Filed Pursuant to Rule 424(b)(2)
File No. 333-180728
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| Title of Each Class of
Securities Offered |
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Maximum Aggregate
Offering Price |
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Amount of
Registration Fee(1) |
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| Medium Term Notes, Series K, Principal at Risk Securities Linked to the SPDR®
S&P® Homebuilders ETF due December 29, 2016 |
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$ |
3,500,000 |
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$ |
406.70 |
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| (1) |
The total filing fee of $406.70 is calculated in accordance with Rule 457(r) of the Securities Act of 1933 (the “Securities Act”) and will be paid by wire transfer within the time required by Rule 456(b) of
the Securities Act. |
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| PRICING SUPPLEMENT No. 475 dated January 23, 2015 (To
Prospectus Supplement dated April 13, 2012 and Prospectus dated April 13, 2012) |
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Wells Fargo & Company
Medium-Term Notes, Series K
ETF Linked Securities |
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Auto-Callable Access Securities with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016 |
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Linked to the SPDR® S&P® Homebuilders ETF |
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Unlike ordinary debt securities, the securities do not provide for fixed payments of interest, do not repay a fixed amount of principal
at stated maturity and are subject to potential automatic call prior to stated maturity upon the terms described below. Whether the securities pay a contingent coupon, whether the securities are automatically called prior to stated maturity and, if
they are not automatically called, whether you are repaid the original offering price of your securities at stated maturity will depend in each case on the performance of the Fund |
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Contingent Coupon. The securities will pay a contingent coupon on a quarterly basis until the earlier
of stated maturity or automatic call if, and only if, the fund closing price of the Fund on the calculation day for that quarter is greater than or equal to the threshold price.
However, if the fund closing price of the Fund is less than the threshold price on a calculation day, you will not receive any contingent coupon for the relevant quarter. If the fund closing price of the Fund is less than the threshold price on
every calculation day, you will not receive any contingent coupons throughout the entire 23-month term of the securities. The per annum contingent coupon rate is 6.42% per annum |
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Automatic Call. If the fund closing price of the Fund on any of the first seven quarterly calculation
days is greater than or equal to the starting price, we will automatically call the securities for the original offering price plus a final contingent coupon payment |
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Potential Loss of Principal. If the securities are not automatically called prior to stated maturity,
you will receive the original offering price at stated maturity if, and only if, the fund closing price of the Fund on the final calculation day is greater than or equal to the
threshold price. If the fund closing price of the Fund on the final calculation day is less than the threshold price, you will lose more than 30%, and possibly all, of the original offering price of your securities |
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The threshold price is equal to 70% of the starting price |
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If the securities are not automatically called prior to stated maturity, you will have full downside exposure to the Fund from the
starting price if the fund closing price of the Fund on the final calculation day is less than the threshold price, but you will not participate in any appreciation of the Fund and will not receive any dividends on shares of the Fund |
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All payments on the securities are subject to the credit risk of Wells Fargo & Company, and you will have no ability to pursue
the shares of the Fund or any securities held by the Fund for payment; if Wells Fargo & Company defaults on its obligations, you could lose some or all of your investment |
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No exchange listing; designed to be held to maturity |
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On the date of this pricing supplement, the estimated value of the securities is $978.30 per security. The estimated
value of the securities was determined for us by Wells Fargo Securities, LLC using its proprietary pricing models. It is not an indication of actual profit to us or to Wells Fargo Securities, LLC or any of our other affiliates, nor is it an
indication of the price, if any, at which Wells Fargo Securities, LLC or any other person may be willing to buy the securities from you at any time after issuance. See “Investment Description” in this pricing supplement.
The securities have complex features and investing in the securities involves risks not associated with an investment in conventional debt securities.
See “Risk Factors” herein on page PRS-11.
The securities are unsecured obligations of Wells Fargo & Company and all
payments on the securities are subject to the credit risk of Wells Fargo & Company. The securities are not deposits or other obligations of a depository institution and are not insured by the Federal Deposit Insurance Corporation, the
Deposit Insurance Fund or any other governmental agency of the United States or any other jurisdiction.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined if this pricing supplement or the accompanying prospectus supplement and prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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Original Offering Price |
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Agent Discount(1) |
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Proceeds to Wells Fargo |
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Security |
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$1,000 |
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— |
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$1,000 |
| Total |
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$3,500,000 |
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— |
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$3,500,000 |
| (1) |
Wells Fargo Securities, LLC, a wholly owned subsidiary of Wells Fargo & Company, is the agent for the distribution of the securities and is
acting as principal. See “Investment Description” in this pricing supplement for further information. |
Wells Fargo
Securities
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
The Principal at Risk Securities Linked to the SPDR®
S&P® Homebuilders ETF due December 29, 2016 are senior unsecured debt securities of Wells Fargo & Company (“Wells Fargo”) that do not provide for fixed
payments of interest, do not repay a fixed amount of principal at stated maturity and are subject to potential automatic call upon the terms described in this pricing supplement. Whether the securities pay a quarterly contingent coupon, whether the
securities are automatically called prior to stated maturity and, if they are not automatically called, whether you are repaid the original offering price of your securities at stated maturity will depend in each case upon the performance of the
SPDR® S&P® Homebuilders ETF (the “Fund”). The securities provide:
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(i) |
quarterly contingent coupon payments at a per annum rate of 6.42% until the earlier of stated maturity or automatic call if, and only if,
the fund closing price of the Fund on the applicable quarterly calculation day is greater than or equal to 70% of the starting price; |
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(ii) |
the possibility of an automatic early call of the securities for an amount equal to the original offering price plus a final contingent coupon
payment if the fund closing price of the Fund on any of the first seven quarterly calculation days is greater than or equal to the starting price; and |
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(iii) |
if the securities are not automatically called prior to stated maturity: |
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(a) |
repayment of the original offering price if, and only if, the Fund does not decline by more than 30% from the starting price to the ending
price; and |
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(b) |
full exposure to the decline in the price of the Fund from the starting price if the Fund declines by more than 30% from the starting price to the
ending price. |
If the fund closing price of the Fund on any quarterly calculation day is less than 70% of the starting
price, you will not receive any contingent coupon payment for that quarter. If the securities are not automatically called prior to stated maturity and the Fund declines by more than 30% from the starting price to the ending price, you will lose
more than 30%, and possibly all, of the original offering price of your securities at stated maturity. Accordingly, you will not receive any protection if the price of the Fund declines by more than 30% from the starting price to the ending price.
Any return on the securities will be limited to the sum of your contingent coupon payments, if any. You will not participate in any
appreciation of the Fund, but you will be fully exposed to the decline in the Fund if the securities are not automatically called prior to stated maturity and the Fund declines by more than 30% from the starting price to the ending price.
All payments on the securities are subject to the credit risk of Wells Fargo.
The Fund is an exchange traded fund that seeks to provide investment results that, before fees and expenses, correspond generally to the
performance of the S&P® Homebuilders Select Industry™ Index, an equity index that is intended to measure the performance of the homebuilding sub-industry of the S&P® Total Market Index, a benchmark that measures the performance of the United States equity market.
You should read this pricing supplement together with the prospectus supplement dated April 13, 2012 and the prospectus dated
April 13, 2012 for additional information about the securities. Information included in this pricing supplement supersedes information in the prospectus supplement and prospectus to the extent it is different from that information. Certain
defined terms used but not defined herein have the meanings set forth in the prospectus supplement.
You may access the prospectus
supplement and prospectus on the SEC website www.sec.gov as follows (or if such address has changed, by reviewing our filing for the relevant date on the SEC website):
SPDR®, S&P®, S&P 500® and Select Sector SPDRs® are trademarks of Standard & Poor’s Financial Services LLC (“S&P Financial”).
The securities are not sponsored, endorsed, sold or promoted by the SPDR Series Trust (the “SPDR Trust”), SSgA Funds Management, Inc. (“SSgA”) or S&P Financial. None of the SPDR Trust, SSgA or S&P Financial
makes any representations or warranties to the holders of the securities or any member of the public regarding the advisability of investing in the securities. None of the SPDR Trust, SSgA or S&P Financial will have any obligation or liability
in connection with the registration, operation, marketing, trading or sale of the securities or in connection with Wells Fargo & Company’s use of information about the SPDR®
S&P® Homebuilders ETF.
PRS-2
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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| Investment Description (Continued) |
The original offering price of each security of $1,000 includes certain costs that are borne
by you. Because of these costs, the estimated value of the securities on the pricing date is less than the original offering price. The costs included in the original offering price relate to selling, structuring, hedging and issuing the securities,
as well as to our funding considerations for debt of this type.
The costs related to selling, structuring, hedging and issuing the
securities include (i) the agent discount (if any), (ii) the projected profit that our hedge counterparty (which may be one of our affiliates) expects to realize for assuming risks inherent in hedging our obligations under the securities
and (iii) hedging and other costs relating to the offering of the securities.
Our funding considerations take into account the higher
issuance, operational and ongoing management costs of market-linked debt such as the securities as compared to our conventional debt of the same maturity, as well as our liquidity needs and preferences. Our funding considerations are reflected in
the fact that we determine the economic terms of the securities based on an assumed funding rate that is generally lower than the interest rates implied by secondary market prices for our debt obligations and/or by other traded instruments
referencing our debt obligations, which we refer to as our “secondary market rates.” As discussed below, our secondary market rates are used in determining the estimated value of the securities.
If the costs relating to selling, structuring, hedging and issuing the securities were lower, or if the assumed funding rate we use to
determine the economic terms of the securities were higher, the economic terms of the securities would be more favorable to you and the estimated value would be higher. The estimated value of the securities as of the pricing date is set forth on the
cover page of this pricing supplement.
Determining the estimated value
Our affiliate, Wells Fargo Securities, LLC (“WFS”), calculated the estimated value of the securities set forth on the cover
page of this pricing supplement based on its proprietary pricing models. Based on these pricing models and related market inputs and assumptions referred to in this section below, WFS determined an estimated value for the securities by estimating
the value of the combination of hypothetical financial instruments that would replicate the payout on the securities, which combination consists of a non-interest bearing, fixed-income bond (the “debt component”) and one or more
derivative instruments underlying the economic terms of the securities (the “derivative component”).
The estimated value
of the debt component is based on a reference interest rate, determined by WFS as of a recent date, that generally tracks our secondary market rates. Because WFS does not continuously calculate our reference interest rate, the reference interest
rate used in the calculation of the estimated value of the debt component may be higher or lower than our secondary market rates at the time of that calculation. As noted above, we determine the economic terms of the securities based upon an assumed
funding rate that is generally lower than our secondary market rates. In contrast, in determining the estimated value of the securities, we value the debt component using a reference interest rate that generally tracks our secondary market rates.
Because the reference interest rate is generally higher than the assumed funding rate, using the reference interest rate to value the debt component generally results in a lower estimated value for the debt component, which we believe more closely
approximates a market valuation of the debt component than if we had used the assumed funding rate.
WFS calculated the estimated value of
the derivative component based on a proprietary derivative-pricing model, which generated a theoretical price for the derivative instruments that constitute the derivative component based on various inputs, including the “derivative component
factors” identified in “Risk Factors—The Value Of The Securities Prior To Stated Maturity Will Be Affected By Numerous Factors, Some Of Which Are Related In Complex Ways.” These inputs may be market-observable or may be based on
assumptions made by WFS in its discretion.
The estimated value of the securities determined by WFS is subject to important limitations.
See “Risk Factors—The Estimated Value Of The Securities Is Determined By Our Affiliate’s Pricing Models, Which May Differ From Those Of Other Dealers” and “—Our Economic Interests And Those Of Any Dealer Participating
In The Offering Are Potentially Adverse To Your Interests.”
PRS-3
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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| Investment Description (Continued) |
Valuation of the securities after issuance
The estimated value of the securities is not an indication of the price, if any, at which WFS or any other person may be willing to buy the
securities from you in the secondary market. The price, if any, at which WFS or any of its affiliates may purchase the securities in the secondary market will be based upon WFS’s proprietary pricing models and will fluctuate over the term of
the securities due to changes in market conditions and other relevant factors. However, absent changes in these market conditions and other relevant factors, except as otherwise described in the following paragraph, any secondary market price will
be lower than the estimated value on the pricing date because the secondary market price will be reduced by a bid-offer spread, which may vary depending on the aggregate face amount of the securities to be purchased in the secondary market
transaction, and the expected cost of unwinding any related hedging transactions. Accordingly, unless market conditions and other relevant factors change significantly in your favor, any secondary market price for the securities is likely to be less
than the original offering price.
