Neither the Securities and Exchange Commission (the “SEC”)
nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or the adequacy of this pricing
supplement or the accompanying product supplement, underlying supplement, prospectus supplement and prospectus. Any representation to
the contrary is a criminal offense.
Pricing supplement to product supplement no. 4-II dated
November 4, 2020, underlying supplement no. 1-II dated November 4, 2020
and the prospectus and prospectus supplement, each dated April 8, 2020
Key Terms
Issuer:
JPMorgan Chase Financial Company LLC, an indirect, wholly owned finance subsidiary of JPMorgan Chase &
Co.
Guarantor:
JPMorgan Chase & Co.
Underlyings:
The S&P 500® Value Index (Bloomberg ticker: SVX) (the “Index”) and the
iShares® Russell 2000 Value ETF (Bloomberg ticker: IWN) (the “Fund”) (each of the Index and the Fund, an “Underlying”
and collectively, the “Underlyings”)
Upside
Leverage Factor: 1.30
Barrier Amount: With respect
to each Underlying, 70.00% of its Initial Value, which is 991.8867 for the Index and $111.769 for the Fund
Pricing
Date: April 7, 2021
Original
Issue Date (Settlement Date): On or about April 12, 2021
Observation Date*: April
8, 2024
Maturity Date*: April
11, 2024
* 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
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Payment at Maturity:
If the Final Value of each Underlying is greater than its Initial Value,
your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Lesser Performing Underlying
Return × Upside Leverage Factor)
If the Final Value of either Underlying is equal to or less than its
Initial Value but the Final Value of each Underlying is greater than or equal to its Barrier Amount, you will receive the principal amount
of your notes at maturity.
If the Final Value of either Underlying is less than its Barrier Amount,
your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Lesser Performing Underlying
Return)
If the Final Value of either Underlying is less than its Barrier
Amount, you will lose more than 30.00% of your principal amount at maturity and could lose all of your principal amount at maturity.
Lesser Performing Underlying: The
Underlying with the Lesser Performing Underlying Return
Lesser Performing Underlying Return: The
lower of the Underlying Returns of the Underlyings
Underlying Return:
With respect to each Underlying,
(Final Value – Initial Value)
Initial Value
Initial
Value: With respect to each Underlying, the closing
value of that Underlying on the Pricing Date, which was 1,416.98100 for the Index and $159.67 for the Fund
Final
Value: With respect to each Underlying, the closing value of that Underlying on the Observation
Date
Share
Adjustment Factor: The Share Adjustment Factor is referenced in determining the closing value of the Fund and is set equal
to 1.0 on the Pricing Date. The Share Adjustment Factor is subject to adjustment upon the occurrence of certain events affecting the Fund.
See “The Underlyings — Funds — Anti-Dilution Adjustments” in the accompanying product supplement for further information.
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PS-1 | Structured Investments
Uncapped Accelerated Barrier Notes Linked to the Lesser Performing of the S&P 500® Value Index and the iShares® Russell 2000 Value ETF
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Hypothetical Payout
Profile
The following table and graph illustrate the hypothetical
total return and payment at maturity on the notes linked to two hypothetical Underlyings. The “total return” as used in this
pricing supplement is the number, expressed as a percentage, that results from comparing the payment at maturity per $1,000 principal
amount note to $1,000. The hypothetical total returns and payments set forth below assume the following:
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·
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an Initial Value for the Lesser Performing Underlying of 100.00;
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·
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an Upside Leverage Factor of 1.30; and
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·
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a Barrier Amount for the Lesser Performing Underlying of 70.00 (equal to 70.00% of its hypothetical Initial Value).
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The hypothetical Initial Value of the Lesser Performing
Underlying of 100.00 has been chosen for illustrative purposes only and does not represent the actual Initial Value of either Underlying.
The actual Initial Value of each Underlying is the closing value of that Underlying on the Pricing Date and is specified under “Key
Terms — Initial Value” in this pricing supplement. For historical data regarding the actual closing values of each Underlying,
please see the historical information set forth under “The Underlyings” in this pricing supplement.
Each hypothetical total return or hypothetical payment
at maturity set forth below is for illustrative purposes only and may not be the actual total return or payment at maturity applicable
to a purchaser of the notes. The numbers appearing in the following table and graph have been rounded for ease of analysis.
Final Value of the Lesser Performing Underlying
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Lesser Performing Underlying Return
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Total Return on the Notes
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Payment at Maturity
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165.00
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65.00%
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84.50%
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$1,845.00
|
150.00
|
50.00%
|
65.00%
|
$1,650.00
|
140.00
|
40.00%
|
52.00%
|
$1,520.00
|
130.00
|
30.00%
|
39.00%
|
$1,390.00
|
120.00
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20.00%
|
26.00%
|
$1,260.00
|
110.00
|
10.00%
|
13.00%
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$1,130.00
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105.00
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5.00%
|
6.50%
|
$1,065.00
|
101.00
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1.00%
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1.30%
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$1,013.00
|
100.00
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0.00%
|
0.00%
|
$1,000.00
|
95.00
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-5.00%
|
0.00%
|
$1,000.00
|
90.00
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-10.00%
|
0.00%
|
$1,000.00
|
80.00
|
-20.00%
|
0.00%
|
$1,000.00
|
70.00
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-30.00%
|
0.00%
|
$1,000.00
|
69.99
|
-30.01%
|
-30.01%
|
$699.90
|
60.00
|
-40.00%
|
-40.00%
|
$600.00
|
50.00
|
-50.00%
|
-50.00%
|
$500.00
|
40.00
|
-60.00%
|
-60.00%
|
$400.00
|
30.00
|
-70.00%
|
-70.00%
|
$300.00
|
20.00
|
-80.00%
|
-80.00%
|
$200.00
|
10.00
|
-90.00%
|
-90.00%
|
$100.00
|
0.00
|
-100.00%
|
-100.00%
|
$0.00
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PS-2 | Structured Investments
Uncapped Accelerated Barrier Notes Linked to the Lesser Performing of the S&P 500® Value Index and the iShares® Russell 2000 Value ETF
|
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The following graph demonstrates the hypothetical payments
at maturity on the notes for a sub-set of Lesser Performing Underlying Returns detailed in the table above (-80% to 50%). There can be
no assurance that the performance of the Lesser Performing Underlying will result in the return of any of your principal amount.
