The
information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing supplement is
not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject
to completion dated July 27, 2016
JPMorgan Chase Financial Company LLC
|
August
2016
|
Pricing
Supplement No.
Registration
Statement Nos. 333-209682 and 333-209682-01
Dated
August , 2016
Filed
pursuant to Rule 424(b)(2)
Structured Investments
Opportunities in U.S. Equities
Buffered PLUS Based on the Value of the S&P 500
®
Index due
March
5, 2019
Buffered Performance Leveraged
Upside Securities
SM
Principal at Risk Securities
Fully and Unconditionally
Guaranteed by JPMorgan Chase & Co.
The Buffered PLUS offered will
pay no interest and provide a minimum payment at maturity of only 10.00% of the stated principal amount. At maturity, if the underlying
index has appreciated in value, investors will receive the stated principal amount of their investment plus leveraged upside performance
of the underlying index, subject to a maximum payment at maturity. If the underlying index has declined in value but has not declined
by more than the specified buffer amount, investors will receive the stated principal amount of their investment. However, if
the underlying index has declined by more than the buffer amount, at maturity investors will lose 1% for every 1% decline beyond
the specified buffer amount, subject to the minimum payment at maturity of 10.00% of the stated principal amount.
Investors
may lose up to 90.00% of the stated principal amount of the Buffered PLUS at maturity.
The Buffered PLUS are for investors
who seek an equity-based return and who are willing to risk their principal and forgo current income and upside above the maximum
payment at maturity in exchange for the leverage and buffer features that in each case apply to a limited range of performance
of the underlying index. At maturity, an investor will receive an amount in cash that may be greater than, equal to, or less than
the stated principal amount based upon the closing level of the underlying index on the valuation date
.
The Buffered PLUS
are unsecured and unsubordinated obligations of JPMorgan Chase Financial Company LLC, which we refer to as JPMorgan Financial,
the payment on which is fully and unconditionally guaranteed by JPMorgan Chase & Co., issued as part of JPMorgan Financial’s
Medium-Term Notes, Series A, program.
Any payment on the Buffered PLUS is subject to the credit risk of JPMorgan Financial,
as issuer of the Buffered PLUS, and the credit risk of JPMorgan Chase & Co., as guarantor of the Buffered PLUS.
SUMMARY TERMS
|
Issuer:
|
JPMorgan Chase Financial Company LLC
|
Guarantor:
|
JPMorgan Chase & Co.
|
Underlying index:
|
S&P 500
®
Index
|
Aggregate principal amount:
|
$
|
Payment at maturity:
|
If the final index value is
greater than
the initial index value, for
each $10 stated principal amount Buffered PLUS,
|
|
$10 + leveraged upside payment
|
|
In no event will the payment at maturity exceed the maximum payment at maturity.
|
|
If the final index value is
equal to
the initial index value
or
is
less than
the initial index value but has decreased from the initial index value by an amount
less than or equal
to
the buffer amount of 10.00%, for each $10 stated principal amount Buffered PLUS,
|
|
$10
|
|
If the final index value is
less than
the initial index value and has
decreased from the initial index value by an amount
greater than
the buffer amount of 10.00%, for each $10 stated principal
amount Buffered PLUS,
|
|
($10 × index performance factor) + $1.00
|
|
This amount will be less than the stated principal amount of $10 per Buffered
PLUS. However, subject to the credit risk of JPMorgan Chase & Co., under no circumstances will the Buffered
PLUS pay less than $1.00 per Buffered PLUS at maturity.
|
Leveraged upside payment:
|
$10 × leverage factor × index percent increase
|
Index percent increase:
|
(final index value – initial index value) / initial index value
|
Leverage factor:
|
200%
|
Buffer amount:
|
10.00%
|
Index performance factor:
|
final index value / initial index value
|
Maximum payment at maturity:
|
At least $12.03 (at least 120.30% of the stated principal amount) per Buffered
PLUS. The actual maximum payment at maturity will be provided in the pricing supplement and will not be less than
$12.03 per Buffered PLUS.
|
Minimum payment at maturity:
|
$1.00 per Buffered PLUS (10.00% of the stated principal amount)
|
Stated principal amount:
|
$10 per Buffered PLUS
|
Issue price:
|
$10 per Buffered PLUS (see “Commissions and issue price” below)
|
Pricing date:
|
August , 2016 (expected to price on or about August
17, 2016)
|
Original issue date (settlement
date):
|
August , 2016 (3 business days after the pricing
date)
|
Valuation date:
|
February 28, 2019, subject to postponement in the event of certain market disruption
events and as described under “General Terms of Notes — Postponement of a Determination Date — Notes
Linked to a Single Underlying — Notes Linked to a Single Underlying (Other Than a Commodity Index)” in the accompanying
product supplement
|
Maturity date:
|
March 5, 2019, subject to postponement in the event of certain market disruption
events and as described under “General Terms of Notes — Postponement of a Payment Date” in the accompanying
product supplement no. 4a-I
|
Agent:
|
J.P. Morgan Securities LLC (“JPMS”)
|
|
Terms continued on the following page
|
Commissions and issue price:
|
Price
to public
(1)
|
Fees and commissions
|
Proceeds to issuer
|
Per Buffered PLUS
|
$10.00
|
$0.25
(2)
|
$9.70
|
|
|
$0.05
(
3)
|
|
Total
|
$
|
$
|
$
|
|
(1)
|
See
“Additional Information about the Buffered PLUS — Supplemental use of proceeds
and hedging” in this document for information about the components of the price
to public of the Buffered PLUS.
|
|
(2)
|
JPMS,
acting as agent for JPMorgan Financial, will pay all of the selling commissions it receives
from us to Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”).
