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 February
16, 2017
Pricing supplement
To prospectus dated April 15, 2016,
prospectus supplement dated April 15, 2016 and
product supplement no. 1-I dated April 15, 2016
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Registration Statement No. 333-209682
Dated February ,
2017
Rule 424(b)(2)
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$
Callable Step-Up Fixed Rate Notes due February
28, 2037
General
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·
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The notes are unsecured and unsubordinated obligations of JPMorgan Chase & Co.
Any payment on the notes is subject to
the credit risk of JPMorgan Chase & Co.
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·
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These notes are designed for an investor who seeks a fixed income investment, where the interest rate increases over time as
described under “Interest Rate” below, but who is also willing to accept the risk that the notes will be called prior
to the Maturity Date.
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·
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Unless general interest rates rise significantly, you should not expect to earn the highest scheduled Interest Rate set forth
below because the notes are likely to be called prior to maturity if interest rates remain the same or fall during the term of
your notes. Additionally, the Interest Rate on the notes does not step up significantly until later in the term of the notes. See
“Selected Risk Considerations” in this pricing supplement.
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These notes have a long maturity relative to other fixed income products. Longer-dated notes may be riskier than shorter-dated
notes. See “Selected Risk Considerations” in this pricing supplement.
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At our option, we may redeem the notes, in whole but not in part, on any of the Redemption Dates specified below.
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The notes may be purchased in minimum denominations of $1,000 and in integral multiples of $1,000 thereafter.
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Key Terms
Issuer:
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JPMorgan Chase & Co.
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Payment at Maturity:
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On the Maturity Date, we will pay you the principal amount of your notes
plus
any accrued and unpaid interest,
provided
that your notes are outstanding and have not previously been called on any Redemption Date.
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Call Feature:
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On February 28
th
and August 28
th
of each year, beginning on February 28, 2024 and ending on the Maturity Date (each, a “Redemption Date”), we may redeem your notes, in whole but not in part, at a price equal to the principal amount being redeemed
plus
any accrued and unpaid interest, subject to the Business Day Convention and the Interest Accrual Convention described below and in the accompanying product supplement.
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Interest:
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Subject to the Interest Accrual Convention, with respect to
each Interest Period, for each $1,000 principal amount note, we will pay you interest in arrears on each Interest Payment Date
in accordance with the following formula:
$1,000 × Interest Rate × Day
Count Fraction.
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Interest Period:
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The period beginning on and including the Original Issue Date of the notes and ending on but excluding the first Interest Payment Date, and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date, subject to any earlier redemption and the Interest Accrual Convention described below and in the accompanying product supplement.
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Interest Payment Date:
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Interest on the notes will be payable in arrears on February 28
th
and August 28
th
of each year, beginning on August 28, 2017 to and including the Maturity Date, subject to any earlier redemption and the Business Day Convention and Interest Accrual Convention described below and in the accompanying product supplement.
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Interest Rate:
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For the applicable Interest Period, the Interest Rate on your notes will be equal to:
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From (and including)
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To (but excluding)
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Interest Rate
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February 28, 2017
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February 28, 2025
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3.50% per annum
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February 28, 2025
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February 28, 2030
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4.00% per annum
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February 28, 2030
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February 28, 2033
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4.50% per annum
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February 28, 2033
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February 28, 2035
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5.00% per annum
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February 28, 2035
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February 28, 2036
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6.50% per annum
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February 28, 2036
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February 28, 2037
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8.00% per annum
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The dates above refer to originally scheduled Interest Payment Dates.
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Pricing Date:
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February 24, 2017, subject to the Business Day Convention
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Original Issue Date:
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February 28, 2017, subject to the Business Day Convention (Settlement Date)
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Maturity Date:
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February 28, 2037, subject to the Business Day Convention
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Business Day Convention:
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Following
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Interest Accrual Convention:
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Unadjusted
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Day Count Fraction:
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30/360
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CUSIP:
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48128GE63
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Investing in the notes involves a number of risks. See
“Risk Factors” beginning on page PS-19 of the accompanying product 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, prospectus supplement and prospectus. Any representation to the contrary
is a criminal offense.