How the Notes Work
Upside Scenario:
If the Final Value of each Underlying is greater than
its Initial Value, investors will receive at maturity the $1,000 principal amount plus a return equal to the Lesser Performing
Underlying Return times the Upside Leverage Factor of 1.30.
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If the closing value of the Lesser Performing Underlying increases 10.00%, investors will receive at maturity a 13.00% return, or
$1,130.00 per $1,000 principal amount note.
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Par Scenario:
If the Final Value of either Underlying is equal to or
less than its Initial Value but the Final Value of each Underlying is greater than or equal to its Barrier Amount of 70.00% of its Initial
Value, investors will receive at maturity the principal amount of their notes.
Downside Scenario:
If the Final Value of either Underlying is less than
its Barrier Amount of 70.00% of its Initial Value, investors will lose 1% of the principal amount of their notes for every 1% that the
Final Value of the Lesser Performing Underlying is less than its Initial Value.
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For example, if the closing value of the Lesser Performing Underlying declines 60.00%, investors will lose 60.00% of their principal
amount and receive only $400.00 per $1,000 principal amount note at maturity.
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The hypothetical returns and hypothetical payments
on the notes shown above apply only if you hold the notes for their entire term. These hypotheticals do not reflect the fees or
expenses that would be associated with any sale in the secondary market. If these fees and expenses were included, the hypothetical returns
and hypothetical payments shown above would likely be lower.
Selected
Risk Considerations
An investment in the notes involves significant risks.
These risks are explained in more detail in the “Risk Factors” sections of the accompanying prospectus supplement, product
supplement and underlying supplement.
Risks Relating to the Notes Generally
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS —
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The notes do not guarantee any return of principal.
If the Final Value of either Underlying is less than its Barrier Amount, you will lose 1% of the principal amount of your notes for every
1% that the Final Value of the Lesser Performing Underlying is less than its Initial Value. Accordingly, under these circumstances, you
will lose more than 30.00% of your principal amount at maturity and could lose all of your principal amount at maturity.
PS-3 | Structured Investments
Uncapped Accelerated Barrier Notes Linked to the Lesser Performing of the S&P 500® Value Index and the iShares® Russell 2000 Value ETF
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CREDIT RISKS OF JPMORGAN FINANCIAL AND JPMORGAN CHASE & CO. —
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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.
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AS A FINANCE SUBSIDIARY, JPMORGAN FINANCIAL HAS NO INDEPENDENT OPERATIONS AND HAS LIMITED ASSETS —
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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.
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YOU ARE EXPOSED TO THE RISK OF DECLINE IN THE VALUE OF EACH UNDERLYING —
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Payments on the notes are not linked to a basket
composed of the Underlyings and are contingent upon the performance of each individual Underlying. Poor performance by either of the Underlyings
over the term of the notes may negatively affect your payment at maturity and will not be offset or mitigated by positive performance
by the other Underlying.
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YOUR PAYMENT AT MATURITY WILL BE DETERMINED BY THE LESSER PERFORMING UNDERLYING.
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THE BENEFIT PROVIDED BY THE BARRIER AMOUNT MAY TERMINATE ON THE OBSERVATION DATE —
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If the Final Value of either Underlying is less
than its Barrier Amount, the benefit provided by the Barrier Amount will terminate and you will be fully exposed to any depreciation of
the Lesser Performing Underlying.
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THE NOTES DO NOT PAY INTEREST.
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YOU WILL NOT RECEIVE DIVIDENDS ON THE FUND OR THE SECURITIES INCLUDED IN OR HELD BY EITHER UNDERLYING OR HAVE ANY RIGHTS WITH RESPECT
TO THE FUND OR THOSE SECURITIES.
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THE RISK OF THE CLOSING VALUE OF AN UNDERLYING FALLING BELOW ITS BARRIER AMOUNT IS GREATER IF THE VALUE OF THAT UNDERLYING IS VOLATILE.
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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.
Risks Relating to Conflicts of Interest
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.
Risks Relating to
the Estimated Value and Secondary Market Prices of the Notes
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THE ESTIMATED VALUE OF THE NOTES IS LOWER THAN THE ORIGINAL ISSUE PRICE (PRICE TO PUBLIC) OF THE NOTES —
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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.
PS-4 | Structured Investments
Uncapped Accelerated Barrier Notes Linked to the Lesser Performing of the S&P 500® Value Index and the iShares® Russell 2000 Value ETF
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·
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THE ESTIMATED VALUE OF THE NOTES DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES —
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See “The Estimated Value of the Notes”
in this pricing supplement.
