CALCULATION OF REGISTRATION FEE |
Title
of Each Class of
Securities Offered |
Maximum
Aggregate
Offering Price |
Amount
of
Registration Fee |
Notes |
$750,000 |
$87.15 |
Pricing
supplement no. 978
To prospectus dated November 7, 2014,
prospectus supplement dated November 7, 2014,
product supplement no. 2a-I dated November 7, 2014 and
underlying supplement no. 1a-I dated November 7, 2014 |
Registration Statement No. 333-199966
Dated July 23, 2015
Rule 424(b)(2) |
|
Structured
Investments |
|
$750,000
Auto Callable Contingent Interest Notes Linked
to the S&P GSCI™ Crude Oil Index Excess Return due July 26, 2018
|
General
| · | The
notes are designed for investors who seek a Contingent Interest Payment if, on any of the Review Dates, the closing level of the
Index on that Review Date is greater than or equal to 75% of the Initial Index Level, which we refer to as the Interest Barrier.
Investors should be willing to forgo fixed interest payments, in exchange for the opportunity to receive Contingent Interest Payments. |
| · | Investors
in the notes should be willing to accept the risk of losing some or all of their principal if a Trigger Event (as defined below)
has occurred and the risk that no Contingent Interest Payment may be made with respect to some or all Review Dates. |
| · | The
notes will be automatically called if the closing level of the Index on any Review Date (other than the first eleven Review Dates
and the final Review Date) is greater than or equal to the Initial Index Level. The earliest date on which an automatic call may
be initiated is July 25, 2016. |
| · | The
notes are unsecured and unsubordinated obligations of JPMorgan Chase & Co. Any payment on the notes is subject to the credit
risk of JPMorgan Chase & Co. |
| · | Minimum
denominations of $1,000 and integral multiples thereof |
Key
Terms
Index: |
The
S&P GSCI™ Crude Oil Index Excess Return (Bloomberg ticker: SPGCCLP) |
Contingent
Interest Payments: |
If the notes have
not been automatically called and the closing level of the Index on any Review Date is greater than or equal to the Interest
Barrier, you will receive on the applicable Interest Payment Date for each $1,000 principal amount note a Contingent Interest
Payment equal to $8.00 (equivalent to an interest rate of 9.60% per annum, payable at a rate of 0.80% per month).
If the closing
level of the Index on any Review Date is less than the Interest Barrier, no Contingent Interest Payment will be made with
respect to that Review Date. |
Interest
Barrier / Trigger Level: |
175.37895,
which is 75% of the Initial Index Level |
Contingent
Interest Rate: |
9.60%
per annum, payable at a rate of 0.80% per month, if applicable |
Automatic
Call: |
If the closing level
of the Index on any Review Date (other than the first eleven Review Dates and the final Review Date) is greater than
or equal to the Initial Index Level, the notes will be automatically called for a cash payment, for each $1,000 principal
amount note, equal to (a) $1,000 plus (b) the Contingent Interest Payment applicable to that Review Date, payable on
the applicable Call Settlement Date. |
Payment
at Maturity: |
If the notes have
not been automatically called and a Trigger Event has not occurred, you will receive a cash payment at maturity,
for each $1,000 principal amount note, equal to (a) $1,000 plus (b) the Contingent Interest Payment applicable to the
final Review Date. |
If the notes have not
been automatically called and a Trigger Event has occurred, at maturity you will lose 1.3333% of the principal
amount of your notes for every 1% that the Ending Index Level is less than the Initial Index Level by more than the Buffer
Amount. Under these circumstances, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000
+ [$1,000 × (Index Return + Buffer Amount) × Downside Leverage Factor]
If the notes
have not been automatically called and a Trigger Event has occurred, you will lose some or all of your principal amount
at maturity and could lose up to the entire principal amount of your notes at maturity. |
Trigger
Event: |
A Trigger Event
occurs if the Ending Index Level is less than the Trigger Level. |
Buffer
Amount: |
25% |
Downside
Leverage Factor: |
1.3333 |
Index Return: |
Ending Index Level
– Initial Index Level
Initial
Index Level |
Initial
Index Level: |
The
closing level of the Index on the Pricing Date, which was 233.8386 |
Ending
Index Level: |
The
closing level of the Index on the final Review Date |
Pricing
Date: |
July 23, 2015 |
Original
Issue Date (Settlement Date): |
On or about July
28, 2015 |
Review
Dates†: |
August 24, 2015,
September 23, 2015, October 23, 2015, November 23, 2015, December 23, 2015, January 25, 2016, February 23, 2016, March 23,
2016, April 25, 2016, May 23, 2016, June 23, 2016, July 25, 2016, August 23, 2016, September 23, 2016, October 24, 2016, November
23, 2016, December 23, 2016, January 23, 2017, February 23, 2017, March 23, 2017, April 24, 2017, May 23, 2017, June 23, 2017,
July 24, 2017, August 23, 2017, September 25, 2017, October 23, 2017, November 24, 2017, December 26, 2017, January 23, 2018,
February 23, 2018, March 23, 2018, April 23, 2018, May 23, 2018, June 25, 2018 and July 23, 2018 (the final Review Date) |
Interest
Payment Dates†: |
August 27, 2015,
September 28, 2015, October 28, 2015, November 27, 2015, December 29, 2015, January 28, 2016, February 26, 2016, March 28,
2016, April 28, 2016, May 26, 2016, June 28, 2016, July 28, 2016, August 26, 2016, September 28, 2016, October 27, 2016, November
29, 2016, December 29, 2016, January 26, 2017, February 28, 2017, March 28, 2017, April 27, 2017, May 26, 2017, June 28, 2017,
July 27, 2017, August 28, 2017, September 28, 2017, October 26, 2017, November 29, 2017, December 29, 2017, January 26, 2018,
February 28, 2018, March 28, 2018, April 26, 2018, May 29, 2018, June 28, 2018 and the Maturity Date |
Call
Settlement Date†: |
If the notes are
automatically called on any Review Date (other than the first eleven Review Dates and the final Review Date), the first Interest
Payment Date immediately following that Review Date |
Maturity
Date†: |
July 26, 2018 |
CUSIP: |
48125UUB6 |
| † | Subject to postponement
in the event of certain market disruption events and as described under “General
Terms of Notes — Postponement of a Determination Date — Notes Linked to a
Single Underlying — Notes Linked to a Single Index” and “General Terms
of Notes — Postponement of a Payment Date” in the accompanying product supplement
no. 2a-I or early acceleration in the event of a commodity hedging disruption event as
described under “General Terms of Notes — Consequences of a Commodity Hedging
Disruption Event — Acceleration of the Notes” in the accompanying product
supplement no. 2a-I and in “Selected Risk Considerations — We May Accelerate
Your Notes If a Commodity Hedging Disruption Event Occurs” in this pricing supplement |
Investing in the notes
involves a number of risks. See “Risk Factors” beginning on page PS-8 of the accompanying product supplement no. 2a-I,
“Risk Factors” beginning on page US-2 of the accompanying underlying supplement no. 1a-I and “Selected Risk
Considerations” beginning on page PS-2 of this pricing supplement.