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Price to Public
(1)
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Fees and Commissions
(2)
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Proceeds to Issuer
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Per note
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$1,000
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$
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$
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Total
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$
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$
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$
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(1) The price to the public includes the estimated cost of
hedging our obligations under the notes through one or more of our affiliates.
(2) J.P. Morgan Securities LLC, which we refer to as JPMS,
acting as agent for JPMorgan Chase & Co., will pay all of the selling commissions it receives from us to other affiliated or
unaffiliated dealers. If the notes priced today, the selling commissions would be approximately $20.00 per $1,000 principal amount
note and in no event will these selling commissions exceed $30.00 per $1,000 principal amount note. See “Plan of Distribution
(Conflicts of Interest)” in the accompanying product supplement.
The notes are not bank deposits, are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency and are not the obligations of, or guaranteed by,
a bank.
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 E 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 19617.
As used in this pricing supplement, “we,” “us,” or “our” refers to JPMorgan Chase & Co.
Selected Purchase Considerations
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PRESERVATION OF CAPITAL AT MATURITY OR UPON REDEMPTION —
We will pay you at least the principal amount of your
notes if you hold the notes to maturity or to the Redemption Date, if any, on which we elect to call the notes.
Because the
notes are our unsecured and unsubordinated obligations, payment of any amount on the notes is subject to our ability to pay our
obligations as they become due.
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PERIODIC INTEREST PAYMENTS
—
The notes offer periodic interest payments on each Interest Payment Date at
the applicable Interest Rate, subject to any early redemption. Interest, if any, will be paid in arrears on each Interest Payment
Date to the holders of record at the close of business on the business day immediately preceding the applicable Interest Payment
Date. The interest payments will be based on the Interest Rate listed on the cover of this pricing supplement. The yield on the
notes may be less than the overall return you would receive from a conventional debt security that you could purchase today with
the same maturity as the notes.
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POTENTIAL PERIODIC REDEMPTION BY US AT OUR OPTION
—
At our option, we may redeem the notes, in whole but
not in part, on any of the Redemption Dates set forth on the cover of this pricing supplement, at a price equal to the principal
amount being redeemed
plus
any accrued and unpaid interest, subject to the Business Day Convention and the Interest Accrual
Convention described on the cover of this pricing supplement and in the accompanying product supplement. Any accrued and unpaid
interest on the notes redeemed will be paid to the person who is the holder of record of these notes at the close of business on
the business day immediately preceding the applicable Redemption Date. Even in cases where the notes are called before maturity,
noteholders are not entitled to any fees or commissions described on the front cover of this pricing supplement.
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TAX TREATMENT —
The notes will be fixed-rate debt instruments that are issued without original issue discount
for U.S. federal income tax purposes, as described in the section entitled “Material U.S. Federal Income Tax Consequences”
in this pricing supplement. You should review that section carefully and consult your tax adviser regarding the U.S. federal
income tax consequences of an investment in the notes.
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INSOLVENCY AND RESOLUTION CONSIDERATIONS —
The notes constitute “loss-absorbing capacity” within the
meaning of the final rules (the “TLAC rules”) issued by the Board of Governors of the Federal Reserve System (the “Federal
Reserve”) on December 15, 2016 regarding, among other things, the minimum levels of unsecured external long-term debt that
eight U.S. top-tier bank holding companies identified as global systemically important bank holding companies, including JPMorgan
Chase & Co., will be required to maintain, commencing January 1, 2019. Such debt must satisfy certain eligibility criteria
under the TLAC rules. If JPMorgan Chase & Co. were to enter into proceedings under the U.S. Bankruptcy Code or a receivership
administered by the Federal Deposit Insurance Corporation (the “FDIC”) under Title II of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), holders of the notes would be at risk of absorbing
losses of JPMorgan Chase & Co. and its affiliates.
