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.
Key
Terms
Issuer:
JPMorgan Chase Financial Company LLC
Guarantor:
JPMorgan Chase & Co.
Reference
Stocks:
As specified under “Key Terms Relating to the Reference Stocks”
in this pricing supplement
Interest
Payments:
If
the notes have not been automatically called, you will receive on each Interest Payment Date for each $1,000 principal amount note
an Interest Payment equal to $6.6667 (equivalent to an Interest Rate of 8.00% per annum, payable at a rate of 0.66667% per month).
Interest
Rate:
8.00%
per annum, payable at a rate of 0.66667% per month
Trigger Value:
With
respect to each Reference Stock, 60.00% of its Initial Value, as specified under “Key Terms Relating to the Reference Stocks”
in this pricing supplement
Pricing
Date:
February 23, 2017
Original
Issue Date (Settlement Date):
On or about February 28, 2017
Review
Dates*:
May 23, 2017, August 23, 2017, November 24, 2017, February 23, 2018, May 23, 2018 and August 23, 2018 (final
Review Date)
Interest
Payment Dates*:
March 28, 2017, April 27, 2017, May 26, 2017, June 28, 2017, July 27, 2017, August 28, 2017, September
28, 2017, October 26, 2017, November 29, 2017, December 29, 2017, January 26, 2018, February 28, 2018, March 28, 2018, April 26,
2018, May 29, 2018, June 28, 2018, July 26, 2018 and the Maturity Date
Maturity
Date*:
August 28, 2018
Call Settlement Date*:
If the notes are automatically called on any Review Date (other than the final Review Date), the first Interest Payment Date
immediately following that Review Date
* Subject to postponement in the event of a market disruption
event and as described under “General Terms of Notes — Postponement of a Determination Date — Notes Linked to
Multiple Underlyings” and “General Terms of Notes — Postponement of a Payment Date” in the accompanying
product supplement
|
Automatic Call:
If the closing price of one share of each Reference Stock on
any Review Date (other than the final Review Date) is greater than or equal to its Initial Value, the notes will be automatically
called for a cash payment, for each $1,000 principal amount note, equal to (a) $1,000
plus
(b) the Interest Payment for
the Interest Payment Date occurring on the applicable Call Settlement Date, payable on that Call Settlement Date. No further payments
will be made on the notes.
Payment at Maturity:
If the notes have not been automatically called and the Final Value
of each Reference Stock is greater than or equal to its Trigger Value, you will receive a cash payment at maturity, for each $1,000
principal amount note, equal to (a) $1,000
plus
(b) the Interest Payment applicable to the Maturity Date.
If the notes have not been automatically called and the Final Value
of any Reference Stock is less than its Trigger Value, your payment at maturity per $1,000 principal amount note, in addition to
the Interest Payment applicable to the Maturity Date, will be calculated as follows:
$1,000 + ($1,000 × Least Performing Stock
Return)
If the notes have not been automatically called and the Final Value
of any Reference Stock is less than its Trigger Value, you will lose more than 40.00% of your principal amount at maturity and
could lose all of your principal amount at maturity.
Least Performing Reference Stock:
The Reference Stock with the Least Performing Stock Return
Least Performing Stock Return:
The lowest of the Stock Returns of the Reference Stocks
Stock Return:
With respect to each Reference Stock,
(Final Value – Initial Value)
Initial Value
Initial
Value:
With respect to each Reference Stock
, t
he
closing price of one share of that Reference Stock on the Pricing Date, as specified under “Key Terms Relating to the Reference
Stocks” in this pricing supplement
Final
Value:
With respect to each Reference Stock, the closing price of one share of that
Reference Stock on the final Review Date
Stock
Adjustment Factor:
With respect to each Reference Stock, the Stock Adjustment Factor is referenced in determining the
closing price of one share of that Reference Stock and is set equal to 1.0 on the Pricing Date. The Stock Adjustment Factor of
each Reference Stock is subject to adjustment upon the occurrence of certain corporate events affecting that Reference Stock. See
“The Underlyings — Reference Stocks — Anti-Dilution Adjustments” and “The Underlyings — Reference
Stocks — Reorganization Events” in the accompanying product supplement for further information.