In no event will these selling commissions exceed $0.25 per $10 stated principal amount
Buffered PLUS. See “Plan of Distribution (Conflicts of Interest)” in the
accompanying product supplement.
|
|
(3)
|
Reflects
a structuring fee payable to Morgan Stanley Wealth Management by the agent or its affiliates
of $0.05 for each $10 stated principal amount Buffered PLUS.
|
If the Buffered PLUS priced
today and assuming a maximum payment at maturity equal to the minimum listed above, the estimated value of the Buffered PLUS would
be approximately $9.765 per $10 stated principal amount Buffered PLUS. The estimated value of the Buffered PLUS on the pricing
date will be provided in the pricing supplement and will not be less than $9.60 per $10 stated principal amount Buffered PLUS.
See “Additional Information about the Buffered PLUS — The estimated value of the Buffered PLUS” in this document
for additional information.
Investing in the Buffered PLUS
involves a number of risks. See “Risk Factors” beginning on page PS-10 of the accompanying product supplement, “Risk
Factors” beginning on page US-2 of the accompanying underlying supplement and “Risk Factors” beginning on page
7 of this document.
Neither the Securities and Exchange
Commission (the “SEC”) nor any state securities commission has approved or disapproved of the Buffered PLUS or passed
upon the accuracy or the adequacy of this document or the accompanying product supplement, underlying supplement, prospectus supplement
and prospectus. Any representation to the contrary is a criminal offense.
The Buffered PLUS are not bank
deposits, are not insured by the Federal Deposit Insurance Corporation or any other governmental agency and are not obligations
of, or guaranteed by, a bank.
You should read this document together with the related product
supplement, underlying supplement, prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below.
Please also see “Additional Information about the Buffered PLUS” at the end of this document.
Product supplement no. MS-1-I dated June
3, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316013935/crt_dp64833-424b2.pdf
Underlying supplement no. 1-I dated April
15, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316012649/crt-dp64909_424b2.pdf
Prospectus supplement and prospectus, each
dated April 15, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316012636/crt_dp64952-424b2.pdf
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Terms continued from previous page:
Initial
index value:
|
The closing level of the underlying index on the pricing date
|
Final index value:
|
The closing level of the underlying index on the valuation date
|
CUSIP / ISIN:
|
46646X803 / US46646X8039
|
Listing:
|
The Buffered PLUS will not be listed on any securities exchange.
|
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Investment Summary
Buffered
Performance Leveraged Upside Securities
Principal
at Risk Securities
The Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019 (the “Buffered PLUS”) can be used:
|
§
|
As an alternative to direct exposure to the underlying index that enhances returns for a certain range of potential positive
performance of the underlying index.
|
|
§
|
To potentially achieve similar levels of upside exposure to the underlying index as a direct investment, subject to the maximum
payment at maturity, while using fewer dollars by taking advantage of the leverage factor.
|
|
§
|
To obtain a buffer against a specified level of negative performance in the underlying index.
|
Maturity:
|
Approximately 2.5 years
|
Leverage factor:
|
200%
|
Buffer amount:
|
10.00%
|
Maximum payment at maturity:
|
At least $12.03 (at least 120.30% of the stated principal amount) per Buffered PLUS (to be provided in the pricing supplement)
|
Minimum payment at maturity:
|
$1.00 per Buffered PLUS. Investors may lose up to 90.00% of the stated principal amount of the Buffered PLUS at maturity.
|
Supplemental Terms of the Buffered PLUS
For purposes of the accompanying
product supplement, the underlying index is an “Index.”
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Key Investment Rationale
Buffered PLUS offer leveraged exposure to an underlying asset,
which may be equities, commodities and/or currencies, while providing limited protection against negative performance of the asset.
If the asset has decreased in value by more than the specified buffer amount, investors are exposed to the negative performance
of the asset, subject to the minimum payment at maturity. At maturity, if the asset has appreciated, investors will receive the
stated principal amount of their investment plus leveraged upside performance of the underlying asset, subject to the maximum payment
at maturity. At maturity, if the asset has depreciated and (i) if the asset has not depreciated by more than the specified buffer
amount, investors will receive the stated principal amount of their investment, or (ii) if the asset has depreciated by more than
the buffer amount, the investor will lose 1% for every 1% decline beyond the specified buffer amount.
Investors may lose up
to 90.00% of the stated principal amount of the Buffered PLUS at maturity.