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Under Title I of the Dodd-Frank Act
and applicable rules of the Federal Reserve and the FDIC, JPMorgan Chase & Co. is required to submit periodically to the Federal
Reserve and the FDIC a detailed plan (the “resolution plan”) for the rapid and orderly resolution of JPMorgan Chase
& Co. and its material subsidiaries under the U.S. Bankruptcy Code and other applicable insolvency laws in the event of material
financial distress or failure. JPMorgan Chase & Co.’s preferred resolution strategy under its resolution plan contemplates
that only JPMorgan Chase & Co. would enter bankruptcy proceedings under Chapter 11 of the
Callable Step-Up Fixed Rate Notes
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PS-
2
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U.S. Bankruptcy Code pursuant to a “single point
of entry” recapitalization strategy. JPMorgan Chase & Co.’s subsidiaries would be recapitalized as needed, using
assets of JPMorgan Chase & Co., so that they could continue normal operations or subsequently be wound down in an orderly manner.
As a result, JPMorgan Chase & Co.’s losses and any losses incurred by its subsidiaries would be imposed first on holders
of JPMorgan Chase & Co.’s equity securities and thereafter on unsecured creditors, including holders of the notes. Claims
of holders of the notes would have a junior position to the claims of creditors of JPMorgan Chase & Co.’s subsidiaries
and to the claims of priority (as determined by statute) and secured creditors of JPMorgan Chase & Co. Accordingly, in a resolution
of JPMorgan Chase & Co. under Chapter 11 of the U.S. Bankruptcy Code, holders of the notes would realize value only to the
extent available to JPMorgan Chase & Co. as a shareholder of JPMorgan Chase & Co. Bank, N.A. and its other subsidiaries,
and only after any claims of priority and secured creditors of JPMorgan Chase & Co. have been fully repaid. None of JPMorgan
Chase & Co., the Federal Reserve or the FDIC is obligated to follow JPMorgan Chase & Co.’s preferred resolution strategy
under its resolution plan.
The FDIC has similarly indicated that
a “single point of entry” recapitalization model could be a desirable strategy to resolve a systemically important
financial institution, such as JPMorgan Chase & Co., under Title II of the Dodd-Frank Act. Pursuant to that strategy, the FDIC
would use its power to create a “bridge entity” for JPMorgan Chase & Co.; transfer the systemically important and
viable parts of JPMorgan Chase & Co.’s business, principally the stock of JPMorgan Chase & Co.’s main operating
subsidiaries and any intercompany claims against such subsidiaries, to the bridge entity; recapitalize those subsidiaries using
assets of JPMorgan Chase & Co. that have been transferred to the bridge entity; and exchange external debt claims against JPMorgan
Chase & Co. for equity in the bridge entity. Under a “single point of entry” recapitalization of JPMorgan Chase
& Co. under Title II, the value of the stock of the bridge entity that would be redistributed to holders of the notes may not
be sufficient to repay all or part of the principal amount and interest on the notes. It is also possible that the application
of this Title II strategy could result in greater losses to holders of the notes than the losses that would result from a different
resolution strategy for JPMorgan Chase & Co. To date, the FDIC has not formally adopted a “single point of entry”
resolution strategy and it is not obligated to follow such a strategy in a Title II resolution of JPMorgan Chase & Co.
Callable Step-Up Fixed Rate Notes
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PS-
3
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Selected Risk Considerations
An investment in the notes involves significant risks. These
risks are explained in more detail in the “Risk Factors” section of the accompanying product supplement.
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·
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WE MAY CALL YOUR NOTES PRIOR TO THEIR SCHEDULED MATURITY DATE —
We may choose to call the notes early or choose
not to call the notes early on any Redemption Date in our sole discretion. If the notes are called early, you will receive the
principal amount of your notes
plus
any accrued and unpaid interest to, but excluding, the Redemption Date. The aggregate
amount that you will receive through and including the Redemption Date will be less than the aggregate amount that you would have
received had the notes not been called early. If we call the notes early, your overall return may be less than the yield that the
notes would have earned if you held your notes to maturity and you may not be able to reinvest your funds at the same rate as the
original notes. We may choose to call the notes early, for example, if U.S. interest rates decrease or do not rise significantly
or if volatility of U.S. interest rates decreases significantly.
