Pricing supplement
To prospectus dated April 15, 2016,
prospectus supplement dated April 15, 2016 and
product supplement no. 4-I dated April 15, 2016
|
Registration Statement Nos. 333-209682 and 333-209682-01
Dated August 25, 2016
Rule 424(b)(2)
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JPMorgan Chase Financial Company LLC
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Structured
Investments
|
|
$4,505,000
Digital Notes Linked to the 10-Year U.S. Dollar
ICE Swap Rate due September 13, 2017
Fully and Unconditionally Guaranteed by JPMorgan
Chase & Co.
|
General
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·
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The notes are designed for investors who seek a fixed return of 8.50%
at maturity and who do not think that the 10-Year U.S. Dollar ICE Swap Rate determined as described below, which we refer to as
the Reference Rate, will have declined from the Initial Reference Rate by more than the Buffer Amount of 40% as of the Observation
Date. For example, assuming an Initial Reference Rate of 1.45%, investors will be taking the view that the Final Reference Rate
will not be less than 0.87%, which is equivalent to 60% of the assumed Initial Reference Rate (60% × 1.45% = 0.87%). Investors
should be willing to accept the risk of losing some or all of their principal amount if the Final Reference Rate is less than the
Initial Reference Rate by more than the Buffer Amount. If the Final Reference Rate is less than the Initial Reference Rate by more
than the Buffer Amount, at maturity investors will lose 1.6667% of their principal for every 1% that the Final Reference Rate is
less than the Initial Reference Rate by more than the Buffer Amount. In the example above, investors would start to lose principal
if the Final Reference Rate is below 0.87% (60% of the assumed Initial Reference Rate). If the Final Reference Rate is less than
or equal to 0.00%, investors will lose 100% of their principal. See “Hypothetical Examples of Amount Payable at Maturity"
for additional hypothetical payment scenarios.
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·
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Because the return on the notes is based on the percentage change of
the Reference Rate from the Initial Reference Rate to the Final Reference Rate, rather than the percentage point change in the
Reference Rate, a very small percentage point decline in the Reference Rate can result in a significant loss on the notes.
For instance, in the example above, if the Reference Rate were to decline by only 0.725 percentage points from the assumed Initial
Reference Rate of 1.45% to a Final Reference Rate of 0.725%, that move would represent a 50% decline from the Initial Reference
Rate and investors would lose 16.67% of their principal amount at maturity.
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·
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The notes are not traditional fixed income securities.
Traditional
fixed income securities linked to an interest rate, commonly referred to as floating rate notes, typically provide for the return
of an investor’s principal amount at maturity and the payment of periodic interest that depend on the performance of the
interest rate to which the securities are linked. As a result, any decline in the interest rate would potentially result in a reduction
in the amount of any periodic interest paid on the securities, but would not adversely affect the return of the investor’s
principal amount at maturity. However, the notes offered by this pricing supplement do not pay periodic interest and the amount
an investor receives at maturity will depend on the performance of the Reference Rate. A decline from the Initial Reference Rate
to the Final Reference Rate by more than the Buffer Amount will result in the investors losing some or all of their principal amount
at maturity.
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·
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The Contingent Digital Return is a fixed return and is not linked to
the Reference Rate.
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·
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The notes 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.
Any payment on the notes is subject to the credit risk of JPMorgan Financial, as issuer of the notes,
and the credit risk of JPMorgan Chase & Co., as guarantor of the notes.
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·
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Minimum denominations of $1,000
and integral multiples thereof
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Key Terms
Issuer:
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JPMorgan Chase Financial Company LLC
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Guarantor:
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JPMorgan Chase & Co.
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Reference Rate:
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10-Year U.S. Dollar ICE Swap Rate (the “ICE Swap Rate”) determined as set forth under “Supplemental Terms of the Notes” in this pricing supplement
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Payment at Maturity:
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If the Final Reference Rate is greater than or equal to the Initial
Reference Rate or is less than the Initial Reference Rate by up to the Buffer Amount, at maturity you will receive a cash payment
that provides you with a return per $1,000 principal amount note equal to the Contingent Digital Return. Accordingly, under these
circumstances, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Contingent Digital Return)
|
If the Final Reference Rate is less than the Initial Reference Rate
by more than the Buffer Amount, at maturity you will lose 1.6667% of the principal amount of your notes for every 1% that the Final
Reference Rate is less than the Initial Reference Rate by more than the Buffer Amount. Under these circumstances, your payment
at maturity per $1,000 principal amount note, in addition to any accrued and unpaid interest, will be calculated as follows:
$1,000 + [$1,000 × (Reference Rate Return
+ Buffer Amount) × Downside Leverage Factor]
If the Final Reference Rate is less than the Initial Reference
Rate by more than the Buffer Amount, you will lose some or all of your principal amount at maturity. You may lose a significant
amount of your principal amount even if the decline from the Initial Reference Rate to the Final Reference Rate is only slightly
more than the Buffer Amount.