Neither the Securities and Exchange
Commission (the “SEC”) nor any state securities commission has approved or disapproved of the notes or passed upon
the accuracy or the adequacy of this pricing supplement or the accompanying product supplement, underlying supplement, prospectus
supplement and prospectus. Any representation to the contrary is a criminal offense.
|
Price
to Public (1) |
Fees
and Commissions (2) |
Proceeds
to Issuer |
Per
note |
$1,000 |
$2.50 |
$997.50 |
Total |
$750,000 |
$1,875 |
$748,125 |
| (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 Chase & Co., will pay all of the
selling commissions of $2.50 per $1,000 principal amount note it receives from us to
other affiliated or unaffiliated dealers. See “Plan of Distribution (Conflicts
of Interest)” beginning on page PS-79 of the accompanying product supplement no.
2a-I. |
The
estimated value of the notes as determined by JPMS, when the terms of the notes were set, was $969.70 per $1,000 principal amount
note. See “JPMS’s Estimated Value of the Notes” in this pricing supplement for additional information.
The notes are not bank deposits,
are not insured by the Federal Deposit Insurance Corporation or any other governmental agency and are not obligations of, or guaranteed
by, a bank.
July 23, 2015
Additional
Terms Specific to the Notes
You should
read this pricing supplement together with the prospectus, as supplemented by the prospectus supplement, each dated November 7,
2014 relating to our Series E medium-term notes of which these notes are a part, and the more detailed information contained in
product supplement no. 2a-I dated November 7, 2014 and underlying supplement no. 1a-I dated November 7, 2014. This pricing
supplement, together with the documents listed below, contains the terms of the notes, supplements the term sheet related hereto
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 “Risk
Factors” in the accompanying product supplement no. 2a-I and “Risk Factors” in the accompanying underlying supplement
no. 1a-I, 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 19617. As used in this pricing supplement, “we,” “us” and “our” refer to JPMorgan Chase
& Co.
Supplemental Terms of the Notes
For purposes of the notes offered by this pricing supplement,
the consequences of a commodity hedging disruption event are described under “General Terms of Notes — Consequences
of a Commodity Hedging Disruption Event — Acceleration of the Notes” in the accompanying product supplement no. 2a-I
The notes are not commodity futures contracts or swaps
and are not regulated under the Commodity Exchange Act of 1936, as amended (the “Commodity Exchange Act”). The
notes are offered pursuant to an exemption from regulation under the Commodity Exchange Act, commonly known as the hybrid instrument
exemption, that is available to securities that have one or more payments indexed to the value, level or rate of one or more commodities,
as set out in section 2(f) of that statute. Accordingly, you are not afforded any protection provided by the Commodity Exchange
Act or any regulation promulgated by the Commodity Futures Trading Commission.
JPMorgan Structured Investments | PS-1 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
Selected
Purchase Considerations
| · | MONTHLY
CONTINGENT INTEREST PAYMENTS — The notes offer the potential to earn a Contingent Interest Payment in connection with
each monthly Review Date of $8.00 per $1,000 principal amount note (equivalent to an interest rate of 9.60% per annum, payable
at a rate of 0.80% per month). If the notes have not been automatically called and the closing level of the Index on any Review
Date is greater than or equal to the Interest Barrier, you will receive a Contingent Interest Payment on the applicable Interest
Payment Date. If the closing level of the Index on any Review Date is less than the Interest Barrier, no Contingent Interest Payment
will be made with respect to that Review Date. If payable, a Contingent Interest Payment will be made to the holders of record
at the close of business on the business day immediately preceding the applicable Interest Payment Date. Because the notes
are our unsecured and unsubordinated obligations, payment of any amount on the notes is subject to our ability to pay our obligations
as they become due. |
| · | POTENTIAL
EARLY EXIT AS A RESULT OF THE AUTOMATIC CALL FEATURE — If the closing level of the Index on any Review Date (other than
the first eleven Review Dates and the final Review Date) is greater than or equal to the Initial Index Level, your notes will
be automatically called prior to the Maturity Date. Under these circumstances, you will receive a cash payment, for each $1,000
principal amount note, equal to (a) $1,000 plus (b) the Contingent Interest Payment applicable to that Review Date, payable
on the applicable Call Settlement Date. |
| · | THE
NOTES DO NOT GUARANTEE THE RETURN OF YOUR PRINCIPAL IF THE NOTES HAVE NOT BEEN AUTOMATICALLY CALLED — If the notes have
not been automatically called, we will pay you your principal back at maturity only if a Trigger Event has not occurred. However,
if the notes have not been automatically called and a Trigger Event has occurred, you will lose some or all of your principal
amount at maturity. |
| · | RETURN
LINKED TO THE S&P GSCITM Crude Oil Index Excess Return — The
return on the notes is linked to the S&P GSCI™ Crude Oil Index Excess Return, a sub-index of the S&P GSCI™,
a composite index of commodity sector returns, calculated, maintained and published daily by S&P Dow Jones Indices LLC. The
S&P GSCI™ is a world production-weighted index that is designed to reflect the relative significance of principal non-financial
commodities (i.e., physical commodities) in the world economy. The S&P GSCI™ represents the return of a portfolio
of the futures contracts for the underlying commodities. The S&P GSCI™ Crude Oil Index Excess Return references the
front-month West Texas Intermediate (“WTI”) crude oil futures contract (i.e., the WTI crude futures contract
generally closest to expiration) traded on the New York Mercantile Exchange (the “NYMEX”). The S&P GSCI™
Crude Oil Index Excess Return provides investors with a publicly available benchmark for investment performance in the crude oil
commodity markets. The S&P GSCI™ Crude Oil Index Excess Return is an excess return index and not a total return index.
