quarterly payments and/or that you might suffer a significant loss on your investment in the securities at maturity. Therefore,
if we do not exercise our redemption right, it is more likely that you will receive few or no contingent quarterly payments and
that you will suffer a significant loss on your investment at maturity.
|
|
§
|
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, the
coupon barrier level,
the
downside threshold level and the final index value and whether the closing level of the underlying index on any determination date
is below the
coupon barrier level or
the final
determination date is below the downside threshold level. Determinations made by the calculation agent, including with respect
to the occurrence or non-occurrence of market disruption events, may affect the payment to you at maturity or upon an early redemption.
|
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
|
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
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 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
|
whether the closing level of the underlying index has been, or is expected to be, less than the coupon barrier level on any
determination date and whether the final index value is expected to be less than the downside threshold level;
|
|
|
o
|
whether we are expected to exercise our right to redeem the securities early;
|
|
|
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 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
|
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
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.
|
|
§
|
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 level of the underlying index. Any of these hedging or trading activities
on or prior
to the pricing date could potentially affect the initial index value and, as a result, the coupon barrier level, which is the level
at or above which the underlying index must close on each determination date in order for you to earn a contingent quarterly payment
or, if the securities are not redeemed prior to maturity, the downside threshold level, which is the level at or above which the
underlying index must close on the final determination date in order for you to avoid being exposed to the negative performance
of the underlying index at maturity. Additionally, these hedging or trading activities during the term of the securities could
potentially affect the level of the underlying index on the determination dates and, accordingly, whether investors will receive
one or more contingent quarterly payments and, if the securities are not redeemed prior to maturity, the payment to you at maturity.
It is possible that these hedging or trading activities could result in substantial returns for us or our affiliates while the
value of the securities declines.
|
|
|
§
|
Secondary trading may be limited.
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 contingent quarterly
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 contingent quarterly payment.
|
|
|
§
|
The U.S. federal income tax consequences of an investment in the securities are uncertain.
There is no direct legal
authority as to the proper U.S. federal income tax treatment 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 as prepaid forward contracts with
associated contingent coupons, as 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 be materially affected. Although the U.S. federal income tax treatment of contingent
quarterly payments (including any contingent quarterly payments paid in connection with an early redemption or at maturity) is
uncertain, in determining our reporting responsibilities we intend (in the absence of an administrative determination or judicial
ruling to the contrary) to treat any contingent quarterly payments as ordinary income. 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 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.
|
Non-U.S. Holders ––
Tax Consideration.
The U.S. federal income tax treatment of contingent quarterly payments is uncertain, and although we believe
it is reasonable to take a position that contingent quarterly 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 securities 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). In the event of any withholding, we will not be required to pay any additional
amounts with
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
respect to amounts so withheld.
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 securities in light of your particular circumstances.
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
S&P 500
®
Index Overview
The S&P 500
®
Index, which is calculated, maintained
and published by S&P Dow Jones Indices LLC, consists of stocks of 500 companies selected to provide a performance benchmark
for the U.S. equity markets. For additional information on the S&P 500
®
Index, see the information set forth
under “Equity Index Descriptions — The S&P U.S. Indices” in the accompanying underlying supplement.
Information as of market close on November 30, 2016:
|
Bloomberg Ticker Symbol:
|
SPX
|
52 Week High (on 11/25/2016):
|
2,213.35
|
|
Current Index Value:
|
2,198.81
|
52 Week Low (on 2/11/2016):
|
1,829.08
|
|
52 Weeks Ago (on 11/30/2015):
|
2,080.41
|
|
|
The table below sets forth the published high and low closing
levels of, as well as end-of-quarter closing levels, of the underlying index for each quarter in the period from January 1, 2011
through November 30, 2016. The closing level of the underlying index on November 30, 2016 was 2,198.81. The associated graph shows
the closing levels of the underlying index for each day in the same period. We obtained the closing level information above and
in the table and graph below from the Bloomberg Professional
®
service (“Bloomberg”), without independent
verification. The historical closing levels of the underlying index should not be taken as an indication of its future performance,
and no assurance can be given as to the closing levels of the underlying index on the determination dates.
