Preliminary Terms No. 398
Registration Statement No. 333-199966
Dated June 18, 2015
Filed pursuant to Rule 433
Floating Rate Notes due June 30, 2030
6-Month USD LIBOR and S&P 500® Index Range Accrual Notes
As further described below, subject to our redemption right, interest will accrue quarterly on the notes at a variable rate equal to the applicable per annum interest factor (of (i) 5.00% per annum for years 1-5, (ii) 7.50% per annum for years 6-10 and (iii) 10.00% per annum for years 11-15) for each day that (a) 6-Month USD LIBOR is within the applicable LIBOR reference rate range (i.e., greater than or equal to 0.00% and less than or equal to 5.00%) and (b) the closing level of the S&P 500® Index is greater than or equal to the index reference level.
We, JPMorgan Chase & Co., have the right to redeem the notes on any quarterly redemption date beginning June 30, 2020. All payments on the notes, including the repayment of principal, are subject to the credit risk of JPMorgan Chase & Co.
| (2) | Reflects a structuring fee payable to Morgan Stanley Wealth Management by the agent or its affiliates of $5.00 per $1,000 stated principal amount note. |
If
the notes priced today, the estimated value of the notes
as determined by JPMS would be approximately $935.00
per $1,000 stated principal amount note.
JPMS’s estimated value of the notes on the pricing date will be provided by JPMS in the pricing
supplement and will not be less than $900.00 per $1,000 stated principal amount notes. See “Additional
Information About the Notes — JPMS’s Estimated Value of the Notes” in this document for additional information.
Investing in the notes involves a number of risks. See “Risk Factors” on page US-2 of the accompanying underlying supplement
no. 1a-I, “Risk Factors” on page PS-18 of the accompanying product supplement no. 1a-1 and “Risk Factors”
beginning on page 7 of these preliminary terms.
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 document or the accompanying underlying supplement, product supplement, prospectus supplement and prospectus. Any representation to the contrary is a criminal offense.
The notes are not bank deposits, are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency, and are not obligations of, or guaranteed by, a bank.
You should read this document together with the related underlying supplement no. 1a-i, product supplement no. 1a-1, prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below, before you decide to invest.
Underlying supplement no. 1a-I dated November 7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008410/e61337_424b2.pdf
Product supplement no. 1a-1: http://www.sec.gov/Archives/edgar/data/19617/000089109214008402/e61380_424b2.htm
Prospectus supplement and prospectus dated November 7, 2014: http://www.sec.gov/Archives/edgar/data/19617/000089109214008397/e61348_424b2.pdf
The issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in this offering will arrange to send you the prospectus if you request it by calling toll-free (800) 869-3326.
Floating
Rate Notes due June 30, 2030
The Notes
The notes offered are senior unsecured obligations of JPMorgan Chase & Co. We describe the basic features of these notes in the sections of the accompanying prospectus called “Description of Debt Securities,” the accompanying prospectus supplement called “Description of Notes” and the accompanying product supplement no. 1a-1 called “Description of Notes,” subject to and as modified by the provisions described above. All payments on the notes are subject to the credit risk of JPMorgan Chase & Co.
For each accrual determination date, the LIBOR reference rate refers to the London Interbank Offered Rate for deposits in U.S. dollars with a Designated Maturity of six months that appears on Reuters page “LIBOR01” under the heading “6Mo” (or any successor page) at approximately 11:00 a.m., London time, on such accrual determination date, as determined by the calculation agent. If on such accrual determination date, 6-month USD LIBOR cannot be determined by reference to Reuters page “LIBOR01” (or any successor page), then the calculation agent will determine 6-month USD LIBOR in accordance with the procedures set forth in the accompanying product supplement no. 1a-1 under “Description of Notes – Interest – The Underlying Rates – LIBOR Rate.”
