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.
(1) See “Supplemental Use of Proceeds” in this pricing
supplement for information about the components of the price to public of the notes.
(2) 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. In no event will these selling commissions exceed $10.00 per $1,000 principal amount note. See “Plan of Distribution
(Conflicts of Interest)” in the accompanying product supplement
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.
How Do Exchange Rates Work?
Exchange rates reflect the amount of one currency that can
be exchanged for a unit of another currency.
The Reference Currency Return reflects the return of the U.S.
dollar relative to the European Union euro from the Starting Spot Rate to the Ending Spot Rate, calculated using the formula set
forth above under “Key Terms — Reference Currency Return.” While the Reference Currency Return for purposes of
the notes is determined using the formula set forth above under “Key Terms — Reference Currency Return,” there
are other reasonable ways to determine the return of the U.S. dollar relative to the European Union euro that would provide different
results. For example, another way to calculate the return of the U.S. dollar relative to the European Union euro would be to calculate
the return that would be achieved by converting European Union euros into U.S. dollars at the Starting Spot Rate on the Pricing
Date and then, on the Observation Date, converting back into European Union euros at the Ending Spot Rate. In this pricing supplement,
we refer to the return of the U.S. dollar relative to the European Union euro calculated using that method, which is not used for
purposes of the notes, as a “conversion return.”
As demonstrated by the examples below, under the Reference
Currency Return formula, any depreciation of the U.S. dollar relative to the European Union euro will be magnified, as compared
to a conversion return. In addition, the magnifying effect on any depreciation of the U.S. dollar relative to the European Union
euro increases as the Reference Currency Return decreases. Accordingly, your return on the notes may be less than if you had invested
in similar notes that reflected conversion returns.
The Spot Rate is expressed as the number of U.S. dollars per
one European Union euro. As a result, a
decrease
in the Spot Rate from the Starting Spot Rate to the Ending Spot Rate means
that the U.S. dollar has
appreciated / strengthened
relative to the European Union euro from the Starting Spot Rate to the
Ending Spot Rate. This means that one U.S. dollar could purchase more European Union euros at the Ending Spot Rate on the Observation
Date than it could on the Pricing Date. Viewed another way, it would take fewer U.S. dollars to purchase one European Union euro
at the Ending Spot Rate on the Observation Date than it did at the Starting Spot Rate on the Pricing Date.
The following examples assume a Starting Spot Rate of 1.07
for the U.S. dollar relative to the European Union euro.
Example 1: The U.S. dollar strengthens from the Starting
Spot Rate of 1.07 U.S. dollars per European Union euro to the Ending Spot Rate of 1.0165 U.S. dollars per European Union euro.
The Reference Currency Return is equal to 5.00%, calculated
as follows:
(1.07 – 1.0165) / 1.07 = 5.00%
By contrast, if the return on the U.S. dollar were determined
using a conversion return, the return would be 5.26%.
Example 2: The U.S. dollar strengthens from the Starting
Spot Rate of 1.07 U.S. dollars per European Union euro to the Ending Spot Rate of 0.0107 U.S. dollars per European Union euro.
The Reference Currency Return is equal to 99.00%, calculated
as follows:
(1.07 – 0.0107) / 1.07 = 99.00%
By contrast, if the return on the U.S. dollar were determined
using a conversion return, the return would be 9,900%. The payment at maturity will not reflect a return greater than the Contingent
Digital Return if the U.S. dollar has appreciated relative to the European Union euro.
Conversely, an
increase
in the Spot Rate from the Starting
Spot Rate to the Ending Spot Rate means that the U.S. dollar has
depreciated / weakened
relative to the European Union euro
from the Starting Spot Rate to the Ending Spot Rate. This means that it would take more U.S. dollars to purchase one European Union
euro at the Ending Spot Rate on the Observation Date than it did on the Pricing Date. Viewed another way, one U.S. dollar could
purchase fewer European Union euros at the Ending Spot Rate on the Observation Date than it could at the Starting Spot Rate on
the Pricing Date.
Example 3: The U.S. dollar weakens from the Starting Spot
Rate of 1.07 U.S. dollars per European Union euro to the Ending Spot Rate of 1.177 U.S. dollars per European Union euro.