|
S&P 500
®
Index
|
High
|
Low
|
Period End
|
|
2011
|
|
|
|
|
First Quarter
|
1,343.01
|
1,256.88
|
1,325.83
|
|
Second Quarter
|
1,363.61
|
1,265.42
|
1,320.64
|
|
Third Quarter
|
1,353.22
|
1,119.46
|
1,131.42
|
|
Fourth Quarter
|
1,285.09
|
1,099.23
|
1,257.60
|
|
2012
|
|
|
|
|
First Quarter
|
1,416.51
|
1,277.06
|
1,408.47
|
|
Second Quarter
|
1,419.04
|
1,278.04
|
1,362.16
|
|
Third Quarter
|
1,465.77
|
1,334.76
|
1,440.67
|
|
Fourth Quarter
|
1,461.40
|
1,353.33
|
1,426.19
|
|
2013
|
|
|
|
|
First Quarter
|
1,569.19
|
1,457.15
|
1,569.19
|
|
Second Quarter
|
1,669.16
|
1,541.61
|
1,606.28
|
|
Third Quarter
|
1,725.52
|
1,614.08
|
1,681.55
|
|
Fourth Quarter
|
1,848.36
|
1,655.45
|
1,848.36
|
|
2014
|
|
|
|
|
First Quarter
|
1,878.04
|
1,741.89
|
1,872.34
|
|
Second Quarter
|
1,962.87
|
1,815.69
|
1,960.23
|
|
Third Quarter
|
2,011.36
|
1,909.57
|
1,972.29
|
|
Fourth Quarter
|
2,090.57
|
1,862.49
|
2,058.90
|
|
2015
|
|
|
|
|
First Quarter
|
2,117.39
|
1,992.67
|
2,067.89
|
|
Second Quarter
|
2,130.82
|
2,057.64
|
2,063.11
|
|
Third Quarter
|
2,128.28
|
1,867.61
|
1,920.03
|
|
Fourth Quarter
|
2,109.79
|
1,923.82
|
2,043.94
|
|
2016
|
|
|
|
|
First Quarter
|
2,063.95
|
1,829.08
|
2,059.74
|
|
Second Quarter
|
2,119.12
|
2,000.54
|
2,098.86
|
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
|
S&P 500
®
Index
|
High
|
Low
|
Period End
|
|
Third Quarter
|
2,190.15
|
2,088.55
|
2,168.27
|
|
Fourth Quarter (through November 30, 2016)
|
2,213.35
|
2,085.18
|
2,198.81
|
S&P 500
®
Index Historical Performance – Daily Closing Levels*
January 3, 2011 to November 30, 2016
|
|
*The black dotted line in the graph indicates
the hypothetical coupon barrier level, equal to 75% of the closing level on November 30, 2016, and the red dotted line in the graph
indicates the hypothetical downside threshold level, equal to 60% of the closing level on November 30, 2016. The actual coupon
barrier level and downside threshold level will be based on the closing level on the pricing date.
License Agreement.
“Standard & Poor’s
®
,”
“S&P
®
,” “S&P 500
®
” and “Standard & Poor’s 500”
are trademarks of Standard & Poor’s Financial Services LLC and have been licensed for use by JPMorgan Chase & Co.
and its affiliates. See “Equity Index Descriptions — The S&P U.S. Indices — License Agreement” in the
accompanying underlying supplement.
JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
Additional Information about the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
|
Additional Provisions
|
|
|
Record date:
|
The record date for each contingent payment date is the date one business day prior to that contingent payment date.
|
|
Postponement of maturity date:
|
If the scheduled maturity date is not a business day, then the maturity date will be the following business day. If the scheduled final determination date is not a trading day or if a market disruption event occurs on that day so that the final determination date is postponed and falls less than three business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the third business day following that final determination date as postponed.