If WFS or any of its affiliates makes a secondary market in the securities at any time up to the issue
date or during the 3-month period following the issue date, the secondary market price offered by WFS or any of its affiliates will be increased by an amount reflecting a portion of the costs associated with selling, structuring, hedging and issuing
the securities that are included in the original offering price. Because this portion of the costs is not fully deducted upon issuance, any secondary market price offered by WFS or any of its affiliates during this period will be higher than it
would be if it were based solely on WFS’s proprietary pricing models less the bid-offer spread and hedging unwind costs described above. The amount of this increase in the secondary market price will decline steadily to zero over this 3-month
period. If you hold the securities through an account at WFS or any of its affiliates, we expect that this increase will also be reflected in the value indicated for the securities on your brokerage account statement.
If WFS or any of its affiliates makes a secondary market in the securities, WFS expects to provide those secondary market prices to any
unaffiliated broker-dealers through which the securities are held and to commercial pricing vendors. If you hold your securities through an account at a broker-dealer other than WFS or any of its affiliates, that broker-dealer may obtain market
prices for the securities from WFS (directly or indirectly), but could also obtain such market prices from other sources, and may be willing to purchase the securities at any given time at a price that differs from the price at which WFS or any of
its affiliates is willing to purchase the securities. As a result, if you hold your securities through an account at a broker-dealer other than WFS or any of its affiliates, the value of the securities on your brokerage account statement may be
different than if you held your securities at WFS or any of its affiliates.
The securities will not be listed or displayed on any
securities exchange or any automated quotation system. Although WFS and/or its affiliates may buy the securities from investors, they are not obligated to do so and are not required to make a market for the securities. There can be no assurance that
a secondary market will develop.
PRS-4
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
We have designed the securities for investors who:
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seek an investment with contingent quarterly coupon payments at a per annum rate of 6.42% until the earlier of stated maturity or automatic call,
if, and only if, the fund closing price of the Fund on the applicable quarterly calculation day is greater than or equal to 70% of the starting price; |
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understand that if the Fund declines by more than 30% from the starting price to the ending price, they will be fully exposed to the decline in the
Fund from the starting price and will lose more than 30%, and possibly all, of the original offering price at stated maturity; |
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are willing to accept the risk that they may not receive any contingent coupon payment on one or more, or any, contingent coupon dates over the
term of the securities and may lose all of the original offering price per security at maturity; |
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understand that the securities may be automatically called prior to stated maturity and that the term of the securities may be as short as three
months; |
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are willing to forgo participation in any appreciation of the Fund and dividends on shares of the Fund; and |
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are willing to hold the securities to maturity. |
The securities are not designed for, and may not be a suitable investment for, investors who:
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seek a liquid investment or are unable or unwilling to hold the securities to maturity; |
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require full payment of the original offering price of the securities at stated maturity; |
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seek a security with a fixed term; |
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are unwilling to purchase securities with an estimated value as of the pricing date that is lower than the original offering price, as set forth on
the cover page; |
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are unwilling to accept the risk that the fund closing price of the Fund may decline by more than 30% from the starting price to the ending price;
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seek certainty of current income over the term of the securities; |
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seek exposure to the upside performance of the Fund; |
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are unwilling to accept the risk of exposure to companies in the homebuilding industry in the United States equity market; |
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are unwilling to accept the credit risk of Wells Fargo; or |
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prefer the lower risk of conventional fixed income investments with comparable maturities issued by companies with comparable credit ratings.
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PRS-5
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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Market Measure:
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SPDR® S&P® Homebuilders ETF |
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Pricing Date: |
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January 23, 2015.
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Issue Date: |
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January 28, 2015. (T+3)
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Original
Offering Price: |
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$1,000 per security. References in this
pricing supplement to a “security” are to a security with an original offering price of $1,000. |
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Contingent Coupon
Payment: |
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On each contingent coupon payment date,
you will receive a contingent coupon payment at a per annum rate equal to the contingent coupon rate if, and only if, the fund closing price of the Fund on the related calculation day is greater than or equal to the threshold price.
If the fund closing price of the Fund on any calculation
day is less than the threshold price, you will not receive any contingent coupon payment on the related contingent coupon payment date, and if the fund closing price of the Fund is less than the threshold price on all quarterly calculation days, you
will not receive any contingent coupon payments over the term of the securities.
Each contingent coupon payment other than the contingent coupon payment due on the stated maturity date, if any, will be calculated per
security as follows: $1,000 x contingent coupon rate x (90/360). If the securities are not automatically called prior to the stated maturity date, then the contingent coupon payment due on the stated maturity date, if any, will be calculated per
security as follows: $1,000 x contingent coupon rate x (60/360). The stated maturity date is approximately two months after the last contingent coupon payment date before the stated maturity date. Therefore, if the securities are not automatically
called prior to maturity, the final contingent coupon payment, if any, will be calculated with respect to a period that is shorter than a full quarter and, as a result, will be less than the amount of any earlier contingent coupon payments paid.
References in this pricing supplement to “quarterly” contingent coupon payments and related references should be understood to include the contingent coupon payment at maturity, if any, even though the period covered by that contingent
coupon payment is less than a full quarter. Any contingent coupon payments will be rounded to the nearest cent, with one-half cent rounded upward. |
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Contingent Coupon
Payment Dates:
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The fourth business day following each
calculation day (as each such calculation day may be postponed pursuant to “—Postponement of a Calculation Day” below, if applicable). |
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Contingent Coupon Rate:
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The “contingent coupon
rate” is 6.42% per annum. |
| Automatic Call: |
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If the fund closing price of the Fund on
any of the first seven quarterly calculation days is greater than or equal to the starting price, the securities will be automatically called, and on the related call settlement date you will be entitled to receive a cash payment per security in
U.S. dollars equal to the original offering price per security plus a final contingent coupon payment.
If the securities are automatically called, they will cease to be outstanding on the related call settlement date and you will have no further
rights under the securities after such call settlement date. You will not receive any notice from us if the securities are automatically called. |
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Calculation Days: |
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Quarterly, on the 22nd day of each January, April, July and October, commencing April 2015 and ending October 2016, and the final calculation day, each subject to postponement as described below under
“—Postponement of a Calculation Day.” We refer to December 22, 2016* as the “final calculation day.” |
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Call Settlement Date:
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Four business days after the applicable
calculation day (as such calculation day may be postponed pursuant to “—Postponement of a Calculation Day” below, if applicable). |
PRS-6
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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| Terms of the Securities (Continued) |
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Stated Maturity
Date: |
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December 29, 2016. If the final
calculation day is postponed, the stated maturity date will be the later of (i) December 29, 2016 and (ii) three business days after the final calculation day as postponed. See “—Postponement of a Calculation Day” below. If the
stated maturity date is not a business day, the payment to be made on the stated maturity date will be made on the next succeeding business day with the same force and effect as if it had been made on the stated maturity date. The securities are not
subject to repayment at the option of any holder of the securities prior to the stated maturity date. |
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| Payment at
Stated Maturity: |
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If the securities are not automatically called prior to the stated maturity date, you will be entitled to receive on the stated maturity date a
cash payment per security in U.S. dollars equal to the redemption amount (in addition to the final contingent coupon payment, if any). The “redemption amount” per security will equal: |
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if the ending price is greater than or
equal to the threshold price: $1,000; or |
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if the ending price is less than the
threshold price: $1,000 minus: |
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$1,000 |
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starting price – ending price |
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starting price |
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If the securities are not
automatically called prior to stated maturity and the ending price is less than the threshold price, you will lose more than 30%, and possibly all, of the original offering price of your securities at stated maturity. |
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Any return on the securities will be
limited to the sum of your contingent coupon payments, if any. You will not participate in any appreciation of the Fund, but you will be fully exposed to a decrease in the Fund if the ending price is less than the threshold price. |
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All calculations with respect to the
redemption amount will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upwards (e.g., 0.000005 would be rounded to 0.00001); and the redemption amount will be rounded to the nearest cent, with one-half cent rounded
upward. |
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Fund Closing Price:
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The “fund closing
price” with respect to the Fund on any trading day means the product of (i) the closing price of one share of the Fund (or one unit of any other security for which a fund closing price must be determined) on such trading day and (ii) the
adjustment factor applicable to the Fund on such trading day. |
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Closing Price: |
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The “closing price”
with respect to a share of the Fund (or one unit of any other security for which a closing price must be determined) on any trading day means the price, at the scheduled weekday closing time, without regard to after hours or any other trading
outside the regular trading session hours, of the share on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which the share (or any such other security) is listed or admitted to
trading. |
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Adjustment Factor:
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The “adjustment factor”
means, with respect to a share of the Fund (or one unit of any other security for which a fund closing price must be determined), 1.0, subject to adjustment in the event of certain events affecting the shares of the Fund. See “Additional Terms
of the Securities—Anti-dilution Adjustments Relating to the Fund; Alternate Calculation” below. |
| Starting Price: |
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$34.00, which is the price of the Fund
at the time of pricing on the pricing date. |
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Ending Price: |
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The “ending price” will
be the fund closing price of the Fund on the final calculation day. |
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Threshold Price: |
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$23.80, which is equal to 70% of the
starting price. |
PRS-7
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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| Terms of the Securities (Continued) |
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Postponement of a
Calculation Day:
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If any calculation day is not a trading
day, such calculation day will be postponed to the next succeeding trading day. A calculation day is also subject to postponement due to the occurrence of a market disruption event. See “Additional Terms of the Securities—Market Disruption
Events.” A “trading day” means a
day, as determined by the calculation agent, on which the relevant exchange and each related exchange with respect to the Fund or any successor thereto, if applicable, are scheduled to be open for trading for their respective regular trading
sessions. The “relevant exchange” for the Fund means the primary exchange or quotation system on which shares (or other applicable securities) of the Fund are traded, as determined by the calculation agent. The “related
exchange” for the Fund means each exchange or quotation system where trading has a material effect (as determined by the calculation agent) on the overall market for futures or options contracts relating to the Fund.
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Calculation Agent: |
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Wells Fargo Securities, LLC
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No Listing: |
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The securities will not be listed on any
securities exchange or automated quotation system. |
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Material Tax
Consequences: |
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For a discussion of the material U.S.
federal income tax consequences of the ownership and disposition of the securities see “United States Federal Tax Considerations” below. |
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Agent: |
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Wells Fargo Securities, LLC, a wholly
owned subsidiary of Wells Fargo & Company. The agent may resell the securities to other securities dealers at the original offering price of the securities.
The agent or another affiliate of ours expects to realize hedging profits projected by its proprietary pricing models to the extent it assumes
the risks inherent in hedging our obligations under the securities. If any dealer participating in the distribution of the securities or any of its affiliates conducts hedging activities for us in connection with the securities, that dealer or its
affiliate will expect to realize a profit projected by its proprietary pricing models from such hedging activities. Any such projected profit will be in addition to any discount or concession received in connection with the sale of the securities to
you. |
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Denominations: |
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$1,000 and any integral multiple of
$1,000. |
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CUSIP: |
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94986RVS7
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PRS-8
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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| Determining Payment On A Contingent Coupon Payment Date and at Maturity |
On each contingent coupon payment date other than the contingent coupon payment date occurring on the stated
maturity date, you will either receive a contingent coupon payment or you will not receive a contingent coupon payment, depending on the fund closing price of the Fund on the related quarterly calculation day, as follows:
On the stated maturity date, if the securities have not been automatically called prior to the stated
maturity date, you will receive (in addition to the final contingent coupon payment calculated as set forth under Terms of The Securities-Contingent Coupon Payment, if any) a cash payment per security (the redemption amount) calculated as follows:
PRS-9
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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| Hypothetical Payout Profile |
The following profile illustrates the potential payment at stated maturity on the securities (excluding the
final contingent coupon payment, if any), assuming the securities have not been automatically called prior to the stated maturity date. This graph has been prepared for purposes of illustration only. Your actual return will depend on the actual
ending price and whether you hold your securities to stated maturity.
PRS-10
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
The securities have complex features and investing in the securities will involve risks not associated with an
investment in conventional debt securities. You should carefully consider the risk factors set forth below as well as the other information contained in this pricing supplement and the accompanying prospectus supplement and prospectus, including the
documents they incorporate by reference. As described in more detail below, the value of the securities may vary considerably before the stated maturity date due to events that are difficult to predict and are beyond our control. You should reach an
investment decision only after you have carefully considered with your advisors the suitability of an investment in the securities in light of your particular circumstances. The index underlying the Fund is sometimes referred to as the
“underlying index.”
