Filed Pursuant to Rule 424(b)(2)
File No. 333-202840
The information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing
supplement and the accompanying prospectus supplement and prospectus are not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
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Subject To Completion, dated October 2, 2015
PRICING SUPPLEMENT No. 560 dated October ,
2015 (To Prospectus Supplement dated March 18, 2015
and Prospectus dated March 18, 2015) |
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Wells Fargo & Company
MediumTerm Notes, Series K
$
Fixed to Floating Rate
Notes
Notes Linked to the 10-Year Constant Maturity Swap Rate due October 9, 2025
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Issuer: |
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Wells Fargo & Company (Wells Fargo) |
Original Offering Price: |
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100% of the principal amount. |
Pricing Date: |
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October 6, 2015.* |
Issue Date: |
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October 9, 2015.* (T+3) |
Stated Maturity Date: |
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October 9, 2025.* The notes are not subject to redemption by Wells Fargo or repayment at the option of any holder of the notes prior to the stated maturity
date. |
Payment at Maturity: |
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100% of the principal amount, plus any accrued and unpaid interest. |
Interest Payment Dates: |
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Each January 9, April 9, July 9 and October 9, commencing January 9, 2016 and at maturity.* Except as described below for the first interest period, on each
interest payment date, interest will be paid for the period commencing on and including the immediately preceding interest payment date and ending on and including the day immediately preceding that interest payment date. This period is referred to
as an interest period. The first interest period will commence on and include the issue date and end on and include the day preceding the first interest payment date. Interest payable with respect to an interest period will be
computed on the basis of a 360-day year of twelve 30-day months. If a scheduled interest payment date is not a business day, interest will be paid on the next business day, and interest on that payment will not accrue during the period from and
after the scheduled interest payment date. |
Interest Rate: |
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The interest rate that will apply during the first twelve quarterly interest periods (up to and including the interest period ending October 8, 2018) will
be equal to 3.50% per annum. For all quarterly interest periods commencing on or after October 9, 2018, the interest rate that will apply during an interest period will be equal to (i) the 10-Year Constant Maturity Swap Rate on the interest
determination date for such interest period multiplied by (ii) the multiplier. As used herein, 10-Year Constant Maturity Swap Rate or 10-Year CMS Rate is the CMS rate, as defined in the accompanying prospectus supplement and
using a designated maturity of 10 years. See Description of NotesFloating Rate NotesBase RatesCMS Rate Notes in the accompanying prospectus supplement for further information about the manner in which the
10-Year Constant Maturity Swap Rate will be determined. |
Multiplier: |
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0.90 |
Interest Determination Date: |
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The interest determination date for an interest period commencing on or after October 9, 2018 will be two U.S. government securities business
days prior to the first day of such interest period. |
Calculation Agent: |
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Wells Fargo Securities, LLC |
Listing: |
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The notes will not be listed on any securities exchange or automated quotation system. |
Denominations: |
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$1,000 and any integral multiples of $1,000 |
CUSIP Number: |
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94986RZJ3 |
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To the extent that we make any change to the expected pricing date or expected issue date, the interest payment dates and stated maturity date may
also be changed in our discretion to ensure that the term of the notes remains the same. |
On the date of this
preliminary pricing supplement, the estimated value of the notes is approximately $978.20 per security. While the estimated value of the notes on the pricing date may differ from the estimated value set forth above, we do not expect it to differ
significantly absent a material change in market conditions or other relevant factors. In no event will the estimated value of the notes on the pricing date be less than $958.20 per note. The estimated value of the notes 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 notes from you at any time after issuance. See Investment Description in this pricing supplement.
Investing in the notes involves risks not associated with an investment in conventional debt securities. See Risk Factors on
page PS-4.
