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, prospectus
supplement and prospectus. Any representation to the contrary is a criminal offense.
(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
of $10.00 per $1,000 principal amount note it receives from us to other affiliated or unaffiliated dealers. See “Plan of
Distribution (Conflicts of Interest)” in the accompanying product supplement
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.
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” section of the accompanying product supplement, as the notes involve risks not associated with
conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest
in the notes.
You
may access these documents on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings
for the relevant date on the SEC website):
Our
Central Index Key, or CIK, on the SEC website is 1665650, and JPMorgan Chase & Co.’s CIK is 19617. As used in this pricing
supplement, “we,” “us” and “our” refer to JPMorgan Financial.
How Do Exchange Rates Work?
Exchange
rates reflect the amount of one currency that can be exchanged for a unit of another currency.
The Reference
Currency Return reflects the return of the U.S. dollar relative to the European Union euro from the Starting Spot Rate to the
Ending Spot Rate, calculated using the formula set forth above under “Key Terms — Reference Currency Return.”
While the Reference Currency Return for purposes of the notes is determined using the formula set forth above under “Key
Terms — Reference Currency Return,” there are other reasonable ways to determine the return of the U.S. dollar relative
to the European Union euro that would provide different results. For example, another way to calculate the return of the U.S.
dollar relative to the European Union euro would be to calculate the return that would be achieved by converting European Union
euros into U.S. dollars at the Starting Spot Rate on the Pricing Date and then, on the Observation Date, converting back into
European Union euros at the Ending Spot Rate. In this pricing supplement, we refer to the return of the U.S. dollar relative to
the European Union euro calculated using that method, which is not used for purposes of the notes, as a “conversion return.”
As demonstrated
by the examples below, under the Reference Currency Return formula, any depreciation of the U.S. dollar relative to the European
Union euro will be magnified, as compared to a conversion return. In addition, the magnifying effect on any depreciation of the
U.S. dollar relative to the European Union euro increases as the Reference Currency Return decreases. Accordingly, your return
on the notes may be less than if you had invested in similar notes that reflected conversion returns.
The Spot
Rate is expressed as the number of U.S. dollars per one European Union euro. As a result, a
decrease
in the Spot Rate from
the Starting Spot Rate to the Ending Spot Rate means that the U.S. dollar has
appreciated / strengthened
relative to the
European Union euro from the Starting Spot Rate to the Ending Spot Rate. This means that one U.S. dollar could purchase more European
Union euros at the Ending Spot Rate on the Observation Date than it could on the Pricing Date. Viewed another way, it would take
fewer U.S. dollars to purchase one European Union euro at the Ending Spot Rate on the Observation Date than it did at the Starting
Spot Rate on the Pricing Date.
The following
examples assume a Starting Spot Rate of 1.07 for the U.S. dollar relative to the European Union euro.
Example
1: The U.S. dollar strengthens from the Starting Spot Rate of 1.07 U.S. dollars per European Union euro to the Ending Spot Rate
of 1.0165 U.S. dollars per European Union euro.
The Reference
Currency Return is equal to 5.00%, calculated as follows:
(1.07 –
1.0165) / 1.07 = 5.00%
By contrast,
if the return on the U.S. dollar were determined using a conversion return, the return would be 5.26%.
Example
2: The U.S. dollar strengthens from the Starting Spot Rate of 1.07 U.S. dollars per European Union euro to the Ending Spot Rate
of 0.0107 U.S. dollars per European Union euro.
The Reference
Currency Return is equal to 99.00%, calculated as follows:
(1.07 –
0.0107) / 1.07 = 99.00%
By contrast,
if the return on the U.S. dollar were determined using a conversion return, the return would be 9,900%. The payment at maturity
will not reflect a return greater than the Contingent Digital Return if the U.S. dollar has appreciated relative to the European
Union euro.
Conversely,
an
increase
in the Spot Rate from the Starting Spot Rate to the Ending Spot Rate means that the U.S. dollar has
depreciated
/ weakened
relative to the European Union euro from the Starting Spot Rate to the Ending Spot Rate. This means that it would
take more U.S. dollars to purchase one European Union euro at the Ending Spot Rate on the Observation Date than it did on the
Pricing Date. Viewed another way, one U.S. dollar could purchase fewer European Union euros at the Ending Spot Rate on the Observation
Date than it could at the Starting Spot Rate on the Pricing Date.
