Issuer:
|
Wells Fargo & Company (“
Wells Fargo
”).
|
Market Measure:
|
VanEck Vectors
®
Gold Miners ETF (the “
Fund
”).
|
Pricing Date:
|
October 19, 2018.
|
Issue Date:
|
October 26, 2018. (T+5)
|
Original Offering
Price:
|
$1,000 per security. References in this pricing supplement to a “
security
” are to a security with a face amount of $1,000.
|
Automatic Call
:
|
If the fund closing price of the Fund on any call date (including the final calculation day) 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 the call premium applicable to the relevant call date. The last call date is the final calculation day, and payment upon an automatic call on the final calculation day, if applicable, will be made on the stated maturity date.
|
|
Any positive return on the securities will be limited to the applicable call premium, even if the fund closing price of the Fund on the applicable call date significantly exceeds the starting price. You will not participate in any appreciation of the Fund beyond the applicable call premium.
|
|
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.
|
Call Dates and
Call Premiums:
|
Call Date
|
Call Premium
|
|
Payment per Security upon
|
an Automatic Call
|
October 28, 2019
|
9.10% of the original offering price
|
$1,091.00
|
October 26, 2020
|
18.20% of the original offering price
|
$1,182.00
|
October 19, 2021
|
27.30% of the original offering price
|
$1,273.00
|
|
We refer to October 19, 2021 as the “
final calculation day
.”
|
|
The call dates are subject to postponement for non-trading days and the occurrence of a market disruption event. See “—Postponement of a Calculation Day” below.
|
Call Settlement
Date:
|
Five business days after the applicable call date (as each such call date may be postponed pursuant to “—Postponement of a Calculation Day” below, if applicable);
provided
that the call settlement date for the last call date is the stated maturity date.
|
Stated Maturity
Date:
|
October 26, 2021. If the final calculation day is postponed, the stated maturity date will be the later of (i) October 26, 2021 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.
|
|
|
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
Maturity Payment Amount:
|
If the securities are not automatically called prior to the final calculation day, then on the stated maturity date you will be entitled to receive a cash payment per security in U.S. dollars equal to the maturity payment amount. The “
maturity payment amount
” will be calculated as follows:
|
|
•
|
if the ending price is greater than or equal to the starting price: $1,000
plus
the call premium applicable to the final calculation day as described above under “Call
Dates and Call Premiums;”
|
|
•
|
if the ending price is less than the starting price but greater than or equal to the threshold price: $1,000; or
|
|
•
|
if the ending price is less than the threshold price: $1,000
minus
:
|
|
|
$1,000
|
×
|
threshold price – ending price
|
|
|
|
starting price
|
If the securities are not automatically called prior to the final calculation day and the ending price is less than the threshold price, you will receive less, and possibly 90% less, than the original offering price of your securities at maturity.
|
|
All calculations with respect to any payments on the securities (whether upon automatic call or at maturity) will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward (e.g., 0.000005 would be rounded to 0.00001); and such payment will be rounded to the nearest cent, with one-half cent rounded upward.
|
Fund Closing
Price:
|
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.
|
Closing Price:
|
The “
closing price
” for one 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 official closing price on such day published by the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which the Fund (or any such other security) is listed or admitted to trading.
|
Adjustment
Factor:
|
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:
|
$20.01, which is the fund closing price of the Fund on the pricing date.
|
Ending Price:
|
The “
ending price
” will be the fund closing price of the Fund on the final calculation day.
|
Threshold Price:
|
$18.009, which is equal to 90% of the starting price.
|
Postponement of
a Calculation
Day:
|
The call dates (including the final calculation day) are each referred to as a “
calculation day
.” If any calculation day is not a trading day (as defined below), 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.”
|
Calculation Agent:
|
Wells Fargo Securities, LLC
|
No Listing:
|
The securities will not be listed on any securities exchange or automated quotation system.
|
Material Tax
Consequences:
|
For a discussion of the material U.S. federal income and certain estate tax consequences of the ownership and disposition of the securities, see “United States Federal Tax Considerations.”
|
|
|
|
|
|
|
|
|
|
|
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
Agent:
|
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 less a concession not in excess of $17.50 per security. Such securities dealers may include Wells
Fargo Advisors (“
WFA
”) (the trade name of the retail brokerage business of our affiliates, Wells Fargo Clearing
Services, LLC and Wells Fargo Advisors Financial Network, LLC). In addition to the concession allowed to WFA, WFS will pay $0.75
per security of the agent’s discount to WFA as a distribution expense fee for each security sold by WFA.
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, concession or distribution expense fee received in connection with the sale of the securities to you.
|
Denominations:
|
$1,000 and any integral multiple of $1,000.
|
CUSIP:
|
95001BAA2
|
|
|
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
The Principal at Risk Securities Linked to the VanEck
Vectors
®
Gold Miners ETF due October 26, 2021 (the “
securities
”) are senior unsecured debt securities
of Wells Fargo that do not pay 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. The return you receive on the securities and whether they are
automatically called will depend on the performance of the Fund. The securities provide:
|
(i)
|
the possibility of an automatic early call of the securities at a fixed call premium if the fund
closing price of the Fund on either of the first two call dates is greater than or equal to the starting price; and
|
|
(ii)
|
if the securities are not automatically called prior to the final calculation day:
|
|
(a)
|
the possibility of a return equal to the call premium applicable to the final calculation day if
the fund closing price of the Fund on the final calculation day is greater than or equal to the starting price;
|
|
(b)
|
repayment of the original offering price if,
and only if
, the fund closing price of the
Fund on the final calculation day is not less than the starting price by more than 10%; and
|
|
(c)
|
exposure to decreases in the price of the Fund if and to the extent the fund closing price of the
Fund on the final calculation day is less than the starting price by more than 10%.
|
If the fund closing price of the Fund is less
than the starting price on each of the three call dates (including the final calculation day), you will not receive any positive
return on your investment in the securities. If the fund closing price of the Fund on the final calculation day is less than the
starting price by more than 10%, you will receive less, and possibly 90% less, than the original offering price of your securities
at maturity.
Any positive return on the securities will
be limited to the applicable call premium, even if the fund closing price of the Fund on the applicable call date exceeds the starting
price by more than percentage represented by that call premium. You will not participate in any appreciation of the Fund beyond
the applicable fixed call premium.
All payments on the securities are subject to the credit
risk of Wells Fargo.
The Fund is an exchange traded fund that seeks to replicate
as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index, an equity
index that is intended to track the performance of companies involved in mining of gold and silver.
You should read this pricing supplement together
with the prospectus supplement dated January 24, 2018 and the prospectus dated April 27, 2018 for additional information about
the securities. When you read the accompanying prospectus supplement, please note that all references in such supplement to the
prospectus dated November 3, 2017, or to any sections therein, should refer instead to the accompanying prospectus dated April
27, 2018 or to the corresponding sections of such prospectus, as applicable. 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):
|
•
|
Prospectus Supplement dated January 24, 2018:
|
https://www.sec.gov/Archives/edgar/data/72971/000119312518018256/d466041d424b2.htm
|
•
|
Prospectus dated April 27, 2018:
|
https://www.sec.gov/Archives/edgar/data/72971/000119312518136909/d557983d424b2.htm
VanEck Vectors
®
is a trademark of Van
Eck Associates Corp. (“
Van Eck
”). The securities are not sponsored, endorsed, sold or promoted by VanEck or
the VanEck Vectors
®
ETF Trust (the “
Trust
”). Neither VanEck nor the Trust 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.