The notes are unsecured obligations of Wells Fargo & Company and all payments on the notes are subject to the
credit risk of Wells Fargo & Company. The notes 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 notes 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 |
Per Note |
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100.00% |
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1.75% |
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98.25% |
Total |
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(1) |
The agent discount will not be more than 1.75% per note. Wells Fargo Securities, LLC, a wholly owned subsidiary of Wells Fargo &
Company, is the agent for the distribution of the notes and is acting as principal. See Investment Description in this pricing supplement for further information. |
Wells Fargo Securities
INVESTMENT DESCRIPTION
The Notes Linked to the 10-Year Constant Maturity Swap Rate due October 9, 2025 are senior unsecured debt securities of
Wells Fargo & Company and are part of a series entitled Medium-Term Notes, Series K.
All payments on
the notes are subject to the credit risk of Wells Fargo.
The 10-Year CMS Rate is, on any U.S. government securities
business day, the fixed rate of interest payable on an interest rate swap with a 10-year maturity as reported by Reuters Screen ISDAFIX1 Page as of 11:00 a.m., New York City time, on that day. An interest rate swap rate, at any given time, generally
indicates the fixed rate of interest (paid semi-annually) that a counterparty in the swaps market would have to pay for a given maturity in order to receive a floating rate (paid quarterly) equal to 3 month LIBOR for that same maturity. The 10-Year CMS Rate is one of the market-accepted indicators of longer term interest rates. Historical data regarding the 10-Year CMS Rate is available on the website of the Federal Reserve at
http://www.federalreserve.gov/releases/h15/data.htm with reference to interest rate swaps with a 10-year maturity. No information on the Federal Reserve website is incorporated into this pricing supplement.
You should read this pricing supplement together with the prospectus supplement dated March 18, 2015 and the prospectus
dated March 18, 2015 for additional information about the notes. 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 filings for the relevant date on the SEC website):
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Prospectus Supplement dated March 18, 2015 and Prospectus dated March 18, 2015 filed with the SEC on March 18, 2015:
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The original offering price of each note of $1,000 includes certain costs that are borne by you. Because of these
costs, the estimated value of the notes on the pricing date will be less than the original offering price. The costs included in the original offering price relate to selling, structuring, hedging and issuing the notes, as well as to our funding
considerations for debt of this type.
The costs related to selling, structuring, hedging and issuing the notes 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 notes and (iii) hedging and other costs
relating to the offering of the notes.
Our funding considerations take into account the higher issuance, operational and ongoing
management costs of market-linked debt such as the notes 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 notes 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 notes.
If the costs relating to selling, structuring, hedging and issuing the notes were lower, or if the assumed funding rate we use to determine
the economic terms of the notes were higher, the economic terms of the notes would be more favorable to you and the estimated value would be higher. The estimated value of the notes as of the pricing date will be set forth in the final pricing
supplement.
Determining the estimated value
Our affiliate, Wells Fargo Securities, LLC (WFS), calculated the estimated value of the notes 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 notes by estimating the value of
the combination of hypothetical financial instruments that would replicate the payout on the notes, 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 notes (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
PS-2
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 notes based upon an assumed funding rate that is generally lower than our secondary market rates. In contrast, in determining the estimated value of the notes, 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 FactorsThe Value Of The Notes 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 notes determined by WFS is subject to important limitations. See Risk FactorsThe Estimated Value Of The
Notes Is Determined By Our Affiliates 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.
Valuation of the notes after issuance
The estimated value of the notes is not an indication of the price, if any, at which WFS or any other person may be willing to buy the notes
from you in the secondary market. The price, if any, at which WFS or any of its affiliates may purchase the notes in the secondary market will be based upon WFSs proprietary pricing models and will fluctuate over the term of the notes 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 principal amount of the notes 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 notes is likely to be less than the original
offering price.
If WFS or any of its affiliates makes a secondary market in the notes at any time up to the issue date or during the
6-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 notes 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 WFSs 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 6-month period. If you hold the
notes 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 notes on your brokerage account statement.
If WFS or any of its affiliates makes a secondary market in the notes, WFS expects to provide those secondary market prices to any
unaffiliated broker-dealers through which the notes are held and to commercial pricing vendors. If you hold your notes through an account at a broker-dealer other than WFS or any of its affiliates, that broker-dealer may obtain market prices for the
notes from WFS (directly or indirectly), but could also obtain such market prices from other sources, and may be willing to purchase the notes 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 notes. As a result, if you hold your notes through an account at a broker-dealer other than WFS or any of its affiliates, the value of the notes on your brokerage account statement may be different than if you held your notes at WFS
or any of its affiliates.
