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
6, 2016.
December ,
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 Lesser Performing of the Energy Select Sector SPDR
®
Fund and the S&P 500
®
Index due December
27, 2019
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 value of each of the Energy Select Sector SPDR
®
Fund and the S&P 500
®
Index, which we refer to as the Underlyings, is greater than or equal to 60.00%
of its Initial Value, which we refer to as an Interest Barrier.
|
|
●
|
The notes will be automatically called if the closing
value of each Underlying on any Review Date (other than the first, second, third and final Review Dates) is greater than or equal
to its Initial Value.
|
|
●
|
The earliest date on which an automatic call may be
initiated is December 21, 2017.
|
|
●
|
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.
|
|
●
|
Payments on the notes are not linked to a basket composed
of the Underlyings. Payments on the notes are linked to the performance of each of the Underlyings individually, as described
below.
|
|
●
|
Minimum denominations of $1,000 and integral multiples
thereof
|
|
●
|
The notes are expected to price on or about December
21, 2016 and are expected to settle on or about December 27, 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-4 of
this pricing supplement.
Neither the Securities and Exchange Commission (the
“SEC”) nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or
the adequacy of this pricing supplement or the accompanying product supplement, 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. In no event will these selling commissions exceed $25.00 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 $950.90 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.
Underlyings:
The
Energy Select Sector SPDR
®
Fund (Bloomberg ticker: XLE) (the “Fund”) and the S&P 500
®
Index (Bloomberg ticker: SPX) (the “Index”) (each of the Index and the Fund, an “Underlying” and collectively,
the “Underlyings”)
Contingent Interest Payment
s
:
If the
notes have not been automatically called and the closing value of each Underlying on any Review Date is greater than or equal to
its 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 $13.50 (equivalent to a Contingent Interest Rate of at least 5.40% per annum, payable at a rate
of at least 1.35% per quarter) (to be provided in the pricing supplement).
If the closing value of either
Underlying on any Review Date is less than
its
Interest Barrier, no Contingent Interest Payment will be made with respect
to that Review Date.
Contingent Interest Rate:
At
least 5.40% per annum, payable at a rate of at least 1.35% per quarter (to be provided in the pricing supplement).
Interest Barrier/Trigger Value:
With
respect to each Underlying, 60.00% of its Initial Value
Pricing Date:
On
or about December 21, 2016
Original Issue Date (Settlement Date):
On
or about December 27, 2016
Review Dates*:
March
21, 2017, June 21, 2017, September 21, 2017, December 21, 2017, March 21, 2018, June 21, 2018, September 21, 2018, December 21,
2018, March 21, 2019, June 21, 2019, September 23, 2019 and December 23, 2019 (final Review Date)
Interest Payment Dates*:
March
24, 2017, June 26, 2017, September 26, 2017, December 27, 2017, March 26, 2018, June 26, 2018, September 26, 2018, December 27,
2018, March 26, 2019, June 26, 2019, September 26, 2019 and the Maturity Date
Maturity Date*:
December
27, 2019
Call Settlement Date*:
If the notes
are automatically called on any Review Date (other than the first, second, third 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 Multiple Underlyings” and “General Terms of Notes — Postponement
of a Payment Date” in the accompanying product supplement
|
|
Automatic Call:
If the closing value of each
Underlying on any Review Date (other than the first, second, third and final Review Dates) is greater than or equal to its 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 the Final Value of each Underlying is greater than or equal to its Trigger Value,
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 the Final Value of either Underlying is less than its Trigger Value, your payment
at maturity per $1,000 principal amount note will be calculated as follows:
$1,000
+ ($1,000 × Lesser Performing Underlying Return)
If the notes have not been
automatically called and the Final Value of either Underlying is less than its Trigger Value, you will lose more than 40.00% of
your principal amount at maturity and could lose all of your principal amount at maturity.