Neither VanEck nor the Trust has 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 VanEck Vectors
®
Gold Miners ETF.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
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.”
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
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
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.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
We have designed the securities for investors who:
|
■
|
believe that the fund closing price of the Fund
will be greater than or equal to the starting price on one of the three call dates;
|
|
■
|
seek the potential for a fixed return if the Fund
has appreciated at all as of any of the three call dates in lieu of full participation in any potential appreciation of the Fund;
|
|
■
|
understand that if the fund closing price of the
Fund is less than the starting price on each of the three call dates (including the final calculation day), they will not receive
any positive return on their investment in the securities, and that if the fund closing price of the Fund on the final calculation
day is less than the starting price by more than 10%, they will receive less, and possibly 90% less, than the original offering
price per security at maturity;
|
|
■
|
understand that the term of the securities may
be as short as approximately one year and that they will not receive a higher call premium payable with respect to a later call
date if the securities are called on an earlier call date;
|
|
■
|
are willing to forgo interest payments on the
securities and dividends on shares of the Fund; and
|
|
■
|
are willing to hold the securities until maturity.
|
The securities are not designed for, and may not
be a suitable investment for, investors who:
|
■
|
seek a liquid investment or are unable or unwilling
to hold the securities to maturity;
|
|
■
|
require full payment of the original offering
price of the securities at stated maturity;
|
|
■
|
believe that the fund closing price of the Fund will be less than the starting
price on each of the three call dates;
|
|
■
|
seek a security with a fixed term;
|
|
■
|
are unwilling to accept the risk that, if the
fund closing price of the Fund is less than the starting price on each of the three call dates (including the final calculation
day), they will not receive any positive return on their investment in the securities;
|
|
■
|
are unwilling to accept the risk that the fund
closing price of the Fund may decrease by more than 10% from the starting price to the ending price;
|
|
■
|
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;
|
|
■
|
are unwilling to accept the risk of exposure to companies involved in the mining
of gold and silver in both the United States and foreign equity markets;
|
|
■
|
seek exposure to the upside performance of the
Fund beyond the applicable call premiums;
|
|
■
|
are unwilling to accept the credit risk of Wells
Fargo; or
|
|
■
|
prefer the lower risk of fixed income investments
with comparable maturities issued by companies with comparable credit ratings.
|
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
Determining Timing and Amount of Payment on the Securities
|
The timing and amount of the payment you will receive will be determined
as follows:
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
Hypothetical Payout Profile
|
The following profile illustrates the potential payment
on the securities for a range of hypothetical percentage changes in the fund closing price of the Fund from the pricing date to
the applicable call date (including the final calculation day). The profile is based on a call premium of 9.10% for the first call
date, 18.20% for the second call date and 27.30% for the final call date and a threshold price equal to 90% of the starting price.
This profile has been prepared for purposes of illustration only. Your actual return will depend on (i) whether the securities
are automatically called; (ii) if the securities are automatically called, the actual call date on which the securities are
called; (iii) if the securities are not automatically called, the actual ending price of the Fund; and (iv) whether you
hold your securities to maturity or earlier automatic call.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
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
And The Ending Price Is Less Than The Threshold Price, You Will Receive Less, And Possibly 90% Less, Than The Original Offering
Price Of Your Securities At Maturity.
We will not repay you a fixed amount on the securities
at stated maturity. If the fund closing price of the Fund is less than the starting price on each of the three call dates, the
securities will not be automatically called, and you will receive a maturity payment amount that will be equal to or less than
the original offering price per security, depending on the ending price (i.e., the fund closing price of the Fund on the final
calculation day).
If the ending price is less than the threshold
price, the maturity payment amount will be reduced by an amount equal to the decline in the price of the Fund to the extent it
is below the threshold price (expressed as a percentage of the starting price). The threshold price is 90% of the starting price.
As a result, you may receive less, and possibly 90% less, than 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.
If the securities are not automatically called,
your return on the securities will be zero or negative, and therefore will be less than the return you would earn if you bought
a traditional interest-bearing debt security of Wells Fargo or another issuer with a similar credit rating with the same stated
maturity date.
No Periodic Interest Will Be Paid On The Securities.
No periodic payments of interest will be made
on the securities. However, if the agreed-upon tax treatment is successfully challenged by the Internal Revenue Service (the “
IRS
”),
you may be required to recognize taxable income over the term of the securities. You should review the section of this pricing
supplement entitled “United States Federal Tax Considerations.”
The Potential Return On The Securities Is Limited
To The Call Premium.
The potential return on the securities is limited
to the applicable call premium, regardless of the performance of the Fund. The Fund may appreciate by significantly more than the
percentage represented by the applicable call premium from the pricing date through the applicable call date, in which case an
investment in the securities will underperform a hypothetical alternative investment providing a 1-to-1 return based on the performance
of the Fund. In addition, you will not receive the value of dividends or other distributions paid with respect to the Fund. Furthermore,
if the securities are called on an earlier call date, you will receive a lower call premium than if the securities were called
on a later call date, and accordingly, if the securities are called on one of the two earlier call dates, you will not receive
the highest potential call premium.
You Will Be Subject To Reinvestment Risk.
If your securities are automatically called early,
the term of the securities may be reduced to as short as approximately one year. 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.
Holders Of
The Securities Have Limited Rights Of Acceleration.
Payment of principal on the securities may be
accelerated only in the case of payment defaults that continue for a period of 30 days or certain events of bankruptcy or insolvency,
whether voluntary or involuntary. If you purchase the securities, you will have no right to accelerate the payment of principal
on the securities if we fail in the performance of any of our obligations under the securities, other than the obligations to pay
principal and interest on the securities. See “Description of Notes—Events of Default and Covenant Breaches”
in the accompanying prospectus supplement.
Holders Of The Securities Could Be At Greater
Risk For Being Structurally Subordinated If We Convey, Transfer Or Lease All Or Substantially All Of Our Assets To One Or More
Of Our Subsidiaries.
Under the indenture, we may convey, transfer or
lease all or substantially all of our assets to one or more of our subsidiaries. In that event, third-party creditors of our subsidiaries
would have additional assets from which to recover on their claims while holders of the
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
securities would be structurally subordinated
to creditors of our subsidiaries with respect to such assets. See “Description of Notes—Consolidation, Merger or Sale”
in the accompanying prospectus supplement.
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—Valuation of the securities after issuance.”
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 then-current price of the Fund, 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 then-current 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.
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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
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Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
maturity date. In general, as the time
remaining to maturity decreases, the value of the securities will approach the amount that would be payable at maturity based on
the then-current price of the Fund.
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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).
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Currency Exchange Rates.