For each accrual determination date, the official closing level of the S&P 500® Index (the “Index”) published following the regular official weekday close of trading for the S&P 500® Index on Bloomberg Professional® Service page “SPX Index HP” on such accrual determination date. If a market disruption event exists with respect to the S&P 500® Index on any accrual determination date, the index closing value on the immediately preceding accrual determination date for which no market disruption event occurs or is continuing will be the index closing value for such disrupted accrual determination date (and will also be the index closing value for the originally scheduled accrual determination date). In certain circumstances, the index closing value will be based on the alternative calculation of the S&P 500® Index as described under “General Terms of Notes — Discontinuation of an Equity Index; Alteration of Method of Calculation” in the accompanying product supplement no. 1a-1.
For each calendar day, the second trading day prior to such calendar day; provided that for the period commencing on the sixth scheduled business day prior to but excluding each interest payment date, the accrual determination date will be the first trading day that immediately precedes such period. For purposes of product supplement no. 1a-1, an accrual determination date is a LIBOR determination date and an index determination date.
A day, as determined by the calculation agent, on which (a) trading is generally conducted on (i) the relevant exchanges for securities underlying the S&P 500® Index or the relevant successor index, if applicable, and (ii) the exchanges on which futures or options contracts related to the S&P 500® Index or the relevant successor index, if applicable, are traded, other than a day on which trading on such relevant exchange or exchange on which such futures or options contracts are traded is scheduled to close prior to its regular weekday closing time, and (b) commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in London.
Any day other than a day on which banking institutions in the City of New York are authorized or required by law, regulation or executive order to close or a day on which transactions in dollars are not conducted.
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The table below presents examples of the hypothetical interest rate that would accrue on the notes based on the total number of calendar days in an interest payment period on which the LIBOR reference rate is within the applicable LIBOR reference rate range and the index closing value is greater than or equal to the index reference level. The table reflects that the interest payment period contains 90 calendar days and assumes an interest rate of 5.00% per annum, which is the applicable per annum interest factor for years 1-5.
The example below is for purposes of illustration only and would provide different results if different assumptions were made. The actual quarterly interest rate and payments will depend on the actual interest payment period, index closing value and LIBOR reference rate on each day.
|
N |
Hypothetical Interest Rate |
| 0 | 0.00% |
| 10 | 0.56% |
| 20 | 1.11% |
| 25 | 1.39% |
| 35 | 1.94% |
| 50 | 2.78% |
| 75 | 4.16% |
| 90 | 5.00% |
The following graph sets forth the weekly LIBOR reference rate for the period from January 8, 2010 to June 12, 2015. The LIBOR reference rate on June 17, 2015 was 0.45205%. The historical performance of the LIBOR reference rate should not be taken as an indication of its future performance. We cannot give you any assurance that the LIBOR reference rate will be within the applicable LIBOR reference rate range on any day of any interest payment period. We obtained the information in the graph below, without independent verification, from Bloomberg Financial Markets, which closely parallels but is not necessarily exactly the same as the Reuters Page price sources used to determine the LIBOR reference rate.
|
Total number of days in historical period, beginning on January 8, 2010 |
1,360 |
| Number of days on or after January 8, 2010 that the LIBOR reference rate was greater than or equal to 0.00% and less than or equal to 5.00%* | 1,360 |
| Number of days on or after January 8, 2010 that the LIBOR reference rate was less than 0.00% or greater than 5.00%* | 0 |
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The historical performance shown above is not indicative of future performance. The LIBOR reference rate may in the future be less than 0.00% or greater than 5.00%* for extended periods of time. You will not receive interest for any day that the LIBOR reference rate is less than 0.00% or greater than 5.00%.
Moreover, even if the LIBOR reference rate is greater than or equal to 0.00% and less than or equal to 5.00%, if the index closing value is less than the index reference level on that day, you will not receive any interest for that day.
