Additional
Information about JPMorgan Financial, JPMorgan Chase & Co. and the Notes
You should read this pricing supplement together with
the accompanying prospectus, as supplemented by the accompanying prospectus supplement relating to our Series A medium-term notes
of which these Notes are a part, and the more detailed information contained in the accompanying product supplement and the accompanying
underlying supplement.
This pricing supplement, together with the documents listed below, contains the terms of the Notes and
supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative
pricing terms, correspondence, trade ideas, structures for implementation, sample structures, fact sheets, brochures or other educational
materials of ours.
You should carefully consider, among other things, the matters set forth in the “Risk Factors”
sections of the accompanying product supplement and the accompanying underlying supplement, as the Notes involve risks not associated
with conventional debt securities.
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, the “Issuer,” “JPMorgan
Financial,” “we,” “us” and “our” refer to JPMorgan Chase Financial Company LLC.
Observation
Dates and Coupon Payment Dates
Observation Dates
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Coupon Payment Dates
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September 21, 2017
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September 26, 2017
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December 21, 2017
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December 27, 2017
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March 21, 2018
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March 26, 2018
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June 21, 2018
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June 26, 2018
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September 21, 2018
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September 26, 2018
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December 21, 2018
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December 27, 2018
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March 21, 2019
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March 26, 2019
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June 21, 2019
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June 26, 2019
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September 23, 2019
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September 26, 2019
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December 23, 2019
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December 27, 2019
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March 23, 2020
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March 26, 2020
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June 22, 2020 (the Final Valuation Date)
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June 25, 2020 (the Maturity Date)
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The Notes are not callable until the second Observation Date, December 21, 2017.
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Each of the Observation Dates, and therefore
the Coupon Payment Dates, is subject to postponement in the event of a market disruption event and as described under “General
Terms of Notes — Postponement of a Determination Date — Notes Linked to a Single Underlying — Notes Linked to
a Single Underlying (Other Than a Commodity Index)” and “General Terms of Notes — Postponement of a Payment Date”
in the accompanying product supplement.
What
Are the Tax Consequences of the Notes?
You should review carefully the section entitled “Material
U.S. Federal Income Tax Consequences” in the accompanying product supplement no. UBS-1-I. In determining our reporting responsibilities
we intend to treat (i) the Notes for U.S. federal income tax purposes as prepaid forward contracts with associated contingent coupons
and (ii) any Contingent Coupons as ordinary income, as described in the section entitled “Material U.S. Federal Income Tax
Consequences — Tax Consequences to U.S. Holders — Notes Treated as Prepaid Forward Contracts with Associated Contingent
Coupons” in the accompanying product supplement. Based on the advice of Davis Polk & Wardwell LLP, our special tax counsel,
we believe that this is a reasonable treatment, but that there are other reasonable treatments that the IRS or a court may adopt.
Sale, Exchange or Redemption of a Note.
Assuming
the treatment described above is respected, upon a sale or exchange of the Notes (including redemption upon an automatic call or
at maturity), you should recognize capital gain or loss equal to the difference between the amount realized on the sale or exchange
and your tax basis in the Notes, which should equal the amount you paid to acquire the Notes (assuming Contingent Coupons are properly
treated as ordinary income, consistent with the position referred to above). This gain or loss should be short-term capital gain
or loss unless you hold the Notes for more than one year, in which case the gain or loss should be long-term capital gain or loss,
whether or not you are an initial purchaser of the Notes at the issue price. The deductibility of capital losses is subject to
limitations. If you sell your Notes between the time your right to a Contingent Coupon is fixed and the time it is paid, it is
likely that you will be treated as receiving ordinary income equal to the Contingent Coupon. Although uncertain, it is possible
that proceeds received from the sale or exchange of your Notes prior to an Observation Date but that can be attributed to an expected
Contingent Coupon payment could be treated as ordinary income. You should consult your tax adviser regarding this issue.
As described above, there are other reasonable treatments
that the IRS or a court may adopt, in which case the timing and character of any income or loss on the Notes could be materially
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 and the relevance of factors such as the nature of
the underlying property to which the instruments are linked. 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
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.
Non-U.S. Holders — Tax
Considerations
. The U.S. federal income tax treatment of Contingent Coupons is uncertain, and although we believe it is reasonable
to take a position that Contingent Coupons are not subject to U.S. withholding tax (at least if an applicable Form W-8 is provided),
a withholding agent may nonetheless withhold on these payments (generally at a rate of 30%, subject to the possible reduction of
that rate under an applicable income tax treaty), unless income from your Notes is effectively connected with your conduct of a
trade or business in the United States (and, if an applicable treaty so requires, attributable to a permanent establishment in
the United States). If you are not a United States person, you are urged to consult your tax adviser regarding the U.S. federal
income tax consequences of an investment in the Notes in light of your particular circumstances.