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STEP-UP NOTES PRESENT DIFFERENT INVESTMENT CONSIDERATIONS THAN FIXED RATE NOTES —
The rate of interest paid by
us on the notes will increase upward from the initial stated rate of interest of the notes. The notes are callable by us, in whole
but not in part, prior to maturity and, therefore, are subject to the call risk described above. If we do not call the notes, the
interest rate will step up as described on the cover of this pricing supplement. Unless general interest rates rise significantly,
you should not expect to earn the highest scheduled Interest Rate set forth on the cover of this pricing supplement because the
notes are likely to be called prior to maturity if interest rates remain the same or fall during the term of your notes. When determining
whether to invest in a step-up fixed rate note, you should not focus on the highest stated Interest Rate, which usually is the
final step-up rate of interest. You should instead focus on, among other things, the overall annual percentage rate of interest
to maturity or call as compared to other equivalent investment alternatives.
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·
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THE INTEREST RATE OF THE NOTES DOES NOT STEP UP SIGNIFICANTLY UNTIL LATER IN THE TERM OF THE NOTES —
Unless general
interest rates rise significantly, you should not expect to earn the highest scheduled Interest Rate set forth on the cover of
this pricing supplement because the notes are likely to be called prior to maturity if interest rates remain the same or fall during
the term of your notes. Additionally, the interest rate on the notes does not step up significantly until later in the term of
the notes. If interest rates rise faster than the incremental increases in the interest rates of the notes, the notes may have
an interest rate that is significantly lower than the interest rates at that time and the secondary market value of the notes may
be significantly lower than other instruments with a similar term but higher interest rates. In other words, you should purchase
the notes only if you are comfortable receiving the stated interest rates set forth on the cover of this pricing supplement for
the entire term of the notes.
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LONGER-DATED NOTES MAY BE RISKIER THAN SHORTER-DATED NOTES
—
By purchasing a note with a longer tenor,
you are more exposed to fluctuations in interest rates than if you purchased a note with a shorter tenor. The present value of
a longer-dated note tends to be more sensitive to rising interest rates than the present value of a shorter-dated note. If interest
rates rise, the present value of a longer-dated note will fall faster than the present value of a shorter-dated note. You should
purchase these notes only if you are comfortable with owning a note with a longer tenor.
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·
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CREDIT RISK OF JPMORGAN CHASE & CO. —
The notes are subject to the credit risk of JPMorgan Chase & Co.,
and our credit ratings and credit spreads may adversely affect the market value of the notes. Investors are dependent on JPMorgan
Chase & Co.’s ability to pay all amounts due on the notes. Any actual or potential change in our creditworthiness or
credit spreads, as determined by the market for taking our credit risk, is likely to adversely affect the value of the notes. If
we 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.
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·
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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 and hedging our obligations under
the notes. In performing these duties, our 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 business activities, including
hedging and trading activities for our own accounts or on behalf of customers, could cause our 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.
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·
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REINVESTMENT RISK
—
If we redeem the notes, the term of the notes may be reduced and you will not receive
interest payments after the applicable Redemption 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 in the event
the notes are redeemed prior to the Maturity Date.
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·
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CERTAIN BUILT-IN COSTS ARE LIKELY TO ADVERSELY AFFECT THE VALUE OF THE NOTES PRIOR TO MATURITY
—
While
the payment at maturity described in this pricing supplement is based on the full principal amount of your notes, the original
issue price of the notes includes the agent’s commission and the estimated cost of hedging our obligations under the notes
through one or more of our affiliates. As a result, the price, if any, at which JPMS will be willing to purchase notes from you
in secondary market transactions, if at all, will likely be lower than the original issue price and any sale prior to the Maturity
Date could result in a substantial loss to you. This secondary market price will also be affected by a number of factors aside
from
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Callable Step-Up Fixed Rate Notes
|
PS-
4
|
the agent’s commission and hedging costs, including
those referred to under “Many Economic and Market Factors Will Impact the Value of the Notes” below.
The notes are not designed to be short-term
trading instruments. Accordingly, you should be able and willing to hold your notes to maturity.
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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.