Since
the Fund includes securities quoted in one or more foreign currencies and the closing price of the Fund is based on the U.S. dollar
value of such securities, the value of the securities may be affected if the exchange rate between the U.S. dollar and any such
foreign currency changes.
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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, the return will not be greater than the applicable call premium. 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 closing price of the Fund and, therefore, whether the securities will be automatically called on any of the call
dates (including the final calculation day) or the amount payable to you at maturity. As a result, it is impossible to predict
whether the fund closing price of the Fund will fall or rise compared to the 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 Gold And Silver Mining Industries.
All or substantially all of the equity securities
held by the Fund are issued by companies whose primary line of business is directly associated with the gold and/or silver mining
industries. As a result, the value of the securities may be subject to greater volatility and be more adversely affected
by a single economic, political or regulatory occurrence affecting these industries than a different investment linked to securities
of a more broadly diversified group of issuers. Investments related to gold and silver are considered speculative and are
affected by a variety of factors. Competitive pressures may have a significant effect on the financial condition of gold
and silver mining companies. Also, gold and silver mining companies are highly dependent on the price of gold and silver
bullion, respectively, and may be adversely affected by a variety of worldwide economic, financial and political factors. The
price of gold has fluctuated in recent years and may continue to fluctuate substantially over short periods of time so the trading
price of the shares of the Fund may be more volatile than other types of investments. Fluctuation in the prices of gold and
silver may be due to a number of factors, including changes in inflation and changes in industrial and commercial demand for metals.
Additionally, increased environmental or labor costs may depress the value of metal investments. In times of significant
inflation or great economic uncertainty, gold, silver and other precious metals may outperform traditional investments such as
bonds and stocks. However, in times of stable economic growth, traditional equity and debt investments could offer greater
appreciation potential and the value of gold, silver and other precious metals may be adversely affected, which could in turn affect
the Fund’s returns. If a natural disaster or other event with a significant economic impact occurs in a region where
the companies in which the Fund invests operate, that disaster or event could negatively affect the profitability of these companies
and, in turn, the Fund’s investment in them. These factors could affect the gold and silver mining industries and could
affect the value of the equity securities held by the Fund and the price of the Fund during the term of the securities, which may
adversely affect the value of your securities.
In addition, 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.
An Investment In The Securities Is Subject
To Risks Associated With Foreign Securities Markets.
Some of the securities held by the Fund are
issued by foreign companies and you should be aware that investments in securities linked to the value of foreign equity securities
involve particular risks. Foreign securities markets may have less liquidity and may be more
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
volatile than the U.S. securities markets, and
market developments may affect foreign markets differently than U.S. securities markets. Direct or indirect government intervention
to stabilize a foreign securities market, as well as cross-shareholdings in foreign companies, may affect trading prices and volumes
in those markets. Also, there is generally less publicly available information about non-U.S. companies that are not subject to
the reporting requirements of the Securities and Exchange Commission, and non-U.S. companies are subject to accounting, auditing
and financial reporting standards and requirements that differ from those applicable to U.S. reporting companies.
The prices and performance of securities of
non-U.S. companies are subject to political, economic, financial, military and social factors which could negatively affect foreign
securities markets, including the possibility of recent or future changes in a foreign government’s economic, monetary and
fiscal policies, the possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable to
foreign companies or investments in foreign equity securities, the possibility of imposition of withholding taxes on dividend income,
the possibility of fluctuations in the rate of exchange between currencies, the possibility of outbreaks of hostility or political
instability and the possibility of natural disaster or adverse public health developments. Moreover, the relevant non-U.S. economies
may differ favorably or unfavorably from the U.S. economy in important respects, such as growth of gross national product, rate
of inflation, trade surpluses or deficits, capital reinvestment, resources and self-sufficiency.
In addition, the Fund may include companies
in countries with emerging markets. Countries with emerging markets may have relatively unstable governments, may present the risks
of nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets, and may have
less protection of property rights than more developed countries. The economies of countries with emerging markets may be based
on only a few industries, may be highly vulnerable to changes in local or global trade conditions (due to economic dependence upon
commodity prices and international trade), and may suffer from extreme and volatile debt burdens, currency devaluations or inflation
rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in
trading volume, potentially making prompt liquidation of holdings difficult or impossible at times.
The securities included in the Fund may be listed
on a foreign stock exchange. A foreign stock exchange may impose trading limitations intended to prevent extreme fluctuations in
individual security prices and may suspend trading in certain circumstances. These actions could limit variations in the closing
price of the Fund which could, in turn, adversely affect the value of the securities.
Exchange Rate Movements May Impact The Value
Of The Securities.
The securities will be denominated in U.S. dollars.
Since the value of some of the securities included in the Fund is quoted in a currency other than U.S. dollars and, as per the
Fund, is converted into U.S. dollars, any amounts payable on the securities will depend in part on the relevant exchange rates.
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 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 and the amount payable at stated maturity. 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
and the amount payable at stated maturity. 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 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 call date (including the final calculation day) 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,
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
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
and the sponsors. The sponsors are not involved
in the offering of the securities made hereby in any way and have no obligation to consider your interests as an owner of the securities
in taking any actions that might affect the value of the securities.
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.
There Are
Risks Associated With The Fund.
Although the shares of the Fund are listed for
trading on NYSE Arca, Inc. (the “
NYSE Arca
”) and a number of similar products have been traded on the NYSE Arca
or other securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for
the shares of the Fund or that there will be liquidity in the trading market.
In addition, the Fund is subject to management
risk, which is the risk that the fund sponsor’s investment strategy, the implementation of which is subject to a number of
constraints, may not produce the intended results. For example, the fund sponsor may elect to invest certain Fund assets in shares
of equity securities that are not included in the underlying index. The Fund is also not actively managed and may be affected
by a general decline in market segments relating to the underlying index. Further, the fund sponsor invests in securities
included in, or representative of, the underlying index regardless of their investment merits, and the fund sponsor does not attempt
to take defensive positions in declining markets.
Further, under continuous listing standards adopted
by the NYSE Arca, the Fund will be required to confirm on an ongoing basis that the securities included in the underlying index
satisfy the applicable listing requirements. In the event that the underlying index does not comply with the applicable listing
requirements, the Fund would be required to rectify such non-compliance by requesting that the underlying index sponsor modify
such underlying index, transitioning to a new underlying index or obtaining relief from the SEC. There can be no assurance that
the underlying index sponsor would modify the underlying index or that relief would be obtained from the SEC and, therefore, non-compliance
with the continuous listing standards may result in the Fund being delisted by the NYSE Arca. If the Fund were delisted by the
NYSE Arca, the calculation agent would select a successor fund or, if no successor fund is available, would determine the fund
closing price of the Fund on any date of determination.
These risks may adversely affect the price of
the shares of the Fund and, consequently, the value of the securities.
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 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 call settlement date 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 final calculation day as postponed.