Section 871(m) of the Code and Treasury
regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% withholding tax (unless an income tax
treaty applies) on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked
to U.S. equities or indices that include U.S. equities. Section 871(m) provides certain exceptions to this withholding regime,
including for instruments linked to certain broad-based indices that meet requirements set forth in the applicable Treasury regulations
(such an index, a “Qualified Index”). Additionally, the applicable regulations exclude from the scope of Section
871(m) instruments issued in 2017 that do not have a delta of one with respect to underlying securities that could pay U.S.-source
dividends for U.S. federal income tax purposes (each an “Underlying Security”). Based on certain determinations
made by us, our special tax counsel is of the opinion that Section 871(m) should not apply to the Notes with regard to Non-U.S.
Holders. Our determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m)
is complex and its application may depend on your particular circumstances, including whether you enter into other transactions
with respect to an Underlying Security. You should consult your tax adviser regarding the potential application of Section
871(m) to the Notes.
FATCA
. Withholding under
legislation commonly referred to as “FATCA” could apply to payments with respect to the Notes that are treated as U.S.-source
“fixed or determinable annual or periodical” income (“FDAP Income”) for U.S. federal income tax purposes
(such as interest, if the Notes are recharacterized, in whole or in part, as debt instruments, or Contingent Coupons if they are
otherwise treated as FDAP Income). If the Notes are recharacterized, in whole or in part, as debt instruments, withholding could
also apply to payments of gross proceeds of a taxable disposition, including an early redemption or redemption at maturity. However,
under a recent IRS notice, this regime will not apply to payments of gross proceeds (other than any amount treated as FDAP Income)
with respect to dispositions occurring before January 1, 2019. You should consult your tax adviser regarding the potential application
of FATCA to the Notes.
In the event of any withholding
on the Notes, we will not be required to pay any additional amounts with respect to amounts so withheld.
Key
Risks
An investment in the Notes involves significant risks. Investing
in the Notes is not equivalent to investing directly in the Underlying. These risks are explained in more detail in the “Risk
Factors” sections of the accompanying product supplement and the accompanying underlying supplement. We also urge you to
consult your investment, legal, tax, accounting and other advisers before you invest in the Notes.
Risks Relating to the Notes Generally
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Your Investment in the Notes May Result in a Loss
— The
Notes differ from ordinary debt securities in that JPMorgan Financial will not necessarily repay the full principal amount of the
Notes. If the Notes are not called and the closing price of one share of the Underlying has declined below the Downside Threshold
on the Final Valuation Date, you will be fully exposed to any depreciation of the Underlying from the Initial Value to the Final
Value. In this case, JPMorgan Financial will repay less than the full principal amount at maturity, resulting in a loss of principal
that is proportionate to the negative Underlying Return. Under these circumstances, you will lose 1% of your principal for every
1% that the Final Value is less than the Initial Value and could lose your entire principal amount. As a result, your investment
in the Notes may not perform as well as an investment in a security that does not have the potential for full downside exposure
to the Underlying.
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Credit Risks of JPMorgan Financial and JPMorgan Chase & Co.
— The Notes are unsecured and unsubordinated debt obligations of the Issuer, JPMorgan Chase Financial Company LLC, the
payment on which is fully and unconditionally guaranteed by JPMorgan Chase & Co. The Notes will rank
pari passu
with
all of our other unsecured and unsubordinated obligations, and the related guarantee JPMorgan Chase & Co. will rank
pari
passu
with all of JPMorgan Chase & Co.’s other unsecured and unsubordinated obligations. The Notes and related guarantees
are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the Notes, including any repayment
of principal, depends on the ability of JPMorgan Financial and JPMorgan Chase & Co. to satisfy their obligations as they come
due. As a result, the actual and perceived creditworthiness of JPMorgan Financial and JPMorgan Chase & Co. may affect the market
value of the Notes and, in the event JPMorgan Financial and JPMorgan Chase & Co. were to default on their obligations, you
may not receive any amounts owed to you under the terms of the Notes and you could lose your entire investment.
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As a Finance Subsidiary, JPMorgan Financial Has No Independent Operations
and 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.