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·
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MANY ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE NOTES
—
The notes will be affected by a number
of economic and market factors that may either offset or magnify each other, including but not limited to:
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·
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any actual or potential change in our creditworthiness or credit spreads;
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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, as well as the volatility of those rates; and
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·
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the likelihood, or expectation, that the notes will be redeemed by us, based on prevailing market interest rates or otherwise,
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Callable Step-Up Fixed Rate Notes
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PS-
5
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Hypothetical Examples of Calculation of
the Interest Rate on the Notes for an Interest Period
The following examples illustrate how the hypothetical Interest
Rate for an Interest Period is calculated if we choose to call the notes early or choose not to call the notes early on any Redemption
Date in our sole discretion, assuming that the number of calendar days in the applicable Interest Period is 180. The hypothetical
Interest Rates in the following examples are for illustrative purposes only and may not correspond to the actual Interest Rates
for any Interest Period applicable to a purchaser of the notes. The numbers appearing in the following examples have been rounded
for ease of analysis.
Example 1: If we choose to call the notes early on a Redemption
Date and the Redemption Date is February 28, 2024,
we will pay you $1,000 for each $1,000 principal amount note
plus
any accrued and unpaid interest at an Interest Rate equal to 3.50% per annum. Therefore, the interest payment per $1,000 principal
amount note on the Redemption Date will be calculated as follows:
$1,000 × 3.50% × (180 / 360)
= $17.50
We will pay you a principal payment of $1,000 for each $1,000
principal amount note on the Redemption Date. Therefore, you will receive $1,017.50 for each $1,000 principal amount note ($1,000
of principal
plus
$17.50 of interest) on the Redemption Date, but you will not receive any further interest or principal
payments from us.
Example 2: If we choose
not
to call the notes early
on any prior Redemption Date and on the Redemption Date corresponding to the Interest Payment Date and the Interest Payment Date
is February 28, 2025,
we will pay you any accrued and unpaid interest on the applicable Interest Payment Date at an Interest
Rate equal to 3.50% per annum. Therefore, the interest payment per $1,000 principal amount note will be calculated as follows:
$1,000 × 3.50% × (180 / 360)
= $17.50
We will pay you an interest payment of $17.50 for each $1,000
principal amount note on that Interest Payment Date. Because the notes have not been called, you will be entitled to receive additional
interest payments until the Maturity Date or, if the notes are redeemed earlier, the applicable Redemption Date. You will also
receive a payment of principal on the Maturity Date or, if the notes are redeemed early, the applicable Redemption Date.
Example 3: If we choose
not
to call the notes prior
to the Maturity Date and today is the Maturity Date,
we will pay you $1,000 for each $1,000 principal amount note
plus
any accrued and unpaid interest on the Maturity Date at an Interest Rate equal to 8.00% per annum. Therefore, the interest payment
per $1,000 principal amount note on the Maturity Date will be calculated as follows:
$1,000 × 8.00% × (180 / 360)
= $40.00
We will pay you a principal payment of $1,000 for each $1,000
principal amount note on the Maturity Date. Therefore, you will receive $1,040.00 for each $1,000 principal amount note ($1,000
of principal
plus
$40.00 of interest) on the Maturity Date, and you will not receive any further interest or principal payments
from us.
The hypothetical payments on these notes shown above apply
only if you hold the notes for their entire term or until earlier redemption
. These hypotheticals do not reflect fees or
expenses that would be associated with any sale in the secondary market. If these fees and expenses were included, the hypothetical
payments shown above would likely be lower.
Callable Step-Up Fixed Rate Notes
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PS-
6
|
Supplemental Use of Proceeds
Notwithstanding anything to the contrary in the accompanying
prospectus, we will contribute the net proceeds that we receive from the sale of the notes offered by this pricing supplement to
our “intermediate holding company” subsidiary, which will use those net proceeds for general corporate purposes. General
corporate purposes may include investments in our subsidiaries, payments of dividends to us, extensions of credit to us or our
subsidiaries or the financing of possible acquisitions or business expansion. Net proceeds may be temporarily invested pending
application for their stated purpose. Interest on our debt securities (including interest on the notes offered by this pricing
supplement) and dividends on our equity securities, as well as redemptions or repurchases of our outstanding securities, will be
made using amounts we receive as dividends or extensions of credit from our “intermediate holding company” subsidiary.