The notes will not be listed or displayed on any securities exchange or any automated quotation system.
Although WFS and/or its affiliates may buy the notes from investors, they are not obligated to do so and are not required to make a market for the notes. There can be no assurance that a secondary market will develop.
PS-3
RISK FACTORS
Your investment in the notes involves risks. You should carefully consider the risk factors set forth below as well as the
other information contained in the prospectus supplement and prospectus, including the documents they incorporate by reference. You should reach an investment decision only after you have carefully considered with your advisors the suitability of an
investment in the notes in light of your particular circumstances.
The Amount Of Interest You Receive May Be Less Than The Return You
Could Earn On Other Investments And The Floating Rate of Interest You Receive After The First Three Years Will Be Less Than The 10-Year CMS Rate Due To The Multiplier.
Interest rates may change significantly over the term of the notes, and it is impossible to predict what interest rates will
be at any point in the future. Although the interest rate on the notes will be equal to 3.50% per annum for the first three years and thereafter will be based on the level of the 10-Year CMS Rate, the interest rate that will apply at any time
on the notes may be more or less than other prevailing market interest rates at such time. In addition, the interest rate on the notes after the first three years will be less than the level of the 10-Year CMS Rate for any quarterly interest period
due to the effect of the multiplier of 0.90. As a result, the amount of interest you receive on the notes may be less than the return you could earn on other investments.
The Notes Are Subject To The Credit Risk Of Wells Fargo.
The notes are our obligations and are not, either directly or indirectly, an obligation of any third party, and any amounts
payable under the notes are subject to our creditworthiness. As a result, our actual and perceived creditworthiness may affect the value of the notes 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 notes.
The Estimated Value Of The Notes On The Pricing Date, Based On WFSs Proprietary Pricing
Models, Will Be Less Than The Original Offering Price.
The original offering price of the notes includes certain
costs that are borne by you. Because of these costs, the estimated value of the notes on the pricing date will be less than the original offering price. The costs included in the original offering price relate to selling, structuring, hedging and
issuing the notes, as well as to our funding considerations for debt of this type. The costs related to selling, structuring, hedging and issuing the notes 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 notes and (iii) hedging and other costs relating to the offering of the notes. Our funding considerations are
reflected in the fact that we determine the economic terms of the notes 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 notes were
lower, or if the assumed funding rate we use to determine the economic terms of the notes were higher, the economic terms of the notes would be more favorable to you and the estimated value would be higher.
The Estimated Value Of The Notes Is Determined By Our Affiliates Pricing Models, Which May Differ From Those Of Other Dealers.
The estimated value of the notes was determined for us by WFS using its proprietary pricing models and related
market inputs and assumptions referred to above under Investment DescriptionDetermining the estimated value. Certain inputs to these models may be determined by WFS in its discretion. WFSs views on these inputs may differ
from other dealers views, and WFSs estimated value of the notes may be higher, and perhaps materially higher, than the estimated value of the notes that would be determined by other dealers in the market. WFSs models and its inputs
and related assumptions may prove to be wrong and therefore not an accurate reflection of the value of the notes.
The Estimated Value
Of The Notes Is Not An Indication Of The Price, If Any, At Which WFS Or Any Other Person May Be Willing To Buy The Notes From You In The Secondary Market.
The price, if any, at which WFS or any of its affiliates may purchase the notes in the secondary market will be based on
WFSs proprietary pricing models and will fluctuate over the term of the notes as a result of changes in the market and other factors described in the next risk factor. Any such secondary market price for the notes will also be reduced by a
bid-offer spread, which may vary depending on the aggregate principal amount of the notes 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 notes is likely to be less than the original offering price.
PS-4
If WFS or any of its affiliates makes a secondary market in the notes at any time
up to the issue date or during the 6-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 notes 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 WFSs 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 6-month period. If you hold 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 notes on your brokerage account statement. If you hold your notes through an
account at a broker-dealer other than WFS or any of its affiliates, the value of the notes on your brokerage account statement may be different than if you held your notes at WFS or any of its affiliates, as discussed above under Investment
Description.