Lesser Performing Underlying:
The
Underlying with the Lesser Performing Underlying Return
Lesser Performing Underlying Return:
The lower of
the Underlying Returns of the Underlyings
Underlying Return:
With
respect to each Underlying,
(Final Value – Initial
Value)
Initial Value
Initial Value:
With
respect to each Underlying,
the closing value of that Underlying on the Pricing Date
Final Value:
With
respect to each Underlying,
the closing value of that Underlying 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 no. 4-I for
further information.
|
PS-
1
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the Lesser Performing of the Energy Select Sector SPDR
®
Fund and the S&P 500
®
Index
|
|
Supplemental
Terms of the Notes
All references in this pricing supplement to the
closing value of the Index mean the closing level of the Index as defined in the accompanying product supplement, and all references
in this pricing supplement to the closing value of the Fund mean the closing price of one share of the Fund as defined in the accompanying
product supplement.
How
the Notes Work
Payment in Connection with the First, Second and
Third Review Dates
Payments in Connection with Review Dates (Other
than the First, Second, Third and Final Review Dates)
Payment at Maturity If the Notes Have Not Been
Automatically Called
PS-
2
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the Lesser Performing of the Energy Select Sector SPDR
®
Fund and the S&P 500
®
Index
|
|
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 5.40% 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 5.40% per annum.
Number of Contingent Interest Payments
|
Total Contingent Interest Payments
|
12
|
$162.00
|
11
|
$148.50
|
10
|
$135.00
|
9
|
$121.50
|
8
|
$108.00
|
7
|
$94.50
|
6
|
$81.00
|
5
|
$67.50
|
4
|
$54.00
|
3
|
$40.50
|
2
|
$27.00
|
1
|
$13.50
|
0
|
$0.00
|
Hypothetical
Payout Examples
The
following examples illustrate payments on the notes linked to two hypothetical Underlyings, assuming a range of performances for
the hypothetical Lesser Performing Underlying on the Review Dates.
Each
hypothetical payment set forth below assumes that the
closing value
of the Underlying that is not the Lesser Performing Underlying on each Review Date is greater than or equal to its Initial Value
(and therefore its Interest Barrier and Trigger Value).
In addition, the hypothetical payments set forth
below assume the following:
|
●
|
an Initial Value for the Lesser Performing
Underlying
of 100.00;
|
|
●
|
a
n Interest Barrier and a Trigger Value for the
Lesser Performing Underlying of 60.00 (equal to
60.00
%
of its hypothetical Initial Value); and
|
|
●
|
a Contingent Interest Rate of 5.40% per annum
(payable at a rate of 1.35% per
quarter
).
|
The hypothetical Initial Value of the
Lesser
Performing Underlying of
100.00 has been chosen for illustrative purposes only and may not represent a likely actual Initial
Value of either Underlying.
The actual Initial Value of each
Underlying
will be the closing value of
that Underlying
on the Pricing Date and will be provided in the pricing supplement. For historical data regarding the actual closing values of
each Underlying
, please see the historical
information set forth under “The Underlyings” 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 fourth Review Date.
Date
|
Closing Value of Lesser Performing Underlying
|
Payment (per $1,000 principal amount note)
|
First Review Date
|
105.00
|
$13.50
|
Second Review Date
|
110.00
|
$13.50
|
Third Review Date
|
105.00
|
$13.50
|
Fourth Review Date
|
105.00
|
$1,013.50
|
|
Total Payment
|
$1,054.00 (5.40% return)
|
Because the closing value of each Underlying on
the fourth Review Date is greater than or equal to its Initial Value, the notes will be automatically called for a cash payment,
for each $1,000 principal amount note, of $1,013.50 (or $1,000
plus
the Contingent Interest Payment applicable to the fourth
Review Date), payable on the applicable Call Settlement Date. The notes are not automatically callable before the fourth Review
Date, even though the closing value of each Underlying on each of the first, second and third Review
PS-
3
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the Lesser Performing of the Energy Select Sector SPDR
®
Fund and the S&P 500
®
Index
|
|
Dates is greater than its Initial Value. 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 $1,054.00. No further payments will be made on the notes.