The Reference Currency Return is equal to -10.00%, calculated
as follows:
(1.07 – 1.177) / 1.07 = -10.00%
By contrast, if the return on the U.S. dollar were determined
using a conversion return, the return would be -9.09%.
Example 4: The U.S. dollar weakens from the Starting Spot
Rate of 1.07 U.S. dollars per European Union euro to the Ending Spot Rate of 2.14 U.S. dollars per European Union euro.
The Reference Currency Return is equal to -100.00%, calculated
as follows:
(1.07 – 2.14) / 1.07 = -100.00%
By contrast, if the return on the U.S. dollar were determined
using a conversion return, the return would be -50.00%.
As Examples 3 and 4 above demonstrated, the magnifying effect
on any depreciation of the U.S. dollar relative to the European Union euro increases as the Reference Currency Return decreases.
The hypothetical Starting Spot Rate, Ending Spot Rates and
Reference Currency Returns set forth above are for illustrative purposes only and have been rounded for ease of analysis.
JPMorgan Structured Investments
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Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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What
Is the Total Return on the Notes at Maturity, Assuming a Range of Performances for the Reference Currency Relative to the Base
Currency?
The following
table and examples illustrate the hypothetical total return 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 set forth below assumes a Starting Spot Rate of 1.07 and a Trigger
Value of 1.15667 (equal to 108.10% of the hypothetical Starting Spot Rate) and reflects the Contingent Digital Return of 10.00%.
The actual Trigger Value will be provided in the pricing supplement and will not be less than 108.10% of the Starting Spot Rate.
Each hypothetical total return or hypothetical payment at maturity set forth below is for illustrative purposes only and may not
be the actual total return or payment at maturity applicable to a purchaser of the notes. The numbers appearing in the following
table and examples have been rounded for ease of analysis.
Ending Spot
Rate
|
Reference
Currency
Return
(1)
|
Total Return
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0.00000
|
100.00%
|
10.00%
|
0.21400
|
80.00%
|
10.00%
|
0.37450
|
65.00%
|
10.00%
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0.53500
|
50.00%
|
10.00%
|
0.64200
|
40.00%
|
10.00%
|
0.74900
|
30.00%
|
10.00%
|
0.85600
|
20.00%
|
10.00%
|
0.96300
|
10.00%
|
10.00%
|
1.01650
|
5.00%
|
10.00%
|
1.05930
|
1.00%
|
10.00%
|
1.07000
|
0.00%
|
10.00%
|
1.08070
|
-1.00%
|
0.00%
|
1.12350
|
-5.00%
|
0.00%
|
1.15667
|
-8.10%
|
0.00%
|
1.15678
|
-8.11%
|
-8.11%
|
1.17700
|
-10.00%
|
-10.00%
|
1.28400
|
-20.00%
|
-20.00%
|
1.39100
|
-30.00%
|
-30.00%
|
1.49800
|
-40.00%
|
-40.00%
|
1.60500
|
-50.00%
|
-50.00%
|
1.76550
|
-65.00%
|
-65.00%
|
1.92600
|
-80.00%
|
-80.00%
|
2.14000
|
-100.00%
|
-100.00%
|
(1)
In no event will the Reference
Currency Return be less than -100%.
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 Currency appreciates from the
Starting Spot Rate of 1.07 to an Ending Spot Rate of 1.0165.
Because the Reference Currency Return is positive or zero, regardless
of the Reference Currency Return, the investor receives a payment at maturity of $1,100 per $1,000 principal amount note, calculated
as follows:
$1,000 + ($1,000 × 10%) = $1,100
Example 2: The Reference Currency appreciates from the
Starting Spot Rate of 1.07 to an Ending Spot Rate of 0.535.
Because the Reference Currency Return is positive and although
the Reference Currency Return of 50% exceeds the Contingent Digital Return of 10.00%, the investor is entitled to only the Contingent
Digital Return and receives a payment at maturity of $1,100 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 × 10%) = $1,100
Example 3: The Reference Currency depreciates from the
Starting Spot Rate of 1.07 to an Ending Spot Rate of 1.1235.