The Value Of The Notes Prior To Stated Maturity Will Be Affected By Numerous Factors, Some Of Which Are Related In
Complex Ways.
The value of the notes prior to stated maturity will be affected by 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, among others, are expected to affect the value of the notes.
When we refer to the value of the notes, we mean the value that you could receive for the notes if you choose to sell them before their stated maturity date.
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The 10-Year CMS Rate. The value of the notes prior to maturity will be influenced by the level of forward rates for the 10-Year CMS Rate at
that time. |
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Interest Rates. The value of the notes may be affected by changes in the interest rates and in the yield curve in the U.S. markets.
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Time Remaining To Maturity. The value of the notes at any given time prior to maturity will likely be different from that which would be
expected based on the then-current level of the 10-Year CMS Rate. This difference will most likely reflect a discount due to expectations and uncertainty concerning the level of the 10-Year CMS Rate during the period of time still remaining to the
maturity date. In general, as the time remaining to maturity decreases, the value of the notes will approach the amount payable at maturity. |
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Volatility of the 10-Year CMS Rate. Volatility is the term used to describe the size and frequency of fluctuations in the level of the
10-Year CMS Rate. The value of the notes may be affected if the volatility of the 10-Year CMS Rate changes. |
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Our Creditworthiness. Actual or anticipated changes in our creditworthiness may affect the value of the notes. However, because the return
on the notes is dependent upon factors in addition to our ability to pay our obligations under the notes, such as the level of the 10-Year CMS Rate, an improvement in our creditworthiness will not reduce the other investment risks related to the
notes. |
The Notes Will Not Be Listed On Any Securities Exchange And We Do Not Expect A Trading Market For The Notes To Develop.
The notes 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 notes from holders, they are not obligated to do so and are not required to make a market for the notes. 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 notes, the price at which you may be able to sell your notes is likely to depend on the price, if any, at which the agent is willing to buy your notes.
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 notes prior to stated maturity. This may affect the price you receive upon such sale. Consequently, you should be willing to hold the notes to stated maturity.
PS-5
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 notes, which we refer to as a participating dealer, are potentially adverse to your interests as an investor in the notes. 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 notes, and in so doing they will have no obligation to consider your interests as an investor in the notes. 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 notes.
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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
notes. WFS, which is our affiliate, will be the calculation agent for the notes. As calculation agent, WFS will determine the 10-Year CMS Rate in the event that the 10-Year CMS Rate is not determined by reference to the Reuters Screen
ISDAFIX1 Page or reference bank quotations. In performing its functions, 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 notes, and WFSs determinations as
calculation agent may adversely affect your return on the notes. |
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The estimated value of the notes was calculated by our affiliate and is therefore not an independent third-party valuation. WFS
calculated the estimated value of the notes set forth on the cover page of this pricing supplement, which involved discretionary judgments by WFS, as described under Risk FactorsThe Estimated Value Of The Notes Is Determined By Our
Affiliates Pricing Models, Which May Differ From Those Of Other Dealers above. Accordingly, the estimated value of the notes set forth on the cover page of this pricing supplement is not an independent third-party valuation.
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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 notes to you. If any participating dealer or any of its affiliates conducts hedging activities for us in connection with the notes, that participating dealer
or its affiliates will expect to realize a projected profit from such hedging activities and this projected profit will be in addition to any concession that the participation dealer realizes for the sale of the notes to you. This additional
projected profit may create a further incentive for the participating dealer to sell the notes to you. |
PS-6
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
notes. It applies to you only if you purchase a note for cash in the initial offering at the issue price, which is the first price at which a substantial amount of the notes is sold to the public, and hold the note 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 an investor subject to special rules, such as:
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a financial institution; |
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a regulated investment company; |
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a real estate investment trust; |
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a tax-exempt entity, including an individual retirement account or Roth IRA; |
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a dealer or trader subject to a mark-to-market method of tax accounting with respect to the notes; |
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a person holding a note as part of a straddle or conversion transaction or who has entered into a constructive sale with
respect to a note; |
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a U.S. holder (as defined below) whose functional currency is not the U.S. dollar; or |
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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 notes, 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 notes 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 notes to you.