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.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
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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 fund closing
price of the Fund on each calculation day and whether the securities are automatically called, 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 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, 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 a 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 a 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
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Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
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 and/or
distribution expense fee, 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
participating dealer or its affiliates will expect to realize a projected profit from such hedging activities. If a participating
dealer receives a concession and/or distribution expense fee for the sale of the securities to you, this projected hedging profit
will be in addition to the concession and/or distribution expense fee, creating a further incentive for the participating dealer
to sell the securities to you.
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The U.S. Federal Tax Consequences Of An Investment
In The Securities Are Unclear.
There is no direct legal authority regarding the
proper U.S. federal tax treatment of the securities, and we do not plan to request a ruling from the IRS. Consequently, significant
aspects of the tax treatment of the securities are uncertain, and the IRS or a court might not agree with the treatment of the
securities as prepaid derivative contracts that are “open transactions” for U.S. federal income tax purposes. If the
IRS were successful in asserting an alternative treatment of the securities, the tax consequences of the ownership and disposition
of the securities might be materially and adversely affected. Even if the treatment of the securities as prepaid derivative contracts
that are “open transactions” is respected, a security may be treated as a “constructive ownership transaction,”
with potentially adverse consequences described below under “United States Federal Tax Considerations.”
Furthermore, Section 871(m) of the Internal Revenue
Code of 1986, as amended (the “
Code
”), imposes a withholding tax of up to 30% on “dividend equivalents”
paid or deemed paid to non-U.S. investors in respect of certain financial instruments linked to U.S. equities. In light of Treasury
regulations, as modified by an IRS notice, that provide a general exemption for financial instruments issued prior to January 1,
2021 that do not have a “delta” of one, the securities should not be subject to withholding under Section 871(m). However,
the IRS could challenge this conclusion. If withholding applies to the securities, we will not be required to pay any additional
amounts with respect to amounts withheld.
In addition, in 2007 the
U.S. Treasury Department and the IRS released a notice requesting comments on various issues regarding the U.S. federal income
tax treatment of “prepaid forward contracts” and similar instruments. Any Treasury regulations or other guidance promulgated
after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities,
including the character and timing of income or loss and the degree, if any, to which income realized by non-U.S. persons should
be subject to withholding tax, possibly with retroactive effect. You should read carefully the discussion under “United States
Federal Tax Considerations” in this pricing supplement. You should also consult your tax adviser regarding the U.S. federal
tax consequences of an investment in the securities, as well as tax consequences arising under the laws of any state, local or
non-U.S. taxing jurisdiction.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
If the securities are automatically called:
Assuming that the securities are automatically
called, the following table illustrates, for each hypothetical call date on which the securities are automatically called:
|
•
|
the hypothetical payment per security on the related call settlement date;
|
|
•
|
the hypothetical pre-tax total rate of return; and
|
|
•
|
the hypothetical pre-tax annualized rate of return.
|
|
|
|
|
Hypothetical call date on which
securities are automatically
called
|
Hypothetical payment
per security on related call
settlement date
|
Hypothetical pre-tax
total rate of return
|
Hypothetical pre-
tax annualized
rate of return
(1)
|
1st call date
|
$1,091.00
|
9.10%
|
8.68%
|
2nd call date
|
$1,182.00
|
18.20%
|
8.44%
|
3rd call date
|
$1,273.00
|
27.30%
|
8.20%
|
|
(1)
|
The annualized rates of return are calculated with compounding on
a semi-annual basis.
|
If the securities are not automatically called:
Assuming that the securities are not automatically called, the following
table illustrates, for a range of hypothetical ending prices of the Fund:
|
•
|
the hypothetical percentage change from the hypothetical starting price to the hypothetical ending
price, assuming a hypothetical starting price of $100.00. The hypothetical starting price of $100.00 has been chosen for illustrative
purposes only and does not represent the actual starting price. The actual starting price is set forth under “Terms of the
Securities” above. For historical data regarding the actual closing prices of the Fund, see the historical information provided
herein;
|
|
•
|
the hypothetical maturity payment amount per security;
|
|
•
|
the hypothetical pre-tax total rate of return; and
|
|
•
|
the hypothetical pre-tax annualized rate of return.
|
|
|
|
|
|
Hypothetical
ending price
|
Hypothetical percentage
change from the
hypothetical starting price
to the hypothetical ending
price
|
Hypothetical
maturity payment
amount per
security
|
Hypothetical pre-
tax total rate of
return
|
Hypothetical pre-
tax annualized
rate of return
(1)
|
$95.00
|
-5.00%
|
$1,000.00
|
0.00%
|
0.00%
|
$90.00
|
-10.00%
|
$1,000.00
|
0.00%
|
0.00%
|
$89.00
|
-11.00%
|
$990.00
|
-1.00%
|
-0.33%
|
$80.00
|
-20.00%
|
$900.00
|
-10.00%
|
-3.48%
|
$75.00
|
-25.00%
|
$850.00
|
-15.00%
|
-5.34%
|
$50.00
|
-50.00%
|
$600.00
|
-40.00%
|
-16.31%
|
$25.00
|
-75.00%
|
$350.00
|
-65.00%
|
-32.08%
|
$0.00
|
-100.00%
|
$100.00
|
-90.00%
|
-63.69%
|
|
(1)
|
The annualized rates of return are calculated with compounding on a semi-annual basis.
|
The above figures are for purposes of illustration
only and may have been rounded for ease of analysis. The actual amount you will receive upon an automatic call or at stated maturity
and the resulting pre-tax rate of return will depend on (i) whether the securities are automatically called; (ii) if the securities
are automatically called, the actual call date on which the securities are called; and (iii) if the securities are not automatically
called, the actual starting price and actual ending price.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
Hypothetical Payment at Maturity
|
If the fund closing price of the Fund is less than the
starting price on each of the first two call dates, the securities will not be automatically called prior to the final calculation
day, and you will receive a maturity payment amount that will be greater than, equal to or less than the original offering price
per security, depending on the ending price (i.e., the fund closing price of the Fund on the final calculation day). Set forth
below are three examples of calculations of the payment at stated maturity, assuming that the securities have not been automatically
called on either of the first two call dates, and assuming the hypothetical starting price, threshold price and ending prices indicated
in the examples. The terms used for purposes of these hypothetical examples do not represent any actual starting price or threshold
price. The hypothetical starting price of $100.00 has been chosen for illustrative purposes only and does not represent the actual
starting price. The actual starting price and threshold price are set forth under “Terms of the Securities” above.
For historical data regarding the actual closing prices of the Fund, see the historical information provided herein. These examples
are for purposes of illustration only and the values used in the examples may have been rounded for ease of analysis.
Example 1. Ending price is greater than
the starting price, the securities are automatically called on the final calculation day and the maturity payment amount is equal
to the original offering price plus the applicable call premium:
Hypothetical starting price: $100.00
Hypothetical ending price: $150.00
Since the hypothetical ending price is
greater than the hypothetical starting price, the securities are automatically called on the final calculation day and you will
receive the original offering price of your securities plus a call premium of 27.30% of the original offering price per security.
Even though the Fund appreciated by 50.00% from its starting price to its ending price in this example, your return is limited
to the call premium of 27.30% that is applicable to the final calculation day.