If The Securities Are Not Automatically Called Prior to Stated Maturity, You May Lose Some Or All
Of The Original Offering Price Of Your Securities At Stated Maturity.
We will not repay you a fixed amount on your securities at
stated maturity. If the securities are not automatically called prior to stated maturity, you will receive a payment at stated maturity that will be equal to or less than the original offering price per security, depending on the fund closing price
of the Fund on the final calculation day.
If the ending price is less than the threshold price, the payment you receive at stated maturity
will be reduced by an amount equal to the decline in the price of the Fund to the extent it is below the starting price (expressed as a percentage of the starting price). The threshold price is 70% of the starting price. For example, if the
securities are not automatically called and the Fund has declined by 30.1% from the starting price to the ending price, you will not receive any benefit of the contingent downside protection feature and you will lose 30.1% of the original offering
price per security. As a result, you will not receive any protection if the price of the Fund declines significantly and you may lose some, and possibly all, of the original offering price per security at stated maturity, even if the price of the
Fund is greater than or equal to the starting price or the threshold price at certain times during the term of the securities.
Even if the
ending price is greater than the threshold price, the amount you receive at stated maturity will not exceed the original offering price, and your yield on the securities, taking into account any contingent coupon payments you may have received
during the term of the securities, may be less than the yield you would earn if you bought a traditional interest-bearing debt security of Wells Fargo or another issuer with a similar credit rating.
The Securities Do Not Provide For Fixed Payments Of Interest And You May Receive No Coupon Payments On One Or More Quarterly Contingent
Coupon Payment Dates, Or Even Throughout The Entire Twenty Three-Month Term Of The Securities.
On each quarterly contingent coupon
payment date you will receive a contingent coupon payment if, and only if, the fund closing price of the Fund on the related calculation day is greater than or equal to the threshold price. If the fund closing price is less than the threshold
price on any calculation day, you will not receive any contingent coupon payment on the related contingent coupon payment date, and if the fund closing price of the Fund is less than the threshold price on each calculation day over the term of the
securities, you will not receive any contingent coupon payments over the entire twenty three-month term of the securities.
You May Be
Fully Exposed To The Decline In The Fund From The Starting Price, But Will Not Participate In Any Positive Performance Of The Fund.
Even though you will be fully exposed to a decline in the price of the Fund below the threshold price, you will not participate in any increase
in the price of the Fund over the term of the securities. Your maximum possible return on the securities will be limited to the sum of the contingent coupon payments you receive, if any. Consequently, your return on the securities may be
significantly less than the return you could achieve on an alternative investment that provides for participation in an increase in the price of the Fund.
You Will Be Subject To Reinvestment Risk.
If your securities are automatically called, the term of the securities may be reduced to as short as three months. There is no guarantee that
you would be able to reinvest the proceeds from an investment in the securities at a comparable return for a similar level of risk in the event the securities are automatically called prior to maturity.
The Securities Are Subject To The Credit Risk Of Wells Fargo.
The securities are our obligations and are not, either directly or indirectly, an obligation of any third party. Any amounts payable under the
securities are subject to our creditworthiness, and you will have no ability to pursue the shares of the Fund or any securities held by the Fund for payment. As a result, our actual and perceived creditworthiness may affect the value of the
securities and, in the event we were to default on our obligations, you may not receive any amounts owed to you under the terms of the securities.
PRS-11
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
The Estimated Value Of The Securities On The Pricing Date, Based On WFS’s Proprietary
Pricing Models, Is Less Than The Original Offering Price.
The original offering price of the securities includes certain costs that
are borne by you. Because of these costs, the estimated value of the securities on the pricing date is less than the original offering price. The costs included in the original offering price relate to selling, structuring, hedging and issuing the
securities, as well as to our funding considerations for debt of this type. The costs related to selling, structuring, hedging and issuing the securities include (i) the agent discount (if any), (ii) the projected profit that our hedge
counterparty (which may be one of our affiliates) expects to realize for assuming risks inherent in hedging our obligations under the securities and (iii) hedging and other costs relating to the offering of the securities. Our funding
considerations are reflected in the fact that we determine the economic terms of the securities based on an assumed funding rate that is generally lower than our secondary market rates. If the costs relating to selling, structuring, hedging and
issuing the securities were lower, or if the assumed funding rate we use to determine the economic terms of the securities were higher, the economic terms of the securities would be more favorable to you and the estimated value would be higher.
The Estimated Value Of The Securities Is Determined By Our Affiliate’s Pricing Models, Which May Differ From Those Of Other Dealers.
The estimated value of the securities was determined for us by WFS using its proprietary pricing models and related market inputs and
assumptions referred to above under “Investment Description—Determining the estimated value.” Certain inputs to these models may be determined by WFS in its discretion. WFS’s views on these inputs may differ from other
dealers’ views, and WFS’s estimated value of the securities may be higher, and perhaps materially higher, than the estimated value of the securities that would be determined by other dealers in the market. WFS’s models and its inputs
and related assumptions may prove to be wrong and therefore not an accurate reflection of the value of the securities.
The Estimated
Value Of The Securities Is Not An Indication Of The Price, If Any, At Which WFS Or Any Other Person May Be Willing To Buy The Securities From You In The Secondary Market.
The price, if any, at which WFS or any of its affiliates may purchase the securities in the secondary market will be based on WFS’s
proprietary pricing models and will fluctuate over the term of the securities as a result of changes in the market and other factors described in the next risk factor. Any such secondary market price for the securities will also be reduced by a
bid-offer spread, which may vary depending on the aggregate face amount of the securities to be purchased in the secondary market transaction, and the expected cost of unwinding any related hedging transactions. Unless the factors described in the
next risk factor change significantly in your favor, any such secondary market price for the securities is likely to be less than the original offering price.
If WFS or any of its affiliates makes a secondary market in the securities at any time up to the issue date or during the 3-month period
following the issue date, the secondary market price offered by WFS or any of its affiliates will be increased by an amount reflecting a portion of the costs associated with selling, structuring, hedging and issuing the securities that are included
in the original offering price. Because this portion of the costs is not fully deducted upon issuance, any secondary market price offered by WFS or any of its affiliates during this period will be higher than it would be if it were based solely on
WFS’s proprietary pricing models less the bid-offer spread and hedging unwind costs described above. The amount of this increase in the secondary market price will decline steadily to zero over this 3-month period. If you hold the securities
through an account at WFS or any of its affiliates, we expect that this increase will also be reflected in the value indicated for the securities on your brokerage account statement. If you hold your securities through an account at a broker-dealer
other than WFS or any of its affiliates, the value of the securities on your brokerage account statement may be different than if you held your securities at WFS or any of its affiliates, as discussed above under “Investment Description.”
The Value Of The Securities Prior To Stated Maturity Will Be Affected By Numerous Factors, Some Of Which Are Related In Complex Ways.
The value of the securities prior to stated maturity will be affected by the price of the Fund at that time, interest rates at that
time and a number of other factors, some of which are interrelated in complex ways. The effect of any one factor may be offset or magnified by the effect of another factor. The following factors, which we refer to as the “derivative
component factors,” are expected to affect the value of the securities. When we refer to the “value” of your security, we mean the value you could receive for your security if you are able to sell it in the open market
before the stated maturity date.
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Fund Performance. The value of the securities prior to maturity will depend substantially on the price of the Fund. The price at which you may
be able to sell the securities before stated maturity may be at a discount, which could be substantial, from their original offering price, if the price of the Fund at such time is less than, equal to or not sufficiently above the starting price or
threshold price. |
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Interest Rates. The value of the securities may be affected by changes in the interest rates in the U.S. markets. |
PRS-12
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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Volatility Of The Fund. Volatility is the term used to describe the size and frequency of market fluctuations. The value of the securities may
be affected if the volatility of the Fund changes. |
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Time Remaining To Maturity. The value of the securities at any given time prior to maturity will likely be different from that which would be
expected based on the then-current price of the Fund. This difference will most likely reflect a discount due to expectations and uncertainty concerning the price of the Fund during the period of time still remaining to the stated maturity date.
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Dividend Yields On Securities Included In The Fund. The value of the securities may be affected by the dividend yields on securities held by the
Fund (the amount of such dividends may influence the closing price of the shares of the Fund). |
In addition to the
derivative component factors, the value of the securities will be affected by actual or anticipated changes in our creditworthiness, as reflected in our secondary market rates. The value of the securities will also be limited by the automatic call
feature because if the securities are automatically called, you will not receive the contingent coupon payments that would have accrued, if any, had the securities been called on a later calculation day or held until the stated maturity date. You
should understand that the impact of one of the factors specified above, such as a change in interest rates, may offset some or all of any change in the value of the securities attributable to another factor, such as a change in the price of the
Fund. Because numerous factors are expected to affect the value of the securities, changes in the price of the Fund may not result in a comparable change in the value of the securities.
The Securities Will Not Be Listed On Any Securities Exchange And We Do Not Expect A Trading Market For The Securities To Develop.
The securities will not be listed or displayed on any securities exchange or any automated quotation system. Although the agent and/or its
affiliates may purchase the securities from holders, they are not obligated to do so and are not required to make a market for the securities. There can be no assurance that a secondary market will develop. Because we do not expect that any market
makers will participate in a secondary market for the securities, the price at which you may be able to sell your securities is likely to depend on the price, if any, at which the agent is willing to buy your securities.
If a secondary market does exist, it may be limited. Accordingly, there may be a limited number of buyers if you decide to sell your securities
prior to stated maturity. This may affect the price you receive upon such sale. Consequently, you should be willing to hold the securities to stated maturity.
Historical Prices Of The Fund Or The Securities Included In The Fund Should Not Be Taken As An Indication Of The Future Performance Of The
Fund During The Term Of The Securities.
The trading price of the shares of the Fund will determine the price of the Fund and,
therefore, whether the securities will be automatically called on any of the first seven calculation days or the amount payable to you at maturity and whether contingent coupon payments will be made. As a result, it is impossible to predict whether
the closing price of the Fund will fall or rise compared to its starting price. The trading price of the shares of the Fund will be influenced by complex and interrelated political, economic, financial and other factors that can affect the markets
in which the Fund and the securities comprising the Fund are traded and the values of the Fund and such securities. Accordingly, any historical prices of the Fund do not provide an indication of the future performance of the Fund.
An Investment In The Securities Is Subject To Risks Associated With Investing In Stocks In The Homebuilding Industry.
The Fund, because it is concentrated in the homebuilding industry, may be adversely affected not only by the performance of the companies in
the homebuilding industry, such as homebuilding companies, home furnishings companies or building products companies, in which it invests but also may be more susceptible to any single economic, market, political or regulatory occurrence affecting
the homebuilding industry. Investment in the homebuilding industry is subject to many of the same risks associated with the direct ownership of real estate such as: the availability of financing for home buyers; employment levels and job growth;
interest rates; consumer confidence; the availability of suitable undeveloped land; housing demand; the value of real estate properties; federal, state and local laws and regulations concerning the development of land and construction; home and
commercial real estate sales; financing and environmental protection; and competition among companies which engage in the homebuilding business. In addition, weather conditions and natural disasters such as hurricanes, tornadoes, earthquakes, floods
and fires can harm the homebuilding business. The Fund is classified as “non-diversified.” A non-diversified fund generally may invest a larger percentage of its assets in the securities of a smaller number of issuers. As a result, the
Fund may be more susceptible to the risks associated with these particular companies, or to a single economic, political or regulatory occurrence affecting these companies.
PRS-13
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
The Fund May Not Be Representative Of An Investment In The Homebuilding Industry.
The Fund does not represent a direct investment in the homebuilding industry. The Fund consists of securities of companies whose primary lines
of business are directly associated with the homebuilding industry. As a result, the fund closing price will be influenced by a variety of economic, financial and other factors affecting those companies, some of which may be unrelated to the market
or other conditions applicable to the homebuilding industry. As a result, the Fund may not perfectly correlate with the performance of the homebuilding industry and the fund closing price could decrease even if the performance of the homebuilding
industry as a whole increases.
Changes That Affect The Fund Or The Underlying Index May Adversely Affect The Value Of The Securities
And The Amount You Will Receive At Stated Maturity.