Example
3: The U.S. dollar weakens from the Starting Spot Rate of 1.07 U.S. dollars per European Union euro to the Ending Spot Rate of
1.177 U.S. dollars per European Union euro.
The Reference
Currency Return is equal to -10.00%, calculated as follows:
(1.07 –
1.177) / 1.07 = -10.00%
By contrast,
if the return on the U.S. dollar were determined using a conversion return, the return would be -9.09%.
Example
4: The U.S. dollar weakens from the Starting Spot Rate of 1.07 U.S. dollars per European Union euro to the Ending Spot Rate of
2.14 U.S. dollars per European Union euro.
The Reference
Currency Return is equal to -100.00%, calculated as follows:
(1.07 –
2.14) / 1.07 = -100.00%
By contrast,
if the return on the U.S. dollar were determined using a conversion return, the return would be -50.00%.
As Examples
3 and 4 above demonstrated, the magnifying effect on any depreciation of the U.S. dollar relative to the European Union euro increases
as the Reference Currency Return decreases.
The hypothetical
Starting Spot Rate, Ending Spot Rates and Reference Currency Returns set forth above are for illustrative purposes only and have
been rounded for ease of analysis.
JPMorgan Structured Investments
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2
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Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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What Is the Total Return on the Notes at
Maturity, Assuming a Range of Performances for the Reference Currency Relative to the Base Currency?
The following
table and examples illustrate the hypothetical total return at maturity on the notes. The “total return” as used in
this pricing supplement is the number, expressed as a percentage, that results from comparing the payment at maturity per $1,000
principal amount note to $1,000. Each hypothetical total return set forth below assumes a Starting Spot Rate of 1.07 and a Trigger
Value of 1.15828 (equal to 108.25% of the hypothetical Starting Spot Rate) and reflects the Contingent Digital Return of 10.00%.
Each hypothetical total return or hypothetical payment at maturity set forth below is for illustrative purposes only and may not
be the actual total return or payment at maturity applicable to a purchaser of the notes. The numbers appearing in the following
table and examples have been rounded for ease of analysis.
Ending Spot
Rate
|
Reference
Currency
Return
(1)
|
Total Return
|
0.00000
|
100.00%
|
10.00%
|
0.21400
|
80.00%
|
10.00%
|
0.37450
|
65.00%
|
10.00%
|
0.53500
|
50.00%
|
10.00%
|
0.64200
|
40.00%
|
10.00%
|
0.74900
|
30.00%
|
10.00%
|
0.85600
|
20.00%
|
10.00%
|
0.96300
|
10.00%
|
10.00%
|
1.01650
|
5.00%
|
10.00%
|
1.05930
|
1.00%
|
10.00%
|
1.07000
|
0.00%
|
10.00%
|
1.08070
|
-1.00%
|
0.00%
|
1.12350
|
-5.00%
|
0.00%
|
1.15828
|
-8.25%
|
0.00%
|
1.15838
|
-8.26%
|
-8.26%
|
1.17700
|
-10.00%
|
-10.00%
|
1.28400
|
-20.00%
|
-20.00%
|
1.39100
|
-30.00%
|
-30.00%
|
1.49800
|
-40.00%
|
-40.00%
|
1.60500
|
-50.00%
|
-50.00%
|
1.76550
|
-65.00%
|
-65.00%
|
1.92600
|
-80.00%
|
-80.00%
|
2.14000
|
-100.00%
|
-100.00%
|
(1)
In no event will the Reference
Currency Return be less than -100%.
Hypothetical Examples of Amount Payable
at Maturity
The following
examples illustrate how the payment at maturity in different hypothetical scenarios is calculated.
Example 1: The Reference Currency appreciates from the
Starting Spot Rate of 1.07 to an Ending Spot Rate of 1.0165.
Because the Reference Currency Return is positive or zero, regardless
of the Reference Currency Return, the investor receives a payment at maturity of $1,100 per $1,000 principal amount note, calculated
as follows:
$1,000 + ($1,000 × 10%) = $1,100
Example 2: The Reference Currency appreciates from the
Starting Spot Rate of 1.07 to an Ending Spot Rate of 0.535.