Leveraged Performance
|
The Buffered PLUS offer investors an opportunity to capture enhanced returns for a certain range of positive performance relative to a direct investment in the underlying index.
|
Upside Scenario
|
The underlying index increases in value and, at maturity, the Buffered PLUS pay the stated principal amount of $10
plus
a return equal to 200% of the index percent increase, subject to the maximum payment at maturity of at least $12.03 (at least 120.30% of the stated principal amount) per Buffered PLUS. The actual maximum payment at maturity will be provided in the pricing supplement.
|
Par Scenario
|
The final index value is equal to the initial index value or declines in value by no more than 10.00% and, at maturity, the Buffered PLUS pay the stated principal amount of $10 per Buffered PLUS.
|
Downside Scenario
|
The underlying index declines in value by more than 10.00% and, at maturity, the Buffered PLUS pay an amount that is less than the stated principal amount by an amount that is proportionate to the percentage decline of the final index value from the initial index value, plus the buffer amount of 10.00%. (Example: if the underlying index decreases in value by 20%, the Buffered PLUS will pay an amount that is less than the stated principal amount by 20% plus the buffer amount of 10.00%, or $9.00 per Buffered PLUS.) The minimum payment at maturity is $1.00 per Buffered PLUS, subject to the credit risk of JPMorgan Chase & Co.
|
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
How the Buffered PLUS Work
Payoff
Diagram
The payoff diagram below illustrates the payment at maturity
on the Buffered PLUS based on the following terms:
Stated principal amount:
|
$10 per Buffered PLUS
|
Leverage factor:
|
200%
|
Hypothetical maximum payment at maturity:
|
$12.03 (120.30% of the stated principal amount) per Buffered PLUS (which represents the lowest hypothetical maximum payment at maturity)*
|
Minimum payment at maturity:
|
$1.00 per Buffered PLUS
|
*The actual maximum payment at maturity will be provided
in the pricing supplement and will not be less than $12.03 per Buffered PLUS.
Buffered PLUS Payoff Diagram
|
|
How it works
|
§
|
Upside Scenario.
If the final index value
is greater than the initial index value, for each $10 principal amount Buffered PLUS investors will receive the $10 stated principal
amount
plus
a return equal to 200% of the appreciation of the underlying index over the term of the Buffered PLUS, subject
to the maximum payment at maturity. Under the hypothetical terms of the Buffered PLUS, an investor will realize the hypothetical
maximum payment at maturity at a final index value of 110.15% of the initial index value.
|
|
§
|
Par Scenario.
If the final index value
is equal to the initial index value or is less than the initial index value but has decreased from the initial index value by an
amount less than or equal to the buffer amount of 10.00%, investors will receive the stated principal amount of $10 per Buffered
PLUS.
|
|
§
|
Downside Scenario.
If the final index
value is less than the initial index value and has decreased from the initial index value by an amount greater than the buffer
amount of 10.00%, investors will receive an amount that is less than the stated principal amount by an amount proportionate to
the percentage decrease of the final index value from the initial index value, plus the buffer amount of 10.00%. The minimum payment
at maturity is $1.00 per Buffered PLUS.
|
|
§
|
For example, if the underlying index depreciates 50%, investors will lose 40.00% of their principal and receive only $6.00
per Buffered PLUS at maturity, or 60.00% of the stated principal amount.
|
The hypothetical returns and hypothetical payments
on the Buffered PLUS shown above apply
only if you hold the Buffered PLUS for their entire term.
These hypotheticals do
not reflect fees or expenses that would
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
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.
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Risk Factors
The
following is a non-exhaustive list of certain key risk factors for investors in the Buffered PLUS.
For further discussion
of these and other risks, you should read the sections entitled “Risk Factors” of the accompanying product supplement
and the accompanying underlying supplement. We urge you to consult your investment, legal, tax, accounting and other advisers in
connection with your investment in the Buffered PLUS.
|
§
|
Buffered PLUS do not pay interest and you could lose up to 90.00%
of your principal at maturity.
The terms of the Buffered PLUS differ from those of ordinary debt securities in that
the Buffered PLUS do not pay interest and provide a minimum payment at maturity of only 10.00% of your principal, subject to the
credit risk of JPMorgan Chase & Co. If the final index value has declined by an amount greater than the buffer amount of 10.00%
from the initial index value, you will receive for each Buffered PLUS that you hold a payment at maturity that is less than the
stated principal amount of each Buffered PLUS by an amount proportionate to the decline in the value of the underlying index, plus
$1.00 per Buffered PLUS. Accordingly, you could lose up to 90.00% of your principal.
|
|
§
|
The appreciation potential of the Buffered PLUS is limited by the
maximum payment at maturity.