Although the Currency Return is negative, because the Ending Spot
Rate of 1.1235 is less than or equal to the Trigger Value of 1.15667, the investor receives a payment at maturity of $1,000 per
$1,000 principal amount note.
Example
4: The Reference Currency depreciates from the Starting Spot Rate of 1.07 to an Ending Spot Rate of 1.605.
Because the Reference
Currency Return is -50%, which is negative, and the Ending Spot Rate is greater than the Trigger Value of 1.15667, the investor
receives a payment at maturity of $500 per $1,000 principal amount note, calculated as follows:
JPMorgan Structured Investments
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Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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$1,000 + ($1,000 × -50%) = $500
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.
Selected Purchase Considerations
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·
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FIXED
APPRECIATION POTENTIAL
— If the Reference Currency Return is positive or zero (i.e., the U.S. dollar appreciates or
remains flat relative to the European Union euro from the Starting Spot Rate to the Ending Spot Rate), you will receive a fixed
return equal to the Contingent Digital Return of 10.00% 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.
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|
·
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LIMITED PROTECTION AGAINST LOSS
— We will pay you your
principal back at maturity if the Reference Currency Return is negative (
i.e.
, the U.S. dollar depreciates relative to the
European Union euro from the Starting Spot Rate to the Ending Spot Rate) but Ending Spot Rate is less than or equal to the Trigger
Value. If the Reference Currency Return is negative (
i.e.
, the U.S. dollar depreciates relative to the European Union
euro from the Starting Spot Rate to the Ending Spot Rate) and the Ending Spot Rate is greater than the Trigger Value, you will
lose 1% of the principal amount of your notes for every 1% of decline in the Reference Currency Return. Under these circumstances,
you will lose some or all of your principal amount at maturity.
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·
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RETURN DEPENDENT ON THE U.S. DOLLAR RELATIVE TO THE EUROPEAN UNION
EURO
— The return on the notes is dependent on the performance of the U.S. dollar, which we refer to as the Reference
Currency, relative to the European Union euro, which we refer to as the Base Currency, and will vary based on changes in the value
of the U.S. dollar relative to the European Union euro as described under “Key Terms” in this pricing supplement.
Please
see “How Do Exchange Rates Work?” and “Selected Risk Considerations — The Method of Calculating the Reference
Currency Return Will Magnify Any Depreciation of the Reference Currency Relative to the Base Currency” in this pricing supplement
for more information.
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·
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TAX TREATMENT
— You should review carefully the section
entitled “Material U.S. Federal Income Tax Consequences — Notes Treated as Open Transactions That Are Not Debt Instruments”
in the accompanying product supplement no. 2-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 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. Assuming this treatment is respected, the gain or loss on your notes will generally
be ordinary foreign currency income or loss under Section 988 of the Code. Ordinary foreign currency losses are potentially subject
to certain reporting requirements. However, investors in certain forward contracts, futures contracts or option contracts generally
are entitled to make an election to treat foreign currency gain or loss as capital gain or loss (a “Section 988 Election”).
Due to the lack of authority directly addressing the availability of the Section 988 Election for instruments such as these, it
is unclear whether the Section 988 Election is available. If the Section 988 Election is available and you make this election before
the close of the day on which you acquire a note, all gain or loss you recognize on a sale or exchange of that note should be treated
as capital gain or loss, and as long-term capital gain or loss if you have held the note for more than one year at that time. A
Section 988 Election with respect to a note is made by (a) clearly identifying the note on your books and records, on the date
you acquire it, as being subject to this election and filing the relevant statement verifying this election with your U.S. federal
income tax return or (b) obtaining independent verification under procedures set forth in the Treasury regulations under Section
988. You should consult your tax adviser regarding the advisability, availability, mechanics and consequences of a Section 988
Election, as well as the special reporting requirements that apply to foreign currency losses in excess of specified thresholds.