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THE ESTIMATED VALUE OF THE NOTES IS DERIVED BY REFERENCE TO AN INTERNAL FUNDING RATE —
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The internal funding rate used in the determination
of the estimated value of the notes may differ from the market-implied funding rate for vanilla fixed income instruments of a similar
maturity issued by JPMorgan Chase & Co. or its affiliates. Any difference may be 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 income instruments of JPMorgan Chase & Co. This internal funding rate is based
on certain market inputs and assumptions, which may prove to be incorrect, and is intended to approximate the prevailing market replacement
funding rate for the notes. 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.
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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 —
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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).
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SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE ORIGINAL ISSUE PRICE OF THE NOTES —
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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 may exclude selling commissions,
projected hedging profits, if any, and estimated hedging costs that are included in the original issue price of the notes. As a result,
the price, if any, at which JPMS will be willing to buy the notes from you in secondary market transactions, if at all, is likely to be
lower than the original issue price. Any sale by you prior to the Maturity Date could result in a substantial loss to you.
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SECONDARY MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS —
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The secondary market price of the notes during
their term will be impacted by a number of economic and market factors, which may either offset or magnify each other, aside from the
selling commissions, projected hedging profits, if any, estimated hedging costs and the values of the Underlyings. Additionally, independent
pricing vendors and/or third party broker-dealers may publish a price for the notes, which may also be reflected on customer account statements.
This price may be different (higher or lower) than the price of the notes, if any, at which JPMS may be willing to purchase your notes
in the secondary market. See “Risk Factors — Risks Relating to the Estimated Value and Secondary Market Prices of the Notes
— Secondary market prices of the notes will be impacted by many economic and market factors” in the accompanying product supplement.
Risks Relating to
the Underlyings
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JPMORGAN CHASE & CO. IS CURRENTLY ONE OF THE COMPANIES THAT MAKE UP THE INDEX,
|
but JPMorgan Chase & Co. will not have any
obligation to consider your interests in taking any corporate action that might affect the level of the Index.
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The investment strategy represented by the Index may not be successful —
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Each Underlying is intended to represent a “value”
investment strategy. The Index is a float-adjusted market capitalization-weighted index that is designed to measure the full performance
of companies included in the S&P 500® Index that exhibit relatively strong value characteristics (determined by reference
to (1) book-value-to-price ratio, (2) earnings-to-price ratio and (3) sales-to-price ratio) and relatively weak growth characteristics
(determined by reference to earnings-per-share growth, sales-per-share growth and upward share price momentum) and a portion of the performance
of companies with more balanced value and growth characteristics (where greater weight is allocated to companies with relatively stronger
value characteristics and relatively weaker growth characteristics). The Fund seeks to track the investment
results, before fees and expenses, of an index composed of small capitalization U.S. equities that exhibit value characteristics, which
is currently the Russell 2000® Value Index. The Russell 2000® Value Index measures the capitalization-weighted
price performance of the stocks included in the Russell 2000®
PS-5 | Structured Investments
Uncapped Accelerated Barrier Notes Linked to the Lesser Performing of the S&P 500® Value Index and the iShares® Russell 2000 Value ETF
|
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Index that are determined by FTSE Russell to
be value oriented, with lower price-to-book ratios and lower forecasted growth values. A “value” investment strategy is premised
on the goal of investing in stocks that are determined to be relatively cheap or “undervalued” under the assumption that the
value of those stocks will increase over time as the market comes to reflect the “fair” market value of those stocks. However,
the value characteristics referenced by each of the Underlyings may not be accurate predictors of undervalued stocks, and there is no
guarantee that undervalued stocks will appreciate. In addition, each of the Underlyings’ selection methodology includes a
significant bias against stocks with strong growth characteristics, and stocks with strong growth characteristics may outperform stocks
with weak growth characteristics. There is no assurance that the Underlyings will outperform any other index, exchange-traded fund
or strategy that tracks U.S. stocks selected using other criteria and may underperform the S&P 500® Index or the Russell
2000® Index, as applicable, as a whole. It is possible that the stock selection methodology of the Underlyings will
adversely affect its return and, consequently, the values of the Underlyings and the value and return of the notes.
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·
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THERE ARE RISKS ASSOCIATED WITH THE FUND —
|
The Fund is subject to management risk, which
is the risk that the investment strategies of the Fund’s investment adviser, the implementation of which is subject to a number
of constraints, may not produce the intended results. These constraints could adversely affect the market price of the shares of the Fund
and, consequently, the value of the notes.
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THE PERFORMANCE AND MARKET VALUE OF THE FUND, PARTICULARLY DURING PERIODS OF MARKET VOLATILITY, MAY NOT CORRELATE WITH THE PERFORMANCE
OF THE FUND’S UNDERLYING INDEX AS WELL AS THE NET ASSET VALUE PER SHARE —
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The Fund does not fully replicate its Underlying
Index (as defined under “The Underlyings” below) and may hold securities different from those included in its Underlying Index.
In addition, the performance of the Fund will reflect additional transaction costs and fees that are not included in the calculation of
its Underlying Index. All of these factors may lead to a lack of correlation between the performance of the Fund and its Underlying Index.
In addition, corporate actions with respect to the equity securities underlying the Fund (such as mergers and spin-offs) may impact the
variance between the performances of the Fund and its Underlying Index. Finally, because the shares of the Fund are traded on a securities
exchange and are subject to market supply and investor demand, the market value of one share of the Fund may differ from the net asset
value per share of the Fund.