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Contingent Digital Return:
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8.50%, which reflects the maximum return on the notes. Accordingly, the maximum payment at maturity per $1,000 principal amount note is $1,085.00.
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Buffer Amount:
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40%
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Downside Leverage Factor:
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1.6667
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Pricing Date:
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August 25, 2016
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Original Issue Date:
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On or about August 30, 2016 (Settlement Date)
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Observation Date
†
:
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September 8, 2017
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Maturity Date
††
:
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September 13, 2017
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Other Key Terms
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See “Additional Key Terms” in this pricing supplement.
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†
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Subject to adjustment as described under “Supplemental Terms of the Notes” in this pricing supplement
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††
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Subject to postponement as described
under “General Terms of Notes — Postponement of a Payment Date” in the accompanying product supplement
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Investing in the notes involves a number of risks. See “Risk
Factors” beginning on page PS-10 of the accompanying product supplement and “Selected Risk Considerations” beginning
on page PS-5 of this pricing supplement.
Neither the Securities and Exchange Commission (the “SEC”)
nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or the adequacy of this
pricing supplement or the accompanying product supplement, prospectus supplement and prospectus. Any representation to the contrary
is a criminal offense.
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Price to Public (1)
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Fees and Commissions (2)
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Proceeds to Issuer
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Per note
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$1,000
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$9.5339
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$990.4661
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Total
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$4,505,000
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$42,950
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$4,462,050
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(1)
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See “Supplemental Use of Proceeds” in this pricing supplement for information about the components of the price
to public of the notes.
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(2)
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J.P. Morgan Securities LLC, which we refer to as JPMS, acting as agent for JPMorgan Financial, will pay all of the selling
commissions it receives from us to other affiliated or unaffiliated dealers. These selling commissions will vary and will be up
to $10.00 per $1,000 principal amount note. See “Plan of Distribution (Conflicts of Interest)” in the accompanying
product supplement.
|
The
estimated value of the notes, when the terms of the notes were set, was $980.30 per $1,000 principal amount note.
See “The
Estimated Value of the Notes” in this pricing supplement for additional information.
The notes 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.
August 25, 2016
Additional
Terms Specific to the Notes
You should
read this pricing supplement together with the accompanying prospectus, as supplemented by the accompanying prospectus supplement,
relating to our Series A medium-term notes of which these notes are a part, and the more detailed information contained in the
accompanying product supplement.
This pricing supplement, together with the documents listed below, contains the terms of the
notes and supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary
or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, fact sheets, brochures
or other educational materials of ours.
You should carefully consider, among other things, the matters set forth in the “Risk
Factors” section of the accompanying product supplement, as the notes involve risks not associated with conventional debt
securities. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the notes.
You may
access these documents on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings
for the relevant date on the SEC website):
Our Central
Index Key, or CIK, on the SEC website is 1665650, and JPMorgan Chase & Co.’s CIK is 19617. As used in this pricing supplement,
“we,” “us” and “our” refer to JPMorgan Financial.
Additional
Key Terms
Reference
Rate Return:
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Final
Reference Rate – Initial Reference Rate
Initial Reference Rate
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In
no event, however, will the Reference Rate Return be less than -100%.
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Initial
Reference Rate:
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The
Reference Rate on the Pricing Date, which was 1.412%
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Final
Reference Rate:
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The
Reference Rate on the Observation Date
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CUSIP:
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46646EVV1
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Supplemental
Terms of the Notes
The
Observation Date is a Determination Date for purposes of the accompanying product supplement, but is not subject to postponement
under “General Terms of Notes — Postponement of a Determination Date.” Instead, it is subject to adjustment
as described below.
With respect
to the Observation Date, the Reference Rate refers to the 10-Year U.S. Dollar ICE Swap Rate, which is the rate for a U.S. dollar
interest rate swap with a designated maturity of 10 years that appears on Reuters page “ICESWAP1” (or any successor
page) at approximately 11:15 a.m., New York City time, on the Observation Date, as determined by the calculation agent. This rate
is administered by ICE Benchmark Administration. If on the Observation Date, the Reference Rate cannot be determined by reference
to Reuters page “ICESWAP1” (or any successor page), then the calculation agent will determine the Reference Rate for
the Observation Date on the basis of the mid-market, semi-annual swap rate quotations provided to the calculation agent by up
to five leading swap dealers, which may include the calculation agent or its affiliates, in the New York City interbank market
at approximately 3:00 p.m., New York City time, on the Observation Date. For this purpose, the mid-market, semi-annual swap rate
means the mean of the bid and offered rates for the semi-annual fixed leg, calculated on a 30/360 day count basis, of a fixed-for-floating
U.S. dollar interest rate swap transaction with a 10-year term commencing on the Observation Date and in an amount, as determined
by the calculation agent, that is representative for a single transaction in the relevant market at the relevant time with an
acknowledged dealer of good credit in the swap market, where the floating leg, calculated on an actual/360 day count basis, is
equivalent to three-month U.S. Dollar London Interbank Offered Rate (ICE Benchmark Administration). The calculation agent will
select the five swap dealers and will request the principal New York City office of each of those dealers to provide a quotation
of its rate. If at least three quotations are provided, the Reference Rate for the Observation Date will be the arithmetic mean
of the quotations, eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation
(or, in the event of equality, one of the lowest). If fewer than three leading swap dealers selected by the calculation agent
provide quotations as described above, the Reference Rate will be determined by the calculation agent, in good faith and in a
commercially reasonable manner.