|
PS-
1
| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
|
|
Key
Terms Relating to the Reference Stocks
Reference Stock
|
Bloomberg Ticker Symbol
|
Initial Value
|
Trigger Value
|
Common stock of Kansas City Southern, par value $0.01
per share
|
KSU
|
$87.41
|
$52.446
|
Common stock of Union Pacific Corporation, par value $2.50
per share
|
UNP
|
$106.70
|
$64.02
|
Common stock of CSX Corporation, par value $1.00 per share
|
CSX
|
$47.91
|
$28.746
|
Common stock of Norfolk Southern Corporation, par value $1.00 per share
|
NSC
|
$120.03
|
$72.018
|
How
the Notes Work
Payments in Connection with Review Dates Preceding
the Final Review Date
Payment at Maturity If
the Notes Have Not Been Automatically Called
PS-
2
| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
|
|
Total Interest Payments
The table below illustrates the hypothetical total
Interest Payments per $1,000 principal amount note over the term of the notes based on the Interest Rate of 8.00% per annum, depending
on how many Interest Payments are made prior to automatic call or maturity. If the notes have not been automatically called, the
total Interest Payments per $1,000 principal amount note over the term of the notes will be equal to the maximum amount shown in
the table below.
Number of Interest Payments
|
Total Interest Payments
|
18
|
$120.00
|
15
|
$100.00
|
12
|
$80.00
|
9
|
$60.00
|
6
|
$
40.00
|
3
|
$
20.00
|
Hypothetical
Payout Examples
The following examples illustrate payments on
the notes linked to four hypothetical Reference Stocks, assuming a range of performances for the hypothetical Least Performing
Reference Stock on the Review Dates.
Each hypothetical payment set forth below assumes that the closing price of one share of
the Reference Stocks that are not the Least Performing Reference Stock on each Review Date is greater than or equal to its Initial
Value.
In addition, the hypothetical payments set forth
below assume the following:
|
·
|
an Initial Value for the Least Performing Reference Stock of $100.00;
|
|
·
|
a Trigger Value for the Least Performing Reference Stock of $60.00 (equal to 60.00% of its hypothetical Initial Value); and
|
|
·
|
an Interest Rate of 8.00% per annum (payable at a rate of 0.66667% per month).
|
The hypothetical Initial Value of the Least
Performing Reference Stock of $100.00 has been chosen for illustrative purposes only and does not represent the actual Initial
Value of any Reference Stock. The actual Initial Value of each Reference Stock will be the closing price of one share of that Reference
Stock on the Pricing Date and is specified under “Key Terms Relating to the Reference Stocks” in this pricing supplement.
For historical data regarding the actual closing prices of one share of each Reference Stock, please see the historical information
set forth under “The Reference Stocks” in this pricing supplement.
Each hypothetical payment set forth below is
for illustrative purposes only and may not be the actual payment applicable to a purchaser of the notes. The numbers appearing
in the following examples have been rounded for ease of analysis.
Example 1 — Notes are automatically
called on the first Review Date.
Date
|
Closing Price of One Share of Least Performing Reference Stock
|
|
First Review Date
|
$105.00
|
Notes are automatically called
|
|
Total Payment
|
$1,020.00 (2.00% return)
|
Because the closing price of one share of each
Reference Stock on the first Review Date is greater than or equal to its Initial Value, the notes will be automatically called
for a cash payment, for each $1,000 principal amount note, of $1,006.6667 (or $1,000
plus
the Interest Payment applicable
to the corresponding Interest Payment Date), payable on the applicable Call Settlement Date. When added to the Interest Payments
received with respect to the prior Interest Payment Dates, the total amount paid, for each $1,000 principal amount note, is $1,020.00.