The appreciation potential of the Buffered PLUS is limited by
the maximum payment at maturity of at least $12.03 (at least 120.30% of the stated principal amount) per Buffered PLUS. The actual
maximum payment at maturity will be provided in the pricing supplement. Because the maximum payment at maturity will be limited
to at least 120.30% of the stated principal amount for the Buffered PLUS, any increase in the final index value by more than 10.15%
(if the maximum payment at maturity is set at 120.30% of the stated principal amount) will not further increase the return on the
Buffered PLUS. The actual maximum payment at maturity will be provided in the pricing supplement.
|
|
§
|
The Buffered PLUS are subject to the credit risks of JPMorgan Financial
and JPMorgan Chase & Co., and any actual or anticipated changes to our or JPMorgan Chase & Co.’s credit ratings or
credit spreads may adversely affect the market value of the Buffered PLUS.
Investors are dependent on our and JPMorgan
Chase & Co.’s ability to pay all amounts due on the Buffered PLUS. Any actual or anticipated decline in our or JPMorgan
Chase & Co.’s credit ratings or increase in our or JPMorgan Chase & Co.’s credit spreads determined by the
market for taking that credit risk is likely to adversely affect the market value of the Buffered PLUS. If we and JPMorgan Chase
& Co. were to default on our payment obligations, you may not receive any amounts owed to you under the Buffered PLUS and you
could lose your entire investment.
|
|
§
|
As a finance subsidiary, JPMorgan Financial has no independent operations
and has limited assets.
As a finance subsidiary of JPMorgan Chase & Co., we have no independent operations beyond
the issuance and administration of our securities. Aside from the initial capital contribution from JPMorgan Chase & Co., substantially
all of our assets relate to obligations of our affiliates to make payments under loans made by us or other intercompany agreements.
As a result, we are dependent upon payments from our affiliates to meet our obligations under the Buffered PLUS. If these affiliates
do not make payments to us and we fail to make payments on the Buffered PLUS, 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.
|
|
§
|
Economic interests of the issuer, the guarantor, the calculation agent, the agent of the offering of the Buffered PLUS and
other affiliates of the issuer may be different from those of investors.
We
and our affiliates play a variety of roles in connection with the issuance of the Buffered PLUS, including acting as calculation
agent and as an agent of the offering of the Buffered PLUS, hedging our obligations under the Buffered PLUS and making the assumptions
used to determine the pricing of the Buffered PLUS and the estimated value of the Buffered PLUS, which we refer to as the estimated
value of the Buffered PLUS. In performing these duties, our and JPMorgan Chase & Co.’s economic interests and the economic
interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the
Buffered PLUS. The calculation agent will determine the initial index value and the final basket value and will calculate the amount
of payment you will receive at maturity. Determinations made by the calculation agent, including with respect to the occurrence
or non-occurrence of market disruption events, the selection of a successor to the underlying index or calculation of the final
index value in the event of a discontinuance or material change in method of calculation of the underlying index, may affect the
payment to you at maturity.
|
In
addition, JPMorgan Chase & Co. is currently one of the companies that make up the underlying index. JPMorgan Chase & Co.
will not have any obligation to consider your interests as a holder of the Buffered
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
PLUS
in taking any corporate action that might affect the value of the underlying index or the Buffered PLUS.
Moreover,
our and JPMorgan Chase & Co.’s business activities, including hedging and trading activities, could cause our and JPMorgan
Chase & Co.’s economic interests to be adverse to yours and could adversely affect any payment on the Buffered PLUS and
the value of the Buffered PLUS. It is possible that hedging or trading activities of ours or our affiliates in connection with
the Buffered PLUS could result in substantial returns for us or our affiliates while the value of the Buffered PLUS declines. Please
refer to “Risk Factors — Risks Relating to Conflicts of Interest” in the accompanying product supplement for
additional information about these risks.
|
§
|
The estimated value of the Buffered PLUS will be lower than the
original issue price (price to public) of the Buffered PLUS.
The estimated value of the Buffered
PLUS is only an estimate determined by reference to several factors. The original issue price of the Buffered PLUS will exceed
the estimated value of the Buffered PLUS because costs associated with selling, structuring and hedging the Buffered PLUS are included
in the original issue price of the Buffered PLUS. These costs include the selling commissions, the structuring fee, the projected
profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the Buffered
PLUS and the estimated cost of hedging our obligations under the Buffered PLUS. See “Additional Information about the Buffered
PLUS — The estimated value of the Buffered PLUS” in this document.
|
|
§
|
The estimated value of the Buffered PLUS does not represent future
values of the Buffered PLUS and may differ from others’ estimates. The estimated value of the Buffered PLUS is determined
by reference to internal pricing models of our affiliates.
This estimated value of the Buffered
PLUS is based on market conditions and other relevant factors existing at the time of pricing and assumptions about market parameters,
which can include volatility, dividend rates, interest rates and other factors. Different pricing models and assumptions could
provide valuations for the Buffered PLUS that are greater than or less than the estimated value of the Buffered PLUS. 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 Buffered PLUS 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 the Buffered PLUS from you in secondary market transactions. See “Additional
Information about the Buffered PLUS — The estimated value of the Buffered PLUS” in this document.
|
|
§
|
The estimated value of the Buffered PLUS is derived by reference
to an internal funding rate.