JPMorgan Structured Investments
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PS-
1
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Digital Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
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What
Is the Total Return on the Notes at Maturity, Assuming a Range of Performances for the Reference Rate?
The following
table and examples illustrate the hypothetical total return and the hypothetical payment at maturity on the notes. The “total
return” as used in this pricing supplement is the number, expressed as a percentage, that results from comparing the payment
at maturity per $1,000 principal amount note to $1,000. Each hypothetical total return or payment at maturity set forth below
assumes an Initial Reference Rate of 1.45% and reflects the Contingent Digital Return of 8.50%, the Buffer Amount of 40% and the
Downside Leverage Factor of 1.6667. Each hypothetical total return or payment at maturity set forth below is for illustrative
purposes only and may not be the actual total return or payment at maturity applicable to a purchaser of the notes. The numbers
appearing in the following table and examples have been rounded for ease of analysis.
Final Reference Rate
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Reference Rate Return
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Total Return
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2.6100%
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80.00%
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8.50%
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2.3925%
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65.00%
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8.50%
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2.1750%
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50.00%
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8.50%
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2.0300%
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40.00%
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8.50%
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1.8850%
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30.00%
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8.50%
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1.7400%
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20.00%
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8.50%
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1.5950%
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10.00%
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8.50%
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1.5225%
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5.00%
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8.50%
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1.4500%
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0.00%
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8.50%
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1.3775%
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-5.00%
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8.50%
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1.3050%
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-10.00%
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8.50%
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1.2325%
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-15.00%
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8.50%
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1.1600%
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-20.00%
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8.50%
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1.0875%
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-25.00%
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8.50%
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1.0150%
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-30.00%
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8.50%
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0.8700%
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-40.00%
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8.50%
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0.8555%
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-41.00%
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-1.67%
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0.7250%
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-50.00%
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-16.67%
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0.5800%
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-60.00%
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-33.33%
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0.4350%
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-70.00%
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-50.00%
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0.2900%
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-80.00%
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-66.67%
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0.1450%
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-90.00%
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-83.34%
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0.0000%
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-100.00%
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-100.00%
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-0.1450%
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-100.00%
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-100.00%
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-0.2900%
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-100.00%
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-100.00%
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-0.4350%
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-100.00%
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-100.00%
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Hypothetical
Examples of Amount Payable at Maturity
The following
examples illustrate how the payment at maturity in different hypothetical scenarios is calculated.
Example
1: The Reference Rate increases from the Initial Reference Rate of 1.45% to a Final Reference Rate of 1.595%.
Because the
Final Reference Rate of 1.595% is greater than the Initial Reference Rate of 1.45%, regardless of the Reference Rate Return, the
investor receives a payment at maturity of $1,085 per $1,000 principal amount note, calculated as follows:
$1,000
+ ($1,000 × 8.50%) = $1,085
Example
2: The Reference Rate decreases from the Initial Reference Rate of 1.45% to a Final Reference Rate of 1.305%.
Although the
Final Reference Rate of 1.305% is less than the Initial Reference Rate of 1.45%, because the Final Reference Rate is not less
than the Initial Reference Rate by more than the Buffer Amount of 40%, the investor receives a payment at maturity of $1,085 per
$1,000 principal amount note, calculated as follows:
$1,000
+ ($1,000 × 8.50%) = $1,085
Example
3: The Reference Rate increases from the Initial Reference Rate of 1.45% to a Final Reference Rate of 2.03%.
Because
the Final Reference Rate of 2.03% is greater than the Initial Reference Rate of 1.45% and although the Reference Rate Return of
40% exceeds the Contingent Digital Return of 8.50%, the investor is entitled to only the Contingent Digital Return and receives
a payment at maturity of $1,085 per $1,000 principal amount note, calculated as follows:
$1,000
+ ($1,000 × 8.50%) = $1,085
JPMorgan Structured Investments
|
PS-
2
|
Digital Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
Example
4: The Reference Rate decreases from the Initial Reference Rate of 1.45% to a Final Reference Rate of 0.435%.