Supplemental Terms of the Notes
Events of Default
The notes will be issued under an Indenture dated May 25, 2001,
between us and Deutsche Bank Trust Company Americas (formerly Bankers Trust Company), as trustee (as has been and as may be further
supplemented from time to time, the “Indenture”).
Notwithstanding anything to the contrary in the accompanying
prospectus, under the Indenture, any one of the following events will be an “Event of Default” with respect to the
notes:
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(1)
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default in the payment of principal of the notes and continuance of such default for 30 days;
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(2)
|
default in the payment of interest on the notes and continuance of such default for 30 days; and
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(3)
|
specified events of our bankruptcy, insolvency, winding up or liquidation, whether voluntary or involuntary.
|
Senior debt securities issued by us prior to December 31, 2016
(the “Pre-2017 Senior Debt”) contain events of default that are different from those set forth above. In particular:
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·
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the events of default applicable to the Pre-2017 Senior Debt do not provide for a 30-day cure period with respect to any failure
by us to pay the principal of those senior debt securities;
|
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·
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most series of Pre-2017 Senior Debt contain an additional event of default that is applicable if we fail to perform any of
the covenants contained in the terms and conditions of, or the governing instrument for, those senior debt securities and that
failure continues for 90 days; and
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·
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the events of default applicable to certain series of Pre-2017 Senior Debt provide that specified events of bankruptcy, insolvency
or reorganization of JPMorgan Chase Bank, N.A. would constitute an event of default with respect to those senior debt securities.
|
In addition, certain series of senior debt securities which
we assumed in connection with our merger with The Bear Stearns Companies Inc. include additional events of default.
Accordingly, if we fail to pay the principal of any series
of Pre-2017 Senior Debt when due, the holders of those senior debt securities would be entitled to declare their securities due
and payable immediately, whereas holders of the notes would not be entitled to accelerate the notes until 30 days after our failure
to pay the principal of the notes. In addition, holders of the notes will not have the benefit of the additional events of default
described above that are applicable to the Pre-2017 Senior Debt.
Under the Indenture, if a default in the payment of principal
or interest with respect to one or more series of debt securities occurs and is continuing, either the trustee or the holders of
at least 25% in aggregate principal amount of the debt securities of such series then outstanding, treated as one class, by written
notice, may declare the principal of all outstanding debt securities of such series and any interest accrued thereon, to be due
and payable immediately. For this purpose, the notes will be deemed not to be in the same series as debt securities issued under
the Indenture prior to January 12, 2017. If a default due to specified events of our bankruptcy, insolvency, winding up or liquidation
occurs and is continuing, either the trustee or the holders of at least 25% in aggregate principal amount of all debt securities
then outstanding, treated as one class, by written notice, may declare the principal of all outstanding debt securities and any
interest accrued thereon, to be due and payable immediately. Subject to certain conditions, such declarations may be annulled and
past defaults may be waived by the holders of a majority in principal amount of the outstanding debt securities of the series affected.
Consolidations, Mergers,
Sales and Transfers of Assets
Notwithstanding anything to the contrary in the accompanying
prospectus or prospectus supplement, for purposes of the notes, we may not merge or consolidate with any other entity or sell,
convey or transfer all or substantially all of our assets to any other entity (other than the sale, conveyance or transfer of all
or substantially all of our assets to one or more of our direct or indirect subsidiaries), unless:
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·
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either we are the continuing entity or the successor entity or the entity to whom those assets are sold, conveyed or transferred
is a United States corporation or limited liability company that expressly assumes the due and punctual payment of the principal
of, any interest on, or any other amounts due under the debt securities issued under the Indenture and the due and punctual performance
and observance of all the covenants and conditions of the Indenture binding upon us, and
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we or the successor entity will not, immediately after the merger or consolidation, sale, conveyance or transfer, be in default
in the performance of any covenant or condition of the Indenture binding on us.