No further payments will be made on the notes.
Example 2 — Notes have NOT been automatically
called and the Final Value of the Least Performing Reference Stock is greater than or equal to its Trigger Value.
Date
|
Closing Price of One Share of Least Performing Reference Stock
|
|
First Review Date
|
$85.00
|
Notes NOT automatically called
|
Second Review Date
|
$90.00
|
Notes NOT automatically called
|
PS-
3
| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
|
|
Third through Fifth Review Dates
|
Less than Initial Value
|
Notes NOT automatically called
|
Final Review Date
|
$80.00
|
Final Value of the Least Performing Reference Stock is greater than or equal to its Trigger Value
|
|
Total Payment
|
$1,120.00 (12.00% return)
|
Because the notes have not been automatically
called and the Final Value of the Least Performing Reference Stock is greater than or equal to its Trigger Value, the payment at
maturity, for each $1,000 principal amount note, will be $1,006.6667 (or $1,000
plus
the Interest Payment applicable to
the Maturity Date). When added to the Interest Payments received with respect to the prior Interest Payment Dates, the total amount
paid, for each $1,000 principal amount note, is $1,120.00.
Example
3 — Notes have NOT been automatically called and the Final Value of the Least Performing Reference Stock is less than its
Trigger Value
.
Date
|
Closing Price of One Share of Least Performing Reference Stock
|
|
First Review Date
|
$45.00
|
Notes NOT automatically called
|
Second Review Date
|
$35.00
|
Notes NOT automatically called
|
Third through Fifth Review Dates
|
Less than Interest Barrier
|
Notes NOT automatically called
|
Final Review Date
|
$50.00
|
Final Value of the Least Performing Reference Stock is less than its Trigger Value
|
|
Total Payment
|
$620.00 (-38.00% return)
|
Because the notes have not been automatically
called, the Final Value of the Least Performing Reference Stock is less than its Trigger Value and the Least Performing Reference
Stock Return is -50.00%, the payment at maturity will be $506.6667 per $1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 × (-50.00%)] + $6.6667
= $506.6667
When added to the Interest Payments received
with respect to the prior Interest Payment Dates, the total amount paid, for each $1,000 principal amount note, is $620.00.
The hypothetical returns and hypothetical payments
on the notes shown above apply
only if you hold the notes for their entire
term or until automatically called.
These
hypotheticals do not reflect the fees or expenses that would be associated with any sale in the secondary market. If these fees
and expenses were included, the hypothetical returns and hypothetical payments shown above would likely be lower.
Selected
Risk Considerations
An investment in the notes involves significant
risks. These risks are explained in more detail in the “Risk Factors” 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. If the notes have not been automatically called and the Final Value of any Reference Stock is less than its Trigger
Value, you will lose 1% of the principal amount of your notes for every 1% that the Final Value of the Least Performing Reference
Stock is less than its Initial Value. Accordingly, under these circumstances, you will lose more than 40.00% of your principal
amount at maturity and could lose all of your principal amount at maturity.
|
·
|
CREDIT RISKS OF JPMORGAN FINANCIAL AND JPMORGAN CHASE & CO. —
|
Investors are dependent on our and JPMorgan
Chase & Co.’s ability to pay all amounts due on the notes. Any actual or potential change in our or JPMorgan Chase &
Co.’s creditworthiness or credit spreads, as determined by the market for taking that credit risk, is likely to adversely
affect the value of the notes. If we and JPMorgan Chase & Co. were to default on our payment obligations, you may not receive
any amounts owed to you under the notes and you could lose your entire investment.