An excess return index reflects the returns that are potentially available through an unleveraged investment in the contracts
composing the index (which, in the case of the Index, are the designated crude oil futures contracts). By contrast, a “total
return” index, in addition to reflecting those returns, also reflects interest that could be earned on funds committed to
the trading of the underlying futures contracts. See “The S&P GSCITM Indices” in the accompanying underlying
supplement no. 1a-I. |
| · | TAX
TREATMENT — You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences”
in the accompanying product supplement no. 2a-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 Interest
Payments 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 no. 2a-I. 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,
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 Interest Payments is uncertain, and
although we believe it is reasonable to take a position that Contingent Interest Payments 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.
FATCA.
Withholding under legislation commonly referred to as “FATCA” could apply to payments on the notes, and (if they
are recharacterized, in whole or in part, as debt instruments) could also apply to the payment of gross proceeds of a sale of
a note occurring after December 31, 2016 (including an early redemption or redemption at maturity). 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.
JPMorgan Structured Investments | PS-2 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
Selected
Risk Considerations
An investment
in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in the Index, any of the
futures contracts underlying the Index, the commodity to which those commodity futures contracts relate or any futures contracts
or exchange-traded or over-the-counter instruments based on, or other instruments related to, any of the foregoing. These risks
are explained in more detail in the “Risk Factors” section of the accompanying product supplement no. 2a-I and the
“Risk Factors” section of the accompanying underlying supplement no. 1a-I.
| · | YOUR
INVESTMENT IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal. If the notes have
not been automatically called and a Trigger Event has occurred, you will lose 1.3333% of your principal amount at maturity for
every 1% that the Ending Index Level is less than the Initial Index Level by more than the Buffer Amount. Accordingly, under
these circumstances, you will lose some or all of your principal amount at maturity. |
| · | THE
NOTES DO NOT GUARANTEE THE PAYMENT OF INTEREST AND MAY NOT PAY ANY INTEREST AT ALL — The terms of the notes differ from
those of conventional debt securities in that, among other things, whether we pay interest is linked to the performance of the
Index. If the notes have not been automatically called, we will make a Contingent Interest Payment with respect to a Review Date
only if the closing level of the Index on that Review Date is greater than or equal to the Interest Barrier. If the closing level
of the Index on that Review Date is less than the Interest Barrier, no Contingent Interest Payment will be made with respect to
that Review Date, and the Contingent Interest Payment that would otherwise have been payable with respect to that Review Date
will not be accrued and subsequently paid. Accordingly, if the closing level of the Index on each Review Date is less than the
Interest Barrier, you will not receive any interest payments over the term of the notes. |
| · | CREDIT
RISK OF JPMORGAN CHASE & CO. — The notes are subject to the credit risk of JPMorgan Chase & Co., and our credit
ratings and credit spreads may adversely affect the market value of the notes. Investors are dependent on JPMorgan Chase
& Co.’s ability to pay all amounts due on the notes. Any actual or potential change in our creditworthiness or credit
spreads, as determined by the market for taking our credit risk, is likely to adversely affect the value of the notes. If
we 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. |
| · | THE
AUTOMATIC CALL FEATURE MAY FORCE A POTENTIAL EARLY EXIT — If the notes are automatically called, the amount of Contingent
Interest Payments made on the notes may be less than the amount of Contingent Interest Payments that might have been payable if
the notes were held to maturity, and, for each $1,000 principal amount note, you will receive on the applicable Call Settlement
Date $1,000 plus the Contingent Interest Payment applicable to the relevant Review Date. |
| · | REINVESTMENT
RISK — If your notes are automatically called, the term of the notes may be reduced to as short as one year and you
will not receive any Contingent Interest Payments after the applicable Call Settlement Date. 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 automatically called prior to the Maturity Date. |
| · | THE
APPRECIATION POTENTIAL OF THE NOTES IS LIMITED, AND YOU WILL NOT PARTICIPATE IN ANY APPRECIATION IN THE VALUE OF THE INDEX
— The appreciation potential of the notes is limited to the sum of any Contingent Interest Payments that may be paid over
the term of the notes, regardless of any appreciation in the value of the Index, which may be significant. You will not participate
in any appreciation in the value of the Index. Accordingly, the return on the notes may be significantly less than the return
on a direct investment in the Index during the term of the notes. |
| · | 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 JPMS’s estimated value. In performing these duties, our 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 business activities, including hedging and trading activities, could cause our 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 no. 2a-I for additional information about these risks. |
| · | JPMS’S
ESTIMATED VALUE OF THE NOTES IS LOWER THAN THE ORIGINAL ISSUE PRICE (PRICE TO PUBLIC) OF THE NOTES — JPMS’s estimated
value is only an estimate using several factors. The original issue price of the notes exceeds JPMS’s estimated value 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 “JPMS’s
Estimated Value of the Notes” in this pricing supplement. |
| · | JPMS’S
ESTIMATED VALUE DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES — JPMS’s
estimated value of the notes is determined by reference to JPMS’s internal pricing models when the terms of the notes are
set. This estimated value is based on market conditions and other relevant factors existing at that time and JPMS’s assumptions
about market parameters, which can include volatility, |
JPMorgan Structured Investments | PS-3 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
interest
rates and other factors. Different pricing models and assumptions could provide valuations for notes that are greater than or
less than JPMS’s estimated value. 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 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 “JPMS’s
Estimated Value of the Notes” in this pricing supplement.