On the stated maturity date, you would
receive $1,273.00 per security.
Example 2. Ending price is less than the
starting price but greater than the threshold price and the maturity payment amount is equal to the original offering price:
Hypothetical starting price: $100.00
Hypothetical ending price: $95.00
Hypothetical threshold price: $90.00, which
is 90% of the hypothetical starting price
Since the hypothetical ending price is
less than the hypothetical starting price, but not by more than 10%, you would be repaid the original offering price of your securities
at maturity.
On the stated maturity date, you would
receive $1,000.00 per security.
Example 3. Ending price is less than the
threshold price and the maturity payment amount is less than the original offering price:
Hypothetical starting price: $100.00
Hypothetical ending price: $50.00
Hypothetical threshold price: $90.00, which
is 90% of the hypothetical starting price
Since the hypothetical ending price is
less than the hypothetical starting price by more than 10%, you would lose a portion of the original offering price of your securities
and receive a maturity payment amount equal to $600.00 per security, calculated as follows:
$ 1,000 –
|
|
|
$1,000
|
×
|
$90.00 – $50.00
|
|
= $600.00
|
|
$100.00
|
|
On the stated maturity date, you would
receive $600.00 per security, resulting in a loss of 40.00%.
To the extent that the starting price, threshold price and ending price
differ from the values assumed above, the results indicated above would be different.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
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 S,” 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.
Certain Definitions
A “
trading day
” means a day,
as determined by the calculation agent, on which the relevant stock exchange and each related futures or options 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 stock 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 futures or options 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.
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 call dates and the amount of the payment you receive upon automatic call or at
stated maturity. In addition, the calculation agent will, among other things:
|
●
|
determine whether a market disruption
event has occurred;
|
|
●
|
determine if adjustments are required
to the fund closing price of the Fund under various circumstances; and
|
|
●
|
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 stock exchange or otherwise relating to the shares (or
other applicable securities) of the Fund or any successor fund on the relevant stock 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
stock exchange or otherwise.
|
|
(B)
|
The occurrence or existence of
a material suspension of or limitation imposed on trading by any related futures or options 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 futures
or options 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 futures or options 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 stock 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 futures or options 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 stock
exchange or any related futures or options 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 stock exchange or related futures or options 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 stock exchange
or related futures or options exchange, as applicable, and (2) the submission deadline for orders to be entered into the relevant
stock exchange or related futures or options exchange, as applicable, system for execution at the close of trading on that day.
|
|
(F)
|
The relevant stock exchange or
any related futures or options exchange with respect to the Fund or any successor fund fails to open for trading during its regular
trading session.
|
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
For purposes of determining whether a market disruption
event has occurred:
|
(1)
|
“
close of trading
” means the scheduled closing time of the relevant stock exchange
with respect to the Fund or any successor fund; and
|
|
(2)
|
the “
scheduled closing time
” of the relevant stock exchange or any related futures
or options exchange on any trading day for the Fund or any successor fund means the scheduled weekday closing time of such relevant
stock exchange or related futures or options 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, then 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.
|
(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:
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
|
(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 payment at maturity,
whether the securities are automatically called on any of the call dates 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.
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 payment at maturity and determine whether the securities are automatically called on any call date with
reference to such adjusted closing price of the Fund or such successor fund, as applicable.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
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 maturity payment amount, calculated as provided herein, as though the date
of acceleration were the final calculation day; provided that if the fund closing price of the Fund on the date of acceleration
is equal to or greater than the starting price, then the maturity payment amount will be calculated using a call premium that is
prorated to the date of acceleration.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
The VanEck Vectors
®
Gold Miners ETF
|
The Fund is issued by VanEck Vectors
®
ETF Trust, a registered open-end management investment company. The Fund seeks to replicate as closely as possible, before fees
and expenses, the price and yield performance of the NYSE Arca Gold Miners Index, an equity index that is intended to track the
performance of companies involved in mining of gold and silver. The Fund seeks to provide investment results that, before fees
and expenses, correspond generally to the price and yield performance of the NYSE Arca Gold Miners Index. For a description of
the NYSE Arca Gold Minders Index, please see “NYSE Arca Gold Miners Index” below.
Information provided to or filed with the Securities
and Exchange Commission (the “
SEC
”) by VanEck Vectors
®
ETF Trust 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 333-123257
and 811-10325 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 “
GDX
.”
In addition, information about the Fund may be
obtained from other sources, including, but not limited to, the fund sponsor’s website (including information regarding (a)
the Fund’s top ten constituents and their weightings; (b) returns of the Fund and underlying index for certain periods; and
(c) the fees paid to the fund sponsor). We are not incorporating by reference into this pricing supplement the website or
any material it includes. Neither we nor the agent makes any representation that such publicly available information regarding
the Fund is accurate or complete.
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 the 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 NYSE Arca Gold Miners Index
We obtained all information contained in this
pricing supplement regarding the NYSE Arca Gold Miners Index (the “
Gold Miners 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, NYSE Arca, the sponsor of the Gold Miners Index. NYSE Arca has no obligation to continue
to publish, and may discontinue publication of, the Gold Miners Index at any time. Neither we nor the agent has independently verified
the accuracy or completeness of any information with respect to the Gold Miners Index in connection with the offer and sale of
the securities.
Index Universe
The Gold Miners Index includes common stocks,
American depositary receipts (“ADRs”) and Global depositary receipts (“GDRs”) of selected companies that
are involved in mining for gold and silver and that are listed for trading on a major stock market that is accessible by foreign
investors. The
index c
ompiler
(NYSE
Arca)
has
chosen not
to
specify
the
exact exchanges whose securities
are eligible
for
inclusion in
the Gold Miners Index, but generally
the
exchanges
in
most developed markets and major
emerging
markets
are regarded
as
appropriate. The
index
c
ompiler will
use
their discretion
to
avoid
those
exchanges and markets that
are
considered “frontier”
in
nature or
alternatively,
have
major restrictions
to
foreign ownership.
The universe of companies eligible for inclusion
in the Gold Miners Index will specifically include those companies that derive at least 50% of their revenues for gold mining and
related activities. Companies already in the Gold Miners Index will be removed from the Gold Miners Index in the following quarterly
review only if their gold mining revenues fall below the 40% level. In addition, the Gold Miners Index companies with a significant
revenue exposure to silver mining in addition to gold mining are eligible for including in the Gold Miners Index. These are companies
that either (1) have a revenue exposure to silver mining greater than 50% or (2) have a greater revenue exposure to silver mining
than gold mining and have a combined gold/silver mining revenue exposure of greater than 50%. The index compiler will ensure, solely
through the company selections in the index rebalances, that the percentage of the index weight that will consist of these “silver-tilted”
companies will not exceed 20%.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
Further, both streaming companies and royalty
companies are eligible for inclusion in the Gold Miners Index. Companies that have not yet commenced production are also eligible
for inclusion in the Gold Miners Index, provided that they have tangible revenues that are related to the mining of either gold
or silver ore. There are no restrictions imposed on the eligibility of company in how much the company has hedged in gold or silver
production via futures, options or forward contracts.