The IRS or a court may not respect
the treatment of the notes as “open transactions,” in which case the timing and character of any income or loss on
the notes could be materially and adversely affected. For instance, the notes could be treated as contingent payment debt instruments,
in which case you would be required to accrue original issue discount on your notes in each taxable year at the “comparable
yield,” as determined by us, although we will not make any payment with respect to the notes until maturity, and no Section
988 Election would be available. In particular, in 2007 the IRS issued a revenue ruling holding that a financial instrument with
some similarity to the notes is properly treated as a debt instrument denominated in a foreign currency. The notes are distinguishable
in some respects from the instrument described in the revenue ruling. If the revenue ruling were applied to the notes, it could
materially and adversely affect the tax consequences of an investment in the notes for U.S. Holders, possibly with retroactive
effect.
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
JPMorgan Structured Investments
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Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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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 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 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 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. Investing in the notes is not equivalent to investing directly in the U.S. dollar, the
European Union euro or the exchange rate between the U.S. dollar and European Union euro or any contracts related to the U.S.
dollar, the European Union euro or the exchange rate between the U.S. dollar and the European Union euro. These risks are explained
in more detail in the “Risk Factors” section of the accompanying product supplement.
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·
|
YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS
— The
notes do not guarantee any return of principal. The return on the notes at maturity is linked to the performance of the U.S. dollar
relative to the European Union euro and whether, and the extent to which, the Reference Currency Return is positive or negative.
Your investment will be exposed to a loss if the Reference Currency Return is negative (
i.e.,
the U.S. dollar depreciates
relative to the European Union euro from the Starting Spot Rate to the Ending Spot Rate) and the Ending Spot Rate is greater than
the Trigger Value. In this case, you will lose 1% of the principal amount of your notes for every 1% of decline in the Reference
Currency Return. Accordingly, you will lose some or all of your principal amount at maturity.
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|
·
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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.
|
|
·
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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.
|
|
·
|
YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED BY THE CONTINGENT DIGITAL
RETURN
— If the Reference Currency Return is positive or zero (
i.e.
, the U.S. dollar appreciates or remains flat
relative to the European Union euro from the Starting Spot Rate to the Ending Spot Rate), 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 the
appreciation in the U.S. dollar relative to the European Union euro, which may be significant.
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|
·
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YOUR ABILITY TO RECEIVE THE CONTINGENT DIGITAL RETURN WILL TERMINATE
IF THE REFERENCE CURRENCY RETURN IS NEGATIVE
— If the Reference Currency Return is negative (
i.e.
, the U.S. dollar
depreciates relative to the European Union euro from the Starting Spot Rate to the Ending Spot Rate), you will not be entitled
to receive the Contingent Digital Return at maturity. Under these circumstances, if the Ending Spot Rate is greater than
the Trigger Value, you will lose some or all of your principal amount at maturity.
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|
·
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POTENTIAL CONFLICTS
— We and our affiliates play a variety
of roles in connection with the issuance of the notes, including acting as calculation agent and as an agent of the offering of
the notes, 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. 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 the value of the notes declines. Please refer to “Risk Factors — Risks Relating
to Conflicts of Interest” in the accompanying product supplement for additional information about these risks.
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JPMorgan Structured Investments
|
PS-
5
|
Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
|
|
·
|
THE BENEFIT PROVIDED BY THE TRIGGER VALUE MAY TERMINATE ON THE OBSERVATION
DATE
— If the Reference Currency Return is negative (
i.e.
, the U.S. dollar depreciates relative to the European
Union euro from the Starting Spot Rate to the Ending Spot Rate) and the Ending Spot Rate is greater than the Trigger Value, the
benefit provided by the Trigger Value will terminate and you will lose 1% of the principal amount of your notes for every 1% of
decline in the Reference Currency Return. Under these circumstances, you will lose some or all of your principal amount at
maturity.