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Information about the Underlying Index
The S&P 500® Index consists of 500 component stocks selected to provide a performance benchmark for the U.S. equity markets. For additional information on the S&P 500® Index, see the information set forth under “Equity Index Descriptions — The S&P 500® Index” in the accompanying underlying supplement no. 1a-I.
The following table sets forth the published high and low index closing values, as well as end-of-quarter index closing values, for each quarter in the period from January 8, 2010 through June 17, 2015. The graph following the table sets forth the weekly closing values of the index for the period from January 8, 2010 through June 12, 2015. The closing value of the index on June 17, 2015 was 2,100.44. The historical values of the S&P 500® index should not be taken as an indication of future performance, and no assurance can be given as to the level of the index on any calendar day during the term of the notes. The payment of dividends on the stocks that constitute the index are not reflected in its level and, therefore, have no effect on the calculation of the payment of interest. We obtained the information in the table and graph below from Bloomberg Financial Markets, without independent verification.
| SPX Index Quarterly Dividends | High | Low | Period End |
| 2010 | |||
| First Quarter | 1,174.17 | 1,056.74 | 1,169.43 |
| Second Quarter | 1,217.28 | 1,030.71 | 1,030.71 |
| Third Quarter | 1,148.67 | 1,022.58 | 1,141.2 |
| Fourth Quarter | 1,259.78 | 1,137.03 | 1,257.64 |
| 2011 | |||
| First Quarter | 1,343.01 | 1,256.88 | 1,325.83 |
| Second Quarter | 1,363.61 | 1,265.42 | 1,320.64 |
| Third Quarter | 1,353.22 | 1,119.46 | 1,131.42 |
| Fourth Quarter | 1,285.09 | 1,099.23 | 1,257.6 |
| 2012 | |||
| First Quarter | 1,416.51 | 1,277.06 | 1,408.47 |
| Second Quarter | 1,419.04 | 1,278.04 | 1,362.16 |
| Third Quarter | 1,465.77 | 1,334.76 | 1,440.67 |
| Fourth Quarter | 1,461.4 | 1,353.33 | 1,426.19 |
| 2013 | |||
| First Quarter | 1,569.19 | 1,457.15 | 1,569.19 |
| Second Quarter | 1,669.16 | 1,541.61 | 1,606.28 |
| Third Quarter | 1,725.52 | 1,614.08 | 1,681.55 |
| Fourth Quarter | 1,848.36 | 1,655.45 | 1,848.36 |
| 2014 | |||
| First Quarter | 1,878.04 | 1,741.89 | 1,872.34 |
| Second Quarter | 1,962.87 | 1,815.69 | 1,960.23 |
| Third Quarter | 2,011.36 | 1,909.57 | 1,972.29 |
| Fourth Quarter | 2,090.57 | 1,862.49 | 2,058.9 |
| 2015 | |||
| First Quarter | 2,100.34 | 1,992.67 | 2,098.76 |
| Second Quarter | 2,130.82 | 2,059.69 | 2,100.44 |
| Third Quarter | 0 | 0 | 0 |
| Fourth Quarter | 0 | 0 | 0 |
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**The black line in the graph indicates a hypothetical index reference level of 1,260.26 (60% of the S&P 500® Index Closing Level on June 17, 2015 of 2,100.44)
| Total number of days in the historical period, beginning on January 8, 2010 | 1,369 |
| Number of days on or after January 8, 2010 that the index was greater than or equal to the hypothetical index reference level above | 1,030 |
| Number of days on or after January 8, 2010 that the index was less than the hypothetical index reference level above | 339 |
The historical performance shown above is not indicative of future performance. The index reference level will be set on the pricing date and could be higher than the hypothetical index reference level above. The index closing value may in the future be less than the index reference level for extended periods of time. You will not receive interest for any day that the index closing value is less than the index reference level.
Moreover, even if the index closing value is greater than or equal to the index reference level on any day, if the LIBOR reference rate is less than 0.00% or greater than 5.00%, you will not receive any interest for that day.