Selection of Constituents
The index constituents are selected among the
companies that are included in the index universe and that meet the following criteria: (i) a market capitalization greater than
$750 million; (ii) an average daily trading volume of at least 50,000 shares over the past three months; and (iii) an average daily
value traded of at least $1 million over the past three months.
Once an index constituent is included in the Gold
Miners Index, it will be removed from the Gold Miners Index during the quarterly review only if (i) its market capitalization is
less than $450 million; or (ii) its average daily trading volume for the past three months is lower than $30,000 shares
and
its average daily value traded is lower than $600,000.
Index Calculation
The Gold Miners Index is calculated on a price
return basis using a modified market capitalization divided by the divisor. The divisor was set on December 20, 2002 to obtain
a base level of 500.00 at the base market capitalization. As described below, the divisor is continually adjusted as a result of
corporate actions and composition changes to maintain continuity in the Gold Miners Index. More specifically, the Gold Miners Index
is calculated using the following formula:
Where:
t = day of calculation;
N = number of constituent equities in the Gold Miners Index;
Qi,t = number of shares of equity i on day t;
Mi,t = multiplier of equity i;
Ci,t = price of equity i on day t; and
DIV = current index divisor on day t.
Quarterly Review of the Gold Miners Index
The Gold Miners Index is reviewed quarterly so
that at least 90% of the index weight is accounted for by index components that continue to meet the initial eligibility requirements.
The NYSE Arca may at any time and from time to time change the number of securities comprising the group by adding or deleting
one or more securities, or replacing one or more securities contained in the group with one or more substitute securities of its
choice, if in the NYSE Arca’s discretion such addition, deletion or substitution is necessary or appropriate to maintain
the quality and/or character of the Gold Miners Index. Components will be removed from the Gold Miners Index during the quarterly
review if their market capitalization falls below $50 million or the traded average daily shares for the previous six months is
lower than 25,000 shares.
Changes to the Gold Miners Index compositions
and/or the component share weights in the Gold Miners Index typically take effect after the close of trading on the third Friday
of each calendar quarter month, in connection with the quarterly index rebalance. An index announcement on the website of NYSE
Euronext will announce such changes. The inclusion of companies in the Gold Miners Index will be announced at least three trading
days before the actual inclusion. The component to be removed will be announced no later than 3 p.m. ET on the business day before
the effective date of removal.
The Gold Miners Index is weighted based on the
market capitalization of each of the component securities, modified to conform to the following asset diversification requirements,
which are applied in conjunction with the scheduled quarterly adjustments to the Gold Miners Index:
|
(1)
|
the weight of any single component
security may not account for more than 20% of the total value of the Gold Miners Index;
|
|
(2)
|
the component securities are split
into two subgroups — (1) large and (2) small, which are ranked by their unadjusted market capitalization weight in the Gold
Miners Index. Large stocks are defined as having an index weight greater than or equal to 5%. Small securities are defined as having
an index weight below 5%; and
|
|
(3)
|
the final aggregate weight of
those component securities which individually represent more than 4.5% of the total value of the Gold Miners Index may not account
for more than 45% of the total index value.
|
The Gold Miners Index is weighted based on the
market capitalization of each of the component securities, modified to conform to the following asset diversification requirements,
which are applied in conjunction with the scheduled quarterly adjustments to the Gold Miners Index:
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
|
●
|
Diversification Rule 1
:
If any component stock exceeds
20% of the total value of the Gold Miners Index, then all stocks greater than 20% of the Gold Miners Index are reduced to represent
20% of the value of the Gold Miners Index. The aggregate amount by which all component stocks are reduced is redistributed proportionately
across the remaining stocks that represent less than 20% of the index value. After this redistribution, if any other stock then
exceeds 20%, the stock is set to 20% of the index value and the redistribution is repeated. If there is no component stock over
20% of the total value of the Gold Miners Index, then Diversification Rule 1 is not executed.
|
|
●
|
Diversification Rule 2
:
The components are sorted into two groups, (1) large components, with a starting index weight of 5% or greater, and (2) small components,
with a weight of under 5% (after any adjustments for Diversification Rule 1). If there are no components that are classified as
large components after Diversification Rule 1 is run, then Diversification Rule 2 is not executed. In addition, if the starting
aggregate weight of the large components after Diversification Rule 1 is run is not greater than 45% of the starting index weight,
then Diversification Rule 2 is not executed.
|
If Diversification Rule 2 is executed, then
the large group and the small group will represent 45% and 55%, respectively, of the final index weight. This will be adjusted
for through the following process:
|
o
|
The weight of each of the large
stocks will be scaled down proportionately with a floor of 5% so that the aggregate weight of the large components will be reduced
to represent 45% of the Gold Miners Index. If any component stock falls below a weight equal to the product of 5% and the proportion
by which the stocks were scaled down following this distribution, then the weight of the stock is set equal to the product of 5%
and the proportion by which the stocks were scaled down, the components with weights greater than 5% will be reduced proportionately.
|
|
o
|
The weight of each of the small
components will be scaled up proportionately from the redistribution of the large components. If any component stock exceeds a
weight equal to the product of 4.5% and the proportion by which the stocks were scaled up following this distribution, then the
weight of the stock is set equal to the product of 4.5% and the proportion by which the stocks were scaled up. The redistribution
of weight to the remaining stocks is repeated until the entire amount has been redistributed.
|
Corporate Action-Related Adjustments
The Gold Miners Index may be adjusted in order
to maintain the continuity of the index level and the composition. The underlying aim is that the index continues to reflect as
closely as possible the value of the underlying portfolio. Adjustments take place in reaction to events that occur with constituents,
in order to mitigate or eliminate the effect of that event on the Gold Miners Index.
|
(1)
|
Removal of constituents
.
Any stock deleted from the Gold Miners Index as a result of a corporate action such as a merger, acquisition, spin-off, delisting
or bankruptcy is not replaced by any new stock. The total number of stocks in the Gold Miners Index is reduced by one every time
a company is deleted. If a company is removed from the Gold Miners Index, the divisor will be adapted to maintain the index level.
|
|
a.
|
Mergers and acquisitions. In the
event that a merger or acquisition occurs between members of the Gold Miners Index, the acquired company is deleted and its market
capitalization moves to the acquiring company’s stock. In the event that only one of the parties to a merger or acquisition
is a member of the Gold Miners Index, an acquiring member of the Gold Miners Index continues as a member of the Gold Miners Index
and its shares will be adjusted at the next rebalance while an acquired member of the Gold Miners Index is removed from the Gold
Miners Index and the acquiring company may be considered for inclusion at the next rebalance.
|
|
b.
|
Suspensions and company distress.