| · | JPMS’S
ESTIMATED VALUE IS NOT DETERMINED BY REFERENCE TO CREDIT SPREADS FOR OUR CONVENTIONAL FIXED-RATE DEBT — The internal
funding rate used in the determination of JPMS’s estimated value generally represents a discount from the credit spreads
for our conventional fixed-rate debt. The discount is based on, among other things, our 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
our conventional fixed-rate debt. If JPMS were to use the interest rate implied by our conventional fixed-rate credit spreads,
we would expect the economic terms of the notes to be more favorable to you. Consequently, our use of an internal funding rate
would have an adverse effect on the terms of the notes and any secondary market prices of the notes. See “JPMS’s Estimated
Value of the Notes” in this pricing supplement. |
| · | THE
VALUE OF THE NOTES AS PUBLISHED BY JPMS (AND WHICH MAY BE REFLECTED ON CUSTOMER ACCOUNT STATEMENTS) MAY BE HIGHER THAN JPMS’S
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 secondary market credit spreads 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). |
| · | 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 secondary market credit spreads 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 level of the Index, including: |
| · | any
actual or potential change in our creditworthiness or credit spreads; |
| · | customary
bid-ask spreads for similarly sized trades; |
| · | secondary
market credit spreads for structured debt issuances; |
| · | the
actual and expected volatility of the Index; |
| · | the
time to maturity of the notes; |
| · | supply
and demand trends for the commodity upon which the futures contracts that compose the Index are based or the exchange-traded futures
contracts on that commodity; |
| · | the
market price of the commodity upon which the futures contracts that compose the Index are based or the exchange-traded futures
contracts on that commodity; |
| · | whether
the closing level of the Index has been, or is expected to be, less than the Interest Barrier on any Review Date and whether a
Trigger Event is expected to occur; |
| · | the
likelihood of an automatic call being triggered; |
| · | interest
and yield rates in the market generally; and |
| · | a
variety of other economic, financial, political, regulatory, geographical, meteorological and judicial events. |
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.
| · | WE
MAY ACCELERATE YOUR NOTES IF A COMMODITY HEDGING DISRUPTION EVENT OCCURS — If we or our affiliates are unable to effect
transactions necessary to hedge our obligations under the notes due to a commodity hedging disruption event, we may, in our sole
and absolute discretion, accelerate the payment on your notes and pay you an amount determined in good faith and in a commercially
reasonable manner by the calculation agent. If the payment on your notes is accelerated, your investment may result in a loss
and you may not be able to reinvest your money in a |
JPMorgan Structured Investments | PS-4 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
comparable
investment. Please see “General Terms of Notes — Consequences of a Commodity Hedging Disruption Event — Acceleration
of the Notes” in the accompanying product supplement no. 2a-I for more information.
| · | COMMODITY
FUTURES CONTRACTS ARE SUBJECT TO UNCERTAIN LEGAL AND REGULATORY REGIMES — The commodity futures contracts that underlie
the Index are subject to legal and regulatory regimes that may change in ways that could adversely affect our ability to hedge
our obligations under the notes and affect the level of the Index. Any future regulatory changes, including but not limited
to changes resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), may
have a substantial adverse effect on the value of your notes. Additionally, under authority provided by the Dodd-Frank Act,
the U.S. Commodity Futures Trading Commission on November 5, 2013 proposed rules to establish position limits that will apply
to 28 agricultural, metals and energy futures contracts and futures, options and swaps that are economically equivalent to those
futures contracts. The limits will apply to a person’s combined position in futures, options and swaps on the same
underlying commodity. The rules also would set new aggregation standards for purposes of these position limits and would specify
the requirements for designated contract markets and swap execution facilitates to impose position limits on contracts traded
on those markets. The rules, if enacted in their proposed form, may reduce liquidity in the exchange-traded market for those commodity-based
futures contracts, which may, in turn, have an adverse effect on any payments on the notes. Furthermore, we or our affiliates
may be unable as a result of those restrictions to effect transactions necessary to hedge our obligations under the notes resulting
in a commodity hedging disruption event, in which case we may, in our sole and absolute discretion, accelerate the payment on
your notes. See “— We May Accelerate Your Notes If a Commodity Hedging Disruption Event Occurs” above. |
| · | PRICES
OF COMMODITY FUTURES CONTRACTS ARE CHARACTERIZED BY HIGH AND UNPREDICTABLE VOLATILITY, WHICH COULD LEAD TO HIGH AND UNPREDICTABLE
VOLATILITY IN THE INDEX — Market prices of the commodity futures contracts included in the Index tend to be highly volatile
and may fluctuate rapidly based on numerous factors, including the factors that affect the price of the commodity underlying the
commodity futures contracts included in the Index. See “— The Market Price of WTI Crude Oil Will Affect the Value
of the Notes” below. The prices of commodities and commodity futures contracts are subject to variables that may be less
significant to the values of traditional securities, such as stocks and bonds. These variables may create additional investment
risks that cause the value of the notes to be more volatile than the values of traditional securities. As a general matter, the
risk of low liquidity or volatile pricing around the maturity date of a commodity futures contract is greater than in the case
of other futures contracts because (among other factors) a number of market participants take physical delivery of the underlying
commodities. Many commodities are also highly cyclical. The high volatility and cyclical nature of commodity markets may render
such an investment inappropriate as the focus of an investment portfolio. |
| · | THE
MARKET PRICE OF WTI CRUDE OIL WILL AFFECT THE VALUE OF THE NOTES — Because the notes are linked to the performance of
the Index, which is composed of futures contracts on WTI crude oil, we expect that generally the market value of the notes will
depend in part on the market price of WTI crude oil. The price of WTI crude oil is primarily affected by the global demand for
and supply of crude oil, but is also influenced significantly from time to time by speculative actions and by currency exchange
rates. Crude oil prices are volatile and subject to dislocation. Demand for refined petroleum products by consumers, as well as
the agricultural, manufacturing and transportation industries, affects the price of crude oil. Crude oil’s end-use as a
refined product is often as transport fuel, industrial fuel and in-home heating fuel. Potential for substitution in most areas
exists, although considerations, including relative cost, often limit substitution levels. Because the precursors of demand for
petroleum products are linked to economic activity, demand will tend to reflect economic conditions. Demand is also influenced
by government regulations, such as environmental or consumption policies. In addition to general economic activity and demand,
prices for crude oil are affected by political events, labor activity and, in particular, direct government intervention (such
as embargos) or supply disruptions in major oil producing regions of the world. Such events tend to affect oil prices worldwide,
regardless of the location of the event. Supply for crude oil may increase or decrease depending on many factors. These include
production decisions by the Organization of the Petroleum Exporting Countries (“OPEC”) and other crude oil producers.