The internal funding rate used in the determination of the estimated
value of the Buffered PLUS is based on, among other things, our and our affiliates’ view of the funding value of the Buffered
PLUS as well as the higher issuance, operational and ongoing liability management costs of the Buffered PLUS
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 Buffered
PLUS and any secondary market prices of the Buffered PLUS. See “Additional Information about the Buffered PLUS — The
estimated value of the Buffered PLUS” in this document.
|
|
§
|
The value of the Buffered PLUS as published by JPMS (and which may
be reflected on customer account statements) may be higher than the then-current estimated value of the Buffered PLUS for a limited
time period.
We generally expect that some of the costs included in the original issue price
of the Buffered PLUS will be partially paid back to you in connection with any repurchases of your Buffered PLUS by JPMS in an
amount that will decline to zero over an initial predetermined period. These costs can include selling commissions, the structuring
fee, projected hedging profits, if any, and, in some circumstances, estimated hedging costs and our internal secondary market funding
rates for structured debt issuances. See “Additional Information about the Buffered PLUS — Secondary market prices
of the Buffered PLUS” in this document for additional information relating to this initial period. Accordingly, the estimated
value of your Buffered PLUS during this initial period may be lower than the value of the Buffered PLUS as published by JPMS (and
which may be shown on your customer account statements).
|
|
§
|
Secondary market prices of the Buffered PLUS will likely be lower than the original issue price of the Buffered PLUS
.
Any secondary market prices of the Buffered PLUS will likely be lower than the original issue price of the Buffered
PLUS 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 the structuring fee and (b) may exclude
|
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
projected hedging profits, if any,
and estimated hedging costs that are included in the original issue price of the Buffered PLUS. As a result, the price, if any,
at which JPMS will be willing to buy Buffered PLUS from you in secondary market transactions, if at all, is likely to be lower
than the original issue price. Any sale by you prior to the maturity date could result in a substantial loss to you. See the immediately
following risk factor for information about additional factors that will impact any secondary market prices of the Buffered PLUS.
The Buffered PLUS are not designed
to be short-term trading instruments. Accordingly, you should be able and willing to hold your Buffered PLUS to maturity. See “—
Secondary trading may be limited” below.
|
§
|
Secondary market prices of the Buffered PLUS will be impacted by
many economic and market factors.
The secondary market price of the Buffered PLUS 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,
structuring fee, projected hedging profits, if any, estimated hedging costs and the closing level of the underlying index, including:
|
|
o
|
any actual or potential change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads;
|
|
o
|
customary bid-ask spreads for similarly sized trades;
|
|
o
|
our internal secondary market funding rates for structured debt issuances;
|
|
o
|
the actual and expected volatility of the underlying index;
|
|
o
|
the time to maturity of the Buffered PLUS;
|
|
o
|
the dividend rates on the equity securities included in the underlying index;
|
|
o
|
interest and yield rates in the market generally; and
|
|
o
|
a variety of other economic, financial, political, regulatory and judicial events.
|
Additionally, independent pricing
vendors and/or third party broker-dealers may publish a price for the Buffered PLUS, which may also be reflected on customer account
statements. This price may be different (higher or lower) than the price of the Buffered PLUS, if any, at which JPMS may be willing
to purchase your Buffered PLUS in the secondary market.
|
§
|
Investing in the Buffered PLUS is not equivalent to investing in
the underlying index.
Investing in the Buffered PLUS is not equivalent to investing in the
underlying index or its component stocks. Investors in the Buffered PLUS will not have voting rights or rights to receive dividends
or other distributions or any other rights with respect to stocks that constitute the underlying index.
|
|
§
|
Adjustments to the underlying index could adversely affect the value
of the Buffered PLUS.
The underlying index publisher may discontinue or suspend calculation
or publication of the underlying index at any time. In these circumstances, the calculation agent will have the sole discretion
to substitute a successor index that is comparable to the discontinued underlying index and is not precluded from considering indices
that are calculated and published by the calculation agent or any of its affiliates.
|
|
§
|
Hedging and trading activities by the issuer and its affiliates could potentially affect the value of the
Buffered
PLUS
.
The hedging or trading activities of the issuer’s affiliates and of any other hedging counterparty with
respect to the
Buffered PLUS
on
or prior to the pricing date and prior to maturity could adversely affect the value of the underlying index and, as a result, could
decrease the amount an investor may receive on the Buffered PLUS at maturity. Any of these hedging or trading activities
on or prior to the pricing date could potentially affect the initial index value and, therefore, could potentially increase the
level that the final index value must reach before you receive a payment at maturity that exceeds the issue price of the
Buffered
PLUS or so that you do not suffer a loss on your initial investment in the Buffered PLUS
. Additionally, these hedging or
trading activities during the term of the
Buffered
PLUS
, including on the valuation date, could adversely affect the final index value and, accordingly, the amount of cash
an investor will receive at maturity. It is possible that these hedging or trading activities could result in substantial returns
for us or our affiliates while the value of the Buffered PLUS declines.
|
|
§
|
Secondary trading may be limited.