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You Are Not Guaranteed Any Contingent Coupons
— We will
not necessarily make periodic coupon payments on the Notes. If the closing price of one share of the Underlying on an Observation
Date is less than the Coupon Barrier, we will not pay you the Contingent Coupon for that Observation Date, and the Contingent Coupon
that would otherwise be payable will not be accrued and will be lost. If the closing price of one share of the Underlying is less
than the Coupon Barrier on each of the Observation Dates, we will not pay you any Contingent Coupon during the term of, and you
will not receive a positive return on, your Notes. Generally, this non-payment of the Contingent Coupon coincides with a period
of greater risk of principal loss on your Notes.
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Return on the Notes Limited to the Sum of Any Contingent Coupons
and You Will Not Participate in Any Appreciation of the Underlying
— The return potential of the Notes is limited to
the specified Contingent Coupon Rate, regardless of the appreciation of the Underlying, which may be significant. In addition,
the total return on the Notes will vary based on the number of Observation Dates on which the requirements for a Contingent Coupon
have been met prior to maturity or an automatic call. Further, if the Notes are called, you will not receive any Contingent Coupons
or any other payments in respect of any Observation Dates after the Call Settlement Date. Because the Notes could be called as
early as the second Observation Date, the total return on the Notes could be minimal. If the Notes are not called, you may be subject
to the risk of decline of the Underlying even though you are not able to participate in any potential appreciation of the
Underlying. Generally, the longer the Notes remain outstanding, the less likely it is that they will be automatically called, due
to the decline in the price of the Underlying and the shorter time remaining for the price to recover to or above the Initial Value
on a subsequent Observation Date. As a result, the return on an investment in the Notes could be less than the return on
a hypothetical direct investment in the Underlying. In addition, if the Notes are not called and the Final Value is below the Downside
Threshold, you will have a loss on your principal amount and the overall return on the Notes may be less than the amount that would
be paid on a conventional debt security of JPMorgan Financial of comparable maturity.
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Contingent Repayment of Principal Applies Only If You Hold the Notes
to Maturity
— If you are able to sell your Notes in the secondary market prior to maturity, you may have to sell them
at a loss relative to your initial investment even if the closing price of one share of the Underlying is above the Downside Threshold.
If by maturity the Notes have not been called, either JPMorgan Financial will repay you the full principal amount per Note, plus
the Contingent Coupon, or, if the Underlying closes below the Downside Threshold on the Final Valuation Date, JPMorgan Financial
will repay less than the principal amount, if anything, at maturity, resulting in a loss on your principal amount that is proportionate
to the decline of the Underlying from the Initial Value to the Final Value. This contingent repayment of principal applies only
if you hold your Notes to maturity.
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A Higher Contingent Coupon Rate and/or a Lower Coupon Barrier and/or
Downside Threshold May Reflect Greater Expected Volatility of the Underlying, Which Is Generally Associated With a Greater Risk
of Loss
— Volatility is a measure of the degree of variation in the price of the Underlying over a period of time.
The greater the expected volatility of the Underlying at the time the terms of the Notes are set, the greater the expectation is
at that time that the price of the Underlying could close below the Coupon Barrier on any Observation Date, resulting in the loss
of one or more, or all, Contingent Coupon payments, or below the Downside Threshold on the Final Valuation Date, resulting in the
loss of a significant portion or all of your principal at maturity. In addition, the economic terms of the Notes, including
the Contingent Coupon Rate, the Coupon Barrier and the Downside Threshold, are based, in part, on the expected volatility of the
Underlying at the time the terms of the Notes are set, where a higher expected volatility will generally be reflected in a higher
Contingent Coupon Rate than the fixed rate we would pay on conventional debt securities of the same maturity and/or on otherwise
comparable securities and/or a lower Coupon Barrier and/or a lower Downside Threshold as compared to otherwise comparable securities.
Accordingly, a higher Contingent Coupon Rate will generally be indicative of a greater risk of loss while a lower Coupon Barrier
or Downside Threshold does not necessarily indicate that the Notes have a greater likelihood of paying Contingent Coupon payments
or returning your principal at maturity. You should be willing to accept the downside market risk of the Underlying and the
potential loss of some or all of your principal at maturity.
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Reinvestment Risk
— If your Notes are called early, the
holding period over which you would have the opportunity to receive any Contingent Coupons could be as short as approximately six
months. There is no guarantee that you would be able to reinvest the proceeds from an investment in the Notes at a comparable return
and/or with a comparable interest rate for a similar level of risk in the event the Notes are called prior to the Maturity Date.