|
|
Minimum ticketing size:
|
$1,000 / 1 security
|
|
Trustee:
|
Deutsche Bank Trust Company Americas (formerly Bankers Trust Company)
|
|
Calculation agent:
|
JPMS
|
|
The estimated value of the securities:
|
The estimated value of the securities set forth on the
cover of this document is equal to the sum of the values of the following hypothetical components: (1) a fixed-income debt component
with the same maturity as the securities, valued using the internal funding rate described below, and (2) the derivative or derivatives
underlying the economic terms of the securities. The estimated value of the securities does not represent a minimum price at which
JPMS would be willing to buy your securities in any secondary market (if any exists) at any time. The internal funding rate used
in the determination of the estimated value of the securities is based on, among other things, our and our affiliates’ view
of the funding value of the securities as well as the higher issuance, operational and ongoing liability management costs of the
securities in comparison to those costs for the conventional fixed-rate debt of JPMorgan Chase & Co. For additional information,
see “Risk Factors — The estimated value of the securities is derived by reference to an internal funding rate”
in this document. The value of the derivative or derivatives underlying the economic terms of the securities is derived from internal
pricing models of our affiliates. These models are dependent on inputs such as the traded market prices of comparable derivative
instruments and on various other inputs, some of which are market-observable, and which can include volatility, dividend rates,
interest rates and other factors, as well as assumptions about future market events and/or environments. Accordingly, the estimated
value of the securities on the pricing date is based on market conditions and other relevant factors and assumptions existing
at that time. See “Risk Factors — The estimated value of the securities does not represent future values of the securities
and may differ from others’ estimates” in this document.
The estimated value of the securities will be lower
than the original issue price of the securities because costs associated with selling, structuring and hedging the securities
are included in the original issue price of the securities. These costs include the selling commissions paid to JPMS and other
affiliated or unaffiliated dealers, the structuring fee, the projected profits, if any, that our affiliates expect to realize
for assuming risks inherent in hedging our obligations under the securities and the estimated cost of hedging our obligations
under the securities. Because hedging our obligations entails risk and may be influenced by market forces beyond our control,
this hedging may result in a profit that is more or less than expected, or it may result in a loss. We or one or more of our affiliates
will retain any profits realized in hedging our obligations under the securities. See “Risk Factors — The estimated
value of the securities will be lower than the original issue price (price to public) of the securities” in this document.
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Secondary market prices of the securities:
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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.”
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Tax considerations:
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You should review carefully the section entitled “Material
U.S. Federal Income Tax Consequences” in the accompanying product supplement no. MS-1-I. In determining our reporting responsibilities
we intend to treat (i) the securities for U.S. federal income tax purposes as prepaid forward contracts with associated contingent
coupons and (ii) any contingent quarterly 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
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JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
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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 securities 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 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.
Non-U.S. Holders — Tax Considerations.
The U.S. federal income tax treatment of contingent quarterly payments is uncertain, and although we believe it is reasonable
to take a position that contingent quarterly 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 securities 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 securities 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 securities.
FATCA.
Withholding under legislation commonly
referred to as “FATCA” could apply to payments with respect to the securities 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 securities are recharacterized, in whole or in part, as debt instruments, or contingent quarterly payments if they are
otherwise treated as FDAP Income). If the securities are recharacterized, in whole or in part, as debt instruments, withholding
could also apply to payments of gross proceeds of a taxable disposition, including an early redemption or redemption at maturity.
However, under a recent IRS notice, this regime will not apply to payments of gross proceeds (other than any amount treated as
FDAP Income) with respect to dispositions occurring before January 1, 2019. You should consult your tax adviser regarding the
potential application of FATCA to the securities.
In the event of any withholding on the securities, we
will not be required to pay any additional amounts with respect to amounts so withheld.
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Supplemental use of proceeds and hedging:
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The securities are offered to meet investor demand for
products that reflect the risk-return profile and market exposure provided by the securities. See “How the Securities Work”
and “Hypothetical Examples” in this document for an illustration of the risk-return profile of the securities and
“S&P 500
®
Index Overview” in this document for a description of the market exposure provided by
the securities.
The original issue price of the securities is equal
to the estimated value of the securities plus the selling commissions paid to JPMS and other affiliated or unaffiliated dealers
and the structuring fee, plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming risks
inherent in hedging our obligations under the securities, plus the estimated cost of hedging our obligations under the securities.
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Benefit plan investor considerations:
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See “Benefit Plan Investor Considerations” in the accompanying product supplement.
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Supplemental plan of distribution:
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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.
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Contact:
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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).
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Where
you can find more information:
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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
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JPMorgan Chase Financial Company LLC
Contingent Income Callable Securities due December 17, 2026
Based on the Value of the S&P 500
®
Index
Principal at Risk Securities
|
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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.
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