The policies of the fund sponsor of the Fund (the “fund sponsor”)
concerning the calculation of the Fund’s net asset value, additions, deletions or substitutions of securities in the Fund and the manner in which changes in the underlying index are reflected in the Fund, and changes in those policies, could
affect the closing price of the shares of the Fund and, therefore, may affect the value of the securities, the likelihood of the occurrence of an automatic call, the amount payable at stated maturity and whether contingent coupon payments will be
made. Similarly, the policies of the sponsor of the underlying index (the “underlying index sponsor”) concerning the calculation of the underlying index and the addition, deletion or substitution of securities comprising the
underlying index and the manner in which the underlying index sponsor takes account of certain changes affecting such securities may affect the level of the underlying index and the closing price of the shares of the Fund and, therefore, may affect
the value of the securities, the likelihood of the occurrence of an automatic call, the amount payable at stated maturity and whether contingent coupon payments will be made. The underlying index sponsor could also discontinue or suspend calculation
or dissemination of the underlying index or materially alter the methodology by which it calculates the underlying index. Any of such actions could adversely affect the value of the securities.
We Cannot Control Actions By Any Of The Unaffiliated Companies Whose Securities Are Included In The Fund Or The Underlying Index.
Actions by any company whose securities are included in the Fund or in the underlying index may have an adverse effect on the price of its
security, the closing price of the Fund on any calculation day, the ending price and the value of the securities. We are not affiliated with any company whose security is represented in the Fund or the underlying index. These companies will not be
involved in the offering of the securities and will have no obligations with respect to the securities, including any obligation to take our or your interests into consideration for any reason. These companies will not receive any of the proceeds of
the offering of the securities and will not be responsible for, and will not have participated in, the determination of the timing of, prices for, or quantities of, the securities to be issued. These companies will not be involved with the
administration, marketing or trading of the securities and will have no obligations with respect to any amounts to be paid to you on the securities.
We And Our Affiliates Have No Affiliation With The Fund Sponsor Or The Underlying Index Sponsor And Have Not Independently Verified Their
Public Disclosure Of Information.
We and our affiliates are not affiliated in any way with the fund sponsor or the underlying index
sponsor (collectively, the “sponsors”) and have no ability to control or predict their actions, including any errors in or discontinuation of disclosure regarding their methods or policies relating to the management or calculation
of the Fund or the underlying index. We have derived the information about the sponsors and the Fund and the underlying index contained in this pricing supplement from publicly available information, without independent verification. You, as an
investor in the securities, should make your own investigation into the Fund, the underlying index and the sponsors. The sponsors will not be involved in the offering of the securities made hereby in any way and the sponsors do not have any
obligation to consider your interests as an owner of securities in taking any actions that might affect the value of the securities.
PRS-14
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
An Investment Linked To The Shares Of The Fund Is Different From An Investment Linked To The Underlying
Index.
The performance of the shares of the Fund may not exactly replicate the performance of the underlying index because the Fund
may not invest in all of the securities included in the underlying index and because the Fund will reflect transaction costs and fees that are not included in the calculation of the underlying index. The Fund may also hold securities or derivative
financial instruments not included in the underlying index. It is also possible that the Fund may not fully replicate the performance of the underlying index due to the temporary unavailability of certain securities in the secondary market or due to
other extraordinary circumstances. In addition, because the shares of the Fund are traded on a securities exchange and are subject to market supply and investor demand, the value of a share of the Fund may differ from the net asset value per share
of the Fund. As a result, the performance of the Fund may not correlate perfectly with the performance of the underlying index, and the return on the securities based on the performance of the Fund will not be the same as the return on securities
based on the performance of the underlying index.
You Will Not Have Any Shareholder Rights With Respect To The Shares Of The Fund.
You will not become a holder of shares of the Fund or a holder of securities included in the underlying index as a result of owning a security.
You will not have any voting rights, any right to receive dividends or other distributions or any other rights with respect to such shares or securities. You will have no right to receive delivery of any shares or securities at stated maturity or
upon automatic call.
Anti-dilution Adjustments Relating To The Shares Of The Fund Do Not Address Every Event That Could Affect Such Shares.
An adjustment factor, as described herein, will be used to determine the fund closing price of the Fund. The adjustment factor will be adjusted
by the calculation agent for certain events affecting the shares of the Fund. However, the calculation agent will not make an adjustment for every event that could affect such shares. If an event occurs that does not require the calculation agent to
adjust the adjustment factor, the value of the securities may be adversely affected.
A Contingent Coupon Payment Date, A Call
Settlement Date And The Stated Maturity Date May Be Postponed If A Calculation Day Is Postponed.
A calculation day (including the
final calculation day) will be postponed if the applicable originally scheduled calculation day is not a trading day or if the calculation agent determines that a market disruption event has occurred or is continuing on that calculation day. If such
a postponement occurs with respect to a calculation day other than the final calculation day, then the related contingent coupon payment date or call settlement date, as applicable, will be postponed. If such a postponement occurs with respect to
the final calculation day, the stated maturity date will be the later of (i) the initial stated maturity date and (ii) three business days after the postponed final calculation day.
Our Economic Interests And Those Of Any Dealer Participating In The Offering Are Potentially Adverse To Your Interests.
You should be aware of the following ways in which our economic interests and those of any dealer participating in the distribution of the
securities, which we refer to as a “participating dealer,” are potentially adverse to your interests as an investor in the securities. In engaging in certain of the activities described below, our affiliates or any participating
dealer or its affiliates may take actions that may adversely affect the value of and your return on the securities, and in so doing they will have no obligation to consider your interests as an investor in the securities. Our affiliates or any
participating dealer or its affiliates may realize a profit from these activities even if investors do not receive a favorable investment return on the securities.
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The calculation agent is our affiliate and may be required to make discretionary judgments that affect the return you receive on the securities.
WFS, which is our affiliate, will be the calculation agent for the securities. As calculation agent, WFS will determine the starting price of the Fund, the fund closing price of the Fund on each calculation day, the ending price of the Fund,
whether the securities are automatically called, and whether you receive a contingent coupon payment on a contingent coupon payment date and may be required to make other determinations that affect the return you receive on the securities. In making
these determinations, the calculation agent may be required to make discretionary judgments, including determining whether a market disruption event has occurred on a scheduled calculation day, which may result in postponement of that calculation
day; determining the fund closing price of the Fund if a calculation day is postponed to the last day to which it may be postponed and a market disruption event occurs on that day; adjusting the adjustment factor and other terms of the securities in
certain circumstances; if the Fund undergoes a liquidation event, selecting a successor fund or, if no successor fund is available, determining the fund closing price of the Fund on the applicable calculation day and the ending price of the Fund;
and determining whether to adjust the fund closing price of the Fund on a calculation day in the event of certain changes in or modifications to the Fund or the underlying index. In making these discretionary judgments,
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PRS-15
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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the fact that WFS is our affiliate may cause it to have economic interests that are adverse to your interests as an investor in the securities, and WFS’s determinations as calculation agent
may adversely affect your return on the securities. |
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The estimated value of the securities was calculated by our affiliate and is therefore not an independent third-party valuation. WFS
calculated the estimated value of the securities set forth on the cover page of this pricing supplement, which involved discretionary judgments by WFS, as described under “Risk Factors—The Estimated Value Of The Securities Is Determined By
Our Affiliate’s Pricing Models, Which May Differ From Those Of Other Dealers” above. Accordingly, the estimated value of the securities set forth on the cover page of this pricing supplement is not an independent third-party valuation.
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Research reports by our affiliates or any participating dealer or its affiliates may be inconsistent with an investment in the securities and may
adversely affect the price of the Fund. Our affiliates or any participating dealer in the offering of the securities or its affiliates may, at present or in the future, publish research reports on the Fund or the underlying index or the
companies whose securities are included in the Fund or the underlying index. This research is modified from time to time without notice and may, at present or in the future, express opinions or provide recommendations that are inconsistent with
purchasing or holding the securities. Any research reports on the Fund or the underlying index or the companies whose securities are included in the Fund or the underlying index could adversely affect the price of the Fund and, therefore, adversely
affect the value of and your return on the securities. You are encouraged to derive information concerning the Fund from multiple sources and should not rely on the views expressed by us or our affiliates or any participating dealer or its
affiliates. In addition, any research reports on the Fund or the underlying index or the companies whose securities are included in the Fund or the underlying index published on or prior to the pricing date could result in an increase in the price
of the Fund on the pricing date, which would adversely affect investors in the securities by increasing the price at which the Fund must close on each calculation day (including the final calculation day) in order for investors in the securities to
receive a favorable return. |
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Business activities of our affiliates or any participating dealer or its affiliates with the companies whose securities are included in the Fund
may adversely affect the price of the Fund. Our affiliates or any participating dealer or its affiliates may, at present or in the future, engage in business with the companies whose securities are included in the Fund or the underlying
index, including making loans to those companies (including exercising creditors’ remedies with respect to such loans), making equity investments in those companies or providing investment banking, asset management or other advisory services to
those companies. These business activities could adversely affect the price of the Fund and, therefore, adversely affect the value of and your return on the securities. In addition, in the course of these business activities, our affiliates or any
participating dealer or its affiliates may acquire non-public information about one or more of the companies whose securities are included in the Fund or the underlying index. If our affiliates or any participating dealer or its affiliates do
acquire such non-public information, we and they are not obligated to disclose such non-public information to you. |
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Hedging activities by our affiliates or any participating dealer or its affiliates may adversely affect the price of the Fund. We expect
to hedge our obligations under the securities through one or more hedge counterparties, which may include our affiliates or any participating dealer or its affiliates. Pursuant to such hedging activities, our hedge counterparties may acquire shares
of the Fund, securities included in the Fund or the underlying index or listed or over-the-counter derivative or synthetic instruments related to the Fund or such securities. Depending on, among other things, future market conditions, the aggregate
amount and the composition of such positions are likely to vary over time. To the extent that our hedge counterparties have a long hedge position in shares of the Fund or any of the securities included in the Fund or the underlying index, or
derivative or synthetic instruments related to the Fund or such securities, they may liquidate a portion of such holdings at or about the time of the calculation day or at or about the time of a change in the securities included in the Fund or the
underlying index. These hedging activities could potentially adversely affect the price of the shares of the Fund and, therefore, adversely affect the value of and your return on the securities. |
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Trading activities by our affiliates or any participating dealer or its affiliates may adversely affect the price of the Fund. Our
affiliates or any participating dealer or its affiliates may engage in trading in the shares of the Fund or the securities included in the Fund or the underlying index and other instruments relating to the Fund or such securities on a regular basis
as part of their general broker-dealer and other businesses. Any of these trading activities could potentially adversely affect the price of the shares of the Fund and, therefore, adversely affect the value of and your return on the securities.
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A participating dealer or its affiliates may realize hedging profits projected by its proprietary pricing models in addition to any selling
concession, creating a further incentive for the participating dealer to sell the securities to you. If any participating dealer or any of its affiliates conducts hedging activities for us in connection with the securities, that
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PRS-16
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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participating dealer or its affiliates will expect to realize a projected profit from such hedging activities. If a participating dealer receives a concession for the sale of the securities to
you, this projected hedging profit will be in addition to the concession, creating a further incentive for the participating dealer to sell the securities to you. |
The Tax Treatment Of The Securities Is Uncertain.
There is no authority that specifically addresses the United States federal tax treatment of the securities. We do not plan to request a ruling
from the Internal Revenue Service (the “IRS”), and the IRS or a court may not agree with the tax treatment described in this pricing supplement. We urge you to read the discussion under “United States Federal Tax
Considerations” below and to consult your tax adviser.
PRS-17
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
If the securities are automatically called:
If the securities are automatically called prior to stated maturity, you will receive the original offering price of your securities plus a
final contingent coupon payment on the call settlement date. In the event the securities are automatically called, your total return on the securities will equal any contingent coupon payments received prior to the call settlement date and the
contingent coupon payment received on the call settlement date.
If the securities are not automatically called:
If the securities are not automatically called prior to stated maturity, the following table illustrates, for a range of hypothetical ending
prices of the Fund:
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the hypothetical percentage change from the starting price to the hypothetical ending price; and |
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Ÿ |
|
the hypothetical redemption amount payable at stated maturity per security (excluding the final contingent coupon payment, if any).
|
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Hypothetical
ending price |
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Hypothetical percentage change from
the starting price to the hypothetical
ending price |
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Hypothetical payment at stated
maturity per security |
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$59.50 |
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75.00% |
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$1,000.00 |
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$54.40 |
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60.00% |
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$1,000.00 |
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$51.00 |
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50.00% |
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$1,000.00 |
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$47.60 |
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40.00% |
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$1,000.00 |
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$44.20 |
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30.00% |
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$1,000.00 |
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$40.80 |
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20.00% |
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$1,000.00 |
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$37.40 |
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10.00% |
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$1,000.00 |
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$34.00(1) |
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0.00% |
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$1,000.00 |
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$30.60 |
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-10.00% |
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$1,000.00 |
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$27.20 |
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-20.00% |
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$1,000.00 |
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$23.80 |
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-30.00% |
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$1,000.00 |
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$23.46 |
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-31.00% |
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$690.00 |
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$20.40 |
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-40.00% |
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$600.00 |
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$17.00 |
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-50.00% |
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$500.00 |
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$13.60 |
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-60.00% |
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$400.00 |
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$8.50 |
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-75.00% |
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$250.00 |
The above figures do not take into account contingent coupon payments, if any, received during the term of the securities. As evidenced above,
in no event will you have a positive rate of return based solely on the redemption amount received at maturity; any positive return will be based solely on the contingent coupon payments, if any, received during the term of the securities.