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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 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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Each Contingent Coupon Is Based Solely on the Closing Price of One
Share of the Underlying on the Applicable Observation Date
— Whether a Contingent Coupon will be payable with respect
to an Observation Date will be based solely on the closing price of one share of the Underlying on that Observation Date. As a
result, you will not know whether you will receive a Contingent Coupon until the related Observation Date. Moreover, because each
Contingent Coupon is based solely on the closing price of one share of the Underlying on the applicable Observation Date, if the
closing price of one share of the Underlying is less than the Coupon Barrier, you will not receive any Contingent Coupon with respect
to that Observation Date, even if the closing price of one share of the Underlying was higher on other days during the period before
that Observation Date.
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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,
dividend rates, 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 selling commissions, projected hedging profits, if any, and, in some circumstances, estimated hedging
costs and our internal secondary
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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 factor 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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Many Economic and Market Factors Will Impact the Value of the Notes
— As described under “The Estimated Value of the Notes” in this pricing supplement, the Notes can be thought
of as securities that combine a fixed-income debt component with one or more derivatives. As a result, the factors that influence
the values of fixed-income debt and derivative instruments will also influence the terms of the Notes at issuance and their value
in the secondary market. Accordingly, 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 price of the Underlying, 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 in the price of one share of the
Underlying;
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the time to maturity of the Notes;
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the likelihood of an automatic call being triggered;
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whether the closing price of one share of the Underlying has been,
or is expected to be, less than the Coupon Barrier on any Observation Date and whether the Final Value is expected to be less than
the Downside Threshold;
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the dividend rates on the Underlying and the equity securities held
by the Underlying;
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the occurrence of certain events affecting the Underlying that may
or may not require an adjustment to the closing price and the Share Adjustment Factor of the Underlying, including a merger or
acquisition;
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interest and yield rates in the market generally;
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the exchange rates and the volatility of the exchange rates between
the U.S. dollar and each of the currencies in which the non-U.S. equity securities held by the Underlying trade and the correlation
among those rates and the price of the Underlying; 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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Investing in the Notes Is Not Equivalent to Investing in the Underlying
or the Equity Securities Composing the Underlying
— Investing in the Notes is not equivalent to investing in the Underlying
or the equity securities held by the Underlying. As an investor in the Notes, you will not have any ownership interest or rights
in the Underlying or the equity securities held by the Underlying, such as voting rights, dividend payments or other distributions.
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Your Return on the Notes Will Not Reflect Dividends on the Underlying
or the Equity Securities Composing the Underlying
— Your return on the Notes will not reflect the return you would realize
if you actually owned the Underlying or the equity securities held by the Underlying and received the dividends on the Underlying
or those equity securities. This is because the calculation agent will determine whether the Notes will be called and whether a
Contingent Coupon is payable and will calculate the amount payable to you at maturity of the Notes by reference to the closing
price of one share of the Underlying on the relevant Observation Date without taking into consideration the value of dividends
on the Underlying or the equity securities held by the Underlying.
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No Affiliation with the Underlying or the Issuers of the Equity
Securities Composing the Underlying
—
We
are not affiliated with the Underlying or, to our knowledge, the issuers of the equity securities held by the Underlying. We have
not independently verified the information about the Underlying or the issuers of the equity securities held by the Underlying
contained in this pricing supplement. You should make your own investigation into the Underlying and the issuers of the equity
securities held by the Underlying. We are not responsible for the public disclosure of information by the Underlying or the issuers
of the equity securities held by the Underlying, whether contained in SEC filings or otherwise
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No Assurances That the Investment View Implicit in the Notes Will
Be Successful
— While the Notes are structured to provide for Contingent Coupons if the Underlying does not close below
the Coupon Barrier on the Observation Dates, we cannot assure you of the economic environment during the term or at maturity of
your Notes.
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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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Potentially Inconsistent Research, Opinions or Recommendations by
JPMS, UBS or Their Affiliates
— JPMS, UBS or their affiliates may publish research, express opinions or provide recommendations
that are inconsistent with investing in or holding the Notes, and that may be revised at any time. Any such research, opinions
or recommendations may or may not recommend that investors buy or hold the Underlying and could affect the price of the Underlying,
and therefore the market value of the Notes.
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Tax Treatment
— Significant aspects of the tax treatment
of the Notes are uncertain. You should consult your tax adviser about your tax situation.
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Potential JPMorgan Financial Impact on the Price of the Underlying
— Trading or transactions by JPMorgan Financial or its affiliates in the Underlying and/or over-the-counter options, futures
or other instruments with returns linked to the performance of the Underlying may adversely affect the price of the Underlying
and, therefore, the market value of the Notes.