Th
e Buffered PLUS will not be listed on a securities exchange. There may be little or no secondary market for the
Buffered PLUS. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Buffered
PLUS easily
. JPMS
may act as
|
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
a market maker for the Buffered
PLUS, but is not required to do so. Because we do not expect that other market makers will participate significantly in the secondary
market for the Buffered PLUS, the price at which you may be able to trade your Buffered PLUS is likely to depend on the price,
if any, at which
JPMS
is willing to buy the
Buffered PLUS. If at any time
JPMS
or another
agent does not act as a market maker, it is likely that there would be little or no secondary market for the Buffered PLUS.
|
§
|
The final terms and valuation of the Buffered PLUS will be provided in the pricing
supplement.
The final terms of the Buffered PLUS will be provided in the pricing supplement. In particular, each
of the estimated value of the Buffered PLUS and the maximum payment at maturity will be provided in the pricing supplement and
each may be as low as the applicable minimum set forth on the cover of this document. Accordingly, you should consider your potential
investment in the Buffered PLUS based on the minimums for the estimated value of the Buffered PLUS and the maximum payment at maturity.
|
|
§
|
The tax consequences of an investment in the Buffered PLUS are uncertain.
There is no direct legal authority as to the
proper U.S. federal income tax characterization of the Buffered PLUS, and we do not intend to request a ruling from the IRS. The
IRS might not accept, and a court might not uphold, the treatment of the Buffered PLUS described in “Additional Information
about the Buffered PLUS ― Additional Provisions ― Tax considerations” in this document and in “Material
U.S. Federal Income Tax Consequences” in the accompanying product supplement. If the IRS were successful in asserting an
alternative treatment for the Buffered PLUS, the timing and character of any income or loss on the Buffered PLUS could differ materially
and adversely from our description herein. 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, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose a notional interest charge. While the notice requests comments on appropriate
transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues
could materially and adversely affect the tax consequences of an investment in the Buffered PLUS, possibly with retroactive effect.
You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying
product supplement and consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the Buffered
PLUS, including possible alternative treatments and the issues presented by this notice.
|
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
S&P 500
®
Index Overview
The S&P 500
®
Index, which is calculated, maintained
and published by S&P Dow Jones Indices LLC consists of stocks of 500 companies selected to provide a performance benchmark
for the U.S. equity markets. For additional information on the S&P 500
®
Index, see the information set forth
under “Equity Index Descriptions — The S&P U.S. Indices” in the accompanying underlying supplement.
Information as of market close on July 26, 2016:
Bloomberg Ticker Symbol:
|
SPX
|
Current Closing Level:
|
2,169.18
|
52 Weeks Ago (on 7/27/2015):
|
2,067.64
|
52 Week High (on 7/22/2016):
|
2,175.03
|
52 Week Low (on 2/11/2016):
|
1,829.08
|
The following table sets forth the published high and low closing
levels, as well as end-of-quarter closing levels, of the underlying index for each quarter in the period from January 1, 2011 through
July 26, 2016. The graph following the table sets forth the daily closing levels of the underlying index during the same period.
The closing level of the underlying index on July 26, 2016 was 2,169.18. We obtained the closing level information above and in
the table and graph below from the Bloomberg Professional
®
service (“Bloomberg”), without independent
verification. The historical values of the underlying index should not be taken as an indication of future performance, and no
assurance can be given as to the closing level of the underlying index on the valuation date. The payment of dividends on the stocks
that constitute the underlying index are not reflected in its closing level and, therefore, have no effect on the calculation of
the payment at maturity.
S&P
500
®
Index
|
High
|
Low
|
Period
End
|
2011
|
|
|
|
First Quarter
|
1,343.01
|
1,256.88
|
1,325.83
|
Second Quarter
|
1,363.61
|
1,265.42
|
1,320.64
|
Third Quarter
|
1,353.22
|
1,119.46
|
1,131.42
|
Fourth Quarter
|
1,285.09
|
1,099.23
|
1,257.60
|
2012
|
|
|
|
First Quarter
|
1,416.51
|
1,277.06
|
1,408.47
|
Second Quarter
|
1,419.04
|
1,278.04
|
1,362.16
|
Third Quarter
|
1,465.77
|
1,334.76
|
1,440.67
|
Fourth Quarter
|
1,461.40
|
1,353.33
|
1,426.19
|
2013
|
|
|
|
First Quarter
|
1,569.19
|
1,457.15
|
1,569.19
|
Second Quarter
|
1,669.16
|
1,541.61
|
1,606.28
|
Third Quarter
|
1,725.52
|
1,614.08
|
1,681.55
|
Fourth Quarter
|
1,848.36
|
1,655.45
|
1,848.36
|
2014
|
|
|
|
First Quarter
|
1,878.04
|
1,741.89
|
1,872.34
|
Second Quarter
|
1,962.87
|
1,815.69
|
1,960.23
|
Third Quarter
|
2,011.36
|
1,909.57
|
1,972.29
|
Fourth Quarter
|
2,090.57
|
1,862.49
|
2,058.90
|
2015
|
|
|
|
First Quarter
|
2,117.39
|
1,992.67
|
2,067.89
|
Second Quarter
|
2,130.82
|
2,057.64
|
2,063.11
|
Third Quarter
|
2,128.28
|
1,867.61
|
1,920.03
|
Fourth Quarter
|
2,109.79
|
1,923.82
|
2,043.94
|
2016
|
|
|
|
First Quarter
|
2,063.95
|
1,829.08
|
2,059.74
|
Second Quarter
|
2,119.12
|
2,000.54
|
2,098.86
|
Third Quarter (through July 26, 2016)
|
2,175.03
|
2,088.55
|
2,169.18
|
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
S&P
500
®
Index Historical Performance – Daily Closing Levels
January
3, 2011 to July 26, 2016
|
|
License Agreement.