Because the
Final Reference Rate of 0.435% is less than the Initial Reference Rate of 1.45% by more than the Buffer Amount of 40% and the
Reference Rate Return is -70%, the investor receives a payment at maturity of $500 per $1,000 principal amount note, calculated
as follows:
$1,000
+ [$1,000 × (-70% + 40%) × 1.6667] = $500
Example
5: The Reference Rate decreases from the Initial Reference Rate of 1.45% to a Final Reference Rate of
-0.145%.
Because the Final Reference Rate of -0.145% is less than the Initial Reference Rate of 1.45% by more than the
Buffer Amount of 40% and the Reference Rate Return would have been less than -100% but for the floor on the Reference Rate Return
of -100%, the Reference Rate Return is -100%. As a result, the investor receives a payment at maturity of $0, calculated as follows:
$1,000
+ [$1,000 × (-100% + 40%) × 1.6667] = $0
The hypothetical
returns and hypothetical payments on the notes shown above apply
only if you hold the notes for their entire term.
These
hypotheticals do not reflect fees or expenses that would be associated with any sale in the secondary market. If these fees and
expenses were included, the hypothetical returns and hypothetical payments shown above would likely be lower.
JPMorgan Structured Investments
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PS-
3
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Digital Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
Selected
Purchase Considerations
|
·
|
FIXED
APPRECIATION POTENTIAL
— If the Final Reference Rate is greater than or equal to the Initial Reference Rate or is less
than the Initial Reference Rate by up to the Buffer Amount, you will receive a fixed return equal to the Contingent Digital Return
of 8.50% at maturity, which also reflects the maximum return on the notes at maturity
.
Because the notes are our unsecured and unsubordinated obligations,
the
payment of which is fully and unconditionally guaranteed by JPMorgan Chase & Co., payment of any amount on the notes is subject
to our ability to pay our obligations as they become due
and JPMorgan Chase & Co.’s
ability to pay its obligations as they become due.
|
|
·
|
LIMITED
PROTECTION AGAINST LOSS
— We will pay you your principal back at maturity if the Final Reference Rate is greater
than or equal to the Initial Reference Rate or is less than the Initial Reference Rate by up to the Buffer Amount of 40%.
If the Final Reference Rate is less than the Initial Reference Rate by more than the Buffer Amount, you will lose 1.6667% of your
principal amount at maturity for every 1% that the Final Reference Rate is less than the Initial Reference Rate by more than the
Buffer Amount.
Accordingly, under these circumstances, you will lose some or all of your principal amount at maturity.
In addition, because the return on the notes is based on the percentage change of the Reference Rate from the Initial Reference
Rate to the Final Reference Rate, rather than the percentage point change in the Reference Rate, a very small percentage point
decline in the Reference Rate can result in a significant loss on the notes.
Even if the Final Reference Rate is negative,
your payment at maturity per $1,000 principal amount note will not be less than $0.
|
|
·
|
THE
NOTES ARE NOT TRADITIONAL FIXED INCOME SECURITIES
— Traditional fixed income securities linked to an interest rate,
commonly referred to as floating rate notes, typically provide for the return of an investor’s principal amount at maturity
and the payment of periodic interest that depend on the performance of the interest rate to which the securities are linked. As
a result, any decline in the interest rate would potentially result in a reduction in the amount of any periodic interest paid
on the securities, but would not adversely affect the return of the investor’s principal amount at maturity. However, the
notes offered by this pricing supplement do not pay periodic interest and the amount an investor receives at maturity will depend
on the performance of the Reference Rate. A decline from the Initial Reference Rate to the Final Reference Rate by more than the
Buffer Amount will result in the investors losing some or all of their principal amount at maturity.
|
|
·
|
RETURN
DEPENDENT ON THE 10-YEAR U.S. DOLLAR ICE SWAP RATE
—
The ICE Swap Rate is the “constant maturity swap rate” that measures the annual fixed rate of interest payable
on a hypothetical fixed-for-floating U.S. dollar interest rate swap transaction with a 10-year maturity. In such a hypothetical
swap transaction, the fixed rate of interest, payable semi-annually on the basis of a 360-day year consisting of twelve 30-day
months, is exchangeable for a floating three-month USD London Interbank Offered Rate (“three-month USD LIBOR”) based
payment stream that is payable quarterly on the basis of the actual number of days elapsed during a quarterly period in a 360-day
year. Three-month USD LIBOR reflects the rate at which banks lend U.S. dollars to each other for a term of three months in the
London interbank market.