PS-
4
| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
|
|
|
·
|
AS A FINANCE SUBSIDIARY, JPMORGAN FINANCIAL HAS NO INDEPENDENT OPERATIONS AND HAS LIMITED ASSETS —
|
As a finance subsidiary of JPMorgan Chase
& Co., we have no independent operations beyond the issuance and administration of our securities. Aside from the initial capital
contribution from JPMorgan Chase & Co., substantially all of our assets relate to obligations of our affiliates to make payments
under loans made by us or other intercompany agreements. As a result, we are dependent upon payments from our affiliates to meet
our obligations under the notes. If these affiliates do not make payments to us and we fail to make payments on the notes, you
may have to seek payment under the related guarantee by JPMorgan Chase & Co., and that guarantee will rank
pari passu
with all other unsecured and unsubordinated obligations of JPMorgan Chase & Co.
|
·
|
THE APPRECIATION POTENTIAL OF THE NOTES IS LIMITED TO THE SUM OF THE INTEREST PAYMENTS PAID OVER THE TERM OF THE NOTES,
|
regardless of any appreciation in the
price of one share of any Reference Stock, which may be significant. You will not participate in any appreciation in the price
of one share of any Reference Stock.
We and our affiliates play a variety
of roles in connection with the notes. In performing these duties, our and JPMorgan Chase & Co.’s economic interests
are potentially adverse to your interests as an investor in the notes. It is possible that hedging or trading activities of ours
or our affiliates in connection with the notes could result in substantial returns for us or our affiliates while the value of
the notes declines. Please refer to “Risk Factors — Risks Relating to Conflicts of Interest” in the accompanying
product supplement.
|
·
|
YOU ARE EXPOSED TO THE RISK OF DECLINE IN THE PRICE OF ONE SHARE OF EACH REFERENCE STOCK —
|
Payments on the notes are not linked
to a basket composed of the Reference Stocks and are contingent upon the performance of each individual Reference Stock. Poor performance
by any of the Reference Stocks over the term of the notes may result in the notes not being automatically called on a Review Date,
may negatively affect your payment at maturity and will not be offset or mitigated by positive performance by any other Reference
Stock.
|
·
|
YOUR PAYMENT AT MATURITY MAY BE DETERMINED BY THE LEAST PERFORMING REFERENCE STOCK.
|
|
·
|
THE BENEFIT PROVIDED BY THE TRIGGER VALUE MAY TERMINATE ON THE FINAL REVIEW DATE —
|
If the Final Value of any Reference Stock
is less than its Trigger Value and the notes have not been automatically called, the benefit provided by the Trigger Value will
terminate and you will be fully exposed to any depreciation in the closing price of one share of the Least Performing Reference
Stock.
|
·
|
THE AUTOMATIC CALL FEATURE MAY FORCE A POTENTIAL EARLY EXIT —
|
If your notes are automatically called,
the term of the notes may be reduced to as short as approximately three months and you will not receive any Interest Payments after
the applicable Call Settlement Date. There is no guarantee that you would be able to reinvest the proceeds from an investment in
the notes at a comparable return and/or with a comparable interest rate for a similar level of risk. Even in cases where the notes
are called before maturity, you are not entitled to any fees and commissions described on the front cover of this pricing supplement.
|
·
|
YOU WILL NOT RECEIVE DIVIDENDS ON ANY REFERENCE STOCK OR HAVE ANY RIGHTS WITH RESPECT TO ANY REFERENCE STOCK.
|
|
·
|
NO AFFILIATION WITH ANY REFERENCE STOCK ISSUER —
|
We have not independently verified any
of the information about any Reference Stock issuer contained in this pricing supplement. You should undertake your own investigation
into each Reference Stock and its issuer. We are not responsible for any Reference Stock issuer’s public disclosure of information,
whether contained in SEC filings or otherwise.
|
·
|
THE ANTI-DILUTION PROTECTION FOR THE REFERENCE STOCKS IS LIMITED AND MAY BE DISCRETIONARY —
|
The calculation agent will not make an
adjustment in response to all events that could affect a Reference Stock. The calculation agent may make adjustments in response
to events that are not described in the accompanying product supplement to account for any diluting or concentrative effect, but
the calculation agent is under no obligation to do so or to consider your interests as a holder of the notes in making these determinations.