The above figures are for purposes of illustration only and may have been rounded for ease of analysis. If the securities are not automatically
called prior to stated maturity, the actual amount you will receive at stated maturity will depend on the actual ending price.
PRS-18
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| Hypothetical Payment at Stated Maturity |
Set forth below are three examples of calculations of the redemption amount at stated maturity (rounded to two
decimal places), assuming that the securities have not been automatically called prior to stated maturity and assuming the hypothetical ending prices indicated in the examples.
Example 1. Ending price is greater than the starting price, and the redemption amount is equal to the original offering price of your
securities at maturity:
Starting price: $34.00
Hypothetical ending price: $50.00
Threshold price: $23.80, which is 70% of the starting price
Since the hypothetical ending price is greater than the threshold price, the redemption amount would equal the original
offering price. Although the hypothetical ending price is significantly greater than the starting price in this scenario, the redemption amount will not exceed the original offering price.
In addition to any contingent coupon payments received during the term of the securities, on the stated maturity date you would
receive $1,000 per security as well as a final contingent coupon payment.
Example 2. Ending price is less than the starting price
but greater than the threshold price, and the redemption amount is equal to the original offering price of your securities at maturity:
Starting price: $34.00
Hypothetical ending price: $25.00
Threshold price: $23.80, which is 70% of the starting price
Since the hypothetical ending price is less than the starting price, but not by more than 30%, you would be repaid the original
offering price of your securities at maturity.
In addition to any contingent coupon payments received during the term of
the securities, on the stated maturity date you would receive $1,000 per security as well as a final contingent coupon payment.
Example
3. Ending price is less than the threshold price, and the redemption amount is less than the original offering price of your securities at maturity:
Starting price: $34.00
Hypothetical ending price: $17.00
Threshold price: $23.80, which is 70% of the starting price
Since the hypothetical ending price is less than the starting price by more than 30%, you would lose a portion of the original
offering price of your securities and receive the redemption amount equal to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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$1,000 – |
|
|
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$1,000 x |
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$34.00 – $17.00 |
|
|
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= $500.00 |
|
|
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|
|
|
| |
|
|
|
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$34.00 |
|
|
|
|
|
|
|
In addition to any contingent coupon payments received during the term of the securities, on
the stated maturity date you would receive $500.00 per security, but no final contingent coupon payment.
These examples illustrate that
you will not participate in any appreciation of the Fund, but will be fully exposed to a decrease in the Fund if the ending price is less than the threshold price.
To the extent that the ending price differs from the values assumed above, the results indicated above would be different.
PRS-19
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| Additional Terms of the Securities |
Wells Fargo will issue the securities as part of a series of senior unsecured debt securities entitled
“Medium-Term Notes, Series K,” which is more fully described in the prospectus supplement. Information included in this pricing supplement supersedes information in the prospectus supplement and prospectus to the extent that it is
different from that information.
Calculation Agent
Wells Fargo Securities, LLC, one of our subsidiaries, will act as calculation agent for the securities and may appoint agents to assist it in
the performance of its duties. Pursuant to a calculation agent agreement, we may appoint a different calculation agent without your consent and without notifying you.
The calculation agent will determine whether the securities are automatically called on any of the first seven quarterly calculation days, the
amount of the payment you receive upon automatic call or at stated maturity and the contingent coupon payments, if any. In addition, the calculation agent will, among other things:
| |
Ÿ |
|
determine whether a market disruption event has occurred; |
| |
Ÿ |
|
determine the fund closing price of the Fund under certain circumstances; |
| |
Ÿ |
|
determine if adjustments are required to the fund closing price of the Fund under various circumstances; and |
| |
Ÿ |
|
if the Fund undergoes a liquidation event, select a successor fund (as defined below) or, if no successor fund is available, determine the fund closing
price. |
All determinations made by the calculation agent will be at the sole discretion of the calculation agent and, in
the absence of manifest error, will be conclusive for all purposes and binding on us and you. The calculation agent will have no liability for its determinations.
Market Disruption Events
A
“market disruption event” means any of the following events as determined by the calculation agent in its sole discretion:
| |
(A) |
The occurrence or existence of a material suspension of or limitation imposed on trading by the relevant exchange or otherwise relating to the
shares (or other applicable securities) of the Fund or any successor fund on the relevant exchange at any time during the one-hour period that ends at the close of trading on such day, whether by reason of movements in price exceeding limits
permitted by such relevant exchange or otherwise. |
| |
(B) |
The occurrence or existence of a material suspension of or limitation imposed on trading by any related exchange or otherwise in futures or options
contracts relating to the shares (or other applicable securities) of the Fund or any successor fund on any related exchange at any time during the one-hour period that ends at the close of trading on that day, whether by reason of movements in price
exceeding limits permitted by the related exchange or otherwise. |
| |
(C) |
The occurrence or existence of any event, other than an early closure, that materially disrupts or impairs the ability of market participants in
general to effect transactions in, or obtain market values for, shares (or other applicable securities) of the Fund or any successor fund on the relevant exchange at any time during the one-hour period that ends at the close of trading on that day.
|
| |
(D) |
The occurrence or existence of any event, other than an early closure, that materially disrupts or impairs the ability of market participants in
general to effect transactions in, or obtain market values for, futures or options contracts relating to shares (or other applicable securities) of the Fund or any successor fund on any related exchange at any time during the one-hour period that
ends at the close of trading on that day. |
| |
(E) |
The closure of the relevant exchange or any related exchange with respect to the Fund or any successor fund prior to its scheduled closing time
unless the earlier closing time is announced by the relevant exchange or related exchange, as applicable, at least one hour prior to the earlier of (1) the actual closing time for the regular trading session on such relevant exchange or related
exchange, as applicable, and (2) the submission deadline for orders to be entered into the relevant exchange or related exchange, as applicable, system for execution at the close of trading on that day. |
| |
(F) |
The relevant exchange or any related exchange with respect to the Fund or any successor fund fails to open for trading during its regular trading
session. |
PRS-20
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| Additional Terms of the Securities (Continued) |
For purposes of determining whether a market disruption event has occurred:
| |
(1) |
“close of trading” means the scheduled closing time of the relevant exchange with respect to the Fund or any successor fund; and
|
| |
(2) |
the “scheduled closing time” of the relevant exchange or any related exchange on any trading day for the Fund or any successor
fund means the scheduled weekday closing time of such relevant exchange or related exchange on such trading day, without regard to after hours or any other trading outside the regular trading session hours. |
If a market disruption event occurs or is continuing on any calculation day, such calculation day will be postponed to the first succeeding
trading day on which a market disruption event has not occurred and is not continuing; however, if such first succeeding trading day has not occurred as of the eighth trading day after the originally scheduled calculation day, that eighth trading
day shall be deemed to be the calculation day. If the calculation day has been postponed eight trading days after the originally scheduled calculation day and a market disruption event occurs or is continuing with respect to the Fund on such eighth
trading day, the calculation agent will determine the closing price of the Fund on such eighth trading day based on its good faith estimate of the value of the shares (or other applicable securities) of the Fund as of the close of trading on such
eighth trading day.
Anti-dilution Adjustments Relating to the Fund; Alternate Calculation
Anti-dilution Adjustments
The calculation agent will adjust the adjustment factor as specified below if any of the events specified below occurs with respect to the Fund
and the effective date or ex-dividend date, as applicable, for such event is after the pricing date and on or prior to the final calculation day.
The adjustments specified below do not cover all events that could affect the Fund, and there may be other events that could affect the Fund
for which the calculation agent will not make any such adjustments, including, without limitation, an ordinary cash dividend. Nevertheless, the calculation agent may, in its sole discretion, make additional adjustments to any terms of the securities
upon the occurrence of other events that affect or could potentially affect the market price of, or shareholder rights in, the Fund, with a view to offsetting, to the extent practical, any such change, and preserving the relative investment risks of
the securities. In addition, the calculation agent may, in its sole discretion, make adjustments or a series of adjustments that differ from those described herein if the calculation agent determines that such adjustments do not properly reflect the
economic consequences of the events specified in this pricing supplement or would not preserve the relative investment risks of the securities. All determinations made by the calculation agent in making any adjustments to the terms of the
securities, including adjustments that are in addition to, or that differ from, those described in this pricing supplement, will be made in good faith and a commercially reasonable manner, with the aim of ensuring an equitable result. In determining
whether to make any adjustment to the terms of the securities, the calculation agent may consider any adjustment made by the Options Clearing Corporation or any other equity derivatives clearing organization on options contracts on the Fund.
For any event described below, the calculation agent will not be required to adjust the adjustment factor unless the adjustment would result in
a change to the adjustment factor then in effect of at least 0.10%. The adjustment factor resulting from any adjustment will be rounded up or down, as appropriate, to the nearest one-hundred thousandth.
| |
(A) |
Stock Splits and Reverse Stock Splits |
If a stock split or reverse stock split has occurred, then once such split has become effective, the adjustment factor will be
adjusted to equal the product of the prior adjustment factor and the number of securities which a holder of one share (or other applicable security) of the Fund before the effective date of such stock split or reverse stock split would have
owned or been entitled to receive immediately following the applicable effective date.
If a dividend or distribution of shares (or other applicable securities) to which the securities are linked has been made by
the Fund ratably to all holders of record of such shares (or other applicable security), then the adjustment factor will be adjusted on the ex-dividend date to equal the prior adjustment factor plus the product of the prior adjustment factor
and the number of shares (or other applicable security) of the Fund which a holder of one share (or other applicable security) of the Fund before the ex-dividend date would have owned or been entitled to receive immediately following that date;
provided, however, that no adjustment will be made for a distribution for which the number of securities of the Fund paid or distributed is based on a fixed cash equivalent value.
PRS-21
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| Additional Terms of the Securities (Continued) |
| |
(C) |
Extraordinary Dividends |
If an extraordinary dividend (as defined below) has occurred, then the adjustment factor will be adjusted on the ex-dividend
date to equal the product of the prior adjustment factor and a fraction, the numerator of which is the closing price per share (or other applicable security) of the Fund on the trading day preceding the ex-dividend date, and the denominator
of which is the amount by which the closing price per share (or other applicable security) of the Fund on the trading day preceding the ex-dividend date exceeds the extraordinary dividend amount (as defined below).
For purposes of determining whether an extraordinary dividend has occurred:
| |
(1) |
“extraordinary dividend” means any cash dividend or distribution (or portion thereof) that the calculation agent determines, in
its sole discretion, is extraordinary or special; and |
| |
(2) |
“extraordinary dividend amount” with respect to an extraordinary dividend for the securities of the Fund will equal the amount per
share (or other applicable security) of the Fund of the applicable cash dividend or distribution that is attributable to the extraordinary dividend, as determined by the calculation agent in its sole discretion. |
A distribution on the securities of the Fund described below under the section entitled “—Reorganization Events”
below that also constitutes an extraordinary dividend will only cause an adjustment pursuant to that “—Reorganization Events” section.
If the Fund declares or makes a distribution to all holders of the shares (or other applicable security) of the Fund of any
non-cash assets, excluding dividends or distributions described under the section entitled “—Stock Dividends” above, then the calculation agent may, in its sole discretion, make such adjustment (if any) to the adjustment factor as it
deems appropriate in the circumstances. If the calculation agent determines to make an adjustment pursuant to this paragraph, it will do so with a view to offsetting, to the extent practical, any change in the economic position of a holder of the
securities that results solely from the applicable event.
| |
(E) |
Reorganization Events |
If the Fund, or any successor fund, is subject to a merger, combination, consolidation or statutory exchange of securities with
another exchange traded fund, and the Fund is not the surviving entity (a “reorganization event”), then, on or after the date of such event, the calculation agent shall, in its sole discretion, make an adjustment to the adjustment
factor or the method of determining the redemption amount, whether the securities are automatically called on any of the first seven quarterly calculation days, whether a contingent coupon payment will be made or any other terms of the securities as
the calculation agent determines appropriate to account for the economic effect on the securities of such event, and determine the effective date of that adjustment. If the calculation agent determines that no adjustment that it could make will
produce a commercially reasonable result, then the calculation agent may deem such event a liquidation event (as defined below).