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Payment upon an Event
of Default
Notwithstanding anything to the contrary in the accompanying
product supplement, for purposes of “General Terms of Notes — Payment upon an Event of Default” in the accompanying
product supplement, in case of the
Callable Step-Up Fixed Rate Notes
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acceleration of the notes upon an event of default, any accrued
and unpaid interest payable upon acceleration of the notes will be calculated on the basis of a 360-day year and the actual number
of days in the adjusted Interest Period and will be based on the Interest Rate in effect on the date of acceleration.
Material U.S. Federal Income Tax Consequences
Prospective investors should note that
the discussion under “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement 1-I does
not apply to the notes issued under this pricing supplement and is superseded by the following discussion.
The following is a discussion of the material
U.S. federal income and certain estate tax consequences of owning and disposing of the notes, and constitutes the full opinion
of our special tax counsel, Davis Polk & Wardwell LLP. It applies to you only if you are an initial investor who purchases
a note at its issue price for cash and holds it as a capital asset within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the “Code”).
This discussion does not address all aspects
of U.S. federal income and estate taxation that may be relevant to you in light of your particular circumstances, including alternative
minimum tax consequences, the potential application of the provision of the Code known as the Medicare contribution tax and the
different consequences that may apply if you are an investor subject to special treatment under the U.S. federal income tax laws,
such as:
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a financial institution;
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a “regulated investment company” as defined in Code Section
851;
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a tax-exempt entity, including an “individual retirement account”
or “Roth IRA” as defined in Code Section 408 or 408A, respectively;
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a dealer in securities;
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a person holding a note as part of a “straddle,” conversion
transaction or integrated transaction, or who has entered into a “constructive sale” with respect to a note;
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a U.S. Holder (as defined below) whose functional currency is not the
U.S. dollar;
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a trader in securities who elects to apply a mark-to-market method
of tax accounting; or
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a partnership or other entity classified as a partnership for U.S.
federal income tax purposes.
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If you are a partnership for U.S. federal
income tax purposes, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and
your activities.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations as of the date hereof, changes to any
of which, subsequent to the date hereof, may affect the tax consequences described herein, possibly with retroactive effect.
As the law applicable to the U.S. federal income taxation of instruments such as the notes is technical and complex, the discussion
below necessarily represents only a general discussion. Moreover, the effects of any applicable state, local or non-U.S.
tax laws are not discussed.
You should consult your tax adviser concerning the application of U.S. federal income and
estate tax laws to your particular situation, as well as any tax consequences arising under the laws of any state, local or non-U.S.
jurisdiction.
Tax Consequences
to U.S. Holders
You are a “U.S. Holder” if for
U.S. federal income tax purposes you are a beneficial owner of a note that is:
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a citizen or individual resident of the United States;
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a corporation created or organized in or under the laws of the United
States, any state therein or the District of Columbia; or
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an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
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Callable Step-Up Fixed Rate Notes
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Tax Treatment Prior to Maturity
Stated interest on
the notes will generally be taxable
to you as ordinary interest income at the time it accrues or is received, in accordance with your method of accounting for U.S.
federal income tax purposes.
Under applicable Treasury regulations, we will generally be
presumed to exercise our option to redeem the notes if the exercise of the option would lower the yield on the notes. The
yield on the notes would be lowered if we redeemed the notes before the initial increase in the interest rate, and therefore the
notes will not be treated as issued with original issue discount (“OID”). If, contrary to the presumption in
the applicable Treasury regulations, we do not redeem the notes before the initial increase in the interest rate, solely for purposes
of calculating OID, the notes will be treated as if they were redeemed and new notes were issued on the presumed exercise date
for the notes’ principal amount. The same analysis will generally apply to the subsequent increases in the interest
rate, which means a note that is deemed reissued will generally be treated as redeemed prior to any subsequent increase in the
interest rate and therefore as issued without OID. The rules governing short-term debt instruments may apply to a note deemed
reissued in conjunction with the final scheduled increase in the interest rate. You should consult your tax adviser regarding
the potential application of these rules.