PS-
5
| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
|
|
|
·
|
THE RISK OF THE CLOSING PRICE OF ONE SHARE OF A REFERENCE STOCK FALLING BELOW ITS TRIGGER VALUE IS GREATER IF THE PRICE
OF ONE SHARE OF THAT REFERENCE STOCK IS VOLATILE.
|
The notes will not be listed on any securities
exchange. Accordingly, the price at which you may be able to trade your notes is likely to depend on the price, if any, at which
JPMS is willing to buy the notes. You may not be able to sell your notes. The notes are not designed to be short-term trading instruments.
Accordingly, you should be able and willing to hold your notes to maturity.
|
·
|
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
—
|
See “The Estimated Value of the
Notes” in this pricing supplement.
|
·
|
THE ESTIMATED VALUE OF THE NOTES IS DERIVED BY REFERENCE TO AN INTERNAL FUNDING RATE —
|
The internal funding rate used in the
determination of the estimated value of the notes is based on, among other things, our and our affiliates’ view of the funding
value of the notes as well as the higher issuance, operational and ongoing liability management costs of the notes in comparison
to those costs for the conventional fixed-rate debt of JPMorgan Chase & Co. The use of an internal funding rate and any potential
changes to that rate may have an adverse effect on the terms of the notes and any secondary market prices of the notes. See “The
Estimated Value of the Notes” in this pricing supplement.
|
·
|
THE VALUE OF THE NOTES AS PUBLISHED BY JPMS (AND WHICH MAY BE REFLECTED ON CUSTOMER ACCOUNT STATEMENTS) MAY BE HIGHER THAN
THE THEN-CURRENT ESTIMATED VALUE OF THE NOTES FOR A LIMITED TIME PERIOD —
|
We generally expect that some of the
costs included in the original issue price of the notes will be partially paid back to you in connection with any repurchases of
your notes by JPMS in an amount that will decline to zero over an initial predetermined period. See “Secondary Market Prices
of the Notes” in this pricing supplement for additional information relating to this initial period. Accordingly, the estimated
value of your notes during this initial period may be lower than the value of the notes as published by JPMS (and which may be
shown on your customer account statements).
|
·
|
SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE ORIGINAL ISSUE PRICE OF THE NOTES —
|
Any secondary market prices of the notes
will likely be lower than the original issue price of the notes because, among other things, secondary market prices take into
account our internal secondary market funding rates for structured debt issuances and, also, because secondary market prices (a)
exclude selling commissions and (b) may exclude projected hedging profits, if any, and estimated hedging costs that are included
in the original issue price of the notes. As a result, the price, if any, at which JPMS will be willing to buy the notes from you
in secondary market transactions, if at all, is likely to be lower than the original issue price. Any sale by you prior to the
Maturity Date could result in a substantial loss to you.
|
·
|
SECONDARY MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS —
|
The secondary market price of the notes
during their term will be impacted by a number of economic and market factors, which may either offset or magnify each other, aside
from the selling commissions, projected hedging profits, if any, estimated hedging costs and the prices of one share of the Reference
Stocks. Additionally, independent pricing vendors and/or third party broker-dealers may publish a price for the notes, which may
also be reflected on customer account statements. This price may be different (higher or lower) than the price of the notes, if
any, at which JPMS may be willing to purchase your notes in the secondary market. See “Risk Factors — Risks Relating
to the Estimated Value and Secondary Market Prices of the Notes — Secondary market prices of the notes will be impacted by
many economic and market factors” in the accompanying product supplement.
PS-
6
| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
|
|
The
Reference Stocks
All information contained herein on the Reference
Stocks and on the Reference Stock issuers is derived from publicly available sources, without independent verification. Each Reference
Stock is registered under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and is listed
on the exchange provided in the table below, which we refer to as the relevant exchange for purposes of that Reference Stock in
the accompanying product supplement. Information provided to or filed with the SEC by a Reference Stock issuer pursuant to the
Exchange Act can be located by reference to the SEC file number provided in the table below, and can be accessed through www.sec.gov.