Crude oil prices are determined with significant influence by OPEC. OPEC has the potential to influence oil prices worldwide because
its members possess a significant portion of the world’s oil supply. In the event of sudden disruptions in the supplies
of oil, such as those caused by war, natural events, accidents or acts of terrorism, prices of oil futures contracts could become
extremely volatile and unpredictable. Also, sudden and dramatic changes in the futures market may occur, for example, upon a cessation
of hostilities that may exist in countries producing oil, the introduction of new or previously withheld supplies into the market
or the introduction of substitute products or commodities. Crude oil prices may also be affected by short-term changes in supply
and demand because of trading activities in the oil market and seasonality (e.g., weather conditions such as hurricanes).
It is not possible to predict the aggregate effect of all or any combination of these factors. |
| · | A
DECISION BY THE NYMEX TO INCREASE MARGIN REQUIREMENTS FOR WTI CRUDE OIL FUTURES CONTRACTS MAY AFFECT THE LEVEL OF THE INDEX
— If the NYMEX increases the amount of collateral required to be posted to hold positions in the futures contracts on WTI
crude oil (i.e., the margin requirements), market participants who are unwilling or unable to post additional collateral
may liquidate their positions, which may cause the level of the Index to decline significantly. |
| · | THE
NOTES DO NOT OFFER DIRECT EXPOSURE TO COMMODITY SPOT PRICES — The notes are linked to the Index, which tracks commodity
futures contracts, not physical commodities (or their spot prices). The price of a futures contract reflects the expected value
of the commodity upon delivery in the future, whereas the spot price of a commodity reflects the immediate delivery value of the
commodity. A variety of factors can lead to a disparity between the expected future price of a commodity and the spot price at
a given point in time, such as the cost of storing the commodity for the |
JPMorgan Structured Investments | PS-5 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
term
of the futures contract, interest charges incurred to finance the purchase of the commodity and expectations concerning supply
and demand for the commodity. The price movements of a futures contract are typically correlated with the movements of the spot
price of the referenced commodity, but the correlation is generally imperfect and price movements in the spot market may not be
reflected in the futures market (and vice versa). Accordingly, the notes may underperform a similar investment that is linked
to commodity spot prices.
| · | THE
INDEX MAY BE MORE VOLATILE AND MORE SUSCEPTIBLE TO PRICE FLUCTUATIONS OR COMMODITY FUTURES CONTRACTS THAN A BROADER COMMODITIES
INDEX — The Index may be more volatile and susceptible to price fluctuations than a broader commodities index, such
as the S&P GSCI™. In contrast to the S&P GSCI™, which includes contracts on crude oil and non-crude oil commodities,
the Index comprises contracts only on crude oil. As a result, price volatility in the contracts included in the Index will likely
have a greater impact on the Index than it would on the broader S&P GSCI™. In addition, because the Index omits principal
market sectors composing the S&P GSCI™, it will be less representative of the economy and commodity markets as a whole
and will therefore not serve as a reliable benchmark for commodity market performance generally. |
| · | OWNING
THE NOTES IS NOT THE SAME AS OWNING ANY COMMODITIES OR COMMODITY FUTURES CONTRACTS — The return on your notes will not
reflect the return you would realize if you actually purchased the futures contracts that compose the Index, the commodities upon
which the futures contracts that compose the Index are based, or exchange-traded or over-the-counter instruments based on the
Index. You will not have any rights that holders of such assets or instruments have. |
| · | HIGHER
FUTURES PRICES OF THE COMMODITY FUTURES CONTRACTS UNDERLYING THE INDEX RELATIVE TO THE CURRENT PRICES OF SUCH CONTRACTS MAY AFFECT
THE VALUE OF THE INDEX AND THE VALUE OF THE NOTES — The Index is composed of futures contracts on physical commodities.
Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally
specify a certain date for delivery of the underlying physical commodity. As the exchange-traded futures contracts that compose
the Index approach expiration, they are replaced by contracts that have a later expiration. Thus, for example, a contract purchased
and held in August may specify an October expiration. As time passes, the contract expiring in October is replaced with a contract
for delivery in November. This process is referred to as “rolling.” If the market for these contracts is (putting
aside other considerations) in “contango,” where the prices are higher in the distant delivery months than in the
nearer delivery months, the purchase of the November contract would take place at a price that is higher than the price of the
October contract, thereby creating a negative “roll yield.” Contango could adversely affect the value of the
Index and thus the value of notes linked to the Index. The futures contracts underlying the Index have historically been in contango. |
| · | SUSPENSION
OR DISRUPTIONS OF MARKET TRADING IN THE COMMODITY MARKETS AND RELATED FUTURES MARKETS MAY ADVERSELY AFFECT THE LEVEL OF THE INDEX,
AND THEREFORE THE VALUE OF THE NOTES — The commodity markets are subject to temporary distortions or other disruptions
due to various factors, including the lack of liquidity in the markets, the participation of speculators and government regulation
and intervention. In addition, U.S. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation
in futures contract prices that may occur during a single day. These limits are generally referred to as “daily price fluctuation
limits” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a
“limit price.” Once the limit price has been reached in a particular contract, no trades may be made at a different
price. Limit prices have the effect of precluding trading in a particular contract or forcing the liquidation of contracts at
disadvantageous times or prices. These circumstances could adversely affect the level of the Index and, therefore, the value of
your notes. |
| · | THE
NOTES ARE LINKED TO AN EXCESS RETURN INDEX AND NOT A TOTAL RETURN INDEX — The notes are linked to an excess return index
and not a total return index. An excess return index, such as the Index, reflects the returns that are potentially available
through an unleveraged investment in the contracts composing that index. By contrast, a “total return” index,
in addition to reflecting those returns, also reflects interest that could be earned on funds committed to the trading of the
underlying futures contracts. |
| · | 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. |
JPMorgan Structured Investments | PS-6 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
What
Are the Payments on the Notes, Assuming a Range of Performances for the Index?
If the
notes have not been previously called and the closing level of the Index on any Review Date is greater than or equal to the Interest
Barrier, you will receive on the applicable Interest Payment Date for each $1,000 principal amount note a Contingent Interest
Payment equal to $8.00 (equivalent to an interest rate of 9.60% per annum, payable at a rate of 0.80% per month). If the closing
level of the Index on any Review Date is less than the Interest Barrier, no Contingent Interest Payment will be made with respect
to that Review Date. We refer to the Interest Payment Date immediately following any Review Date on which the closing level of
the Index is less than the Interest Barrier as a “No-Coupon Date.” The following table reflects the Contingent Interest
Rate of 9.60% per annum and illustrates the hypothetical total Contingent Interest Payments per $1,000 principal amount note over
the term of the notes depending on how many No-Coupon Dates occur.
Number of
No-Coupon Dates |
Total Contingent
Coupon Payments |
0 No-Coupon Dates |
$288.00 |
1 No-Coupon Date |
$280.00 |
2 No-Coupon Dates |
$272.00 |
3 No-Coupon Dates |
$264.00 |
4 No-Coupon Dates |
$256.00 |
5 No-Coupon Dates |
$248.00 |
6 No-Coupon Dates |
$240.00 |
7 No-Coupon Dates |
$232.00 |
8 No-Coupon Dates |
$224.00 |
9 No-Coupon Dates |
$216.00 |
10 No-Coupon Dates |
$208.00 |
11 No-Coupon Dates |
$200.00 |
12 No-Coupon Dates |
$192.00 |
13 No-Coupon Dates |
$184.00 |
14 No-Coupon Date |
$176.00 |
15 No-Coupon Dates |
$168.00 |
16 No-Coupon Dates |
$160.00 |
17 No-Coupon Dates |
$152.00 |
18 No-Coupon Dates |
$144.00 |
19 No-Coupon Dates |
$136.00 |
20 No-Coupon Dates |
$128.00 |
21 No-Coupon Dates |
$120.00 |
22 No-Coupon Dates |
$112.00 |
23 No-Coupon Dates |
$104.00 |
24 No-Coupon Dates |
$96.00 |
25 No-Coupon Dates |
$88.00 |
26 No-Coupon Dates |
$80.00 |
27 No-Coupon Date |
$72.00 |
28 No-Coupon Dates |
$64.00 |
29 No-Coupon Dates |
$56.00 |
30 No-Coupon Dates |
$48.00 |
31 No-Coupon Dates |
$40.00 |
32 No-Coupon Dates |
$32.00 |
33 No-Coupon Dates |
$24.00 |
34 No-Coupon Dates |
$16.00 |
35 No-Coupon Dates |
$8.00 |
36 No-Coupon Dates |
$0.00 |
The following
table illustrates the hypothetical payments on the notes in different hypothetical scenarios. Each hypothetical payment set forth
below assumes an Initial Index Level of 240 and an Interest Barrier and a Trigger Level of 180 (equal to 75% of the hypothetical
Initial Index Level) and reflects the Contingent Interest Rate of 9.60% per annum (payable at a rate of 0.80% per month), the
Buffer Amount of 25% and the Downside Leverage Factor of 1.3333. Each hypothetical payment set forth below is for illustrative
purposes only and may not be the actual payment applicable to a purchaser of the notes. The numbers appearing in the following
table and examples have been rounded for ease of analysis.