The Contingent Digital Return is a fixed return and is not linked to the Reference Rate.
|
|
·
|
TAX
TREATMENT
—You
should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product
supplement no. 4-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 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, although not free from doubt, 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. However, the IRS or a court may not respect this treatment,
in which case the timing and character of any income or loss on the notes could be materially and adversely affected. In
addition, in 2007 Treasury and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid
forward contracts” and similar instruments. The notice focuses 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 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 possible alternative
treatments and the issues presented by this notice.
Withholding
under legislation commonly referred to as “FATCA” may (if the notes are recharacterized as debt instruments) apply
to amounts treated as interest paid with respect to the notes. Under a recent IRS notice, withholding under FATCA will not apply
to payments of gross proceeds (other than any amount treated as interest) of a taxable
JPMorgan Structured Investments
|
PS-
4
|
Digital Notes Linked to the 10-Year U.S. Dollar ICE Swap Rate
|
disposition,
including redemption at maturity, of the notes. You should consult your tax adviser regarding the potential application of FATCA
to the notes.
Selected
Risk Considerations
An investment
in the notes involves significant risks. These risks are explained in more detail in the “Risk Factors” section of
the accompanying product supplement and below.
|
·
|
YOUR
INVESTMENT IN THE NOTES MAY RESULT IN A LOSS
— The notes do not guarantee any return of principal. If the Final Reference
Rate is less than the Initial Reference Rate by more than the Buffer Amount, you will lose 1.6667% of your principal amount at
maturity for every 1% that the Final Reference Rate, which may be a negative rate, is less than the Initial Reference Rate by
more than the Buffer Amount. In no event, however, will the Reference Rate Return be less than -100%.
Accordingly, under these
circumstances, you will lose some or all of your principal amount at maturity.
|
In
addition, because the return on the notes is based on the percentage change of the Reference Rate from the Initial Reference Rate
to the Final Reference Rate, rather than the percentage point in the Reference Rate, a very small percentage point decline in
the Reference Rate can result in a significant loss on the notes.
For example, assuming an Initial Reference Rate of 1.45%,
if the Reference Rate were to decline by only 0.725 percentage points from the Initial Reference Rate to a Final Reference Rate
of 0.725%, that move would represent a 50% decline from the Initial Reference Rate and you would lose 16.67% of your principal
amount at maturity.
|
·
|
CREDIT
RISKS OF JPMORGAN FINANCIAL AND JPMORGAN CHASE & CO.
— The notes are subject to our and JPMorgan Chase & Co.’s
credit risks, and our and JPMorgan Chase & Co.’s credit ratings and credit spreads may adversely affect the market value
of the notes. Investors are dependent on our and JPMorgan Chase & Co.’s ability to pay all amounts due on the
notes. Any actual or potential change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads, as determined
by the market for taking that credit risk, is likely to adversely affect the value of the notes. If we and JPMorgan Chase
& Co. were to default on our payment obligations, you may not receive any amounts owed to you under the notes and you could
lose your entire investment.
|
|
·
|
AS
A FINANCE SUBSIDIARY, JPMORGAN FINANCIAL HAS NO INDEPENDENT OPERATIONS AND HAS LIMITED ASSETS —
As a finance subsidiary
of JPMorgan Chase & Co., we have no independent operations beyond the issuance and administration of our securities. Aside
from the initial capital contribution from JPMorgan Chase & Co., substantially all of our assets relate to obligations of
our affiliates to make payments under loans made by us or other intercompany agreements. As a result, we are dependent upon payments
from our affiliates to meet our obligations under the notes. If these affiliates do not make payments to us and we fail to make
payments on the notes, you may have to seek payment under the related guarantee by JPMorgan Chase & Co., and that guarantee
will rank
pari passu
with all other unsecured and unsubordinated obligations of JPMorgan Chase & Co.
|
|
·
|
THE
NOTES ARE NOT TRADITIONAL FIXED INCOME SECURITIES
— Traditional fixed income securities linked to an interest rate,
commonly referred to as floating rate notes, typically provide for the return of an investor’s principal amount at maturity
and the payment of periodic interest that depend on the performance of the interest rate to which the securities are linked. As
a result, any decline in the interest rate would potentially result in a reduction in the amount of any periodic interest paid
on the securities, but would not adversely affect the return of the investor’s principal amount at maturity. However, the
notes offered by this pricing supplement do not pay periodic interest and the amount an investor receives at maturity will depend
on the performance of the Reference Rate. A decline from the Initial Reference Rate to the Final Reference Rate by more than the
Buffer Amount will result in the investors losing some or all of their principal amount at maturity.
|
|
·
|
YOUR
MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE CONTINGENT DIGITAL RETURN
— If the Final Reference Rate is greater than
or equal to the Initial Reference Rate or is less than the Initial Reference Rate by up to the Buffer Amount, for each $1,000
principal amount note, you will receive at maturity $1,000
plus
an additional return equal to the Contingent Digital Return,
regardless of any investment in the Reference Rate, which may be significant.