We do not make any representation that these publicly available documents are accurate or complete. We obtained the closing prices
below from the Bloomberg Professional
®
service (“Bloomberg”) without independent verification.
Reference Stock
|
Bloomberg Ticker Symbol
|
Relevant Exchange
|
SEC File Number
|
Closing Price on February 23, 2017
|
Common stock of Kansas City Southern, $0.01 per share
|
KSU
|
New York Stock Exchange
|
001-04717
|
$87.41
|
Common stock of Union Pacific Corporation, $2.50 per share
|
UNP
|
New York Stock Exchange
|
001-06075
|
$106.70
|
Common stock of CSX Corporation, $1.00 per share
|
CSX
|
The NASDAQ Stock Market
|
001-08022
|
$47.91
|
Common stock of Norfolk Southern Corporation, $1.00 per share
|
NSC
|
New York Stock Exchange
|
001-08339
|
$120.03
|
Each of the Reference Stocks is issued by a
company whose primary line of business is associated with the rail transportation industry.
According to publicly available filings of the
relevant Reference Stock issuer with the SEC:
|
·
|
Kansas City Southern is a holding company with domestic and international rail operations in North America focused on connecting
commercial and industrial markets in the central United States with industrial cities in Mexico.
|
|
·
|
Union Pacific Corporation’s principal operating company, Union Pacific Railroad Company, links 23 states in the western
two-thirds of the country by rail, providing a link in the global supply chain. Union Pacific Railroad company’s business
mix includes agricultural products, automotive, chemicals, coal, industrial products and intermodal.
|
|
·
|
CSX Corporation is a transportation company that provides rail-based transportation services, including traditional rail service
and the transport of intermodal containers and trailers.
|
|
·
|
Norfolk Southern Corporation is primarily engaged in the rail transportation of raw materials, intermediate products, and finished
goods primarily in the Southeast, East, and Midwest and, via interchange with rail carriers, to and from the rest of the United
Stated and also transports overseas freight through several Atlantic and Gulf Coast ports.
|
Historical Information
The following graphs set forth the historical
performance of each Reference Stock based on the weekly historical closing prices of one share of each Reference Stock from January
6, 2012 through February 17, 2017. The closing prices above and below may have been adjusted by Bloomberg for corporate actions,
such as stock splits, public offerings, mergers and acquisitions, spin-offs, delistings and bankruptcy.
The historical closing prices of one share
of each Reference Stock should not be taken as an indication of future performance, and no assurance can be given as to the closing
price of one share of any Reference Stock on any of the Review Dates. There can be no assurance that the performance of the Reference
Stocks will result in the return of any of your principal amount.
PS-
7
| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
|
|
PS-
8
| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
|
|
Tax
Treatment
You should review carefully the section entitled
“Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4-I. Based on the
advice of Davis Polk & Wardwell LLP, our special tax counsel, and on current market conditions, in determining our reporting
responsibilities we intend to treat the notes for U.S. federal income tax purposes as units each comprising: (x) a cash-settled
Put Option written by you that is terminated if an automatic call occurs and that, if not terminated, in circumstances where the
payment due at maturity is less than the principal amount (excluding accrued but unpaid interest), requires you to pay us an amount
equal to that difference and (y) a Deposit of $1,000 per $1,000 principal amount note to secure your potential obligation under
the Put Option, as more fully described in “Material U.S. Federal Income Tax Consequences — Tax Consequences to U.S.
Holders — Notes Treated as Units Each Comprising a Put Option and a Deposit” in the accompanying product supplement,
and in particular in the subsection thereof entitled “— Notes with a Term of More than One Year.” By purchasing
the notes, you agree (in the absence of an administrative determination or judicial ruling to the contrary) to follow this treatment
and the allocation described in the following paragraph. However, there are other reasonable treatments that the IRS or a
court may adopt, in which case the timing and character of any income or loss on the notes could be materially and adversely affected.