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The following is a non-exhaustive list of certain key risk factors for investors in the notes. For further discussion of these and other risks, you should read the section entitled “Risk Factors” beginning on page US-1 of the accompanying underlying supplement no. 1a-I and “Risk Factors” beginning on page PS-18 of the accompanying product supplement no. 1a-1. We also urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the notes.
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| o | any actual or potential change in our creditworthiness or credit spreads, |
| o | customary bid-ask spreads for similarly sized trades, |
| o | secondary market credit spreads for structured debt issuances, |
| o | the actual and expected volatility of the index and the LIBOR reference rate, |
| o | the dividend rates on the equity securities included in the index, |
| o | interest and yield rates in the market, |
| o | time remaining until the notes mature, and |
| o | a variety of other economic, financial, political, regulatory and judicial events. |
Additionally, independent pricing vendors and/or third party broker-dealers may publish a price for the 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
§ sentiment regarding underlying strength in the U.S. and global economies;
§ expectation regarding the level of price inflation;
§ sentiment regarding credit quality in U.S. and global credit markets;
§ central bank policy regarding interest rates; and
§ performance of capital markets.
Recently, the S&P 500® Index has experienced significant volatility. Increases in 6-month USD LIBOR or decreases in the index closing value could result in a calendar day not being an accrual determination date and thus in the reduction of interest payable on notes.
§ changes in, or perceptions about, future LIBOR reference rates and index closing values;
§ general economic conditions;
§ the dividend rates on the equity securities underlying the S&P 500® Index; and
§ the policy of the Federal Reserve Board regarding interest rates.
These and other factors may have a negative impact on the amount of interest, if any, payable on the notes. In addition, these and other factors may have a negative impact on the value of your notes in the secondary market.
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Additional Information About the Notes
JPMS’s Estimated Value of the Notes
JPMS’s estimated value of the notes set forth on the cover of this document is equal to the sum of the values of the following hypothetical components: (1) a fixed-income debt component with the same maturity as the 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 “Risk Factors — 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, dividend rates, 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 “Risk Factors — 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 will be lower than the issue price of the notes because costs associated with selling, structuring and hedging the notes are included in the issue price of the notes. These costs include the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, the structuring fee, the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under the notes. Because hedging our obligations entails risk and may be influenced by market forces beyond our control, this hedging may result in a profit that is more or less than expected, or it may result in a loss. We or one or more of our affiliates will retain any profits realized in hedging our obligations under the notes. See “Risk Factors — JPMS’s estimated value of the notes will be lower than the issue price (price to public) of the notes” in this document.
Secondary Market Prices of the Notes
For information about factors that will impact any secondary market prices of the notes, see “Risk Factors — Secondary market prices of the notes will be impacted by many economic and market factors” in this document. In addition, we generally expect that some of the costs included in the issue price of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined period that is intended to be the shorter of six months and one-half of the stated term of the notes. The length of any such initial period reflects the structure of the notes, whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated costs of hedging the notes and when these costs are incurred, as determined by JPMS. See “Risk Factors — 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.”
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Supplemental Plan of Distribution
Subject to regulatory constraints, JPMS intends to use its reasonable efforts to offer to purchase the notes in the secondary market, but is not required to do so.
We or our affiliate may enter into swap agreements or related hedge transactions with one of our other affiliates or unaffiliated counterparties in connection with the sale of the notes and JPMS and/or an affiliate may earn additional income as a result of payments pursuant to the swap or related hedge transactions. JPMS, acting as agent for JPMorgan Chase & Co., will pay all of the selling commissions it receives from us to Morgan Stanley Wealth Management. In addition, Morgan Stanley Wealth Management will receive a structuring fee as set forth on the cover of this document per $1,000 stated principal amount note. See “Use of Proceeds and Hedging” on page PS-34 of the accompanying product supplement no. 1a-1.