The Contingent Digital Return is a fixed return
and is not linked to the Reference Rate.
|
|
·
|
YOUR
ABILITY TO RECEIVE THE CONTINGENT DIGITAL RETURN MAY TERMINATE ON THE OBSERVATION DATE
— If the Final Reference Rate
is less than the Initial Reference Rate by more than the Buffer Amount, you will not be entitled to receive the Contingent Digital
Return at maturity. Under these circumstances, you will lose some or all of your principal amount at maturity.
|
|
·
|
POTENTIAL
CONFLICTS
— We and our affiliates play a variety of roles in connection with the issuance of the notes, including acting
as calculation agent and as an agent of the offering of the notes, hedging our obligations under the notes and making the assumptions
used to determine the pricing of the notes and the estimated value of the notes when the terms of the notes are set, which we
refer to as the estimated value of the notes. For example, if on the Observation Date, the Reference Rate cannot be determined
by reference to the applicable Reuters page, the calculation agent will determine the Reference Rate for the Observation Date
based on quotations provided by up to five leading swap dealers, which may include the calculation agent or its affiliates. In
performing these duties, our and JPMorgan Chase & Co.’s economic interests and the economic interests of the calculation
agent and other affiliates of ours are potentially adverse to your interests as an investor in the notes. In addition, our and
JPMorgan Chase & Co.’s business activities, including hedging and trading activities, could cause our and JPMorgan Chase
& Co.’s economic interests to be adverse to yours and could adversely affect any payment on the notes and the value
of the notes. It is possible that hedging or trading activities of ours or our affiliates in connection with the notes could result
in substantial returns for us or our affiliates while
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the
value of the notes declines. Please refer to “Risk Factors — Risks Relating to Conflicts of Interest” in the
accompanying product supplement for additional information about these risks.
Furthermore,
the ICE Swap Rate is administered by ICE Benchmark Administration, and one of our affiliates is represented on the ICE Swap Rate
Oversight Committee, which is responsible for monitoring the administration of the ICE Swap Rate. We and our affiliates will have
no obligation to consider your interests as a holder of the notes in taking any actions in connection with participation on the
ICE Swap Rate Oversight Committee that might affect the ICE Swap Rate or 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
— 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.
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THE
ESTIMATED VALUE OF THE NOTES DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES
—
The estimated value of the notes is determined by reference to internal pricing models of our affiliates when the terms of the
notes are set. This estimated value of the notes is based on market conditions and other relevant factors existing at that time
and assumptions about market parameters, which can include volatility, interest rates and other factors. Different pricing models
and assumptions could provide valuations for the notes that are greater than or less than the estimated value of the notes. In
addition, market conditions and other relevant factors in the future may change, and any assumptions may prove to be incorrect.
On future dates, the value of the notes could change significantly based on, among other things, changes in market conditions,
our or JPMorgan Chase & Co.’s creditworthiness, interest rate movements and other relevant factors, which may impact
the price, if any, at which JPMS would be willing to buy notes from you in secondary market transactions. See “The Estimated
Value of the Notes” in this pricing supplement.
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THE
ESTIMATED VALUE OF THE NOTES IS DERIVED BY REFERENCE TO AN INTERNAL FUNDING RATE
— The internal funding rate used in
the determination of the estimated value of the notes is based on, among other things, our and our affiliates’ view of the
funding value of the notes as well as the higher issuance, operational and ongoing liability management costs of the notes in
comparison to those costs for the conventional fixed-rate debt of JPMorgan Chase & Co. The use of an internal funding rate
and any potential changes to that rate may have an adverse effect on the terms of the notes and any secondary market prices of
the notes. See “The Estimated Value of the Notes” in this pricing supplement.
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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
— We generally expect that some of the costs included in the
original issue price of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS
in an amount that will decline to zero over an initial predetermined period. These costs can include projected hedging profits,
if any, and, in some circumstances, estimated hedging costs and our internal secondary market funding rates for structured debt
issuances. See “Secondary Market Prices of the Notes” in this pricing supplement for additional information relating
to this initial period. Accordingly, the estimated value of your notes during this initial period may be lower than the value
of the notes as published by JPMS (and which may be shown on your customer account statements).
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SECONDARY
MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE ORIGINAL ISSUE PRICE OF THE NOTES
— Any secondary market prices
of the notes will likely be lower than the original issue price of the notes because, among other things, secondary market prices
take into account our internal secondary market funding rates for structured debt issuances and, also, because secondary market
prices (a) exclude selling commissions and (b) may exclude projected hedging profits, if any, and estimated hedging costs that
are included in the original issue price of the notes. As a result, the price, if any, at which JPMS will be willing to buy notes
from you in secondary market transactions, if at all, is likely to be lower than the original issue price. Any sale by you prior
to the Maturity Date could result in a substantial loss to you. See the immediately following risk consideration for information
about additional factors that will impact any secondary market prices of the notes.