In addition, in 2007 Treasury and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid
forward contracts” and similar instruments. The notice focuses on a number of issues, the most relevant of which for
investors in the notes are the character of income or loss (including whether the Put Premium might be currently included as ordinary
income) and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding tax. While
it is not clear whether the notes would be viewed as similar to the typical prepaid forward contract described in the notice, it
is possible that 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.
In determining our reporting responsibilities,
we intend to treat approximately 22.13% of each Interest Payment as interest on the Deposit and the remainder as Put Premium.
Assuming that the treatment of the notes as units each comprising a Put Option and a Deposit is respected, amounts treated as interest
on the Deposit will be taxed as ordinary income, while the Put Premium will not be taken into account prior to sale or settlement,
including a settlement following an automatic call.
Section 871(m) of the Code and Treasury regulations
promulgated thereunder (“Section 871(m)”) generally impose a 30% withholding tax (unless an income tax treaty applies)
on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities
or indices that include U.S. equities. Section 871(m) provides certain exceptions to this withholding regime, including for instruments
linked to certain broad-based indices that meet requirements set forth in the applicable Treasury regulations (such an index, a
“Qualified Index”). Additionally, the applicable regulations exclude from the scope of Section 871(m) instruments issued
in 2017 that do not have a delta of one with respect to underlying securities that could pay U.S.-source dividends for U.S. federal
income tax purposes (each an “Underlying Security”). Based on certain determinations made by us, our special tax counsel
is of the opinion that Section 871(m) should not apply to the notes with regard to Non-U.S. Holders. Our determination is not binding
on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its
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| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
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application may depend on your particular
circumstances, including whether you enter into other transactions with respect to an Underlying Security. You should consult your
tax adviser regarding the potential application of Section 871(m) to the notes.
Withholding under legislation commonly referred
to as “FATCA” will apply to amounts treated as interest or other “fixed or determinable annual or periodical”
income (“FDAP Income”) for U.S. federal income tax purposes 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 FDAP Income) of a taxable
disposition, including an automatic call or redemption at maturity, of the notes. You should consult your tax adviser regarding
the potential application of FATCA to the notes.
You should consult your tax adviser regarding
all aspects of the U.S. federal income tax consequences of an investment in the notes, including possible alternative treatments
and the issues presented by the 2007 notice. Purchasers who are not initial purchasers of notes at the issue price should
also consult their tax advisers with respect to the tax consequences of an investment in the notes, including possible alternative
treatments, as well as the allocation of the purchase price of the notes between the Deposit and the Put Option.
The
Estimated Value of the Notes
The estimated value of the notes set forth
on the cover of this pricing supplement is equal to the sum of the values of the following hypothetical components: (1) a fixed-income
debt component with the same maturity as the notes, valued using the internal funding rate described below, and (2) the derivative
or derivatives underlying the economic terms of the notes. The estimated value of the notes does not represent a minimum price
at which JPMS would be willing to buy your notes in any secondary market (if any exists) at any time. The internal funding rate
used in the determination of the estimated value of the notes is based on, among other things, our and our affiliates’ view
of the funding value of the notes as well as the higher issuance, operational and ongoing liability management costs of the notes
in comparison to those costs for the conventional fixed-rate debt of JPMorgan Chase & Co. For additional information, see “Selected
Risk Considerations — The Estimated Value of the Notes Is Derived by Reference to an Internal Funding Rate” in this
pricing supplement.
The value of the derivative or derivatives
underlying the economic terms of the notes is derived from internal pricing models of our affiliates. These models are dependent
on inputs such as the traded market prices of comparable derivative instruments and on various other inputs, some of which are
market-observable, and which can include volatility, dividend rates, interest rates and other factors, as well as assumptions about
future market events and/or environments. Accordingly, the estimated value of the notes is determined when the terms of the notes
are set based on market conditions and other relevant factors and assumptions existing at that time.