Immediately upon a company’s bankruptcy announcement, the stock is removed from the Gold Miners Index at the closing price
of the first trading day following the announcement. If the stock does not trade on the relevant exchange between the bankruptcy
announcement and the next rebalance effective date, the stock may be deleted from the Gold Miners Index with a presumed market
value of $0.
|
|
c.
|
Split-up / spin-off. The closing
price of the index constituent is adjusted by the value of the spin-off. Spun-off companies will not be automatically added into
the Gold Miners Index at the time of the event.
|
|
(2)
|
Dividends
. The price Gold
Miners Index will be adjusted for dividends that are special. To determine whether a dividend should be considered a special dividend,
the compiler will use the following criteria: (a) the declaration of a dividend additional to those dividends declared as part
of a company’s normal results and dividend reporting cycle; or (b) the identification of an element of a dividend paid in
line with a company’s normal results and dividend reporting cycle as an element that is unambiguously additional to the company’s
normal payment.
|
|
(3)
|
Rights issues and other rights
.
In the event of a rights issue, the price is adjusted for the value of the right on the ex-date, and the shares are increased according
to the terms of the offering. The value of the right is determined from the market value of the right. The compiler shall only
effect adjustments if the rights represent a positive value.
|
|
(4)
|
Bonus issues, stock splits
and reverse stock splits
. For bonus issues, stock splits and reverse stock splits, the number of shares included in the Gold
Miners Index will be adjusted in accordance with the ratio given in the corporate action. Since the event won’t change the
value of the company included in the Gold Miners Index, the divisor will not be changed because of this.
|
|
(5)
|
Changes in number of shares
.
Changes in the number of shares in issue will not be reflected in the Gold Miners Index until the next review unless the change
is related to a specific corporate action.
|
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
Historical Information
We obtained the closing prices listed below from
Bloomberg Financial Markets, without independent verification.
The following graph sets forth daily closing prices
of the Fund for the period from January 1, 2013 to October 19, 2018. The closing price on October 19, 2018 was $20.01. 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.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
The following table sets forth the quarterly high
and low closing prices, as well as end-of-period closing prices, of the Fund in the period from January 1, 2013 through October
19, 2018.
|
|
|
|
|
High
|
Low
|
Last
|
2013
|
|
First Quarter
|
$47.09
|
$35.91
|
$37.85
|
Second Quarter
|
$37.45
|
$22.22
|
$24.41
|
Third Quarter
|
$30.43
|
$22.90
|
$25.06
|
Fourth Quarter
|
$26.52
|
$20.39
|
$21.12
|
2014
|
|
First Quarter
|
$27.73
|
$21.27
|
$23.60
|
Second Quarter
|
$26.45
|
$22.04
|
$26.45
|
Third Quarter
|
$27.46
|
$21.35
|
$21.35
|
Fourth Quarter
|
$21.94
|
$16.59
|
$18.38
|
2015
|
|
First Quarter
|
$22.94
|
$17.67
|
$18.24
|
Second Quarter
|
$20.82
|
$17.76
|
$17.76
|
Third Quarter
|
$17.85
|
$13.04
|
$13.74
|
Fourth Quarter
|
$16.90
|
$13.08
|
$13.72
|
2016
|
|
First Quarter
|
$20.86
|
$12.47
|
$19.98
|
Second Quarter
|
$27.70
|
$19.53
|
$27.70
|
Third Quarter
|
$31.32
|
$25.45
|
$26.43
|
Fourth Quarter
|
$25.96
|
$18.99
|
$20.92
|
2017
|
|
First Quarter
|
$25.57
|
$21.14
|
$22.81
|
Second Quarter
|
$24.57
|
$21.10
|
$22.08
|
Third Quarter
|
$25.49
|
$21.21
|
$22.96
|
Fourth Quarter
|
$23.84
|
$21.42
|
$23.24
|
2018
|
|
First Quarter
|
$24.60
|
$21.27
|
$21.98
|
Second Quarter
|
$23.06
|
$21.81
|
$22.31
|
Third Quarter
|
$22.68
|
$17.57
|
$18.52
|
Fourth Quarter (through October 19, 2018)
|
$20.06
|
$18.39
|
$20.01
|
|
|
|
|
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
Benefit Plan Investor Considerations
|
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:
●
PTCE 96-23, for specified transactions determined by in-house
asset managers;
|
●
|
PTCE 95-60, for specified transactions
involving insurance company general accounts;
|
|
●
|
PTCE 91-38, for specified transactions
involving bank collective investment funds;
|
|
●
|
PTCE 90-1, for specified transactions
involving insurance company separate accounts; and
|
|
●
|
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:
|
●
|
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
|
|
●
|
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 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
|
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
|
|
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.
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
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 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:
|
●
|
a financial institution;
|
|
●
|
a “regulated investment
company”;
|
|
●
|
a tax-exempt entity, including
an “individual retirement account” or “Roth IRA”;
|
|
●
|
a dealer or trader subject to
a mark-to-market method of tax accounting with respect to the securities;
|
|
●
|
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;
|
|
●
|
a U.S. holder (as defined below)
whose functional currency is not the U.S. dollar; or
|
|
●
|
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 your particular U.S. federal tax consequences of holding and disposing
of the securities.
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 you, if you are
a non-U.S. holder (as defined below), upon the sale, exchange or other disposition of the securities. You should refer to information
filed with the Securities and Exchange Commission or another governmental authority 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 of this pricing supplement,
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, the potential application of the Medicare tax on investment income or the consequences to
taxpayers subject to special tax accounting rules under Section 451(b) of the Code. You should consult your tax adviser concerning
the application of U.S. federal income and estate tax laws to your particular situation (including the possibility of alternative
treatments of the securities), as well as any tax consequences arising under the laws of any state, local or non-U.S. jurisdiction.
Tax Treatment of the Securities
In the opinion of our counsel, Davis Polk &
Wardwell LLP, which is based on current market conditions, a security should be treated as a prepaid derivative contract that is
an “open transaction” for U.S. federal income tax purposes. By purchasing a security, you agree (in the absence of
an administrative determination or judicial ruling to the contrary) to this treatment.
Due to the absence of statutory, judicial
or administrative authorities that directly address the U.S. federal tax treatment of the securities or similar instruments, significant
aspects of the treatment of an investment in the securities are uncertain. We do not plan to request a ruling from the IRS, and
the IRS or a court might not agree with the treatment described below. Accordingly, you should consult your tax adviser regarding
all aspects of the U.S. federal income and estate tax consequences of an investment in the securities. Unless otherwise indicated,
the following discussion is based on the treatment of the securities as prepaid derivative contracts that are “open transactions.”
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
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 security that is, for U.S. federal income tax purposes:
|
●
|
a citizen or individual resident
of the United States;
|
|
●
|
a corporation created or organized
in or under the laws of the United States, any state therein or the District of Columbia; or
|
|
●
|
an estate or trust the income
of which is subject to U.S. federal income taxation regardless of its source.
|
Tax Treatment Prior to Maturity
. You should
not be required to recognize income over the term of the securities prior to maturity, other than pursuant to a sale, exchange
or retirement as described below.
Sale, Exchange or Retirement of the Securities.
Upon a sale, exchange or retirement of the securities, you should recognize gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and your tax basis in the securities that are sold, exchanged or retired. Your tax
basis in the securities should equal the amount you paid to acquire them. Subject to the discussion below concerning the potential
application of the “constructive ownership” rules under Section 1260 of the Code, this gain or loss should be long-term
capital gain or loss if at the time of the sale, exchange or retirement you held the securities 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.