During periods of market volatility, securities
underlying the Fund may be unavailable in the secondary market, market participants may be unable to calculate accurately the net asset
value per share of the Fund and the liquidity of the Fund may be adversely affected. This kind of market volatility may also disrupt the
ability of market participants to create and redeem shares of the Fund. Further, market volatility may adversely affect, sometimes materially,
the prices at which market participants are willing to buy and sell shares of the Fund. As a result, under these circumstances, the market
value of shares of the Fund may vary substantially from the net asset value per share of the Fund. For all of the foregoing reasons, the
performance of the Fund may not correlate with the performance of its Underlying Index as well as the net asset value per share of the
Fund, which could materially and adversely affect the value of the notes in the secondary market and/or reduce any payment on the notes.
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·
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AN INVESTMENT IN THE NOTES IS SUBJECT TO RISKS ASSOCIATED WITH SMALL CAPITALIZATION STOCKS WITH RESPECT TO THE FUND —
|
The equity securities held by the Fund are issued
by companies with relatively small market capitalization. The stock prices of smaller companies may be more volatile than stock prices
of large capitalization companies. Small capitalization companies may be less able to withstand adverse economic, market, trade and competitive
conditions relative to larger companies. These companies tend to be less well-established than large market capitalization companies.
Small capitalization companies are less likely to pay dividends on their stocks, and the presence of a dividend payment could be a factor
that limits downward stock price pressure under adverse market conditions.
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·
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THE ANTI-DILUTION PROTECTION FOR THE FUND IS LIMITED —
|
The calculation agent will make adjustments
to the Share Adjustment Factor for certain events affecting the shares of the Fund. However, the calculation agent will not make an adjustment
in response to all events that could affect the shares of the Fund. If an event occurs that does not require the calculation agent to
make an adjustment, the value of the notes may be materially and adversely affected.
PS-6 | Structured Investments
Uncapped Accelerated Barrier Notes Linked to the Lesser Performing of the S&P 500® Value Index and the iShares® Russell 2000 Value ETF
|
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The Index is a float-adjusted market capitalization-weighted
index that is designed to measure the full performance of companies included in the S&P 500® Index that exhibit relatively
strong value characteristics (determined by reference to (1) book-value-to-price ratio, (2) earnings-to-price ratio and (3) sales-to-price
ratio) and relatively weak growth characteristics (determined by reference to earnings-per-share growth, sales-per-share growth and upward
share price momentum) and a portion of the performance of companies with more balanced value and growth characteristics (where greater
weight is allocated to companies with relatively stronger value characteristics and relatively weaker growth characteristics). For additional
information about the Index, see Annex A in this pricing supplement.
The Fund is an exchange-traded fund of iShares®
Trust, a registered investment company, that seeks to track the investment results, before fees and expenses, of an index composed of
small capitalization U.S. equities that exhibit value characteristics, which we refer to as the Underlying Index with respect to the Fund.
The Underlying Index for the Fund is currently the Russell 2000® Value Index. The Russell 2000® Value Index
measures the capitalization-weighted price performance of the stocks included in the Russell 2000® Index that are determined
by FTSE Russell to be value oriented, with lower price-to-book ratios and lower forecasted growth values. For additional information about
the Fund, see “Fund Descriptions — The iShares® ETFs” in the accompanying underlying supplement. For
purposes of the accompanying underlying supplement, the Fund is an “iShares® ETF.” For additional information
about the Russell 2000® Value Index, see Annex B in this pricing supplement.
Historical Information
The following graphs set forth the historical performance
of each Underlying based on the weekly historical closing values from January 8, 2016 through April 1, 2021. The U.S. equity markets were
closed on April 2, 2021 in observance of Good Friday. The closing value of the Index on April 7, 2021 was 1,416.98100. The closing value
of the Fund on April 7, 2021 was $159.67. We obtained the closing values above and below from the Bloomberg Professional®
service (“Bloomberg”), without independent verification. The closing values of the Fund above and below may have been adjusted
by Bloomberg for actions taken by the Fund, such as stock splits.
The historical closing values of each Underlying
should not be taken as an indication of future performance, and no assurance can be given as to the closing value of either Underlying
on the Observation Date. There can be no assurance that the performance of the Underlyings will result in the return of any of your principal
amount.
PS-7 | Structured Investments
Uncapped Accelerated Barrier Notes Linked to the Lesser Performing of the S&P 500® Value Index and the iShares® Russell 2000 Value ETF
|
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Tax Treatment
You
should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement
no. 4-II. The following discussion, when read in combination with that section, constitutes the full opinion of our special tax counsel,
Davis Polk & Wardwell LLP, regarding the material U.S. federal income tax consequences of owning and disposing of notes.
Based on current
market conditions, in the opinion of our special tax counsel it is reasonable to treat the notes as “open transactions” that
are not debt instruments for U.S. federal income tax purposes, as more fully described in “Material U.S. Federal Income Tax Consequences
— Tax Consequences to U.S. Holders — Notes Treated as Open Transactions That Are Not Debt Instruments” in the accompanying
product supplement. Assuming this treatment is respected, subject to the possible application of the “constructive ownership”
rules, the gain or loss on your notes should be treated as long-term capital gain or loss if you hold your notes for more than a year,
whether or not you are an initial purchaser of notes at the issue price. The notes could be treated as “constructive ownership
transactions” within the meaning of Section 1260 of the Code, in which case any gain recognized in respect of the notes that would
otherwise be long-term capital gain and that was in excess of the “net underlying long-term capital gain” (as defined in Section
1260) would be treated as ordinary income, and a notional interest charge would apply as if that income had accrued for tax purposes at
a constant yield over your holding period for the notes. Our special tax counsel has not expressed an opinion with respect to whether
the constructive ownership rules apply to the notes. Accordingly, U.S. Holders should consult their tax advisers regarding the potential
application of the constructive ownership rules.