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The
notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your notes to
maturity. See “— Lack of Liquidity” below.
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SECONDARY
MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS
— The secondary market price of the
notes during their term will be impacted by a number of economic and market factors, which may either offset or magnify each other,
aside from the selling commissions, projected hedging profits, if any, estimated hedging costs and the Reference Rate, including:
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any
actual or potential change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads;
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customary
bid-ask spreads for similarly sized trades;
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our
internal secondary market funding rates for structured debt issuances;
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the
actual and expected volatility of the Reference Rate;
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the
time to maturity of the notes;
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interest
and yield rates in the market generally; and
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a
variety of other economic, financial, political, regulatory and judicial events.
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Additionally,
independent pricing vendors and/or third party broker-dealers may publish a price for the notes, which may also be reflected on
customer account statements. This price may be different (higher or lower) than the price of the notes, if any, at which JPMS
may be willing to purchase your notes in the secondary market.
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THE
REFERENCE RATE WILL BE AFFECTED BY A NUMBER OF FACTORS
— The Reference Rate will depend on the a number of factors,
including, but not limited to:
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changes
in, or perceptions about, future Reference Rate levels;
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general
economic conditions: the economic, financial, political, regulatory and judicial events that affect financial markets generally
will affect the Reference Rate;
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prevailing
interest rates: the Reference Rate is subject to daily fluctuations depending on the levels of prevailing interest rates in the
market generally; and
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policy
of the Federal Reserve Board regarding interest rates.
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These
and other factors may have a negative effect on the performance of the Reference Rate.
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THE
REFERENCE RATE MAY BE VOLATILE
— The Reference Rate is subject to volatility due to a variety of factors affecting interest
rates generally, including:
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sentiment
regarding underlying strength in the U.S. and global economies;
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expectations
regarding the level of price inflation;
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sentiment
regarding credit quality in U.S. and global credit markets;
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central
bank policy regarding interest rates; and
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performance
of capital markets.
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The
Reference Rate may be negative. A Final Reference Rate that is less than the Initial Reference Rate by more than the Buffer Amount
will result in a reduction of principal payment at maturity. In addition, these and other factors may have a negative impact on
the value of your notes in the secondary market.
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THE
ICE SWAP RATE AND THE MANNER IN WHICH IT IS CALCULATED MAY CHANGE IN THE FUTURE
— There can be no assurance that the
method by which the ICE Swap Rate is calculated will continue in its current form. Any changes in the method of calculation could
reduce the Reference Rate.
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THE
REFERENCE RATE MAY BE CALCULATED BASED ON DEALER QUOTATIONS OR BY THE CALCULATION AGENT IN GOOD FAITH AND IN A COMMERCIALLY REASONABLE
MANNER
— If on the Observation Date, the Reference Rate cannot be determined by reference to Reuters page “ICESWAP1”
(or any successor page), then the calculation agent will determine the Reference Rate for the Observation Date on the basis of
the mid-market, semi-annual swap rate quotations provided to the calculation agent by up to five leading swap dealers, which may
include the calculation agent or its affiliates, in the New York City interbank market at approximately 3:00 p.m., New York City
time, on the Observation Date. If fewer than three leading swap dealers selected by the calculation agent provide quotations as
described above, the Reference Rate will be determined by the calculation agent, in good faith and in a commercially reasonable
manner. The Reference Rate determined in this manner may be different from the rate that would have been published on the applicable
Reuters page and may be different from other published levels, or other estimated levels, of the ICE Swap Rate.
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LACK
OF LIQUIDITY
— The notes will not be listed on any securities exchange. JPMS
intends to offer to purchase the notes in the secondary market but is not required to do so. Even if there is a secondary market,
it may not provide enough liquidity to allow you to trade or sell the notes easily. Because other dealers are not likely to make
a secondary market for the notes, the price at which you may be able to trade your notes is likely to depend on the price, if
any, at which JPMS is willing to buy the notes.
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Historical
Information
The following
graph sets forth the historical weekly performance of the Reference Rate from January 7, 2011 through August 19, 2016. The Reference
Rate on August 25, 2016 was 1.412%. We obtained the levels of the Reference Rate above and below from the Bloomberg Professional
®
service (“Bloomberg”), without independent verification.
The historical
levels of the Reference Rate should not be taken as an indication of future performance, and no assurance can be given as to the
level of the Reference Rate on the Observation Date. There can be no assurance that the performance of the Reference Rate will
result in the return of any of your principal amount.