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Risks Relating to the Underlying
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There Are Risks Associated with the Underlying
—
Although shares of
the Underlying are listed for trading on a securities exchange and a number of similar products have been trading on a securities
exchange for varying periods of time, there is no assurance that an active trading market will continue for the shares of the Underlying
or that there will be liquidity in the trading market. The Underlying is subject to management risk, which is the risk that
the investment strategies of the Underlying’s investment adviser, the implementation of which is subject to a number of constraints,
may not produce the intended results. These constraints could adversely affect the market price of the shares of the Underlying,
and consequently, the value of the Notes.
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The Performance and Market Value of the Underlying, Particularly
During Periods of Market Volatility, May Not Correlate with the Performance of the Underlying’s Underlying Index as well
as the Net Asset Value per Share
— The Underlying does not fully replicate its Underlying Index (as defined under “The
Underlying” below) and may hold securities different from those included in its Underlying Index.
In
addition, the performance of the Underlying will reflect additional transaction costs and fees that are not included in the calculation
of its Underlying Index.
All of these factors may lead to
a lack of correlation between the performance of the Underlying and its Underlying Index.
In
addition, corporate actions with respect to the equity securities underlying the Underlying (such as mergers and spin-offs) may
impact the variance between the performances of the Underlying and its Underlying Index.
Finally,
because the shares of the Underlying are traded on a securities exchange and are subject to market supply and investor demand,
the market value of one share of the Underlying may differ from the net asset value per share of the Underlying.
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During
periods of market volatility, securities underlying the Underlying may be unavailable in the secondary market, market participants
may be unable to calculate accurately the net asset value per share of the Underlying and the liquidity of the Underlying may be
adversely affected.
This kind of market volatility may also
disrupt the ability of market participants to create and redeem shares of the Underlying.
Further,
market volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell
shares of the Underlying.
As a result, under these circumstances,
the market value of shares of the Underlying may vary substantially from the net asset value per share of the Underlying.
For
all of the foregoing reasons, the performance of the Underlying may not correlate with the performance of its Underlying Index
as well as the net asset value per share of the Underlying, which could materially and adversely affect the value of the Notes
in the secondary market and/or reduce any payment on the Notes.
|
t
|
Risks Associated with the Gold and Silver Mining Industries
— All or substantially all of the equity securities held by the Underlying are issued by companies whose primary line of
business is directly associated with the gold and/or silver mining industries. As a result, the value of the Notes may be subject
to greater volatility and be more adversely affected by a single economic, political or regulatory occurrence affecting these industries
than a different investment linked to securities of a more broadly diversified group of issuers. Investments related to gold and
silver are considered speculative and are affected by a variety of factors. Competitive pressures may have a significant effect
on the financial condition of gold mining and silver mining companies. Also, gold and silver mining companies are highly dependent
on the price of gold bullion and silver bullion, respectively, but may also be adversely affected by a variety of worldwide economic,
financial and political factors. Therefore, the securities of companies involved in the gold or silver mining industry may under-
or over-perform commodities themselves over the short term or long term. Gold bullion and silver bullion prices may fluctuate substantially
over short periods of time, even during periods of rising prices, so the Underlying’s share price may be more volatile than
other types of investments. A drop in the price of gold and/or silver bullion would particularly adversely affect the profitability
of small- and medium-capitalization mining companies and their ability to secure financing. Furthermore, companies that are only
in the exploration stage are typically unable to adopt specific strategies for controlling the impact of the price of gold or silver.
The price of gold has decreased in recent years and may continue to fluctuate. These prices may fluctuate substantially over short
periods of time so the Underlying’s share price may be more volatile than other types of investments. Fluctuation in the
prices of gold and silver may be due to a number of factors, including the changes in inflation and changes in industrial and commercial
demand for metals. Additionally, increased environmental or labor costs may depress the value of metal investments. In times of
significant inflation or great economic uncertainty, gold, silver and other precious metals may outperform traditional investments
such as bonds and stocks. However, in times of stable economic growth, traditional equity and
|
debt investments could offer greater
appreciation potential and the value of gold, silver and other precious metals may be adversely affected, which could in turn affect
the Underlying’s returns. A significant portion of the world’s gold reserves are held by governments, central banks
and related institutions. The production, purchase and sale of precious metals by governments or central banks or other larger
holders can be negatively affected by various economic, financial, social and political factors, which may be unpredictable and
may have a significant adverse impact on the supply and prices of precious metals. Additionally, the United States or foreign governments
may pass laws or regulations limiting metal investments for strategic or other policy reasons. The principal supplies of metal
industries also may be concentrated in a small number of countries and regions. Economic, social and political conditions in those
countries that are the largest producers of gold and silver may have a direct negative effect on the production and marketing of
gold and silver and on sales of central bank gold holdings. Some gold, silver and precious metals mining operation companies may
hedge their exposure to declines in gold, silver and precious metals prices by selling forward future production, which may result
in lower returns during periods when the prices of gold, silver and precious metals increase. The gold, silver and precious metals
industries can be significantly adversely affected by events relating to international political developments, the success of exploration
projects, commodity prices, tax and government regulations and intervention (including government restrictions on private ownership
of gold and mining land), changes in inflation or expectations regarding inflation in various countries and investment speculation.