Liquidation Events
If the Fund is de-listed, liquidated or otherwise terminated (a “liquidation event”), and a successor or substitute exchange
traded fund exists that the calculation agent determines, in its sole discretion, to be comparable to the Fund, then, upon the calculation agent’s notification of that determination to the trustee and Wells Fargo, any subsequent fund closing
price for the Fund will be determined by reference to the fund closing price of such successor or substitute exchange traded fund (such exchange traded fund being referred to herein as a “successor fund”), with such adjustments as
the calculation agent determines are appropriate to account for the economic effect of such substitution on holders of the securities.
If
the Fund undergoes a liquidation event prior to, and such liquidation event is continuing on, the date that any fund closing price of the Fund is to be determined and the calculation agent determines that no successor fund is available at such time,
then the calculation agent will, in its discretion, calculate the fund closing price for the Fund on such date by a computation methodology that the calculation agent determines will as closely as reasonably possible replicate the Fund, provided
that if the calculation agent determines in its discretion that it is not practicable to replicate the Fund (including but not limited to the instance in which the underlying index sponsor discontinues publication of the underlying index), then the
calculation agent will calculate the fund closing price for the Fund in accordance with the formula last used to calculate such fund closing price before such liquidation event, but using only those securities that were held by the Fund immediately
prior to such liquidation event without any rebalancing or substitution of such securities following such liquidation event.
PRS-22
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| Additional Terms of the Securities (Continued) |
If a successor fund is selected or the calculation agent calculates the fund closing price as
a substitute for the Fund, such successor fund or fund closing price will be used as a substitute for the Fund for all purposes, including for purposes of determining whether a market disruption event exists. Notwithstanding these alternative
arrangements, a liquidation event with respect to the Fund may adversely affect the value of the securities.
If any event is both a
reorganization event and a liquidation event, such event will be treated as a reorganization event for purposes of the securities unless the calculation agent makes the determination referenced in the last sentence of the section entitled
“—Anti-dilution Adjustments—Reorganization Events” above.
Alternate Calculation
If at any time the method of calculating the Fund or a successor fund, or the underlying index, is changed in a material respect, or if the
Fund or a successor fund is in any other way modified so that the Fund does not, in the opinion of the calculation agent, fairly represent the price of the securities of the Fund or such successor fund had such changes or modifications not been
made, then the calculation agent may, at the close of business in New York City on the date that any fund closing price is to be determined, make such calculations and adjustments as, in the good faith judgment of the calculation agent, may be
necessary in order to arrive at a closing price of the Fund comparable to the Fund or such successor fund, as the case may be, as if such changes or modifications had not been made, and calculate the fund closing price and the redemption amount and
determine whether the securities are automatically called on any of the first seven quarterly calculation days and whether a contingent coupon payment will be made with reference to such adjusted closing price of the Fund or such successor fund, as
applicable.
Events of Default and Acceleration
If an event of default with respect to the securities has occurred and is continuing, the amount payable to a holder of a security upon any
acceleration permitted by the securities, with respect to each security, will be equal to the redemption amount, calculated as provided herein, plus a portion of a final contingent coupon payment, if any. The redemption amount and any final
contingent coupon payment will be calculated as though the date of acceleration were the final calculation day. The final contingent coupon payment, if any, will be prorated from and including the immediately preceding contingent coupon payment date
to but excluding the date of acceleration.
PRS-23
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| The SPDR® S&P® Homebuilders ETF |
The Fund is issued by The SPDR Series Trust, a registered open-end management investment company. The Fund
seeks to provide investment results that, before fees and expenses, correspond generally to the performance of the S&P® Homebuilders Select Industry™ Index. Information provided to or
filed with the SEC under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, can be located by reference to SEC file numbers 333-57793 and 811-08839 and can be inspected and copied at the public reference
facilities maintained by the SEC or through the SEC’s website at www.sec.gov. In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated
documents. None of such publicly available information is incorporated by reference into this pricing supplement. The Fund is listed on the NYSE Arca, Inc. under the ticker symbol “XHB.”
This pricing supplement relates only to the securities offered hereby and does not relate to the Fund. We have derived all disclosures
contained in this pricing supplement regarding the Fund from the publicly available documents described in the preceding paragraph. In connection with the offering of the securities, neither we nor the agent has participated in the preparation of
such documents or made any due diligence inquiry with respect to the Fund. Neither we nor the agent has independently verified the accuracy or completeness of any information with respect to the Fund in connection with the offer and sale of
securities. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described in the preceding paragraph) that
would affect the trading price of the Fund (and therefore the price of the Fund at the time we price the securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future
events concerning the Fund could affect the payment at maturity with respect to the securities and therefore the trading prices of the securities.
We and/or our affiliates may presently or from time to time engage in business with the Fund. In the course of such business, we and/or our
affiliates may acquire non-public information with respect to the Fund, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates may publish research reports with respect
to the Fund. The statements in the preceding two sentences are not intended to affect the rights of investors in the securities under the securities laws.
The S&P Homebuilders Select Industry Index
We obtained all information contained in this pricing supplement regarding the S&P Homebuilders Select Industry Index, including, without
limitation, its make-up, method of calculation, and changes in its components, from publicly available information. That information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC (“S&P Dow Jones
Indices” or “S&P”), the sponsor of the S&P Homebuilders Select Industry Index. S&P has no obligation to continue to publish, and may discontinue publication of, the S&P Homebuilders Select Industry Index at
any time. Neither we nor the agent has independently verified the accuracy or completeness of any information with respect to the S&P Homebuilders Select Industry Index in connection with the offer and sale of securities.
According to publicly available information, on July 2, 2012, The McGraw-Hill Companies, Inc., which owned the S&P Indices business,
and CME Group, Inc., which is a 90% owner of the joint venture that owned the Dow Jones Indexes business, announced the launch of a new joint venture, S&P Dow Jones Indices. S&P Dow Jones Indices owns the S&P Indices business, including
the S&P Homebuilders Select Industry Index, and the Dow Jones Indexes business.
General
The S&P Homebuilders Select Industry Index (the “S&P Homebuilders Index”) is an equally-weighted index that is
designed to measure the performance of the homebuilders sub-industry of the S&P® Total Market Index (the “S&P TM Index”), a benchmark that measures the performance of
the United States equity market. The S&P TM Index offers broad market exposure to companies of all market capitalizations, including all common equities listed on the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the
NASDAQ Select Market and the NASDAQ Capital Market. Only U.S. companies are eligible for inclusion in the S&P TM Index. The S&P Homebuilders Index is one of the 25 S&P Select Industry Indices (collectively, the “Select Industry
Indices” and each, a “Select Industry Index”), each designed to measure the performance of a sub-industry or group of sub-industries based on the Global Industry Classification Standards (“GICS”). The
S&P Homebuilders Index includes companies in the following sub-industries: homebuilding, building products, home furnishings, home improvement retail, homefurnishing retail and household appliances. Each of the component stocks in the S&P
Homebuilders Index is a constituent company within the homebuilding sub-industry of the S&P TM Index.
PRS-24
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| The SPDR® S&P® Homebuilders ETF
(Continued) |
Index Inclusion Criteria
To be eligible for inclusion in a Select Industry Index, including the S&P Homebuilders Index, companies must be in the S&P TM Index,
must be included in the relevant GICS sub-industry (e.g., homebuilding) and must satisfy one of the two following combined size and liquidity criteria:
| |
Ÿ |
|
float-adjusted market capitalization above $500 million and float-adjusted liquidity ratio (“FALR”) above 90%; or
|
| |
Ÿ |
|
float-adjusted market capitalization above $400 million and FALR above 150%. |
All companies satisfying the above requirements are included in the applicable Select Industry Index. The total number of companies in each
Select Industry Index should be at least 35. If there are fewer than 35 stocks in a Select Industry Index, stocks from a supplementary list of highly correlated sub-industries, that meet the market capitalization and liquidity thresholds above, are
included in order of their float-adjusted market capitalization to reach 35 constituents. Minimum market capitalization requirements may be relaxed to ensure there are at least 22 companies in each Select Industry Index as of each rebalancing
effective date. Existing index constituents are removed at the quarterly rebalancing effective date if either their float-adjusted market capitalization falls below $300 million or their FALR falls below 50%.
Eligibility Factors
Market Capitalization. Float-adjusted market capitalization should be at least $400 million for index inclusion.
Existing index components must have a float-adjusted market capitalization of $300 million to remain in the index at each rebalancing.
Liquidity. The liquidity measurement used is a liquidity ratio, defined by dollar value traded over the previous 12
months divided by float-adjusted market capitalization as of the index-rebalancing date. Stocks having a float-adjusted market capitalization above $500 million must have a liquidity ratio greater than 90% to be eligible for addition to a Select
Industry Index. Stocks having a float-adjusted market capitalization between $400 and $500 million must have a liquidity ratio greater than 150% to be eligible for addition to a Select Industry Index. Existing index constituents must have a
liquidity ratio greater than 50% to remain in a Select Industry Index at the quarterly rebalancing. The length of time to evaluate liquidity is reduced to the available trading period for IPOs or spin-offs that do not have 12 months of trading
history.
Domicile. Only U.S. companies are eligible for inclusion in the Select Industry Indices.
Takeover Restrictions. At the discretion of S&P, constituents with shareholder ownership restrictions defined in
company bylaws may be deemed ineligible for inclusion in a Select Industry Index. Ownership restrictions preventing entities from replicating the index weight of a company may be excluded from the eligible universe or removed from the applicable
Select Industry Index.
Turnover. S&P believes turnover in index membership should be avoided when possible. At
times a company may appear to temporarily violate one or more of the addition criteria. However, the addition criteria are for addition to a Select Industry Index, not for continued membership. As a result, an index constituent that appears to
violate criteria for addition to a Select Industry Index will not be deleted unless ongoing conditions warrant a change in the composition of the applicable Select Industry Index.
Sector Classification. A Select Industry Index includes companies in the applicable GICS sub-industries.
Index Construction and Calculations
The Select Industry Indices are equally-weighted, with adjustments to constituent weights to ensure concentration and liquidity requirements,
and calculated by the divisor methodology.
The initial divisor is set to have a base index value of 1000 on December 17, 1999. The
index value is simply the index market value divided by the index divisor.
In order to maintain index series continuity, it is necessary to adjust the divisor at
each rebalancing.
Constituent Weightings
At each quarterly rebalancing, stocks are initially equally-weighted using closing prices as of the second Friday of the last month of quarter
as the reference price. Adjustments are then made to ensure that there are no stocks whose weight in the applicable Select Industry Index is more than can be traded in a single day for a $500 million portfolio.
S&P calculates a maximum basket liquidity weight for each stock in the applicable Select Industry Index using the ratio of its three-month
average daily value traded to $500 million. Each stock’s weight in the applicable Select Industry Index is, then, compared to its maximum basket liquidity weight and is set to the lesser of its maximum basket liquidity weight or its initial
equal weight. All excess weight is redistributed across the applicable Select Industry Index to the uncapped stocks. If necessary, a final adjustment is made to
PRS-25
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| The SPDR® S&P® Homebuilders ETF
(Continued) |
ensure that no stock in the applicable Select Industry Index has a weight greater than 4.5%. This step of the iterative weighting process may force the weight of those stocks limited to their
maximum basket liquidity weight to exceed that weight. In such cases, S&P will make no further adjustments.
Timing of Changes
Additions. Companies are added between rebalancings only if a deletion in the applicable Select Industry Index
causes the stock count to fall below 22. In those cases, each stock deletion is accompanied with a stock addition. The new company will be added to the applicable Select Industry Index at the weight of the deleted constituent. In the case of mergers
involving at least one index constituent, the merged company will remain in the applicable Select Industry Index if it meets all of the eligibility requirements. The merged company will be added to the applicable Select Industry Index at the weight
of the pre-merger index constituent. If both companies involved in a merger are index constituents, the merged company will be added at the weight of the company deemed the acquirer in the transaction. In the case of spin-offs, the applicable Select
Industry Index will follow the S&P TM Index’s treatment of the action. If the S&P TM Index treats the pre- and post-spun company as a deletion/addition action, using the stock’s when-issued price, the applicable Select Industry
Index will treat the spin-off this way as well.