The
Estimated Value of the Notes
The estimated
value of the notes set forth on the cover of this pricing supplement is equal to the sum of the values of the following hypothetical
components: (1) a fixed-income debt component with the same maturity as the notes, valued using the internal funding rate described
below, and (2) the derivative or derivatives underlying the economic terms of the notes. The estimated value of the notes does
not represent a minimum price at which JPMS would be willing to buy your notes in any secondary market (if any exists) at any
time. The internal funding rate used in the determination of the estimated value of the notes is based on, among other things,
our and our affiliates’ view of the funding value of the notes as well as the higher issuance, operational and ongoing liability
management costs of the notes in comparison to those costs for the conventional fixed-rate debt of JPMorgan Chase & Co. For
additional information, see “Selected Risk Considerations — The Estimated Value of the Notes Is Derived by Reference
to an Internal Funding Rate” in this pricing supplement. The value of the derivative or derivatives underlying the economic
terms of the notes is derived from internal pricing models of our affiliates. These models are dependent on inputs such as the
traded market prices of comparable derivative instruments and on various other inputs, some of which are market-observable, and
which can include volatility, interest rates and other factors, as well as assumptions about future market events and/or environments.
Accordingly, the estimated value of the notes is determined when the terms of the notes are set based on market conditions and
other relevant factors and assumptions existing at that time. See “Selected Risk Considerations — The Estimated Value
of the Notes Does Not Represent Future Values of the Notes and May Differ from Others’ Estimates” in this pricing
supplement.
The estimated
value of the notes is lower than the original issue price of the notes because costs associated with selling, structuring and
hedging the notes are included in the original issue price of the notes. These costs include the selling commissions paid to JPMS
and other affiliated or unaffiliated dealers, the projected profits, if any, that our affiliates expect to realize for assuming
risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under the notes. Because
hedging our obligations entails risk and may be influenced by market forces beyond our control, this hedging may result in a profit
that is more or less than expected, or it may result in a loss. We or one or more of our affiliates will retain any profits realized
in hedging our obligations under the notes. See “Selected Risk Considerations — The Estimated Value of the Notes Is
Lower Than the Original Issue Price (Price to Public) of the Notes” in this pricing supplement.
Secondary
Market Prices of the Notes
For information
about factors that will impact any secondary market prices of the notes, see “Selected Risk Considerations — Secondary
Market Prices of the Notes Will Be Impacted by Many Economic and Market Factors” in this pricing supplement. In addition,
we generally expect that some of the costs included in the original issue price of the notes will be partially paid back to you
in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined
period that is intended to be the shorter of six months and one-half of the stated term of the notes. The length of any such initial
period reflects the structure of the notes, whether our
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affiliates
expect to earn a profit in connection with our hedging activities, the estimated costs of hedging the notes and when these costs
are incurred, as determined by our affiliates. See “Selected Risk Considerations — The Value of the Notes as Published
by JPMS (and Which May Be Reflected on Customer Account Statements) May Be Higher Than the Then-Current Estimated Value of the
Notes for a Limited Time Period.”
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 “What Is the Total Return on the Notes at Maturity, Assuming a Range of Performances for the Reference Rate?”
and “Hypothetical Examples of Amount Payable at Maturity” in this pricing supplement for an illustration of the risk-return
profile of the notes and “Selected Purchase Considerations — Return Dependent on the 10-Year U.S. Dollar ICE Swap
Rate” in this pricing supplement for a description of the market exposure provided by the notes.
The original
issue price of the notes is equal to the estimated value of the notes plus the selling commissions paid to JPMS and other affiliated
or unaffiliated dealers, plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming risks
inherent in hedging our obligations under the notes, plus the estimated cost of hedging our obligations under the notes.
Validity
of the Notes and the Guarantee
In the
opinion of Davis Polk & Wardwell LLP, as special products counsel to JPMorgan Financial and JPMorgan Chase & Co., when
the notes offered by this pricing supplement have been executed and issued by JPMorgan Financial and authenticated by the trustee
pursuant to the indenture, and delivered against payment as contemplated herein, such notes will be valid and binding obligations
of JPMorgan Financial and the related guarantee will constitute a valid and binding obligation of JPMorgan Chase & Co., enforceable
in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights
generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts
of good faith, fair dealing and the lack of bad faith),
provided
that such counsel expresses no opinion as to the effect
of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above. This
opinion is given as of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of the
State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions
about the trustee’s authorization, execution and delivery of the indenture and its authentication of the notes and the validity,
binding nature and enforceability of the indenture with respect to the trustee, all as stated in the letter of such counsel dated
February 24, 2016, which was filed as an exhibit to the Registration Statement on Form S-3 by JPMorgan Financial and JPMorgan
Chase & Co. on February 24, 2016.
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