If a natural disaster or other event with a significant economic impact occurs in a region where the companies in which the Underlying
invests operate, that disaster or event could negatively affect the profitability of these companies and, in turn, the Underlying’s
investment in them. Gold and silver mining companies may also be significantly adversely affected by import controls, worldwide
competition, environmental hazards, liability for environmental damage, depletion of resources, industrial accidents, underground
fires, seismic activity, labor disputes, unexpected geological formations, availability of appropriately skilled persons, unanticipated
ground and water conditions and mandated expenditures for safety and pollution control devices. These factors could affect the
oil and gas exploration and production industry and could affect the value of the equity securities held by the Underlying and
the price of the Underlying during the term of the Notes, which may adversely affect the value of your Notes.
|
t
|
Non-U.S. Securities Risk
— A portion of the equity securities
held by the Underlying have been issued by non-U.S. companies.
Investments
in securities linked to the value of such non-U.S. equity securities involve risks associated with the securities markets in the
home countries of the issuers of those non-U.S. equity securities, including risks of volatility in those markets, governmental
intervention in those markets and cross shareholdings in companies in certain countries.
Also,
there is generally less publicly available information about companies in some of these jurisdictions than there is about U.S.
companies that are subject to the reporting requirements of the SEC.
|
|
t
|
The Notes Are Subject to Currency Exchange
Risk
—
Because the prices of the non-U.S. equity securities
held by the Underlying are converted into U.S. dollars for purposes of calculating the net asset value of the Underlying, holders
of the Notes will be exposed to currency exchange rate risk with respect to each of the currencies in which the non-U.S. equity
securities held by the Underlying trade.
Your net exposure
will depend on the extent to which those currencies strengthen or weaken against the U.S. dollar and the relative weight of equity
securities held by the Underlying denominated in each of those currencies.
If,
taking into account the relevant weighting, the U.S. dollar strengthens against those currencies, the price of the Underlying will
be adversely affected and any payment on the Notes may be reduced.
Of
particular importance to potential currency exchange risk are:
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|
¨
|
existing and expected rates of inflation;
|
|
¨
|
existing and expected interest rate levels;
|
|
¨
|
the balance of payments in the countries issuing those currencies and
the United States and between each country and its major trading partners;
|
|
¨
|
political, civil or military unrest in the countries issuing those
currencies and the United States; and
|
|
¨
|
the extent of government surpluses or deficits in the countries issuing
those currencies and the United States.
|
All of these factors are in turn
sensitive to the monetary, fiscal and trade policies pursued by the governments of the countries issuing those currencies and the
United States and other countries important to international trade and finance.
|
¨
|
Anti-Dilution Protection Is Limited
— Although the calculation
agent will adjust the closing price of one share of the Underlying for certain events affecting the Underlying, the calculation
agent is not required to make an adjustment for every event that can affect the Underlying.
If
an event occurs that does not require the calculation agent to adjust the closing price of one share of the Underlying, the market
value of your Notes and any payment on the Notes may be materially and adversely affected.
|
Hypothetical
Examples
Hypothetical terms only. Actual terms
may vary. See the cover page for actual offering terms.
The examples below illustrate the hypothetical payments on a
Coupon Payment Date, upon an automatic call or at maturity under different hypothetical scenarios for a $10.00 Note on an offering
of the Notes linked to a hypothetical Underlying and assume an Initial Value of $100.00, a Downside Threshold and Coupon Barrier
of $60.00 (which is 60.00% of the hypothetical Initial Value) and reflect the Contingent Coupon Rate of 7.45% per annum.* The hypothetical
Initial Value has been chosen for illustrative purposes only and does not represent the actual Initial Value. The actual Initial
Value, Downside Threshold and Coupon Barrier are based on the closing price of one share of the Underlying on the Trade Date and
are specified on the cover of this pricing supplement. For historical data regarding the actual closing prices of one share of
the Underlying, please see the historical information set forth under “The Underlying” in this pricing supplement.