JPMorgan Structured Investments | PS-7 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
Review Dates Prior to the Final Review Date |
Final Review Date |
Closing Level of the Index at Review Date |
Appreciation / Depreciation of the Index at Review Date |
Payment on Interest Payment Date or Call Settlement Date (1)(2) |
Index Return |
Payment at Maturity If a Trigger Event Has Not Occurred (2)(3) |
Payment at Maturity If a Trigger Event Has Occurred (2)(3) |
432.000 |
80.00% |
$1,008.00 |
80.00% |
$1,008.00 |
N/A |
408.000 |
70.00% |
$1,008.00 |
70.00% |
$1,008.00 |
N/A |
384.000 |
60.00% |
$1,008.00 |
60.00% |
$1,008.00 |
N/A |
360.000 |
50.00% |
$1,008.00 |
50.00% |
$1,008.00 |
N/A |
336.000 |
40.00% |
$1,008.00 |
40.00% |
$1,008.00 |
N/A |
312.000 |
30.00% |
$1,008.00 |
30.00% |
$1,008.00 |
N/A |
288.000 |
20.00% |
$1,008.00 |
20.00% |
$1,008.00 |
N/A |
276.000 |
15.00% |
$1,008.00 |
15.00% |
$1,008.00 |
N/A |
264.000 |
10.00% |
$1,008.00 |
10.00% |
$1,008.00 |
N/A |
252.000 |
5.00% |
$1,008.00 |
5.00% |
$1,008.00 |
N/A |
240.000 |
0.00% |
$1,008.00 |
0.00% |
$1,008.00 |
N/A |
228.000 |
-5.00% |
$8.00 |
-5.00% |
$1,008.00 |
N/A |
216.000 |
-10.00% |
$8.00 |
-10.00% |
$1,008.00 |
N/A |
192.000 |
-20.00% |
$8.00 |
-20.00% |
$1,008.00 |
N/A |
180.000 |
-25.00% |
$8.00 |
-25.00% |
$1,008.00 |
N/A |
168.000 |
-25.01% |
N/A |
-25.01% |
N/A |
$999.867 |
179.976 |
-30.00% |
N/A |
-30.00% |
N/A |
$933.335 |
144.000 |
-40.00% |
N/A |
-40.00% |
N/A |
$800.005 |
120.000 |
-50.00% |
N/A |
-50.00% |
N/A |
$666.675 |
96.000 |
-60.00% |
N/A |
-60.00% |
N/A |
$533.345 |
72.000 |
-70.00% |
N/A |
-70.00% |
N/A |
$400.015 |
48.000 |
-80.00% |
N/A |
-80.00% |
N/A |
$266.685 |
24.000 |
-90.00% |
N/A |
-90.00% |
N/A |
$133.355 |
0.000 |
-100.00% |
N/A |
-100.00% |
N/A |
$0.000 |
| (1) | The
notes will be automatically called if the closing level of the Index on any Review Date (other than the first eleven Review Dates
and the final Review Date) is greater than or equal to the Initial Index Level. |
| (2) | You
will receive a Contingent Interest Payment in connection with a Review Date if the closing level of the Index on that Review Date
is greater than or equal to the Interest Barrier. |
| (3) | A Trigger
Event occurs if the Ending Index Level is less than the Trigger Level. |
Hypothetical
Examples of Amounts Payable on the Notes
The following
examples illustrate how payments on the notes in different hypothetical scenarios are calculated.
Example
1: Contingent Interest Payments are paid in connection with one of the Review Dates preceding the thirteenth Review Date, the
closing level of the Index is less than the Initial Index Level of 240 on each of the Review Dates preceding the thirteenth Review
Date and the closing level of the Index increases from the Initial Index Level of 240 to a closing level of 288 on the thirteenth
Review Date. The investor receives a payment of $8.00 per $1,000 principal amount note in connection with one of the Review
Dates preceding the thirteenth Review Date, but the notes are not automatically called on any of the Review Dates preceding the
thirteenth Review Date because the notes are not automatically callable before the twelfth Review Date and the closing level of
the Index is less than the Initial Index Level on the twelfth Review Date. Because the closing level of the Index on the thirteenth
Review Date is greater than the Interest Barrier, the investor is entitled to receive a Contingent Interest Payment in connection
with the thirteenth Review Date. In addition, because the closing level of the Index on the thirteenth Review Date is greater
than the Initial Index Level, the notes are automatically called. Accordingly, the investor receives a payment of $1,008.00 per
$1,000 principal amount note on the relevant Call Settlement Date, consisting of a Contingent Interest Payment of $8.00 per $1,000
principal amount note and repayment of principal equal to $1,000 per $1,000 principal amount note. As a result, the total amount
paid on the notes over the term of the notes is $1,016 per $1,000 principal amount note.
Example
2: The notes have not been automatically called prior to maturity, Contingent Interest Payments are paid in connection with each
of the Review Dates preceding the final Review Date and the closing level of the Index increases from the Initial Index Level
of 240 to an Ending Index Level of 288 — A Trigger Event has not occurred. The investor receives a payment of $8.00
per $1,000 principal amount note in connection with each of the Review Dates preceding the final Review Date. Because the notes
have not been automatically called prior to maturity and a Trigger Event has not occurred, the investor receives at maturity a
payment of $1,008.00 per $1,000 principal amount note. This payment consists of a Contingent Interest Payment of $8.00 per $1,000
principal amount note and repayment of principal equal to $1,000 per $1,000 principal amount note. The total amount paid on the
notes over the term of the notes is $1,288 per $1,000 principal amount note. This represents the maximum total payment an
investor may receive over the term of the notes.
Example
3: The notes have not been automatically called prior to maturity, Contingent Interest Payments are paid in connection with four
of the Review Dates preceding the final Review Date and the closing level of the Index
JPMorgan Structured Investments | PS-8 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
decreases
from the Initial Index Level of 240 to an Ending Index Level of 180 — A Trigger Event has not occurred. The investor receives
a payment of $8.00 per $1,000 principal amount note in connection with four of the Review Dates preceding the final Review Date.
Because the notes have not been automatically called prior to maturity and a Trigger Event has not occurred, even though the Ending
Index Level is less than the Initial Index Level, the investor receives at maturity a payment of $1,008.00 per $1,000 principal
amount note. This payment consists of a Contingent Interest Payment of $8.00 per $1,000 principal amount note and repayment
of principal equal to $1,000 per $1,000 principal amount note. The total amount paid on the notes over the term of the notes
is $1,040 per $1,000 principal amount note.