“Standard & Poor’s
®
,”
“S&P
®
,” “S&P 500
®
” and “Standard & Poor’s 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. See “Equity Index Descriptions — The S&P U.S. Indices —
License Agreement” in the accompanying underlying supplement.
Additional Information about the Buffered PLUS
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Provisions:
|
Postponement of maturity date:
|
If the scheduled maturity date is not a business day, then the maturity date will be the following business day. If the scheduled valuation date is not a trading day or if a market disruption event occurs on that day so that the valuation date is postponed and falls less than three business days prior to the scheduled maturity date, the maturity date of the Buffered PLUS will be postponed to the third business day following the valuation date as postponed.
|
Minimum ticketing size:
|
$1,000 / 100 Buffered PLUS
|
Trustee:
|
Deutsche Bank Trust Company Americas (formerly Bankers Trust Company)
|
Calculation agent:
|
JPMS
|
The estimated value of the Buffered PLUS:
|
The estimated value of the Buffered PLUS set forth on
the cover of this document 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 Buffered PLUS, valued using the internal funding rate described below, and (2) the derivative
or derivatives underlying the economic terms of the Buffered PLUS. The estimated value of the Buffered PLUS does not represent
a minimum price at which JPMS would be willing to buy your Buffered PLUS in any secondary market (if any exists) at any time.
The internal funding rate used in the determination of the estimated value of the Buffered PLUS is based on, among other things,
our and our affiliates’ view of the funding value of the Buffered PLUS as well as the higher issuance, operational and ongoing
liability management costs of the Buffered PLUS in comparison to those costs for the conventional fixed-rate debt of JPMorgan
Chase & Co. For additional information, see “Risk Factors — The estimated value of the Buffered PLUS is derived
by reference to an internal funding rate” in this document. The value of the derivative or derivatives underlying the economic
terms of the Buffered PLUS 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
|
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
estimated value of the
Buffered PLUS on the pricing date is based on market conditions and other relevant factors and assumptions existing at
that time. See “Risk Factors — The estimated value of the Buffered PLUS does not represent future values of
the Buffered PLUS and may differ from others’ estimates” in this document.
The estimated value of
the Buffered PLUS will be lower than the original issue price of the Buffered PLUS because costs associated with selling,
structuring and hedging the Buffered PLUS are included in the original issue price of the Buffered PLUS. These costs include
the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, the structuring fee, the projected
profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the
Buffered PLUS and the estimated cost of hedging our obligations under the Buffered PLUS. Because hedging our obligations
entails risk and may be influenced by market forces beyond our control, this hedging may result in a profit that is more
or less than expected, or it may result in a loss. We or one or more of our affiliates will retain any profits realized
in hedging our obligations under the Buffered PLUS. See “Risk Factors — The estimated value of the Buffered
PLUS will be lower than the original issue price (price to public) of the Buffered PLUS” in this document.
|
Secondary market prices of the Buffered PLUS:
|
For information about factors that will impact any secondary
market prices of the Buffered PLUS, see “Risk Factors — Secondary market prices of the Buffered PLUS will be impacted
by many economic and market factors” in this document. In addition, we generally expect that some of the costs
included in the original issue price of the Buffered PLUS will be partially paid back to you in connection with any repurchases
of your Buffered PLUS by JPMS in an amount that will decline to zero over an initial predetermined period that is intended
to be the shorter of six months and one-half of the stated term of the Buffered PLUS. The length of any such initial
period reflects the structure of the Buffered PLUS, whether our affiliates expect to earn a profit in connection with our
hedging activities, the estimated costs of hedging the Buffered PLUS and when these costs are incurred, as determined by our
affiliates. See “Risk Factors — The value of the Buffered PLUS as published by JPMS (and which may
be reflected on customer account statements) may be higher than the then-current estimated value of the Buffered PLUS for
a limited time period.”
|
Tax considerations:
|
You should
review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying
product supplement no. MS-1-I. The following discussion, when read in combination with that section, constitutes the full
opinion of our special tax counsel, Davis Polk & Wardwell LLP, regarding the material U.S. federal income tax consequences
of owning and disposing of the Buffered PLUS.