Principal Amount:
|
$10.00
|
Term:
|
Approximately three years (unless earlier called)
|
Hypothetical Initial Value:
|
$100.00
|
Contingent Coupon Rate:
|
7.45% per annum (or 1.863% per quarter)
|
Observation Dates:
|
Quarterly (callable after one six months)
|
Hypothetical Downside Threshold:
|
$60.00 (which is 60.00% of the hypothetical Initial Value)
|
Hypothetical Coupon Barrier:
|
$60.00 (which is 60.00% of the hypothetical Initial Value)
|
|
*
The actual value of any Contingent Coupon payments you will receive over the term of the Notes and the actual value of the payment upon automatic call or at maturity applicable to your Notes may be more or less than the amounts displayed in these hypothetical scenarios.
|
The examples below are purely hypothetical and are not based
on any specific offering of Notes linked to any specific Underlying. These examples are intended to illustrate how the value of
any payment on the Notes will depend on the closing price of one share on the Observation Dates.
Example 1 — Notes Are Automatically Called on the Second
Observation Date
Date
|
Closing Price
|
Payment (per Note)
|
First Observation Date
|
$105.00 (at or above Initial Value; Notes NOT called because Observation Date is prior to the second Observation Date)
|
$0.1863 (Contingent Coupon)
|
Second Observation Date
|
$110.00 (at or above Initial Value)
|
$10.1863 (Payment Upon Automatic Call)
|
|
Total Payment:
|
$10.3726 (3.726 % return)
|
|
|
|
Although the closing price is above the Initial Value on the
first Observation Date, the Notes are not called because the Notes cannot be called before the second Observation Date. Because
the Notes are automatically called on the second Observation Date, we will pay you on the applicable Call Settlement Date a total
of $10.1863 per Note, reflecting your principal amount
plus
the applicable Contingent Coupon. When that amount is added
to the Contingent Coupon payment of $0.1863 received in respect of the prior Observation Date, we will have paid you a total of
$10.3726 per Note for a 3.726% total return on the Notes. No further amounts will be owed on the Notes.
Example 2 — Notes Are NOT Automatically Called
and
the Final Value Is at or above the Downside Threshold
Date
|
Closing Price
|
Payment (per Note)
|
First Observation Date
|
$90.00 (at or above Coupon Barrier; below Initial Value)
|
$0.1863 (Contingent Coupon)
|
Second Observation Date
|
$85.00 (at or above Coupon Barrier; below Initial Value)
|
$0.1863 (Contingent Coupon)
|
Third through Eleventh Observation Dates
|
Various (all below Coupon Barrier; all below Initial Value)
|
$0.00
|
Final Valuation Date
|
$85.00 (at or above Downside Threshold; below Initial Value)
|
$10.1863 (Payment at Maturity)
|
|
Total Payment:
|
$10.5589 (5.589% return)
|
|
|
|
At maturity, we will pay you a total of $10.1863 per Note, reflecting
your principal amount
plus
the applicable Contingent Coupon. When that amount is added to the Contingent Coupon payment
of $0.3726 received in respect of prior Observation Dates, we will have paid you a total of $10.5589 per Note for a 5.589% total
return on the Notes.
Example 3 — Notes Are NOT Automatically Called
and
the Final Value is below the Downside Threshold
Date
|
Closing Price
|
Payment (per Note)
|
First Observation Date
|
$55.00 (below Coupon Barrier; below Initial Value)
|
$0.00
|
Second Observation Date
|
$50.00 (below Coupon Barrier; below Initial Value)
|
$0.00
|
Third through Eleventh Observation Dates
|
Various (all below Coupon Barrier; all below Initial Value)
|
$0.00
|
Final Valuation Date
|
$50.00 (below Downside Threshold)
|
$10.00 × (1 + Underlying Return) =
$10.00 × (1 + -50%) =
$10.00 × 50% =
$5.00 (Payment at Maturity)
|
|
Total Payment:
|
$5.00 (-50.00% return)
|
|
|
|
Because the Notes are not automatically called, the Final Value
is below the Downside Threshold and the Underlying Return is -50%, at maturity we will pay you $5.00 per Note for a loss on the
Notes of 50.00%. Because there is no Contingent Coupon paid during the term of the Notes, that represents the total payment on
the Notes.
The hypothetical returns and hypothetical payments on the Notes
shown above
apply only if you hold the Notes for their entire term or until automatically called
. These hypotheticals do
not reflect 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.