The IRS or
a court may not respect the treatment of the notes described above, in which case the timing and character of any income or loss on your
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
in particular on whether to require investors in these instruments to accrue income over the term of their investment. It also asks
for comments on a number of related topics, including the character of income or loss with respect to these instruments; the relevance
of factors such as the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including
any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should
be subject to the constructive ownership regime described above. While the notice requests comments on appropriate transition rules
and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely
affect the tax consequences of an investment in the notes, possibly with retroactive effect. You should consult your tax adviser
regarding the U.S. federal income tax consequences of an investment in the notes, including the potential application of the constructive
ownership rules, possible alternative treatments and the issues presented by this notice.
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. Additionally, a recent IRS notice
excludes from the scope of Section 871(m) instruments issued prior to January 1, 2023 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
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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 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.
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 may differ from the market-implied funding rate for vanilla fixed income instruments of a similar maturity issued by
JPMorgan Chase & Co. or its affiliates. Any difference may be 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 income instruments of JPMorgan Chase & Co. This internal funding rate is based on certain
market inputs and assumptions, which may prove to be incorrect, and is intended to approximate the prevailing market replacement funding
rate for the notes. 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. For additional information, see “Selected Risk Considerations —
Risks Relating to the Estimated Value and Secondary Market Prices of the Notes — 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 — Risks
Relating to the Estimated Value and Secondary Market Prices of the Notes — 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 selling commissions, projected hedging profits, if any, and, in some circumstances, estimated
hedging costs and our internal secondary market funding rates for structured debt issuances. This initial predetermined time period is
intended to be the shorter of six months and one-half of the stated term of the notes. The length of any such initial period reflects
the structure of the notes, whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated costs
of hedging the notes and when these costs are incurred, as determined by our affiliates. See “Selected Risk Considerations —
Risks Relating to the Estimated Value and Secondary Market Prices
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of the Notes — 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 “Hypothetical Payout Profile” and “How
the Notes Work” in this pricing supplement for an illustration of the risk-return profile of the notes and “The Underlyings”
in this pricing supplement for a description of the market exposure provided by the notes.
The original issue price of the notes is equal to the
estimated value of the notes plus the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, plus (minus) the
projected profits (losses) that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes,
plus the estimated cost of hedging our obligations under the notes.
Supplemental
Plan of Distribution
We expect that delivery of the notes will be made against
payment for the notes on or about the Original Issue Date set forth on the front cover of this pricing supplement, which will be the third
business day following the Pricing Date of the notes (this settlement cycle being referred to as “T+3”). Under Rule 15c6-1
of the Securities Exchange Act of 1934, as amended, trades in the secondary market generally are required to settle in two business days,
unless the parties to that trade expressly agree otherwise. Accordingly, purchasers who wish to trade notes on any date prior to two business
days before delivery will be required to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement
and should consult their own advisors.
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 (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law
on the conclusions expressed above or (ii) any provision of the indenture that purports to avoid the effect of fraudulent conveyance,
fraudulent transfer or similar provision of applicable law by limiting the amount of JPMorgan Chase & Co.’s obligation under
the related guarantee. 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
26, 2020, which was filed as an exhibit to the Registration Statement on Form S-3 by JPMorgan Financial and JPMorgan Chase & Co. on
February 26, 2020.
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 and the accompanying underlying
supplement. This pricing supplement, together with the documents listed below, contains the terms of the notes and supersedes all other
prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence,
trade ideas, structures for implementation, sample structures, fact sheets, brochures or other educational materials of ours. You should
carefully consider, among other things, the matters set forth in the “Risk Factors” sections of the accompanying prospectus
supplement, the accompanying product supplement and the accompanying underlying supplement, as the notes involve risks not associated
with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest
in the notes.
You may access these documents on the SEC website at
www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
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Our Central Index Key, or CIK, on the SEC website is
1665650, and JPMorgan Chase & Co.’s CIK is 19617. As used in this pricing supplement, “we,” “us” and
“our” refer to JPMorgan Financial.
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Annex A
The S&P
500® Value Index
All information contained in this pricing supplement
regarding the S&P 500® Value Index (the “Value Index”), including, without limitation, its make-up,
method of calculation and changes in its components, has been derived from publicly available information, without independent verification.
This information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC (“S&P Dow Jones”).
The Value Index is calculated, maintained and published by S&P Dow Jones. S&P Dow Jones has no obligation to continue to publish,
and may discontinue the publication of, the Value Index.
The Value Index is reported by Bloomberg, L.P. under
the ticker symbol “SVX.”
The Value Index is a subset of the S&P 500®
Index and is a float-adjusted market capitalization-weighted index. S&P Dow Jones allocates the complete float-adjusted market capitalization
of the companies included in the S&P 500® Index between the Value Index and the S&P 500® Growth
Index (the “Growth Index”) based on an assessment of those companies’ respective value and growth characteristics.