Tax Treatment upon Sale or Exchange
You will recognize capital gain or loss on the sale, exchange
or retirement of a note equal to the difference between the amount received (other than amounts received in respect of accrued
interest, which will be treated as described under “—Tax Treatment Prior to Maturity”) and your adjusted tax
basis in the note. Your gain or loss generally will be long-term capital gain or loss if at the time of the sale, exchange
or retirement you held the notes for more than one year, and short-term capital gain or loss otherwise. Long-term capital
gains recognized by non-corporate U.S. holders are generally subject to taxation at reduced rates. Any capital loss you recognize
may be subject to limitations.
Your adjusted tax basis in a note generally will be equal
to your original purchase price for the note.
Tax Consequences to Non-U.S. Holders
You are a “Non-U.S. Holder”
if for U.S. federal income tax purposes you are a beneficial owner of a note that is:
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a nonresident alien individual;
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a foreign corporation; or
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a foreign estate or trust.
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You are not a “Non-U.S. Holder”
for purposes of this discussion if you are an individual present in the United States for 183 days or more in the taxable year
of disposition of a note. In this case, you should consult your tax adviser regarding the U.S. federal income tax consequences
of the sale or exchange of a note (including early redemption or redemption at maturity).
Subject to the discussion of “FATCA”
below, income and gain from a note generally will be exempt from U.S. federal income tax (including withholding tax) if these amounts
are not effectively connected with your conduct of a U.S. trade or business and you provide a properly completed applicable Internal
Revenue Service (“IRS”) Form W-8 appropriate to your circumstances.
If you are engaged in a U.S. trade or business,
and if income or gain from a note is effectively connected with your conduct of that trade or business (and, if an applicable income
tax treaty so requires, is attributable to a permanent establishment in the United States), although exempt from the withholding
tax discussed above, you generally will be taxed in the same manner as a U.S. Holder with respect to that income. You will
not be subject to withholding in this case if you provide a properly completed IRS Form W-8ECI. If this paragraph applies
to you, you should consult your tax adviser with respect to other U.S. tax consequences of owning and disposing of notes, including
the possible imposition of a 30% branch profits tax if you are a corporation.
Federal Estate Tax
If you are an individual Non-U.S. Holder,
your notes will not be treated as U.S.-situs property subject to U.S. federal estate tax, provided that your income from the notes
is not then effectively connected with your conduct of a U.S. trade or business.
Callable Step-Up Fixed Rate Notes
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Backup Withholding and Information Reporting
Interest accrued or paid on your notes and
the proceeds received from a sale or exchange of your notes (including early redemption or repurchase, acceleration or redemption
at maturity) will generally be subject to information reporting unless you are an “exempt recipient.” You may
also be subject to backup withholding on payments in respect of your notes unless you provide proof of an applicable exemption
or a correct taxpayer identification number and otherwise comply with applicable requirements of the backup withholding rules.
If you are a Non-U.S. Holder, you will not be subject to backup withholding if you provide a properly completed IRS Form W-8 appropriate
to your circumstances. Amounts withheld under the backup withholding rules are not additional taxes and may be refunded or
credited against your U.S. federal income tax liability, provided the required information is furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA,”
and regulations promulgated thereunder, generally impose a 30% withholding tax on payments to certain foreign entities (including
financial intermediaries) with respect to debt instruments such as the notes, unless various U.S. information reporting and due
diligence requirements have been satisfied. An intergovernmental agreement between the United States and the foreign entity’s
jurisdiction may modify these requirements. This regime applies to payments of interest and, if your notes are redeemed after
December 31, 2018, to the payment on your notes at maturity, as well as the proceeds of any sale or other disposition of a note
occurring after December 31, 2018. You should consult your tax adviser regarding the potential application of FATCA to the
notes.
The Issuer will not pay any additional amounts
with respect to any withholding tax.
THE TAX CONSEQUENCES TO YOU OF OWNING AND DISPOSING OF
NOTES ARE UNCLEAR. YOU SHOULD CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES OF OWNING AND DISPOSING OF NOTES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. FEDERAL OR OTHER
TAX LAWS.
Callable Step-Up Fixed Rate Notes
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