The
Underlying
The VanEck Vectors
TM
Gold Miners ETF is
an exchange-traded fund of the VanEck Vectors
TM
ETF Trust, a registered investment company, that seeks to replicate
as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index. Effective
May 1, 2016, the name of the VanEck Vectors
TM
ETF Trust was changed from “Market Vectors ETF Trust” to its
current name, and the name of the VanEck Vectors
TM
Gold Miners ETF was changed from “Market Vectors Gold Miners
ETF” to its current name. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index composed of
publicly traded companies involved primarily in the mining of gold or silver. For additional information about the VanEck Vectors
TM
Gold Miners ETF, see “Fund Descriptions — The Market Vectors Gold Miners ETF” in the accompanying underlying
supplement.
Historical Information
The following table sets forth the quarterly high
and low closing prices of one share of the Underlying, based on daily closing prices of one share of the Underlying as reported
by the Bloomberg Professional
®
service (“Bloomberg”), without independent verification. This information
given below is for the four calendar quarters in each of 2012, 2013, 2014 ,2015 and 2016 and the first calendar quarter of 2017.
Partial data is provided for the second calendar quarter of 2017. The closing price of one share of the Underlying on June 21,
2017 was $22.11. We obtained the closing prices of one share of the Underlying above and below from Bloomberg, without independent
verification. The closing prices may have been adjusted by Bloomberg for certain actions, such as stock splits. You should not
take the historical prices of one share of the Underlying as an indication of future performance.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Close
|
1/1/2012
|
|
3/31/2012
|
|
$57.47
|
$48.75
|
$49.57
|
4/1/2012
|
|
6/30/2012
|
|
$50.37
|
$39.34
|
$44.77
|
7/1/2012
|
|
9/30/2012
|
|
$54.81
|
$40.70
|
$53.71
|
10/1/2012
|
|
12/31/2012
|
|
$54.25
|
$44.85
|
$46.39
|
1/1/2013
|
|
3/31/2013
|
|
$47.09
|
$35.91
|
$37.85
|
4/1/2013
|
|
6/30/2013
|
|
$37.45
|
$22.22
|
$24.41
|
7/1/2013
|
|
9/30/2013
|
|
$30.43
|
$22.90
|
$25.06
|
10/1/2013
|
|
12/31/2013
|
|
$26.52
|
$20.39
|
$21.12
|
1/1/2014
|
|
3/31/2014
|
|
$27.73
|
$21.27
|
$23.60
|
4/1/2014
|
|
6/30/2014
|
|
$26.45
|
$22.04
|
$26.45
|
7/1/2014
|
|
9/30/2014
|
|
$27.46
|
$21.35
|
$21.35
|
10/1/2014
|
|
12/31/2014
|
|
$21.94
|
$16.59
|
$18.38
|
1/1/2015
|
|
3/31/2015
|
|
$22.94
|
$17.67
|
$18.24
|
4/1/2015
|
|
6/30/2015
|
|
$20.82
|
$17.76
|
$17.76
|
7/1/2015
|
|
9/30/2015
|
|
$17.85
|
$13.04
|
$13.74
|
10/1/2015
|
|
12/31/2015
|
|
$16.90
|
$13.08
|
$13.72
|
1/1/2016
|
|
3/31/2016
|
|
$20.86
|
$12.47
|
$19.98
|
4/1/2016
|
|
6/30/2016
|
|
$27.70
|
$19.53
|
$27.70
|
7/1/2016
|
|
9/30/2016
|
|
$31.32
|
$25.49
|
$26.43
|
10/1/2016
|
|
12/31/2016
|
|
$25.96
|
$18.99
|
$20.92
|
1/1/2017
|
|
3/31/2017
|
|
$25.57
|
$21.14
|
$22.81
|
4/1/2017
|
|
6/21/2017*
|
|
$24.57
|
$21.10
|
$22.11
|
|
*
|
As of the date of this pricing supplement, available
information for the second calendar quarter of 2017 includes data for the period from April 1, 2017 through June 21, 2017. Accordingly,
the “Quarterly High,” “Quarterly Low” and “Close” data indicated are for this shortened period
only and do not reflect complete data for the second calendar quarter of 2017.
|
The graph below illustrates the daily performance of the Underlying
from January 3, 2007 through June 21, 2017, based on information from Bloomberg, without independent verification. The dotted line
represents the Downside Threshold and Coupon Barrier of $13.27, equal to 60% of the closing price of one share of the Underlying
on June 21, 2017.
Past performance of the Underlying is not indicative of
the future performance of the Underlying.