Because the Reference Currency Return is positive and although
the Reference Currency Return of 50% exceeds the Contingent Digital Return of 10.00%, the investor is entitled to only the Contingent
Digital Return and receives a payment at maturity of $1,100 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × 10%) = $1,100
Example
3: The Reference Currency depreciates from the Starting Spot Rate of 1.07 to an Ending Spot Rate of 1.1235.
Although the Currency
Return is negative, because the Ending Spot Rate of 1.1235 is less than or equal to the Trigger Value of 1.15828, the investor
receives a payment at maturity of $1,000 per $1,000 principal amount note.
Example
4: The Reference Currency depreciates from the Starting Spot Rate of 1.07 to an Ending Spot Rate of 1.605.
Because the Reference
Currency Return is -50%, which is negative, and the Ending Spot Rate is greater than the Trigger Value of 1.15828, the investor
receives a payment at maturity of $500 per $1,000 principal amount note, calculated as follows:
JPMorgan Structured Investments
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3
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Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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$1,000 + ($1,000 × -50%) = $500
The hypothetical
returns and hypothetical payments on the notes shown above apply
only if you hold the notes for their entire term.
These
hypotheticals do not reflect fees or expenses that would be associated with any sale in the secondary market. If these fees and
expenses were included, the hypothetical returns and hypothetical payments shown above would likely be lower.
Selected Purchase Considerations
|
·
|
FIXED
APPRECIATION POTENTIAL
— If the Reference Currency Return is positive or zero (i.e., the U.S. dollar appreciates or
remains flat relative to the European Union euro from the Starting Spot Rate to the Ending Spot Rate), you will receive a fixed
return equal to the Contingent Digital Return of 10.00% at maturity, which also reflects the maximum return on the notes at maturity.
Because the notes are our unsecured and unsubordinated obligations, the payment of which is fully and unconditionally guaranteed
by JPMorgan Chase & Co., payment of any amount on the notes is subject to our ability to pay our obligations as they become
due and JPMorgan Chase & Co.'s ability to pay its obligations as they become due.
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|
·
|
LIMITED
PROTECTION AGAINST LOSS
— We will pay you your principal back at maturity if the Reference Currency Return is negative
(
i.e.
, the U.S. dollar depreciates relative to the European Union euro from the Starting Spot Rate to the Ending Spot Rate)
but Ending Spot Rate is less than or equal to the Trigger Value. If the Reference Currency Return is negative (
i.e.
,
the U.S. dollar depreciates relative to the European Union euro from the Starting Spot Rate to the Ending Spot Rate) and the Ending
Spot Rate is greater than the Trigger Value, you will lose 1% of the principal amount of your notes for every 1% of decline in
the Reference Currency Return. Under these circumstances, you will lose some or all of your principal amount at maturity.
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|
·
|
RETURN
DEPENDENT ON THE U.S. DOLLAR RELATIVE TO THE EUROPEAN UNION EURO
— The return on the notes is dependent on the performance
of the U.S. dollar, which we refer to as the Reference Currency, relative to the European Union euro, which we refer to as the
Base Currency, and will vary based on changes in the value of the U.S. dollar relative to the European Union euro as described
under “Key Terms” in this pricing supplement.
Please see “How Do Exchange Rates Work?” and “Selected
Risk Considerations — The Method of Calculating the Reference Currency Return Will Magnify Any Depreciation of the Reference
Currency Relative to the Base Currency” in this pricing supplement for more information.
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·
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TAX
TREATMENT
— You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences —
Notes Treated as Open Transactions That Are Not Debt Instruments” in the accompanying product supplement no. 2-I. The following
discussion, when read in combination with that section, constitutes the full opinion of our special tax counsel, Davis Polk &
Wardwell LLP, regarding the material U.S. federal income tax consequences of owning and disposing of the notes.