Deletions. A company is deleted from the applicable Select Industry
Index if the S&P TM Index drops the constituent. If a constituent deletion causes the number of companies in the relevant index to fall below 22, each stock deletion is accompanied with a stock addition. In case of GICS changes, where a company
does not belong to a qualifying sub-industry after the classification change, it is removed from the applicable Select Industry Index at the next rebalancing.
Index Maintenance
The
membership of the Select Industry Indices is reviewed quarterly. Rebalancings occur after the closing on the third Friday of the quarter ending month. The reference date for additions and deletions is after the closing of the last trading date of
the previous month. Closing prices as of the second Friday of the last month of the quarter are used for setting index weights.
The tables
below summarize the types of index maintenance adjustments and indicate whether or not an index adjustment is required.
S&P TM
Index Actions
|
|
|
|
|
| S&P TM Index Action |
|
Adjustment Made to index |
|
Divisor Adjustment? |
| |
| Constituent deletion |
|
If the constituent is a member of the applicable Select Industry Index, it is dropped. |
|
Yes |
|
|
|
| Constituent addition |
|
Only in cases where the deletion causes the component count to fall below 22 stocks, then the dropped stock is accompanied by an add assuming the weight of the dropped stock. |
|
No, except in the case of
stocks removed at $0.00 |
|
|
|
|
|
For equal and modified market cap weighted indices, when a stock is removed from an index at a price of $0.00, the stock’s replacement will be added to the index at the weight using the previous day’s closing value, or the
most immediate prior business day that the deleted stock was not valued at $0.00. |
|
|
|
|
|
| Share changes between quarterly share
adjustments |
|
None. |
|
No |
|
|
|
| Quarterly share changes |
|
There is no direct adjustment, however, on the same date the applicable Select Industry Index rebalancing will take place. |
|
Only because of the
index
rebalancing. |
|
|
|
| GICS change |
|
None. If, after the GICS change, a company no longer qualifies to belong to the applicable Select Industry Index, it is removed at the next rebalancing. |
|
No |
Corporate Actions
|
|
|
|
|
| Corporate Action |
|
Adjustment Made to index |
|
Divisor Adjustment? |
| |
| Spin-off |
|
In general, both the parent company and spin-off companies will remain in the index until the next index |
|
No |
PRS-26
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| The SPDR® S&P® Homebuilders ETF
(Continued) |
|
|
|
|
|
|
|
rebalancing, regardless of whether they conform to the theme of the index. When there is no market-determined price available for the spin, the spin is added to the index at zero price at the close of the day before the
ex-date. |
|
|
|
|
|
| Rights Offering |
|
The price is adjusted to the price of the parent company minus (the price of the rights subscription/rights ratio). Index shares change so that the company’s weight remains the same as its weight before the rights
offering. |
|
No |
|
|
|
| Stock Dividend, Stock Split, Reverse Stock
Split |
|
Index shares are multiplied by and price is divided by the split factor. |
|
No |
|
|
|
| Share Issuance, Share Repurchase, Equity
Offering or Warrant Conversion |
|
None. |
|
No |
|
|
|
| Special Dividends |
|
Price of the stock making the special dividend payment is reduced by the per share special dividend amount after the close of trading on the day before the dividend ex-date. |
|
Yes |
Historical Information
We obtained the closing prices of the Fund listed below from Bloomberg Financial Markets, without independent verification.
The following graph sets forth daily closing prices of the Fund for the period from February 7, 2006 to January 23, 2015. The closing
price on January 23, 2015 was $33.82. The starting price is $34.00, which was the price of the Fund at the time of pricing on the pricing date. The historical performance of the Fund should not be taken as an indication of the future
performance of the Fund during the term of the securities.
PRS-27
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| The SPDR® S&P® Homebuilders ETF
(Continued) |
The following table sets forth the high and low closing prices, as well as end-of-period
closing prices, of the Fund for each quarter in the period from February 7, 2006 through December 31, 2014 and for the period from January 1, 2015 to January 23, 2015.
|
|
|
|
|
|
|
| |
|
High |
|
Low |
|
Last |
| 2006 |
|
|
|
|
|
|
| February 7, 2006 to March 31, 2006 |
|
$46.14 |
|
$42.01 |
|
$44.60 |
| Second Quarter |
|
$46.40 |
|
$32.70 |
|
$33.92 |
| Third Quarter |
|
$34.25 |
|
$29.40 |
|
$32.88 |
| Fourth Quarter |
|
$38.66 |
|
$32.28 |
|
$37.40 |
| 2007 |
|
|
|
|
|
|
| First Quarter |
|
$39.70 |
|
$32.55 |
|
$32.55 |
| Second Quarter |
|
$35.90 |
|
$30.36 |
|
$30.36 |
| Third Quarter |
|
$30.92 |
|
$21.31 |
|
$21.40 |
| Fourth Quarter |
|
$23.55 |
|
$17.14 |
|
$19.40 |
| 2008 |
|
|
|
|
|
|
| First Quarter |
|
$23.36 |
|
$15.90 |
|
$21.77 |
| Second Quarter |
|
$24.05 |
|
$16.62 |
|
$16.62 |
| Third Quarter |
|
$22.30 |
|
$14.72 |
|
$19.54 |
| Fourth Quarter |
|
$20.00 |
|
$8.91 |
|
$11.97 |
| 2009 |
|
|
|
|
|
|
| First Quarter |
|
$13.15 |
|
$8.23 |
|
$10.62 |
| Second Quarter |
|
$14.11 |
|
$10.88 |
|
$11.75 |
| Third Quarter |
|
$16.47 |
|
$10.73 |
|
$15.03 |
| Fourth Quarter |
|
$15.68 |
|
$13.79 |
|
$15.11 |
| 2010 |
|
|
|
|
|
|
| First Quarter |
|
$17.03 |
|
$14.98 |
|
$16.82 |
| Second Quarter |
|
$19.64 |
|
$14.30 |
|
$14.30 |
| Third Quarter |
|
$15.91 |
|
$13.88 |
|
$15.81 |
| Fourth Quarter |
|
$17.66 |
|
$15.40 |
|
$17.39 |
| 2011 |
|
|
|
|
|
|
| First Quarter |
|
$18.73 |
|
$17.31 |
|
$18.21 |
| Second Quarter |
|
$19.05 |
|
$17.07 |
|
$18.05 |
| Third Quarter |
|
$18.51 |
|
$13.17 |
|
$13.29 |
| Fourth Quarter |
|
$17.25 |
|
$12.55 |
|
$17.10 |
| 2012 |
|
|
|
|
|
|
| First Quarter |
|
$21.83 |
|
$17.37 |
|
$21.33 |
| Second Quarter |
|
$22.21 |
|
$19.06 |
|
$21.35 |
| Third Quarter |
|
$25.93 |
|
$20.84 |
|
$24.82 |
| Fourth Quarter |
|
$26.89 |
|
$24.35 |
|
$26.60 |
| 2013 |
|
|
|
|
|
|
| First Quarter |
|
$30.52 |
|
$26.97 |
|
$29.99 |
| Second Quarter |
|
$32.44 |
|
$28.02 |
|
$29.42 |
| Third Quarter |
|
$31.73 |
|
$28.32 |
|
$30.57 |
| Fourth Quarter |
|
$33.30 |
|
$29.11 |
|
$33.30 |
| 2014 |
|
|
|
|
|
|
| First Quarter |
|
$34.21 |
|
$30.58 |
|
$32.55 |
| Second Quarter |
|
$33.02 |
|
$30.55 |
|
$32.75 |
| Third Quarter |
|
$33.02 |
|
$29.46 |
|
$29.59 |
| Fourth Quarter |
|
$34.12 |
|
$28.02 |
|
$34.12 |
| 2015 |
|
|
|
|
|
|
| January 1, 2015 to January 23, 2015 |
|
$35.08 |
|
$33.04 |
|
$33.82 |
PRS-28
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
Each fiduciary of a pension, profit-sharing or other employee benefit plan to which Title I of the Employee
Retirement Income Security Act of 1974 (“ERISA”) applies (a “plan”), should consider the fiduciary standards of ERISA in the context of the plan’s particular circumstances before authorizing an investment in
the securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
plan. When we use the term “holder” in this section, we are referring to a beneficial owner of the securities and not the record holder.
Section 406 of ERISA and Section 4975 of the Code prohibit plans, as well as individual retirement accounts and Keogh plans to which
Section 4975 of the Code applies (also “plans”), from engaging in specified transactions involving “plan assets” with persons who are “parties in interest” under ERISA or “disqualified persons”
under the Code (collectively, “parties in interest”) with respect to such plan. A violation of those “prohibited transaction” rules may result in an excise tax or other liabilities under ERISA and/or Section 4975 of
the Code for such persons, unless statutory or administrative exemptive relief is available. Therefore, a fiduciary of a plan should also consider whether an investment in the securities might constitute or give rise to a prohibited transaction
under ERISA and the Code.
Employee benefit plans that are governmental plans, as defined in Section 3(32) of ERISA, certain church
plans, as defined in Section 3(33) of ERISA, and foreign plans, as described in Section 4(b)(4) of ERISA (collectively, “Non-ERISA Arrangements”), are not subject to the requirements of ERISA, or Section 4975 of the
Code, but may be subject to similar rules under other applicable laws or regulations (“Similar Laws”).
We and our
affiliates may each be considered a party in interest with respect to many plans. Special caution should be exercised, therefore, before the securities are purchased by a plan. In particular, the fiduciary of the plan should consider whether
statutory or administrative exemptive relief is available. The U.S. Department of Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited
transactions resulting from the purchase or holding of the securities. Those class exemptions are:
| |
Ÿ |
|
PTCE 96-23, for specified transactions determined by in-house asset managers; |
| |
Ÿ |
|
PTCE 95-60, for specified transactions involving insurance company general accounts; |
| |
Ÿ |
|
PTCE 91-38, for specified transactions involving bank collective investment funds; |
| |
Ÿ |
|
PTCE 90-1, for specified transactions involving insurance company separate accounts; and |
| |
Ÿ |
|
PTCE 84-14, for specified transactions determined by independent qualified professional asset managers. |
In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code provide an exemption for transactions between a plan and
a person who is a party in interest (other than a fiduciary who has or exercises any discretionary authority or control with respect to investment of the plan assets involved in the transaction or renders investment advice with respect thereto)
solely by reason of providing services to the plan (or by reason of a relationship to such a service provider), if in connection with the transaction of the plan receives no less, and pays no more, than “adequate consideration” (within the
meaning of Section 408(b)(17) of ERISA).
Any purchaser or holder of the securities or any interest in the securities will be deemed
to have represented by its purchase and holding that either:
| |
Ÿ |
|
no portion of the assets used by such purchaser or holder to acquire or purchase the securities constitutes assets of any plan or Non-ERISA Arrangement; or |
| |
Ÿ |
|
the purchase and holding of the securities by such purchaser or holder will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar violation under
any Similar Laws. |
Due to the complexity of these rules and the penalties that may be imposed upon persons involved in
non-exempt prohibited transactions, it is particularly important that fiduciaries or other persons considering purchasing the securities on behalf of or with “plan assets” of any plan consult with their counsel regarding the potential
consequences under ERISA and the Code of the acquisition of the securities and the availability of exemptive relief.
The securities are
contractual financial instruments. The financial exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized investment management or advice for the benefit of any purchaser
or
PRS-29
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| Erisa Considerations (Continued) |
holder of the securities. The securities have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder of
the securities.