The estimated value of the notes does not
represent future values of the notes and may differ from others’ estimates. Different pricing models and assumptions could
provide valuations for the notes that are greater than or less than the estimated value of the notes. In addition, market conditions
and other relevant factors in the future may change, and any assumptions may prove to be incorrect. On future dates, the value
of the notes could change significantly based on, among other things, changes in market conditions, our or JPMorgan Chase &
Co.’s creditworthiness, interest rate movements and other relevant factors, which may impact the price, if any, at which
JPMS would be willing to buy notes from you in secondary market transactions.
The estimated value of the notes 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. A portion of the profits, if any, realized in hedging our obligations under the notes may be allowed
to other affiliated or unaffiliated dealers, and we or one or more of our affiliates will retain any remaining hedging profits.
See “Selected Risk Considerations — The Estimated Value of the Notes 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 “Risk Factors — Risks Relating to the Estimated Value and Secondary Market
Prices of the Notes — Secondary market prices of the notes will be impacted by many economic and market factors” in
the accompanying product supplement. In addition, we generally expect that some of the costs included in the original issue price
of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS in an amount that will
decline to zero over an initial predetermined period. These costs can include projected hedging profits, if
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10
| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
|
|
any, and, in some circumstances, estimated hedging
costs and our internal secondary market funding rates for structured debt issuances. This initial predetermined time period is
intended to be the shorter of six months and one-half of the stated term of the notes. The length of any such initial period reflects
the structure of the notes, whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated
costs of hedging the notes and when these costs are incurred, as determined by our affiliates. See “Selected Risk Considerations
— The Value of the Notes as Published by JPMS (and Which May Be Reflected on Customer Account Statements) May Be Higher Than
the Then-Current Estimated Value of the Notes for a Limited Time Period” in this pricing supplement.
Supplemental
Use of Proceeds
The notes are offered to meet investor demand
for products that reflect the risk-return profile and market exposure provided by the notes. See “How the Notes Work”
and “Hypothetical Payout Examples” in this pricing supplement for an illustration of the risk-return profile of the
notes and “The Reference Stocks” in this pricing supplement for a description of the market exposure provided by the
notes.
The original issue price of the notes is equal
to the estimated value of the notes plus the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, plus
(minus) the projected profits (losses) that our affiliates expect to realize for assuming risks inherent in hedging our obligations
under the notes, plus the estimated cost of hedging our obligations under the notes.
Validity
of the Notes and the Guarantee
In the opinion of Davis Polk & Wardwell
LLP, as special products counsel to JPMorgan Financial and JPMorgan Chase & Co., when the notes offered by this pricing supplement
have been executed and issued by JPMorgan Financial and authenticated by the trustee pursuant to the indenture, and delivered against
payment as contemplated herein, such notes will be valid and binding obligations of JPMorgan Financial and the related guarantee
will constitute a valid and binding obligation of JPMorgan Chase & Co., enforceable in accordance with their terms, subject
to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and
equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack
of bad faith),
provided
that such counsel expresses no opinion as to the effect of fraudulent conveyance, fraudulent transfer
or similar provision of applicable law on the conclusions expressed above. This opinion is given as of the date hereof and is limited
to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company
Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery
of the indenture and its authentication of the notes and the validity, binding nature and enforceability of the indenture with
respect to the trustee, all as stated in the letter of such counsel dated February 24, 2016, which was filed as an exhibit to the
Registration Statement on Form S-3 by JPMorgan Financial and JPMorgan Chase & Co. on February 24, 2016.
Additional
Terms Specific to the Notes
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.
PS-
11
| Structured Investments
Auto Callable Yield Notes Linked to the Least Performing of the Common Stock of Kansas City Southern, the Common Stock of Union Pacific Corporation, the Common Stock of CSX Corporation and the Common Stock of Norfolk Southern Corporation
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