Example 2 — Notes have NOT been
automatically called and the Final Value of the Lesser Performing Underlying is greater than or equal to its Trigger Value.
Date
|
Closing Value of Lesser Performing Underlying
|
Payment (per $1,000 principal amount note)
|
First Review Date
|
95.00
|
$13.50
|
Second Review Date
|
85.00
|
$13.50
|
Third through Eleventh Review Dates
|
Less than Interest Barrier
|
$0
|
Final Review Date
|
90.00
|
$1,013.50
|
|
Total Payment
|
$1,040.50 (4.05% return)
|
Because the notes have not been automatically called
and the Final Value of the Lesser Performing Underlying is greater than or equal to its Trigger Value, the payment at maturity,
for each $1,000 principal amount note, will be $1,013.50 (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 $1,040.50.
Example 3 — Notes have NOT been
automatically called and the Final Value of the Lesser Performing Underlying is less than its Trigger Value.
Date
|
Closing Value of Lesser Performing Underlying
|
Payment (per $1,000 principal amount note)
|
First Review Date
|
55.00
|
$0
|
Second Review Date
|
50.00
|
$0
|
Third through Eleventh 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 of the Lesser Performing Underlying is less than its Trigger Value and the Lesser Performing
Underlying 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 the Final Value of either
Underlying is less than its Trigger Value, you will lose 1% of the principal amount of your notes for every 1% that the Final Value
of the Lesser Performing Underlying is less than its Initial Value. Accordingly, under these circumstances, you will lose more
than 40.00% of your principal amount at maturity and could lose 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 value of each Underlying on that Review Date is greater than or equal to its Interest Barrier. If the closing value
of either Underlying on that Review Date is less than its Interest Barrier, no Contingent Interest Payment will be made with respect
to that
|
PS-
4
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the Lesser Performing of the Energy Select Sector SPDR
®
Fund and the S&P 500
®
Index
|
|
Review Date. Accordingly, if the closing
value of either Underlying on each Review Date is less than its 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 level of either Underlying, which may be significant. You will not participate in any appreciation
in the level of either Underlying.
|
|
●
|
POTENTIAL CONFLICTS
—
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.
|
|
●
|
JPMORGAN CHASE & CO. IS CURRENTLY ONE OF THE COMPANIES THAT MAKE UP THE S&P 500
®
INDEX,
but JPMorgan Chase & Co. will not have any obligation to consider your interests in taking any corporate action that might
affect the level of the S&P 500
®
Index.
|
|
●
|
YOU ARE EXPOSED TO THE RISK OF DECLINE IN THE LEVEL OF EACH UNDERLYING—
Payments on the notes are not linked to a basket composed of the Underlyings and are contingent upon the performance of each individual
Underlying. Poor performance by either of the Underlyings over the term of the notes may result in the note not being automatically
called on a Review Date, may negatively affect whether you will receive a Contingent Interest Payment on any Interest Payment Date
and your payment at maturity and will not be offset or mitigated by positive performance by the other Underlying.
|
|
●
|
YOUR PAYMENT AT MATURITY WILL BE DETERMINED BY THE LESSER PERFORMING UNDERLYING.
|
|
●
|
THE BENEFIT PROVIDED BY THE TRIGGER VALUE MAY TERMINATE ON THE FINAL REVIEW DATE—
If the Final Value of either Underlying is less than its Trigger Value 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 value of the
Lesser
Performing Underlying.
|
|
●
|
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 one year 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 SECURITIES INCLUDED IN EITHER UNDERLYING OR HAVE ANY RIGHTS WITH RESPECT TO THOSE
SECURITIES.