|
Based
on current market conditions, in the opinion of our special tax counsel it is reasonable to treat the notes as “open transactions”
that are not debt instruments for U.S. federal income tax purposes. Assuming this treatment is respected, the gain or loss on
your notes will generally be ordinary foreign currency income or loss under Section 988 of the Code. Ordinary foreign currency
losses are potentially subject to certain reporting requirements. However, investors in certain forward contracts, futures contracts
or option contracts generally are entitled to make an election to treat foreign currency gain or loss as capital gain or loss
(a “Section 988 Election”). Due to the lack of authority directly addressing the availability of the Section 988 Election
for instruments such as these, it is unclear whether the Section 988 Election is available. If the Section 988 Election is available
and you make this election before the close of the day on which you acquire a note, all gain or loss you recognize on a sale or
exchange of that note should be treated as capital gain or loss, and as long-term capital gain or loss if you have held the note
for more than one year at that time. A Section 988 Election with respect to a note is made by (a) clearly identifying the note
on your books and records, on the date you acquire it, as being subject to this election and filing the relevant statement verifying
this election with your U.S. federal income tax return or (b) obtaining independent verification under procedures set forth in
the Treasury regulations under Section 988. You should consult your tax adviser regarding the advisability, availability, mechanics
and consequences of a Section 988 Election, as well as the special reporting requirements that apply to foreign currency losses
in excess of specified thresholds.
The
IRS or a court may not respect the treatment of the notes as “open transactions,” in which case the timing and character
of any income or loss on the notes could be materially and adversely affected. For instance, the notes could be treated as contingent
payment debt instruments, in which case you would be required to accrue original issue discount on your notes in each taxable
year at the “comparable yield,” as determined by us, although we will not make any payment with respect to the notes
until maturity, and no Section 988 Election would be available. In particular, in 2007 the IRS issued a revenue ruling holding
that a financial instrument with some similarity to the notes is properly treated as a debt instrument denominated in a foreign
currency. The notes are distinguishable in some respects from the instrument described in the revenue ruling. If the revenue ruling
were applied to the notes, it could materially and adversely affect the tax consequences of an investment in the notes for U.S.
Holders, possibly with retroactive effect.
In
addition, in 2007 Treasury and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid
forward contracts” and similar instruments. The notice focuses in particular on whether to require investors in these instruments
to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character
of income or loss with respect to these instruments; the relevance of factors such as the nature of the underlying property to
which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors
should be subject to withholding tax; and
JPMorgan Structured Investments
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Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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whether
these instruments are or should be subject to the “constructive ownership” regime, which very generally can operate
to recharacterize certain long-term capital gain as ordinary income and impose a notional interest charge. While the notice requests
comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration
of these issues could materially and adversely affect the tax consequences of an investment in the notes, 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 notes,
including possible alternative treatments and the issues presented by this notice.
Withholding
under legislation commonly referred to as “FATCA” may (if the notes are recharacterized as debt instruments) apply
to amounts treated as interest paid with respect to the notes. Under a recent IRS notice, withholding under FATCA will not apply
to payments of gross proceeds (other than any amount treated as interest) of a taxable disposition, including redemption at maturity,
of the notes. You should consult your tax adviser regarding the potential application of FATCA to the notes.
Selected
Risk Considerations
An investment
in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in the U.S. dollar, the
European Union euro or the exchange rate between the U.S. dollar and European Union euro or any contracts related to the U.S.
dollar, the European Union euro or the exchange rate between the U.S. dollar and the European Union euro. These risks are explained
in more detail in the “Risk Factors” section of the accompanying product supplement.
|
·
|
YOUR
INVESTMENT IN THE NOTES MAY RESULT IN A LOSS
— The notes do not guarantee any return of principal. The return on the
notes at maturity is linked to the performance of the U.S. dollar relative to the European Union euro and whether, and the extent
to which, the Reference Currency Return is positive or negative. Your investment will be exposed to a loss if the Reference Currency
Return is negative (
i.e.,
the U.S. dollar depreciates relative to the European Union euro from the Starting Spot Rate to
the Ending Spot Rate) and the Ending Spot Rate is greater than the Trigger Value. In this case, you will lose 1% of the principal
amount of your notes for every 1% of decline in the Reference Currency Return. Accordingly, you will lose some or all of your
principal amount at maturity.
|
|
·
|
CREDIT
RISKS OF JPMORGAN FINANCIAL AND JPMORGAN CHASE & CO.
— The notes are subject to our and JPMorgan Chase & Co.’s
credit risks, and our and JPMorgan Chase & Co.’s credit ratings and credit spreads may adversely affect the market value
of the notes. 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.
|
|
·
|
YOUR
MAXIMUM GAIN ON THE NOTES IS LIMITED BY THE CONTINGENT DIGITAL RETURN
— If the Reference Currency Return is positive
or zero (
i.e.