You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 1a-1. Subject to the limitations described therein, the notes will be treated for U.S. federal income tax purposes as “contingent payment debt instruments.” You will generally be required to accrue and recognize original issue discount (“OID”) as interest income in each year at the “comparable yield,” as determined by us, even though the actual interest payments made with respect to the notes during a taxable year may differ from the amount of OID that must be accrued during that taxable year. In addition, solely for purposes of determining the amount of OID that you will be required to accrue, we are also required to construct a “projected payment schedule” in respect of the notes representing a series of payments the amount and timing of which would produce a yield to maturity on the notes equal to the comparable yield. You will be required to make adjustments to the amount of OID you must recognize each taxable year to reflect the difference, if any, between the actual amount of interest payments made and the projected amount of the interest payments (as reflected in the projected payment schedule). Under the forgoing rules, you will not be required to separately include in income the interest payments you receive with respect to the notes. To obtain the comparable yield and the projected payment schedule in respect of the notes, contact a certified financial analyst at the Global Securities Group desk at (800) 576-3529. Generally, amounts received at maturity or earlier sale or disposition in excess of your tax basis, if any, will be treated as additional interest income while any loss will be treated as an ordinary loss to the extent of all previous interest inclusions with respect to the notes, which will be deductible against other income (e.g., employment and interest income), with the balance treated as capital loss, the deductibility of which may be subject to limitations. Purchasers who are not initial purchasers of notes at the issue price should consult their tax advisers with respect to the tax consequences of an investment in the notes, including the treatment of the difference, if any, between their basis in the notes and the notes’ adjusted issue price.
Sections 1471-1474 of the Internal Revenue Code and the Treasury Regulations thereunder (“FATCA”) impose withholding taxes on certain types of payments made to “foreign financial institutions,” as specially defined under FATCA, and certain other non-U.S. entities. FATCA imposes a 30% withholding tax on payments of interest on, and gross proceeds from the sale or other disposition of, the notes paid to a foreign financial institution unless the foreign financial institution is deemed to be compliant with FATCA or enters into an agreement with the IRS to, among other things, undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements. In addition, FATCA imposes a 30% withholding tax on the same types of payments to a non-financial foreign entity of a certain type unless the entity certifies that it does not have any substantial U.S. owners or furnishes identifying information to the IRS or to the withholding agent regarding each substantial U.S. owner. These rules currently apply to interest (including original issue discount) payments. However, these rules will not apply to payments of gross proceeds from the sale or other disposition of instruments such as the notes on or before December 31, 2016. Prospective investors should consult their tax advisers regarding the application of FATCA to the acquisition, ownership or disposition of the notes.
Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the notes, including possible alternative treatments.
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Where You Can Find More Information
You may revoke your offer to purchase the notes at any time prior to the time at which we accept such offer by notifying the applicable agent. We reserve the right to change the terms of, or reject any offer to purchase, the notes prior to their issuance. In the event of any changes to the terms of the notes, we will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject such changes, in which case we may reject your offer to purchase.
You should read this document together with the prospectus dated November 7, 2014, as supplemented by the prospectus supplement 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. 1a-1 dated November 7, 2014 and underlying supplement no. 1a-I dated November 7, 2014.
This document, 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, stand-alone 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 underlying supplement no. 1a-I and in the accompanying product supplement no.1a-1. 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):
• Underlying supplement no. 1a-I dated November 7, 2014:
http://www.sec.gov/Archives/edgar/data/19617/000089109214008410/e61337_424b2.pdf
http://www.sec.gov/Archives/edgar/data/19617/000089109214008402/e61380_424b2.htm
• Prospectus supplement and prospectus dated November 7, 2014:
http://www.sec.gov/Archives/edgar/data/19617/000089109214008397/e61348_424b2.pdf
Our Central Index Key, or CIK, on the SEC website is 19617.
As used in this document, the “Company,” “we,” “us,” and “our” refer to JPMorgan Chase & Co.
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