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|
·
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THE ESTIMATED VALUE OF THE NOTES WILL BE 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 will exceed 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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|
·
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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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|
·
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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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|
·
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T
HE 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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|
·
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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.
|
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.
|
·
|
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 value of the Reference Currency relative to the Base Currency, including:
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·
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any actual or potential change in our and JPMorgan Chase & Co.’s
creditworthiness or credit spreads;
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·
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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 exchange rate of the Reference Currency relative to the Base Currency
and the volatility of that exchange rate;
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suspension or disruption of market trading in the Reference Currency
or the Base Currency;
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JPMorgan Structured Investments
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PS-
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Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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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 METHOD OF CALCULATING THE REFERENCE CURRENCY RETURN WILL MAGNIFY
ANY DEPRECIATION OF THE REFERENCE CURRENCY RELATIVE TO THE BASE CURRENCY
— The Reference Currency Return reflects the
return of the U.S. dollar relative to the European Union euro from the Starting Spot Rate to the Ending Spot Rate, calculated using
the formula set forth above under “Key Terms — Reference Currency Return.” While the Reference Currency Return
for purposes of the notes is determined using the formula set forth above under “Key Terms — Reference Currency Return,”
there are other reasonable ways to determine the return of the U.S. dollar relative to the European Union euro that would provide
different results. For example, another way to calculate the return of the U.S. dollar relative to the European Union euro would
be to calculate the return that would be achieved by converting European Union euros into U.S. dollars at the Starting Spot Rate
on the Pricing Date and then, on the Observation Date, converting back into European Union euros at the Ending Spot Rate. In this
pricing supplement, we refer to the return on the U.S. dollar relative to the European Union euro calculated using that method,
which is not used for purposes of the notes, as a “conversion return.”
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Under the Reference Currency Return
formula, any depreciation of the U.S. dollar relative to the European Union euro will be magnified, as compared to a conversion
return. The magnifying effect on any depreciation of the U.S. dollar relative to the European Union euro increases as the Reference
Currency Return decreases. Accordingly, your payment at maturity may be less than if you had invested in similar notes that reflected
a conversion return. See “How Do Exchange Rates Work?” in this pricing supplement for more information.
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THE NOTES MIGHT NOT PAY AS MUCH AS A DIRECT INVESTMENT IN THE REFERENCE
CURRENCY
— You may receive a lower payment at maturity than you would have received if you had invested directly in the
U.S. dollar or contracts related to the U.S. dollar for which there is an active secondary market.
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THE NOTES ARE SUBJECT TO CURRENCY EXCHANGE
RISK
— Foreign currency exchange rates vary over time,
and may vary considerably during the term of the notes. The value of the U.S. dollar or the European Union euro is at any moment
a result of the supply and demand for that currency. Changes in foreign currency exchange rates result over time from the interaction
of many factors directly or indirectly affecting economic and political conditions in the United States and the member countries
of the European Union, and other relevant countries or regions.
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Of particular importance to potential
currency exchange risk are:
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existing and expected rates of inflation;
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existing and expected interest rate levels;
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the balance of payments in the United States and the member countries
of the European Union, and between each country and its major trading partners;
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political, civil or military unrest in the United States and the member
countries of the European Union; and
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the extent of governmental surplus or deficit in the United States and
the member countries of the European Union.
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All of these factors are, in turn,
sensitive to the monetary, fiscal and trade policies pursued by the United States and the member countries of the European Union,
and those of other countries important to international trade and finance.
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GOVERNMENTAL INTERVENTION COULD MATERIALLY AND ADVERSELY AFFECT THE
VALUE OF THE NOTES
— Foreign exchange rates can be fixed by the sovereign government, allowed to float within a range
of exchange rates set by the government or left to float freely. Governments, including those of the United States and the member
countries of the European Union, use a variety of techniques, such as intervention by their central bank or imposition of regulatory
controls or taxes, to affect the exchange rates of their respective currencies. They may also issue a new currency to replace an
existing currency, fix the exchange rate or alter the exchange rate or relative exchange characteristics by devaluation or revaluation
of a currency. Thus, a special risk in purchasing the notes is that their trading value and amount payable could be affected by
the actions of sovereign governments, fluctuations in response to other market forces and the movement of currencies across borders.
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EVEN THOUGH THE REFERENCE CURRENCY AND
THE European Union euro TRADE AROUND-THE-CLOCK, THE NOTES WILL NOT
— Because the inter-bank market in foreign currencies is a global, around-the-clock market, the hours of trading for the
notes, if any, will not conform to the hours during which the U.S. dollar and the European Union euro are traded. Consequently,
significant price and rate movements may take place in the underlying foreign exchange markets that will not be reflected immediately
in the price of the notes. Additionally, there is no systematic reporting of last-sale information for foreign currencies which,
combined with the limited availability of quotations to individual investors, may make it difficult for many investors to obtain
timely and accurate data regarding the state of the underlying foreign exchange markets.