, the U.S. dollar appreciates or remains flat relative to the European Union euro from the Starting Spot Rate
to the Ending Spot Rate), for each $1,000 principal amount note, you will receive at maturity $1,000
plus
an additional
return equal to the Contingent Digital Return, regardless of the appreciation in the U.S. dollar relative to the European Union
euro, which may be significant.
|
|
·
|
YOUR
ABILITY TO RECEIVE THE CONTINGENT DIGITAL RETURN WILL TERMINATE IF THE REFERENCE CURRENCY RETURN IS NEGATIVE
— If the
Reference Currency Return is negative (
i.e.
, the U.S. dollar depreciates relative to the European Union euro from the Starting
Spot Rate to the Ending Spot Rate), you will not be entitled to receive the Contingent Digital Return at maturity. Under
these circumstances, if the Ending Spot Rate is greater than the Trigger Value, you will lose some or all of your principal amount
at maturity.
|
|
·
|
POTENTIAL
CONFLICTS
— We and our affiliates play a variety of roles in connection with the issuance of the notes, including acting
as calculation agent and as an agent of the offering of the notes, hedging our obligations under the notes and making the assumptions
used to determine the pricing of the notes and the estimated value of the notes when the terms of the notes are set, which we
refer to as the estimated value of the notes. 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 notes. In addition, our and JPMorgan Chase & Co.’s business activities, including hedging and trading
activities, could cause our and JPMorgan Chase & Co.’s economic interests to be adverse to yours and could adversely
affect any payment on the notes and the value of 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
for additional information about these risks.
|
JPMorgan Structured Investments
|
PS-
5
|
Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
|
|
·
|
THE BENEFIT PROVIDED BY THE TRIGGER VALUE MAY TERMINATE ON THE
OBSERVATION DATE
— If the Reference Currency Return is negative (
i.e.
, the U.S. dollar depreciates relative
to the European Union euro from the Starting Spot Rate to the Ending Spot Rate) and the Ending Spot Rate is greater than the
Trigger Value, the benefit provided by the Trigger Value will terminate and you will lose 1% of the principal amount of your
notes for every 1% of decline in the Reference Currency Return. Under these circumstances, you will lose some or all of your
principal amount at maturity.
|
|
·
|
THE
ESTIMATED VALUE OF THE NOTES IS 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 exceeds 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
—
The estimated value of the notes is determined by reference to internal pricing models of our affiliates when the terms of the
notes are set. This estimated value of the notes is based on market conditions and other relevant factors existing at that time
and assumptions about market parameters, which can include volatility, interest rates and other factors. Different pricing models
and assumptions could provide valuations for the notes that are greater than or less than the estimated value of the notes. In
addition, market conditions and other relevant factors in the future may change, and any assumptions may prove to be incorrect.
On future dates, the value of the notes could change significantly based on, among other things, changes in market conditions,
our or JPMorgan Chase & Co.’s creditworthiness, interest rate movements and other relevant factors, which may impact
the price, if any, at which JPMS would be willing to buy notes from you in secondary market transactions. 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.
|
|
·
|
T
HE
VALUE OF THE NOTES AS PUBLISHED BY JPMS (AND WHICH MAY BE REFLECTED ON CUSTOMER ACCOUNT STATEMENTS) MAY BE HIGHER THAN THE THEN-CURRENT
ESTIMATED VALUE OF THE NOTES FOR A LIMITED TIME PERIOD
— We generally expect that some of the costs included in the
original issue price of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS
in an amount that will decline to zero over an initial predetermined period. 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. 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 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. See the immediately following risk consideration for information
about additional factors that will impact any secondary market prices of the 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. See “— Lack of Liquidity” below.
|
·
|
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 value of the Reference
Currency relative to the Base Currency, including:
|
|
·
|
any
actual or potential change in our and JPMorgan Chase & Co.’s creditworthiness or credit spreads;
|
|
·
|
customary
bid-ask spreads for similarly sized trades;
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|
·
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our
internal secondary market funding rates for structured debt issuances;
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·
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the
exchange rate of the Reference Currency relative to the Base Currency and the volatility of that exchange rate;
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·
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suspension
or disruption of market trading in the Reference Currency or the Base Currency;
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JPMorgan Structured Investments
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PS-
6
|
Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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·
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the
time to maturity of the notes;
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·
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interest
and yield rates in the market generally; and
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·
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a
variety of other economic, financial, political, regulatory and judicial events.