The market capitalization of companies exhibiting the strongest value characteristics relative to their respective growth characteristics
is allocated to the Value Index (approximately 33% of the market capitalization of the S&P 500® Index), and the market
capitalization of companies exhibiting the strongest growth characteristics relative to their respective value characteristics (approximately
33% of the market capitalization of the S&P 500® Index) is allocated to the Growth Index. The market capitalization
of the remaining companies included in the S&P 500® Index is split between the Value Index and the Growth Index, with
more of the market capitalization of companies exhibiting stronger value characteristics relative to their respective growth characteristics
being allocated to the Value Index and more of the market capitalization of companies exhibiting the stronger growth characteristics relatively
to their respective value characteristics being allocated to the Value Index.
The S&P 500® Index consists of stocks
of 500 companies selected to provide a performance benchmark for the U.S. equity markets. For more information about the S&P 500®
Index, see “Equity Index Descriptions — The S&P U.S. Indices” in the accompanying underlying supplement.
Index Construction
The Value Index is derived from its
parent index, the S&P 500® Index. The Value Index cannot have a constituent that is not also a member of the S&P
500® Index.
Style Factors. The Growth
Index and the Value Index (the “Style Indices”) measure growth and value along two separate dimensions, with three
factors each used to measure growth and value. The list of factors used is outlined in the table below.
Growth Factors
|
Value Factors
|
Three-year net change in earnings per share (excluding extra items) over price per share
|
Book value to price ratio
|
Three-year sales per share growth rate
|
Earnings to price ratio
|
Momentum (12-month % price change)
|
Sales to price ratio
|
|
·
|
If earnings from three years prior
are not available, two-year change in earnings per share (excluding extra items) over price per share is used. If earnings from two years
prior are not available, one-year change in earnings per share (excluding extra items) over price per share is used. If earnings from
one year prior are not available, the factor is set equal to zero. If the starting values is less than zero, the score is multiplied by
a factor of negative 1.
|
|
·
|
If sales from three years prior are
not available, two-year sales per share growth rate is used. If sales from two years prior are not available, one-year sales per share
growth rate is used. If sales from one year prior are not available, the factor is set equal to zero. If the starting values is less than
zero, the score is multiplied by a factor of negative 1.
|
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·
|
If there is not enough trading history
to calculate 12-month momentum then the momentum factor is calculated from the stock’s listing date.
|
|
·
|
If book value to price ratio, earnings
to price ratio, or sales to price ratio is not available then such factor is set equal to zero.
|
Style Scores. Raw values for
each of the above factors are calculated by S&P Dow Jones for each company in the S&P Total Market Index universe. The S&P
Total Market Index is a float-adjusted, market-capitalization weighted index designed to track the broad U.S. equity market, including
large-, mid-, small- and micro-cap stocks.
These raw values are first “winsorized”
(a statistical tool used to minimize the influence of outliers in data) to the 90th percentile and then standardized by dividing
the difference between each company’s raw score and the mean of the entire set by the standard deviation of the entire set. A “growth
score” for each company is computed as the average of the standardized values of the three
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growth factors. Similarly, a “value score”
for each company is computed as the average of the standardized values of the three value factors. At the end of this step each company
has a growth score and a value score.
Establishing Style Baskets. Companies
within the S&P 500® Index are then ranked based on their growth and value scores. A company with a high growth score
would have a higher “growth rank,” while a company with a low value score would have a lower “value rank.” For
example, the S&P 500® Index constituent with the highest value score would have a value rank of 1, while the constituent
with the lowest value score would have a value rank of 500.
The companies within the S&P
500® Index are then sorted in ascending order by the ratio of their growth rank to their value rank. The companies at the
top of the list have a higher growth rank (or higher growth score) and a lower value rank (or lower value score) and, therefore, exhibit
pure growth characteristics. The companies at the top of the list, comprising 33% of the total index market capitalization, are included
in the “growth basket.”
The companies at the bottom of the
list have a higher value rank (or higher value score) and a lower growth rank (or lower growth score) and, therefore, exhibit pure value
characteristics. The companies at the bottom of the list, comprising 33% of the total index market capitalization, are included in the
“value basket.”
The companies in the middle of the
list have similar growth ranks and value ranks and, therefore, exhibit neither pure growth nor pure value characteristics. The companies
in the middle of the list, comprising 34% of the total index market capitalization, are included in the “blended basket.”
Growth and Value Indices. The
style baskets described above are the starting points for the Style Indices’ construction. 100% of the float market capitalization
of a company in the value basket is assigned to the Value Index, and 100% of the float market capitalization of a company in the growth
basket is assigned to the Growth Index.
The middle 34% of float market capitalization
consists of companies that have similar growth and value ranks. The market capitalization of these companies that are in the blended basket
is distributed between the Value Index and the Growth Index based on their distances from the midpoint of the growth basket and the midpoint
of the value basket. The midpoint of each style basket is calculated as the average of value scores and growth scores of all companies
in that style basket.
Based on back-tested results, the
total market capitalization is approximately equally divided among the Growth Index and the Value Index. However, there is no mathematical
procedure employed to force equal market capitalization for the Growth Index and Index, since price movements of constituent stocks would
result in inequality immediately following any reconstitution. Therefore, the future allocation of the market capitalization to the Style
Indices may not be equal.
The Value Index is calculated following
S&P Dow Jones’ modified market capitalization-weighted, divisor-based index methodology. Corporate actions and index changes
are implemented in the same manner as for other market capitalization-weighted indices. See “Equity Index Descriptions — The
S&P U.S. Indices” in the accompanying underlying supplement for additional information.