Potential Application of Section 1260 of the
Code.
There is a risk that your purchase of a security may be treated as entry into a “constructive ownership transaction,”
within the meaning of Section 1260 of the Code, with respect to the Fund. In that case, all or a portion of any long-term capital
gain you would otherwise recognize in respect of your securities would be recharacterized as ordinary income to the extent such
gain exceeded the “net underlying long-term capital gain.” Any long-term capital gain recharacterized as ordinary income
under Section 1260 would be treated as accruing at a constant rate over the period you held your securities, and you would be subject
to an interest charge in respect of the deemed tax liability on the income treated as accruing in prior tax years. Due to the lack
of governing authority under Section 1260, our counsel is not able to opine as to whether or how Section 1260 applies to the securities,
including how the “net underlying long-term capital gain” should be computed if Section 1260 does apply. You should
consult your tax adviser regarding the potential application of the “constructive ownership” rule.
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 debt instruments governed by
Treasury regulations relating to the taxation of contingent payment debt instruments. In that case, regardless of your method of
tax accounting for U.S. federal income tax purposes, you would be required to accrue income based on our comparable yield for similar
non-contingent debt, determined as of the time of issuance of the securities, in each year that you held the securities, even though
we are not required to make any payment with respect to the securities prior to maturity. In addition, any gain on the sale, exchange
or retirement of the securities would be treated as ordinary income.
Other possible U.S. federal income tax treatments
of the securities could also affect the timing and character of income or loss with respect to the securities. In 2007, the U.S.
Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid
forward contracts” and similar instruments. The notice focuses in particular on whether to require holders of these instruments
to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character
of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime;
the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which
the instruments are linked; and whether these instruments are or should be subject to the “constructive ownership”
regime described above. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations
or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of
an investment in the securities, possibly with retroactive effect. You should consult your tax adviser regarding the possible alternative
treatments of an investment in the securities and the issues presented by this notice.
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 security that is, for U.S. federal income tax
purposes:
|
●
|
an individual who is classified
as a nonresident alien;
|
|
●
|
a foreign corporation; or
|
Market Linked Securities—Auto-Callable with Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the VanEck Vectors
®
Gold Miners ETF due October 26, 2021
|
|
●
|
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
or (ii) a former citizen or resident of the United States. If you are or may become such a person during the period in which you
hold a security, you should consult your tax adviser regarding the U.S. federal tax consequences of an investment in the securities.
Sale, Exchange or Retirement of the Securities.
Subject to the possible application of Section 897 of the Code and the discussion below regarding Section 871(m), you generally
should not be subject to U.S. federal income or withholding tax in respect of amounts paid to you, provided that income in respect
of the securities is not effectively connected with your conduct of a trade or business in the United States.
If you are engaged in a U.S. trade or business, and
if income from the securities is effectively connected with the conduct of that trade or business, you generally will be subject
to regular U.S. federal income tax with respect to that income in the same manner as if you were a U.S. holder, unless an applicable
income tax treaty provides otherwise. If you are such a holder and you are a corporation, you should also consider the potential
application of a 30% (or lower treaty rate) branch profits tax.
Tax Consequences Under Possible Alternative
Treatments.
If all or any portion of a security were recharacterized as a debt instrument, subject to the possible application
of Section 897 of the Code and the discussions below regarding FATCA and Section 871(m), any payment made to you with respect to
the security generally should not be subject to U.S. federal withholding or income tax, provided that: (i) income or gain in respect
of the security is not effectively connected with your conduct of a trade or business in the United States, and (ii) you provide
an appropriate IRS Form W-8 certifying under penalties of perjury that you are not a United States person.
Other U.S. federal income tax treatments of the
securities are also possible. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S.
federal income tax treatment of “prepaid forward contracts” and similar instruments. Among the issues addressed in
the notice is the degree, if any, to which income with respect to instruments such as the securities should be subject to U.S.
withholding tax. While the notice requests comments on appropriate transition rules and effective dates, it is possible that any
Treasury regulations or other guidance promulgated after consideration of these issues might materially and adversely affect the
withholding tax consequences of an investment in the securities, possibly with retroactive effect. Accordingly, you should consult
your tax adviser regarding the issues presented by the notice.
Possible Withholding Under Section 871(m) of
the Code
. Section 871(m) of the Code and Treasury regulations promulgated thereunder (“
Section 871(m)
”)
generally impose a 30% withholding tax on dividend equivalents paid or deemed paid to non-U.S. holders with respect to certain
financial instruments linked to U.S. equities (“
U.S. underlying equities
”) or indices that include U.S. underlying
equities. Section 871(m) generally applies to instruments that substantially replicate the economic performance of one or more
U.S. underlying equities, as determined based on tests set forth in the applicable Treasury regulations (a “
specified
security
”). However, the regulations, as modified by an IRS notice, exempt financial instruments issued prior to January
1, 2021 that do not have a “delta” of one. Based on the terms of the securities and representations provided by us,
our counsel is of the opinion that the securities should not be treated as transactions that have a “delta” of one
within the meaning of the regulations with respect to any U.S. underlying equity and, therefore, should not be specified securities
subject to withholding tax under Section 871(m).
A determination that the securities are not subject
to Section 871(m) is not binding on the IRS, and the IRS may disagree with this treatment. Moreover, Section 871(m) is complex
and its application may depend on your particular circumstances. For example, if you enter into other transactions relating to
a U.S. underlying equity, you could be subject to withholding tax or income tax liability under Section 871(m) even if the securities
are not specified securities subject to Section 871(m) as a general matter. You should consult your tax adviser regarding the potential
application of Section 871(m) to the securities.
If withholding tax applies to the securities,
we will not be required to pay any additional amounts with respect to amounts so withheld.
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, absent an applicable treaty exemption, the securities 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.
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Information Reporting and Backup Withholding
Amounts paid on the securities, and the proceeds of
a sale, exchange or other disposition of the securities, may be subject to information reporting and, 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,
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. entity’s jurisdiction may modify these requirements.
This legislation applies to certain financial instruments that are treated as paying U.S.-source interest, dividends or dividend
equivalents or other U.S.-source “fixed or determinable annual or periodical” income (“
FDAP income
”).
If required under FATCA, withholding applies to payments of FDAP income and, after 2018, to payments of gross proceeds of the disposition
(including upon retirement) of certain financial instruments treated as providing U.S.-source interest or dividends. If the securities
were treated as debt instruments or as subject to Section 871(m), the withholding regime under FATCA would apply to the securities.
If withholding applies to the securities, we will not be required to pay any additional amounts with respect to amounts withheld.
If you are a non-U.S. holder, or a U.S. holder holding securities through a non-U.S. intermediary, you should consult your tax
adviser regarding the potential application of FATCA to the securities.
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 securities.
You should consult your tax adviser regarding all
aspects of the U.S. federal income and estate tax consequences of an investment in the securities and any tax consequences arising
under the laws of any state, local or non-U.S. taxing jurisdiction.
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