|
|
●
|
THE RISK OF THE CLOSING VALUE OF AN UNDERLYING FALLING BELOW ITS INTEREST BARRIER OR TRIGGER VALUE IS GREATER IF THE VALUE
OF THAT UNDERLYING IS VOLATILE.
|
|
●
|
THERE ARE RISKS ASSOCIATED WITH THE FUND—
Although the shares of the Fund are listed for trading on NYSE Arca and a number of similar products have been traded on NYSE Arca
and other securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for
the shares of the Fund or that there will be liquidity in the trading market. 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.
|
PS-
5
| Structured Investments
Auto Callable Contingent Interest Notes Linked to the Lesser Performing of the Energy Select Sector SPDR
®
Fund and the S&P 500
®
Index
|
|
|
●
|
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
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 in 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 ENERGY SECTOR
—
All or substantially all of the equity securities held by the shares of the Fund are issued by companies whose primary line of
business is directly associated with the energy sector. Energy companies typically develop and produce crude oil and natural gas
and provide drilling and other energy resources products and distribution related services. Market or economic factors impacting
energy companies and companies that rely heavily on energy advances could have a major effect on the value of the Fund. Weak demand
for energy companies’ products or services or for energy products and services in general, as well as negative developments
in these other areas, including natural disasters or terrorist attacks, would adversely impact the Fund’s performance. As
a result, the value of the Notes may be subject to greater volatility and be more adversely affected by a single economic, political
or regulatory occurrence affecting this sector than a different investment linked to securities of a more broadly diversified group
of issuers.
|
|
●
|
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.
|
|
●
|
LACK OF LIQUIDITY—
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.
|
|
●
|
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
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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).
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SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE ORIGINAL ISSUE PRICE OF THE NOTES —
Any secondary market prices of the notes will likely be lower than the original issue price of the notes because, among other things,
secondary market prices take into account our internal secondary market funding rates for structured debt issuances and, also,
because secondary market prices (a) exclude selling commissions and (b) may exclude projected hedging profits, if any, and estimated
hedging costs that are included in the original issue price of the notes. As a result, the price, if any, at which JPMS will be
willing to buy 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.
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SECONDARY MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS —
The secondary market price of the notes during their term will be impacted by a number of economic and market factors, which may
either offset or magnify each other, aside from the selling commissions, projected hedging profits, if any, estimated hedging costs
and the values of the Underlyings. 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.
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The
Underlyings
The Fund is an exchange-traded fund of the Select
Sector SPDR
®
Trust, a registered investment company, that seeks to provide investment results that, before expenses,
correspond generally to the performance of an index derived from the energy sector of the S&P 500
®
Index, which
we refer to as the Underlying Index with respect to the Fund. The Underlying Index for the Fund is currently the Energy Select
Sector Index. For additional information about the Fund, see “Fund Descriptions — The Select Sector SPDR
®
Funds" in the accompanying underlying supplement.
The Index consists of stocks of 500 companies
selected to provide a performance benchmark for the U.S. equity markets. For additional information about the Index, see “Equity
Index Descriptions — The S&P U.S. Indices” in the accompanying underlying supplement.
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Historical Information
The following graphs set forth the historical
performance of each Underlying based on the weekly historical closing values from January 7, 2011 through December 2, 2016.The
closing price of one share of the Fund on December 5, 2016 was $75.49. The closing level of the Index on December 5, 2016 was 2,204.71.
We obtained the closing levels and prices above and below from the Bloomberg Professional
®
service (“Bloomberg”),
without independent verification.
The historical closing values of each Underlying
should not be taken as an indication of future performance, and no assurance can be given as to the closing value of either Underlying
on the Pricing Date or any Review Date. There can be no assurance that the performance of the Underlyings will result in the return
of any of your principal amount or the payment of any interest.
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Tax
Treatment
You should review carefully the section entitled
“Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4-I. 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 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). If the notes 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 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
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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.
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 Underlyings” 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):
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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.
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