Maintenance of the Value Index
Rebalancing. The Value Index
is rebalanced once a year in December. The rebalancings occur after the close on the third Friday of December. The reference date for
growth and value expressions is after the close of the last trading date of the previous month.
Style scores, float market-capitalization
weights and growth and value midpoint averages are reset only once a year at the December rebalancing.
Other changes to the Value Index
are made on an as-needed basis, following the guidelines of the S&P 500® Index. Changes in response to corporate actions
and market developments can be made at any time. Constituent changes are typically announced for the S&P 500® Index
two-to-five days before they are scheduled to be implemented.
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Corporate Actions and Other
Adjustments
S&P 500® Index Action
|
Adjustment Made to the Value Index
|
Divisor Adjustment?
|
Constituent Change
|
If the index constituent being dropped is a member of the Value Index, it is removed from such index. The replacement stock will then be added to either the Value Index or the Growth Index (or both) based on its growth/value rank, and S&P Dow Jones will announce the percent of float market capitalization of the replacement stock to be added to the Value Index and the Growth Index via its index corporate events report. The percent of float market capitalization of the constituent in each Style Index for the replacement stock is calculated using GICS industry-level averages for stocks outside the S&P Composite 1500 index other than spin-offs, and such percentage will be based on old values for inter-index moves.
|
Yes
|
Share Changes Between Quarterly Share Adjustments
|
Share count follows the S&P 500® Index share count.
|
Yes
|
Quarterly Share Changes
|
Share count follows the S&P 500® Index share count. In addition, the new percent of float market capitalization in the Value Index and the Growth Index changes for all constituent stocks at the December rebalancing. These will be pre-announced in a manner similar to quarterly share changes.
|
Yes
|
Spin-off
|
Index membership follows the S&P 500® Index. The “child stock” is assigned the same percent of float market capitalization in each Style Index as its “parent stock.”
|
No
|
See “Equity Index Descriptions
— The S&P U.S. Indices” in the accompanying underlying supplement for the treatment of other corporate actions.
Index Governance
S&P Dow Jones’ Americas
Thematic and Strategy Index Committee (the “Index Committee”) maintains the Value Index. All members of the Index Committee
are full-time professional members of S&P Dow Jones’ staff. The Index Committee meets regularly. At each meeting, the Index
Committee may review pending corporate actions that may affect constituents of the Value Index, statistics comparing the composition of
the Value Index to the market, companies that are being considered as candidates for addition to the Value Index and any significant market
events. In addition, the Index Committee may revise index policy covering rules for selecting companies, treatment of dividends, share
counts or other matters.
License Agreement
JPMorgan Chase & Co. or its affiliate
has entered into an agreement with S&P Dow Jones that provides it and certain of its affiliates or subsidiaries, including JPMorgan
Financial, with a non-exclusive license and, for a fee, with the right to use the Value Index, which is owned and published by S&P
Dow Jones, in connection with certain securities, including the notes.
The notes are not sponsored, endorsed,
sold or promoted by S&P Dow Jones or its third party licensors. Neither S&P Dow Jones nor its third party licensors makes any
representation or warranty, express or implied, to the owners of the notes or any member of the public regarding the advisability of investing
in securities generally or in the notes particularly or the ability of the Value Index to track general stock market performance. S&P
Dow Jones’ and its third party licensors’ only relationship to JPMorgan Financial or JPMorgan Chase & Co. is the licensing
of certain trademarks and trade names of S&P Dow Jones and the third party licensors and of the Value Index which is determined, composed
and calculated by S&P Dow Jones or its third party licensors without regard to JPMorgan Financial or JPMorgan Chase & Co. or the
notes. S&P Dow Jones and its third party licensors have no obligation to take the needs of JPMorgan Financial or JPMorgan Chase &
Co. or the owners of the notes into consideration in determining, composing or calculating the Value Index. Neither S&P Dow Jones
nor its third party licensors is responsible for and has not participated in the determination of the prices and amount of the notes or
the timing of the issuance or sale of the notes or in the determination or calculation of the equation by which the notes are to be converted
into cash. S&P Dow Jones has no obligation or liability in connection with the administration, marketing or trading of the notes.
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NEITHER
S&P Dow Jones, ITS AFFILIATES NOR THEIR THIRD PARTY LICENSORS GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE
Value Index OR ANY DATA INCLUDED THEREIN OR ANY COMMUNICATIONS, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATIONS (INCLUDING
ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P Dow Jones, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS SHALL NOT BE SUBJECT
TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS OR DELAYS THEREIN. S&P Dow Jones MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE MARKS, THE Value
Index OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P Dow Jones, ITS AFFILIATES
OR THEIR THIRD PARTY LICENSORS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED
TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER
IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE.
“Standard & Poor’s,”
“S&P” and “S&P 500” are trademarks of Standard & Poor’s Financial Services LLC and have been
licensed for use by JPMorgan Chase & Co. and its affiliates, including JPMorgan Financial.
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Annex
B
The Russell 2000® Value Index
All information contained in this pricing supplement
regarding the Russell 2000® Value Index (the “Value Index”), including, without limitation, its make-up, method
of calculation and changes in its components, has been derived from publicly available information, without independent verification.
This information reflects the policies of, and is subject to change by, FTSE Russell. The Value Index is calculated, maintained and published
by FTSE Russell. FTSE Russell has no obligation to publish, and may discontinue the publication of, the Value Index.