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,
possibly with retroactive effect. This discussion does not address the effects of any applicable state, local or non-U.S. tax laws, any alternative minimum tax consequences or the potential application of the Medicare tax on net investment income.
You should consult your tax adviser concerning the application of the U.S. federal income and estate tax laws to your particular situation, as well as any tax consequences arising under the laws of any state, local or non-U.S. jurisdiction.
Tax Treatment of the Notes
In the
opinion of our counsel, Davis Polk & Wardwell LLP, the notes should be treated as variable rate debt instruments that provide for a single fixed rate followed by a qualified floating rate (QFR) for U.S.
federal income tax purposes.
Tax Consequences to U.S. Holders
This section applies only to U.S. holders. You are a U.S. holder if you are a beneficial owner of a note that is, for U.S.
federal income tax purposes:
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a citizen or individual resident of the United States; |
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a corporation created or organized in or under the laws of the United States, any state therein or the District of Columbia; or
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an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
Qualified Stated Interest and Original Issue Discount. If a debt instruments stated redemption price at maturity exceeds its
issue price by an amount that does not satisfy a de minimis test, the excess will be treated as original issue discount (OID) for U.S. federal income tax purposes. Under applicable Treasury Regulations, the stated
redemption price at maturity of a debt instrument generally will equal the sum of all payments required under the debt instrument other than payments of
PS-7
qualified stated interest (QSI). QSI generally includes stated interest unconditionally payable (other than in debt instruments of the issuer) at least annually at a single
rate.
In order to determine the amount of QSI and OID (if any) in respect of the notes, an equivalent fixed rate debt instrument must be
constructed. The equivalent fixed rate debt instrument is constructed in the following manner: (i) first, the initial fixed rate is converted to a QFR that would preserve the fair market value of the notes, and (ii) second, each QFR
(including the QFR determined under (i) above) is converted to a fixed rate substitute (which will generally be the value of that QFR as of the issue date of the notes). Then, the rules described in the preceding paragraph will apply to the
equivalent fixed rate debt instrument to determine the amount of QSI and OID on the notes. Under these rules, the notes will generally be treated as providing for QSI at a rate equal to the lowest rate of interest in effect at any time under the
equivalent fixed rate debt instrument, and any interest in excess of that rate will generally be treated as part of the stated redemption price at maturity and, therefore, as giving rise to OID.
QSI on the notes generally will be taxable to you as ordinary interest income at the time it accrues or is received in accordance with your
method of tax accounting. You will be required to include the OID, if any, in income for federal income tax purposes as it accrues, in accordance with a constant-yield method based on a compounding of interest. If the notes are not issued with OID,
all stated interest on the notes will be treated as QSI and will be taxable to you as ordinary interest income at the time it accrues or is received in accordance with your method of tax accounting. If the amount of interest you receive on the notes
in a calendar year is greater than the interest assumed to be paid or accrued under the equivalent fixed rate debt instrument, the excess is treated as additional QSI taxable to you as ordinary income. Otherwise, any difference will reduce the
amount of QSI you are treated as receiving and will therefore reduce the amount of ordinary income you are required to take into income.
Information regarding the determination of QSI and the amount of OID, if any, on the notes may be obtained by submitting a written request to
us at: Wells Fargo Securities, LLC, Investment Solutions Group, 375 Park Avenue, New York, NY 10152.
Sale, Exchange or Retirement of
the Notes. Upon a sale, exchange or retirement of the notes, you generally will recognize capital gain or loss equal to the difference between the amount realized on the sale, exchange or retirement (other than amounts attributable to accrued
QSI, which will be treated as a payment of QSI) and your tax basis in the notes. Your tax basis in the notes generally will equal the amount you paid to acquire them, increased by the amount of OID (if any) previously included in income with respect
to the notes and reduced by any payments other than QSI received. Such gain or loss generally will be long-term capital gain or loss if, at the time of the sale, exchange or retirement, you held the notes for more than one year, and short-term
capital gain or loss otherwise. Long-term capital gains recognized by non-corporate U.S. holders are generally subject to taxation at reduced rates. The deductibility of capital losses is subject to certain limitations.