Each purchaser or holder of the securities acknowledges and agrees that:
| |
(i) |
the purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser or holder
has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser or holder with respect to (a) the design and terms of the securities, (b) the purchaser or holder’s investment in
the securities, or (c) the exercise of or failure to exercise any rights we have under or with respect to the securities; |
| |
(ii) |
we and our affiliates have acted and will act solely for our own account in connection with (a) all transactions relating to the securities
and (b) all hedging transactions in connection with our obligations under the securities; |
| |
(iii) |
any and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities and are not
assets and positions held for the benefit of the purchaser or holder; |
| |
(iv) |
our interests may be adverse to the interests of the purchaser or holder; and |
| |
(v) |
neither we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions or
transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice. |
Purchasers of the securities have the exclusive responsibility for ensuring that their purchase, holding and subsequent disposition of the
securities does not violate the fiduciary or prohibited transaction rules of ERISA, the Code or any Similar Law. Nothing herein shall be construed as a representation that an investment in the securities would be appropriate for, or would meet any
or all of the relevant legal requirements with respect to investments by, plans or Non-ERISA Arrangements generally or any particular plan or Non-ERISA Arrangement
PRS-30
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| United States Federal Tax Considerations |
The following is a discussion of the material U.S. federal income and certain estate tax consequences of the
ownership and disposition of the securities. It applies to you only if you purchase a security for cash in the initial offering at the “issue price,” which is the first price at which a substantial amount of the securities is sold
to the public, and hold the security as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”). It does not address all of the tax consequences that may be relevant to
you in light of your particular circumstances or if you are a holder subject to special rules, such as:
| |
Ÿ |
|
a financial institution; |
| |
Ÿ |
|
a “regulated investment company”; |
| |
Ÿ |
|
a “real estate investment trust”; |
| |
Ÿ |
|
a tax-exempt entity, including an “individual retirement account” or “Roth IRA”; |
| |
Ÿ |
|
a dealer or trader in securities subject to a mark-to-market method of tax accounting with respect to the securities; |
| |
Ÿ |
|
a person holding a security as part of a “straddle” or conversion transaction or who has entered into a “constructive sale” with respect to a security; |
| |
Ÿ |
|
a person subject to the alternative minimum tax; |
| |
Ÿ |
|
a U.S. holder (as defined below) whose functional currency is not the U.S. dollar; or |
| |
Ÿ |
|
an entity classified as a partnership for U.S. federal income tax purposes. |
If an entity that
is classified as a partnership for U.S. federal income tax purposes holds the securities, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a
partnership holding the securities or a partner in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing of the securities to you.
In addition, we will not attempt to ascertain whether the Fund is treated as a “U.S. real property holding corporation”
(“USRPHC”) within the meaning of Section 897 of the Code. If the Fund were so treated, certain adverse U.S. federal income tax consequences might apply to a non-U.S. holder upon the sale, exchange or other disposition of a
security. You should refer to information filed with the Securities and Exchange Commission or other governmental authorities by the Fund and consult your tax adviser regarding the possible consequences to you if the Fund is or becomes a USRPHC.
This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury
regulations, all as of the date hereof, changes to any of which subsequent to the date of this pricing supplement may affect the tax consequences described herein. Any consequences resulting from the Medicare tax on investment income are not
discussed. You should consult your tax adviser with regard to the application of the U.S. federal income tax laws to your particular situation as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction.
General
Due to the
absence of statutory, judicial or administrative authorities that directly address the treatment of the securities or instruments that are similar to the securities for U.S. federal income tax purposes, no assurance can be given that the IRS or a
court will agree with the tax treatment described herein. We intend to treat the securities for U.S. federal income tax purposes as “contingent payment debt instruments.” In the opinion of our counsel, Davis Polk & Wardwell
LLP, this treatment of the securities is reasonable under current law; however, our counsel has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to be upheld, and that alternative treatments are
possible.
The U.S. federal income tax treatment of the securities is unclear. You should consult your tax adviser about the U.S.
federal income tax treatment of the securities, as well as the potential alternative treatments of the securities discussed below.
PRS-31
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| United States Federal Tax Considerations (Continued) |
Except where stated otherwise, the discussion below is based on the treatment of the
securities as contingent payment debt instruments.
Tax Consequences to U.S. Holders
This section applies to you only if you are a U.S. holder. As used herein, the term “U.S. holder” means, for U.S. federal
income tax purposes, a beneficial owner of a security that is:
| |
Ÿ |
|
a citizen or individual resident of the United States; |
| |
Ÿ |
|
a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; or
|
| |
Ÿ |
|
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
Interest Accruals on the Securities. Pursuant to rules governing the tax treatment of contingent payment debt instruments (the
“contingent debt regulations”), you will be required to accrue interest income on the securities on a constant yield basis, based on a comparable yield, as described below, regardless of whether you use the cash or accrual method of
accounting for U.S. federal income tax purposes. Accordingly, you may be required to include interest in your taxable income for a taxable year in excess of any coupon payments actually received in that year.
Under the contingent debt regulations, you will be required to accrue an amount of ordinary interest income, as original issue discount
(“OID”) for U.S. federal income tax purposes, for each accrual period prior to and including the maturity date of the securities that equals the product of:
| |
Ÿ |
|
the adjusted issue price (as defined below) of the securities as of the beginning of the accrual period, |
| |
Ÿ |
|
the comparable yield (as defined below) of the securities, adjusted for the length of the accrual period, and |
| |
Ÿ |
|
a fraction, the numerator of which is the number of days during the accrual period that you held the securities and the denominator of which is the number of days in the accrual period. |
The “adjusted issue price” of a security is its issue price increased by any interest income previously accrued (without
regard to the adjustments to interest accruals described below), and decreased by the projected amount of any payments (in accordance with the projected payment schedule described below) previously made with respect to the securities.
As used in the contingent debt regulations, the term “comparable yield” means the greater of (i) the annual yield we
would pay, as of the issue date, on a fixed-rate debt instrument with no contingent payments, but with terms and conditions otherwise comparable to those of the securities, and (ii) the applicable federal rate.
The contingent debt regulations require that we provide to you, solely for U.S. federal income tax purposes, a schedule of the projected
amounts of payments (the “projected payment schedule”) on the securities. This schedule must produce a yield-to-maturity that equals the comparable yield. Although it is not clear how the comparable yield should be determined for
securities (such as these) that may be called before maturity, our counsel has advised that it is reasonable to determine the comparable yield based on the stated maturity date. You may obtain the comparable yield and projected payment schedule by
submitting a written request for this information to us at: Wells Fargo Securities, LLC, Investment Solutions Group, 375 Park Avenue, New York, NY 10152.
For U.S. federal income tax purposes, you are required under the contingent debt regulations to use the comparable yield and the projected
payment schedule established by us in determining interest accruals and adjustments in respect of a security, unless you timely disclose and justify the use of a different comparable yield and projected payment schedule to the IRS.
The comparable yield and the projected payment schedule will not be used for any purpose other than to determine your interest accruals and
adjustments thereto in respect of a security for U.S. federal income tax purposes. They do not constitute a projection or representation by us regarding the actual amount that will be paid on a security.
Adjustments to Interest Accruals on the Securities. If, during any taxable year, you receive actual payments with respect to a security
that, in the aggregate, exceed the total amount of projected payments for that taxable year, you will incur a “net positive adjustment”
PRS-32
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
|
| United States Federal Tax Considerations (Continued) |
equal to the amount of such excess. You generally should treat a net positive adjustment as additional interest income in that taxable year.
If you receive in a taxable year actual payments with respect to the securities that, in the aggregate, are less than the amount of projected
payments for that taxable year, you will incur a “net negative adjustment” equal to the amount of such deficit. This net negative adjustment will (a) reduce your interest income on the securities for that taxable year, and
(b) to the extent of any excess after the application of (a), give rise to an ordinary loss to the extent of your interest income on the securities during prior taxable years, reduced to the extent such interest was offset by prior net negative
adjustments. Any net negative adjustment in excess of the amounts described in (a) and (b) will be carried forward as a negative adjustment to offset future interest income with respect to the securities or to reduce the amount realized on
a sale, exchange, redemption or retirement of the securities. For individual U.S. holders, a net negative adjustment is not subject to the two percent floor limitation on miscellaneous itemized deductions.
Sale, Exchange or Retirement of Securities. You will recognize taxable gain or loss on the sale, exchange or retirement of a security
equal to the difference between the amount received and your adjusted tax basis in the security. As previously discussed under “—Adjustments to Interest Accruals on the Securities,” to the extent that you have any net negative
adjustment carry-forward, you generally may use such net negative adjustment carry-forward from a previous year to reduce the amount realized on the sale, exchange or redemption of the securities.
Your adjusted tax basis in a security generally should be equal to your original purchase price for the security, increased by any interest
income you previously accrued (determined without regard to any adjustments to interest accruals described above) and decreased by the amount of any projected payments that previously have been scheduled to be made in respect of the securities
(without regard to the actual amount paid).
Any gain recognized will be treated as ordinary interest income, and any loss will be ordinary
loss to the extent of previous interest inclusions over the total net negative adjustments previously taken into account as ordinary losses in respect of the security and capital loss thereafter. If you are a non-corporate U.S. holder, any loss you
recognize will not be subject to the two percent floor limitation on miscellaneous itemized deductions. Any capital loss you recognize may be subject to limitations. Moreover, if you recognize a loss that meets certain thresholds you may be required
to file a disclosure statement with the IRS.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of the amounts paid to you on a security, unless you provide proof of an applicable exemption or a
correct taxpayer identification number, and otherwise comply with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded, or credited against
your U.S. federal income tax liability, provided that the required information is furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments on the securities and the proceeds from a sale, exchange
or other disposition of the securities, unless you provide proof of an applicable exemption from the information reporting rules.
Possible Alternative
Tax Treatments of an Investment in the Securities
Alternative U.S. federal income tax treatments of the securities are possible that,
if applied, could materially and adversely affect the timing and/or character of income, gain or loss with respect to them. It is possible, for example, that the securities could be treated as a prepaid derivative contract that provides for a
contingent coupon. Under this treatment, any coupon payments on the securities might be taxable as ordinary income to you at the time received or accrued in accordance with your regular method of accounting for U.S. federal income tax purposes. Upon
a sale, exchange or retirement of the securities, all or a portion of any gain or loss you recognized likely would be a capital gain or loss. Other alternative tax treatments of the securities are possible, and these treatments could result in
adverse consequences to you. You should consult your tax adviser about potential alternative tax treatments of the securities.
Tax Consequences to
Non-U.S. Holders
This section applies to you only if you are a non-U.S. holder. As used herein, the term “non-U.S.
holder” means a beneficial owner of a security that is, for U.S. federal income tax purposes:
| |
Ÿ |
|
an individual who is classified as a nonresident alien; |
PRS-33
Auto-Callable Access Securities with Contingent Coupon and Contingent Downside
Principal at Risk Securities Linked to the SPDR® S&P® Homebuilders ETF due December 29, 2016
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| United States Federal Tax Considerations (Continued) |
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a foreign corporation; or |
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a foreign estate or trust. |
The term “non-U.S. holder” does not include any of
the following holders:
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a holder who is an individual present in the United States for 183 days or more in the taxable year of disposition of a security; |
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certain former citizens or residents of the United States; or |
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a holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in the United States. |
Such holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities.
Because significant aspects of the tax treatment of the securities are uncertain, if we are the withholding agent with respect to payments of
the contingent coupon on the securities, we intend to withhold at a rate of 30% on such payments made to a non-U.S. holder, or at a reduced rate specified by an applicable income tax treaty. For this purpose, payments will be made to a non-U.S.
holder at a reduced treaty rate of withholding only if such reduced treaty rate (or a lower rate) would apply to any possible characterization of the payments, and in order to claim an exemption from or a reduction of the 30% withholding tax, a
non-U.S. holder must comply with certification requirements to establish that it is not a United States person and is eligible for a reduction or an exemption from withholding under an applicable tax treaty. If you are a non-U.S. holder, you should
consult your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any withholding tax and the certification requirements described above.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS with respect to amounts treated as interest, and may be filed with the IRS in connection with
the payment of proceeds from a sale, exchange or other disposition of the securities. You may be subject to backup withholding in respect of amounts paid to you, unless you comply with certification procedures to establish that you are not a U.S.
person for U.S. federal income tax purposes or otherwise establish an exemption. The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund,
provided that the required information is timely furnished to the IRS.
U.S. Federal Estate Tax
If you are an individual non-U.S. holder or an entity the property of which is potentially includible in such an individual’s gross estate
for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers), you should note that, in light of the uncertain treatment of the securities,
absent an applicable treaty exemption, a security may be treated as U.S.-situs property subject to U.S. federal estate tax. If you are such an individual or entity, you should consult your tax adviser regarding the U.S. federal estate tax
consequences of investing in the securities.
FATCA Legislation
Legislation commonly referred to as “FATCA” generally imposes a withholding tax of 30% on payments to certain non-U.S.
entities (including financial intermediaries) with respect to certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An intergovernmental agreement between the United States and
the non-U.S. entity’s jurisdiction may modify these requirements. Withholding (if applicable) applies to any payment on the securities of amounts treated as interest. If withholding applies to the securities, we will not be required to pay any
additional amounts with respect to amounts withheld. Both U.S. and non-U.S. holders should consult their tax advisers regarding the potential application of FATCA to the securities.
THE TAX CONSEQUENCES OF OWNING AND DISPOSING OF SECURITIES ARE UNCLEAR. YOU SHOULD CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES
OF OWNING AND DISPOSING OF THE SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. FEDERAL OR OTHER TAX LAWS.
PRS-34
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