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CURRENCY EXCHANGE RISKS CAN BE EXPECTED
TO HEIGHTEN IN PERIODS OF FINANCIAL TURMOIL
— In periods
of financial turmoil, capital can move quickly out of regions that are perceived to be more vulnerable to the effects of the crisis
than others with sudden and severely adverse consequences to the currencies of those regions. In
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JPMorgan Structured Investments
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Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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addition, governments around the
world, including the governments of the United States and the member countries of the European Union and governments of other major
world currencies, have recently made, and may be expected to continue to make, very significant interventions in their economies,
and sometimes directly in their currencies. Such interventions affect currency exchange rates globally and, in particular, the
value of the U.S. dollar relative to the European Union euro. Further interventions, other government actions or suspensions of
actions, as well as other changes in government economic policy or other financial or economic events affecting the currency markets,
may cause currency exchange rates to fluctuate sharply in the future, which could have a material adverse effect on the value of
the notes and your return on your investment in the notes at maturity.
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CURRENCY MARKET DISRUPTIONS MAY ADVERSELY AFFECT YOUR RETURN
— The calculation agent may, in its sole discretion, determine that the currency markets have been affected in a manner that
prevents it from properly determining, among other things, the Spot Rate and the Reference Currency Return. These events may include
disruptions or suspensions of trading in the currency markets as a whole, and could be a Convertibility Event, a Deliverability
Event, a Liquidity Event, a Taxation Event, a Discontinuity Event or a Price Source Disruption Event. See “General Terms
of Notes — Market Disruption Events” in the accompanying product supplement for further information on what constitutes
a market disruption event.
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NO INTEREST PAYMENTS
— As a holder of the notes, you will
not receive interest payments.
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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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THE FINAL TERMS AND VALUATION OF THE NOTES WILL BE PROVIDED IN THE
PRICING SUPPLEMENT
— The final terms of the notes will be based on relevant market conditions when the terms of the notes
are set and will be provided in the pricing supplement. In particular, the estimated value of the notes and the Trigger Value will
be provided in the pricing supplement and each may be as low as the applicable minimum set forth on the cover of this pricing supplement.
Accordingly, you should consider your potential investment in the notes based on the minimums for the estimated value of the notes
and the Trigger Value.
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JPMorgan Structured Investments
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Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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Historical
Information
The following
graph shows the historical weekly performance of the U.S. dollar relative to the European Union euro, expressed in terms of the
conventional market quotation (
i.e.
, the amount of U.S. dollars that can be exchanged for one European Union euro, which
we refer to in this pricing supplement as the exchange rate) as shown on the Bloomberg Professional
®
service (“Bloomberg”),
from January 6, 2012 through January 20, 2017. The exchange rate of the U.S. dollar relative to the European Union euro, as shown
on Bloomberg, on January 20, 2017 was 1.0703.
The historical
exchange rates used to plot the graph below were determined using the rates reported by Bloomberg, without independent verification,
and may not be indicative of the Spot Rate that would be derived from the applicable Reuters page.
The exchange
rates displayed in the graphs below are for illustrative purposes only and do not form part of the calculation of the Reference
Currency Return.
The Reference Currency Return increases when the U.S. dollar appreciates in value against the European Union
euro.
The Spot
Rate on January 20, 2017 was 1.06785, calculated in the manner set forth under “Additional Key Terms — Spot Rate”
in this pricing supplement. The exchange rates set forth above and displayed in the graph above should not be taken as an indication
of future performance, and no assurance can be given as to the Spot Rate on the Pricing Date or the Observation Date. There can
be no assurance that the performance of the U.S. dollar relative to the European Union euro 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 will be 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.
JPMorgan Structured Investments
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PS-
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Digital Notes Linked to the Performance of the U.S. Dollar Relative to the European Union Euro
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See “Selected
Risk Considerations — The Estimated Value of the Notes Will Be 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 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.”