Tax Consequences to Non-U.S. Holders
This section applies only to non-U.S. holders. You are a non-U.S. holder if you are a beneficial owner of a note that is,
for U.S. federal income tax purposes:
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an individual who is classified as a nonresident alien; |
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a foreign corporation; or |
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a foreign estate or trust. |
You are not a non-U.S. holder for purposes of this discussion if you are (i) an individual who is present in the United States for 183
days or more in the taxable year of disposition, (ii) a former citizen or resident of the United States or (iii) a person for whom income or gain in respect of the notes is effectively connected with the conduct of a trade or business in
the United States. If you are or may become such a person during the period in which you hold a note, you should consult your tax adviser regarding the U.S. federal tax consequences of an investment in the notes.
Subject to the discussion below concerning FATCA, you generally will not be subject to U.S. federal income or withholding tax in respect of
the notes, provided that:
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you do not own, directly or by attribution, ten percent or more of the total combined voting power of all classes of our stock entitled to vote;
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you are not a controlled foreign corporation related, directly or indirectly, to us through stock ownership; |
PS-8
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you are not a bank receiving interest under Section 881(c)(3)(A) of the Code; and |
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you provide to the applicable withholding agent an appropriate IRS Form W-8 on which you certify under penalties of perjury that you are not a U.S.
person. |
U.S. Federal Estate Tax
Individual non-U.S. holders and entities the property of which is potentially includible in such an individuals 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) should consider the U.S. federal estate tax implications of an investment in the notes.
Absent an applicable treaty benefit, a note will be treated as U.S.-situs property subject to U.S. federal estate tax if payments on the note if received by the decedent at the time of death would have been subject to U.S. federal withholding tax as
described above (even if the Form W-8 certification requirement described above were satisfied and not taking into account an elimination of such U.S. federal withholding tax due to the application of an income tax treaty). You should consult your
tax adviser regarding the U.S. federal estate tax consequences of an investment in the notes in your particular situation and the availability of benefits provided by an applicable estate tax treaty, if any.
Backup Withholding and Information Reporting
Information returns generally will be filed with the Internal Revenue Service (the IRS) with respect to payments of
interest (including OID, if any) on the notes and may be filed with the IRS in connection with the payment of proceeds from a sale, exchange or other disposition of the notes. If you fail to provide certain identifying information (such as an
accurate taxpayer identification number if you are a U.S. holder) or meet certain other conditions, you may also be subject to backup withholding at the rate specified in the Code. If you are a non-U.S. holder that provides an appropriate IRS Form
W-8, you will generally establish an exemption from backup withholding. Amounts withheld under the backup withholding rules are not additional taxes and may be refunded or credited against your U.S. federal income tax liability, provided the
relevant information is timely furnished to the IRS.
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. entitys jurisdiction may modify these requirements. Withholding under these rules (if applicable) applies to payments of amounts treated as interest (including OID, if any) on the notes and to payments of gross proceeds of the
disposition (including upon retirement) of the notes. Pursuant to published guidance issued by the IRS, withholding on the payment of gross proceeds (other than any amount treated as interest) of a disposition will be required only for dispositions
after December 31, 2018. If withholding applies to the notes, 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 notes.
The preceding discussion constitutes the full opinion of Davis Polk & Wardwell LLP
regarding the material U.S. federal tax consequences of owning and disposing of the notes.
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SUPPLEMENTAL PLAN OF DISTRIBUTION
Wells Fargo Securities, LLC has agreed, subject to the terms and conditions of the distribution agreement and a terms
agreement, to purchase from us as principal $ aggregate principal amount of notes. The agent may resell the notes to other securities dealers at the
original offering price of the notes less a concession not in excess of 1.75% per note. 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 notes. If any dealer participating in the distribution of the notes or any of its affiliates conducts hedging activities for us in connection with the notes, 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 notes to you.
PS-10
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