The Value Index is reported by Bloomberg under the
ticker symbol “RUJ.”
The Value Index measures the capitalization-weighted
price performance of the stocks included in the Russell 2000® Index (each, a “Russell 2000 Component Stock”
and collectively, the “Russell 2000 Component Stocks”) that are determined by FTSE Russell to be value oriented, with lower
price-to-book ratios and lower forecasted growth values. The Russell 2000® Index measures the capitalization-weighted price
performance of 2,000 U.S. small-capitalization stocks listed on eligible U.S. exchanges. For more information about the Russell 2000®
Index, see “Equity Index Descriptions — The Russell Indices” in the accompanying underlying supplement.
FTSE Russell uses a “non-linear probability”
method to assign stocks to the Value Index and the Russell 2000® Growth Index (the “Growth Index”), an index
that measures the capitalization-weighted price performance of the Russell 2000 Component Stocks determined by FTSE Russell to be growth
oriented, with higher price-to-book ratios and higher forecasted growth values. The term “probability” is used to indicate
the degree of certainty that a stock is value or growth based on its relative book-to-price (B/P) ratio, I/B/E/S forecast medium-term
growth (2 year) and sales per share historical growth (5 year). This method allows stocks to be represented as having both growth and
value characteristics, while preserving the additive nature of the indices.
The process for assigning growth and value weights
is applied separately to the Russell 2000 Component Stocks. The Russell 2000 Component Stocks are ranked by their adjusted book-to-price
ratio (B/P), their I/B/E/S forecast medium-term growth (2 year) and sales per share historical growth (5 year). These rankings are converted
to standardized units, where the value variable represents 50% of the score and the two growth variables represent the remaining 50%.
They are then combined to produce a Composite Value Score (“CVS”).
The Russell 2000 Component Stocks are then ranked by
their CVS, and a probability algorithm is applied to the CVS distribution to assign growth and value weights to each stock. In general,
a stock with a lower CVS is considered growth, a stock with a higher CVS is considered value, and a stock with a CVS in the middle range
is considered to have both growth and value characteristics, and is weighted proportionately in the growth and value indices. Stocks are
always fully represented by the combination of their growth and value weights (e.g., a stock that is given a 20% weight in the Value Index
will have an 80% weight in the Growth Index).
Stock A, in the figure below, is a security with 20%
of its available shares assigned to the Value Index and the remaining 80% assigned to the Growth Index. Hence, the sum of a stock’s
market capitalization in the Value Index and the Growth Index will always equal its market capitalization in the Russell 2000®
Index.
In the figure above, the quartile breaks are calculated
such that approximately 25% of the available market capitalization lies in each quartile. Stocks at the median are divided 50% in each
of the Value Index and the Growth Index. Stocks below the first quartile are 100% in the Growth Index. Stocks above the third quartile
are 100% in the Value Index. Stocks falling between the first and third quartile breaks are in both the Value Index and the Growth Index
to varying degrees, depending on how far they are above or below the median and how close they are to the first or third quartile breaks.
Roughly 70% of the available market capitalization
is classified as all growth or all value. The remaining 30% have some portion of their market value in either the Value Index or the Growth
Index, depending on their relative distance from the median value score.
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Note that there is a small position cutoff rule. If a stock’s
weight is more than 95% in one index, its weight is increased to 100% in that index.
In an effort to mitigate unnecessary turnover, FTSE
Russell implements a banding methodology at the CVS level of the growth and value style algorithm. If a company’s CVS change from
the previous year is greater than or equal to +/- 0.10 and if the company remains in the same core index (i.e., the Russell 2000®
Index), then the CVS remains unchanged during the next reconstitution process. Keeping the CVS static for these companies does not mean
the probability (growth/value) will remain unchanged in all cases due to the relation of a CVS score to the overall index. However, this
banding methodology is intended to reduce turnover caused by smaller, less meaningful movements while continuing to allow the larger,
more meaningful changes to occur, signaling a true change in a company’s relation to the market.
In calculating growth and value weights, stocks with
missing or negative values for B/P, or missing values for I/B/E/S growth, or missing sales per share historical growth (6 years of quarterly
numbers are required), are allocated by using the mean value score of the base index (the Russell 2000® Index), the Russell
Global Sectors (ICB) industry, subsector or sector group into which the company falls. Each missing (or negative B/P) variable is substituted
with the industry, subsector or sector group independently. An industry must have five members or the substitution reverts to the subsector,
and so forth to the sector. In addition, a weighted value score is calculated for securities with low analyst coverage for I/B/E/S medium-term
growth. For securities with coverage by a single analyst, 2/3 of the industry, subsector, or sector group value score is weighted with
1/3 the security’s independent value score. For those securities with coverage by two analysts, 2/3 of the independent security’s
value score is used and only 1/3 of the industry, subsector, or sector group is weighted. For those securities with at least three analysts
contributing to the I/B/E/S medium-term growth, 100% of the independent security’s value score is used.
For more information about the index calculation methodology
used for the Value Index, see “Equity Index Descriptions — The Russell Indices” in the accompanying underlying supplement.
For purposes of this pricing supplement, all references to the Russell Indices contained in the above-referenced section are deemed to
include the Value Index.
PS-17 | Structured Investments
Uncapped Accelerated Barrier Notes Linked to the Lesser Performing of the S&P 500® Value Index and the iShares® Russell 2000 Value ETF
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