Example
4: The notes have not been automatically called prior to maturity, Contingent Interest Payments are paid in connection with each
of the Review Dates preceding the final Review Date, and the closing level of the Index decreases from the Initial Index Level
of 240 to an Ending Index Level of 96 — A Trigger Event has occurred. The investor receives a payment of $8.00 per $1,000
principal amount note in connection with each of the Review Dates preceding the final Review Date. Because the notes have not
been automatically called prior to maturity, a Trigger Event has occurred and the Index Return is -60%, the investor receives
at maturity a payment of $533.345 per $1,000 principal amount note, calculated as follows:
$1,000
+ [$1,000 × (-60% + 25%) × 1.3333] = $533.345
The total
amount paid on the notes over the term of the notes is $813.333 per $1,000 principal amount note.
Example
5: The notes have not been automatically called prior to maturity, no Contingent Interest Payments are paid in connection with
the Review Dates preceding the final Review Date and the closing level of the Index decreases from the Initial Index Level of
240 to an Ending Index Level of 72 — A Trigger Event has occurred. Because the notes have not been automatically called
prior to maturity, no Contingent Interest Payments are paid in connection with the Review Dates preceding the final Review Date,
a Trigger Event has occurred and the Index Return is -70%, the investor receives no payments over the term of the notes, other
than a payment at maturity of $400.15 per $1,000 principal amount note, calculated as follows:
$1,000
+ [$1,000 × (-70% + 25%) × 1.3333] = $400.15
The 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 payments shown above would likely be lower.
JPMorgan Structured Investments | PS-9 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
Historical
Information
The following
graph sets forth the historical performance of the Index based on the weekly historical closing levels of the Index from January
8, 2010 through July 17, 2015. The closing level of the Index on July 23, 2015 was 233.8386. We obtained the closing levels of
the Index above and below from the Bloomberg Professional® service (“Bloomberg”), without independent
verification.
The historical
closing levels of the Index should not be taken as an indication of future performance, and no assurance can be given as to the
closing level of the Index on any Review Date. We cannot give you assurance that the performance of the Index will result in the
return of any of your principal amount or the payment of any interest.
JPMS’s
Estimated Value of the Notes
JPMS’s
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 our internal funding
rate for structured debt described below, and (2) the derivative or derivatives underlying the economic terms of the notes. JPMS’s
estimated value 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 JPMS’s estimated value generally represents
a discount from the credit spreads for our conventional fixed-rate debt. For additional information, see “Selected
Risk Considerations — JPMS’s Estimated Value Is Not Determined by Reference to Credit Spreads for Our Conventional
Fixed-Rate Debt.” The value of the derivative or derivatives underlying the economic terms of the notes is derived from
JPMS’s internal pricing models. 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, JPMS’s 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 — JPMS’s Estimated Value Does Not Represent
Future Values of the Notes and May Differ from Others’ Estimates.”
JPMS’s
estimated value of the notes is lower than the original issue price of the notes because costs associated with selling, structuring
and hedging the notes are included in the original issue price of the notes. These costs include the selling commissions paid
to JPMS and other affiliated or unaffiliated dealers, the projected profits, if any, that our affiliates expect to realize for
assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under the
notes. Because hedging our obligations entails risk and may be influenced by market forces beyond our control, this hedging may
result in a profit that is more or less than expected, or it may result in a loss. A portion of the profits, if any, realized
in hedging our obligations under the notes may be allowed to other affiliated or unaffiliated dealers, and we or one or more of
our affiliates will retain any remaining hedging profits. See “Selected Risk Considerations — JPMS’s Estimated
Value of the Notes Is Lower Than the Original Issue Price (Price to Public) of the Notes” in this pricing supplement.
Secondary
Market Prices of the Notes
For information
about factors that will impact any secondary market prices of the notes, see “Selected Risk Considerations — Secondary
Market Prices of the Notes Will Be Impacted by Many Economic and Market Factors” in this pricing supplement. In addition,
we generally expect that some of the costs included in the original issue price of the notes will be partially paid back to you
in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined
period that is intended to be the shorter of six months and one-
JPMorgan Structured Investments | PS-10 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
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 JPMS. 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 JPMS’s Then-Current Estimated Value of the
Notes for a Limited Time Period.”
Supplemental
Use of Proceeds
The notes
are offered to meet investor demand for products that reflect the risk-return profile and market exposure provided by the notes.
See “What Are the Payments on the Notes, Assuming a Range of Performances for the Index?” and “Hypothetical
Examples of Amounts Payable on the Notes” in this pricing supplement for an illustration of the risk-return profile of the
notes and “Selected Purchase Considerations — Return Linked to the S&P GSCI™ Crude Oil Index Excess Return”
in this pricing supplement for a description of the market exposure provided by the notes.
The original
issue price of the notes is equal to JPMS’s estimated value of the notes plus the selling commissions paid to JPMS and other
affiliated or unaffiliated dealers, plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming
risks inherent in hedging our obligations under the notes, plus the estimated cost of hedging our obligations under the notes.
Validity
of the Notes
In the
opinion of Davis Polk & Wardwell LLP, as our special products counsel, when the notes offered by this pricing supplement have
been executed and issued by us and authenticated by the trustee pursuant to the indenture, and delivered against payment as contemplated
herein, such notes will be our valid and binding obligations, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable
principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith),
provided that such counsel expresses no opinion as to the effect of fraudulent conveyance, fraudulent transfer or similar
provision of applicable law on the conclusions expressed above. This opinion is given as of the date hereof and is limited to
the federal laws of the United States of America, the laws of the State of New York and the General Corporation Law of the State
of Delaware. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution
and delivery of the indenture and its authentication of the notes and the validity, binding nature and enforceability of the indenture
with respect to the trustee, all as stated in the letter of such counsel dated November 7, 2014, which was filed as an exhibit
to the Registration Statement on Form S-3 by us on November 7, 2014.
JPMorgan Structured Investments | PS-11 |
Auto Callable Contingent Interest Notes Linked to the S&P GSCI™ Crude Oil Index Excess Return |
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