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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.
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·
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THE
METHOD OF CALCULATING THE REFERENCE CURRENCY RETURN WILL MAGNIFY ANY DEPRECIATION OF THE REFERENCE CURRENCY RELATIVE TO THE BASE
CURRENCY
— The Reference Currency Return reflects the return of the U.S. dollar relative to the European Union euro
from the Starting Spot Rate to the Ending Spot Rate, calculated using the formula set forth above under “Key Terms —
Reference Currency Return.” While the Reference Currency Return for purposes of the notes is determined using the formula
set forth above under “Key Terms — Reference Currency Return,” there are other reasonable ways to determine
the return of the U.S. dollar relative to the European Union euro that would provide different results. For example, another way
to calculate the return of the U.S. dollar relative to the European Union euro would be to calculate the return that would be
achieved by converting European Union euros into U.S. dollars at the Starting Spot Rate on the Pricing Date and then, on the Observation
Date, converting back into European Union euros at the Ending Spot Rate. In this pricing supplement, we refer to the return on
the U.S. dollar relative to the European Union euro calculated using that method, which is not used for purposes of the notes,
as a “conversion return.”
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Under
the Reference Currency Return formula, any depreciation of the U.S. dollar relative to the European Union euro will be magnified,
as compared to a conversion return. The magnifying effect on any depreciation of the U.S. dollar relative to the European Union
euro increases as the Reference Currency Return decreases. Accordingly, your payment at maturity may be less than if you had invested
in similar notes that reflected a conversion return. See “How Do Exchange Rates Work?” in this pricing supplement
for more information.
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·
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THE
NOTES MIGHT NOT PAY AS MUCH AS A DIRECT INVESTMENT IN THE REFERENCE CURRENCY
— You may receive a lower payment at maturity
than you would have received if you had invested directly in the U.S. dollar or contracts related to the U.S. dollar for which
there is an active secondary market.
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·
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THE
NOTES ARE SUBJECT TO CURRENCY EXCHANGE RISK
— Foreign
currency exchange rates vary over time, and may vary considerably during the term of the notes. The value of the U.S. dollar or
the European Union euro is at any moment a result of the supply and demand for that currency. Changes in foreign currency exchange
rates result over time from the interaction of many factors directly or indirectly affecting economic and political conditions
in the United States and the member countries of the European Union, and other relevant countries or regions.
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Of
particular importance to potential currency exchange risk are:
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·
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existing
and expected rates of inflation;
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·
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existing
and expected interest rate levels;
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·
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the
balance of payments in the United States and the member countries of the European Union, and between each country and its major
trading partners;
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·
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political,
civil or military unrest in the United States and the member countries of the European Union; and
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·
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the
extent of governmental surplus or deficit in the United States and the member countries of the European Union.
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All
of these factors are, in turn, sensitive to the monetary, fiscal and trade policies pursued by the United States and the member
countries of the European Union, and those of other countries important to international trade and finance.
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·
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GOVERNMENTAL
INTERVENTION COULD MATERIALLY AND ADVERSELY AFFECT THE VALUE OF THE NOTES
— Foreign exchange rates can be fixed by the
sovereign government, allowed to float within a range of exchange rates set by the government or left to float freely. Governments,
including those of the United States and the member countries of the European Union, use a variety of techniques, such as intervention
by their central bank or imposition of regulatory controls or taxes, to affect the exchange rates of their respective currencies.
They may also issue a new currency to replace an existing currency, fix the exchange rate or alter the exchange rate or relative
exchange characteristics by devaluation or revaluation of a currency. Thus, a special risk in purchasing the notes is that their
trading value and amount payable could be affected by the actions of sovereign governments, fluctuations in response to other
market forces and the movement of currencies across borders.
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·
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EVEN
THOUGH THE REFERENCE CURRENCY AND THE European Union euro TRADE AROUND-THE-CLOCK, THE NOTES WILL NOT
— Because the inter-bank market in foreign currencies is a global, around-the-clock market, the hours of trading for the
notes, if any, will not conform to the hours during which the U.S. dollar and the European Union euro are traded. Consequently,
significant price and rate movements may take place in the underlying foreign exchange markets that will not be reflected immediately
in the price of the notes. Additionally, there is no systematic reporting of last-sale information for foreign currencies which,
combined with the limited availability of quotations to individual investors, may make it difficult for many investors to obtain
timely and accurate data regarding the state of the underlying foreign exchange markets.