Based on current
market conditions, in the opinion of our special tax counsel, your Buffered PLUS should be treated 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, the gain or loss
on your Buffered PLUS should be treated as long-term capital gain or loss if you hold your Buffered PLUS for more than
a year, whether or not you are an initial purchaser of Buffered PLUS at the issue price. However, the IRS or a court may
not respect this treatment of the Buffered PLUS, in which case the timing and character of any income or loss on the Buffered
PLUS 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, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose
a notional interest charge. While the notice requests comments on appropriate transition rules and effective dates, any
Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely
affect the tax consequences of an investment in the Buffered PLUS, possibly with retroactive effect. You should consult
your tax adviser regarding the U.S. federal income tax consequences of an investment in the Buffered PLUS, including possible
alternative treatments and the issues presented by this notice.
Withholding under legislation
commonly referred to as “FATCA” may (if the Buffered PLUS are recharacterized as debt instruments) apply to
amounts treated as interest paid with respect to the Buffered PLUS, as well as to payments of gross proceeds of a taxable
disposition, including redemption at maturity, of a Buffered PLUS. However, under a recent IRS notice, this regime will
not apply to payments of gross proceeds (other than any amount
|
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
treated as interest) with respect to dispositions occurring before
January 1, 2019. You should consult your tax adviser regarding the potential application of FATCA to the Buffered PLUS.
Non-U.S. holders should also note that recently
promulgated Treasury regulations imposing a withholding tax on certain “dividend equivalents” under certain “equity
linked instruments” will not apply to the Buffered PLUS.
|
Supplemental use of proceeds and hedging:
|
The Buffered PLUS are offered to meet investor demand for products
that reflect the risk-return profile and market exposure provided by the Buffered PLUS. See “How the Buffered PLUS Work”
in this document for an illustration of the risk-return profile of the Buffered PLUS and “S&P 500
®
Index
Overview” in this document for a description of the market exposure provided by the Buffered PLUS.
The original issue price of the Buffered PLUS is equal
to the estimated value of the Buffered PLUS plus the selling commissions paid to JPMS and other affiliated or unaffiliated dealers
and the structuring fee, plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming risks
inherent in hedging our obligations under the Buffered PLUS, plus the estimated cost of hedging our obligations under the Buffered
PLUS.
|
Benefit plan investor considerations:
|
See “Benefit Plan Investor Considerations” in the accompanying product supplement.
|
Supplemental plan of distribution:
|
Subject to regulatory constraints, JPMS intends to use its reasonable
efforts to offer to purchase the Buffered PLUS in the secondary market, but is not required to do so.
JPMS,
acting as agent for JPMorgan Financial, will pay all of the selling commissions it receives from us to Morgan Stanley Wealth Management.
In addition, Morgan Stanley Wealth Management will receive a structuring fee as set forth on the cover of this document for each
PLUS.
We or our affiliate may enter into swap agreements or
related hedge transactions with one of our other affiliates or unaffiliated counterparties in connection with the sale of the
Buffered PLUS and JPMS and/or an affiliate may earn additional income as a result of payments pursuant to the swap or related
hedge transactions. See “— Supplemental use of proceeds and hedging” above and “Use of Proceeds and Hedging”
in the accompanying product supplement.
|
Contact:
|
Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or Morgan Stanley’s principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (800) 869-3326).
|
JPMorgan Chase Financial Company LLC
Buffered PLUS Based on the Value of the S&P 500
®
Index due March 5, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Where you can find more information:
|
You may revoke your offer
to purchase the Buffered PLUS at any time prior to the time at which we accept such offer by notifying the applicable
agent. We reserve the right to change the terms of, or reject any offer to purchase, the Buffered PLUS prior to their
issuance. In the event of any changes to the terms of the Buffered PLUS, we will notify you and you will be asked to accept
such changes in connection with your purchase. You may also choose to reject such changes in which case we may reject
your offer to purchase.
You should read this document
together with the accompanying prospectus, as supplemented by the accompanying prospectus supplement, relating to our
Series A medium-term notes of which these Buffered PLUS are a part, and the more detailed information contained in the
accompanying product supplement and the accompanying underlying supplement.
This document, together
with the documents listed below, contains the terms of the Buffered PLUS 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, stand-alone fact sheets, brochures or other educational
materials of ours. You should carefully consider, among other things, the matters set forth in the “Risk Factors”
sections of the accompanying product supplement and the accompanying underlying supplement, as the Buffered PLUS 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 Buffered PLUS.
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):
• Product supplement
no. MS-1-I dated June 3, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316013935/crt_dp64833-424b2.pdf
•
Underlying supplement no. 1-I dated April 15, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316012649/crt-dp64909_424b2.pdf
• Prospectus supplement
and prospectus, each dated April 15, 2016:
http://www.sec.gov/Archives/edgar/data/19617/000095010316012636/crt_dp64952-424b2.pdf
Our Central Index Key,
or CIK, on the SEC website is 1665650, and JPMorgan Chase & Co.’s CIK is 19617.
As used in this document,
“we,” “us,” and “our” refer to JPMorgan Financial.
“Performance Leveraged
Upside Securities
SM
” and “Buffered PLUS
SM
” are service marks of Morgan Stanley.
|
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