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·
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CURRENCY
EXCHANGE RISKS CAN BE EXPECTED TO HEIGHTEN IN PERIODS OF FINANCIAL TURMOIL
—
In periods of financial turmoil, capital can move quickly out of regions that are perceived to be more vulnerable to the effects
of the crisis than others with sudden and severely adverse consequences to the currencies of those regions. In
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JPMorgan Structured Investments
|
PS-
7
|
Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
|
addition,
governments around the world, including the governments of the United States and the member countries of the European Union and
governments of other major world currencies, have recently made, and may be expected to continue to make, very significant interventions
in their economies, and sometimes directly in their currencies. Such interventions affect currency exchange rates globally and,
in particular, the value of the U.S. dollar relative to the European Union euro. Further interventions, other government actions
or suspensions of actions, as well as other changes in government economic policy or other financial or economic events affecting
the currency markets, may cause currency exchange rates to fluctuate sharply in the future, which could have a material adverse
effect on the value of the notes and your return on your investment in the notes at maturity.
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·
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CURRENCY
MARKET DISRUPTIONS MAY ADVERSELY AFFECT YOUR RETURN
— The calculation agent may, in its sole discretion, determine that
the currency markets have been affected in a manner that prevents it from properly determining, among other things, the Spot Rate
and the Reference Currency Return. These events may include disruptions or suspensions of trading in the currency markets as a
whole, and could be a Convertibility Event, a Deliverability Event, a Liquidity Event, a Taxation Event, a Discontinuity Event
or a Price Source Disruption Event. See “General Terms of Notes — Market Disruption Events” in the accompanying
product supplement for further information on what constitutes a market disruption event.
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·
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NO
INTEREST PAYMENTS
— As a holder of the notes, you will not receive interest payments.
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·
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LACK
OF LIQUIDITY
— The notes will not be listed on any securities exchange. JPMS intends to offer to purchase the notes
in the secondary market but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the notes easily. Because other dealers are not likely to make a secondary market for the notes,
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.
|
JPMorgan Structured Investments
|
PS-
8
|
Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
|
Historical
Information
The following
graph shows the historical weekly performance of the U.S. dollar relative to the European Union euro, expressed in terms of the
conventional market quotation (
i.e.
, the amount of U.S. dollars that can be exchanged for one European Union euro, which
we refer to in this pricing supplement as the exchange rate) as shown on the Bloomberg Professional
®
service (“Bloomberg”),
from January 6, 2012 through January 20, 2017. The exchange rate of the U.S. dollar relative to the European Union euro, as shown
on Bloomberg, on January 20, 2017 was 1.0703.
The historical
exchange rates used to plot the graph below were determined using the rates reported by Bloomberg, without independent verification,
and may not be indicative of the Spot Rate that would be derived from the applicable Reuters page.
The exchange
rates displayed in the graphs below are for illustrative purposes only and do not form part of the calculation of the Reference
Currency Return.
The Reference Currency Return increases when the U.S. dollar appreciates in value against the European Union
euro.
The Spot
Rate on January 20, 2017 was 1.06785, calculated in the manner set forth under “Additional Key Terms — Spot Rate”
in this pricing supplement. The exchange rates set forth above and displayed in the graph above should not be taken as an indication
of future performance, and no assurance can be given as to the Spot Rate on the Observation Date. There can be no assurance that
the performance of the U.S. dollar relative to the European Union euro will result in the return of any of your principal amount.
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, 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. See “Selected Risk Considerations — The Estimated Value
of the Notes Does Not Represent Future Values of the Notes and May Differ from Others’ Estimates” in this pricing
supplement.
The estimated
value of the notes is 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. We or one or more of our affiliates will retain any profits realized
in hedging our obligations under the notes.
JPMorgan Structured Investments
|
PS-
9
|
Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
|
See “Selected
Risk Considerations — The Estimated Value of the Notes Is 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 “Selected Risk Considerations — Secondary
Market Prices of the Notes Will Be Impacted by Many Economic and Market Factors” in this pricing 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 that 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.”