Edgar Filing: WACHOVIA CORP NEW

WACHOVIA PREFERRED FUNDING

Filed Pursuant to Rule 424(b)(4)

Registration Nos. 333-99847 and 333-99847-01

18,000,000 Series A Preferred Securities

Wachovia Preferred Funding Corp.

7.25% Non-cumulative Exchangeable

Perpetual Series A Preferred Securities

(Liquidation Preference $25.00 Per Security)

Automatically Exchangeable in Specified Circumstances into

Depositary Shares representing Preferred Stock of Wachovia Corporation

Terms of the Series A preferred securities include:

•

Dividends are:

•

payable quarterly only if declared, and

•

non-cumulative, which means that you will not receive them later if they are not declared in the applicable period.

•

Conditionally exchangeable, without your approval or any action on your part, for depositary shares with substantially equivalent terms as to dividends, liquidation preference and redemption of Wachovia Corporation, our indirect parent company, except that the depositary shares will:

•

not have any voting rights,

•

not have the right to elect independent directors,

•

not have the benefit of similar favorable covenants as the Series A preferred securities, and

•

not be listed on any securities exchange.

•

This exchange will be made only at the direction of the Office of the Comptroller of the Currency under the following specified circumstances:

•

Wachovia Bank, National Association, our indirect parent company, becomes undercapitalized under the OCC’s “prompt corrective action” regulations, or

•

the Bank is placed into conservatorship or receivership, or

•

the OCC, in its sole discretion, anticipates that the Bank may become undercapitalized in the near term, or takes supervisory action that limits the payment of dividends by us and in connection therewith directs an exchange.

•

Redeemable at our option on or after December 31, 2022, with the prior consent of the OCC.

•

Senior to our common stock and our Series C preferred securities but on a parity with our Series B and D preferred securities.

•

Entitled to 1/10th of one vote per security on all matters submitted to holders of our common stock.

We are qualified as a real estate investment trust, or REIT, for Federal income tax purposes.

See “Risk Factors” beginning on page 14 for a description of risk factors you should consider before you invest in these securities.

The Series A preferred securities solely represent an interest in us and are not the obligation of, or guaranteed by, any other entity. These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.

Neither the Securities and Exchange Commission, the OCC, nor any other federal agency or state securities regulator has approved or disapproved these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

	Per Series A Preferred Security		Total
Public offering price	$	25.0000	$	450,000,000
Underwriting discounts and commissions¹	$	0.7875	$	14,175,000
Proceeds²	$	24.2125	$	435,825,000

Wachovia Preferred Funding Holding Corp. will pay all expenses and underwriting discounts and commissions. Prior to this offering, Wachovia Preferred Funding Holding Corp. will acquire 30,000,000 Series A preferred securities from us in exchange for a loan participation agreement entered into on November 25, 2002 between the Bank and Wachovia Preferred Funding Holding Corp. Wachovia Preferred Funding Holding Corp. will subsequently sell 18,000,000 Series A preferred securities to the public in this offering. Wachovia Preferred Funding Holding Corp. will not use the proceeds to purchase additional assets for contribution to us.

²	The net proceeds to Wachovia Preferred Funding Corp. will be equal to the public offering price.

Although a statutory underwriter in connection with this offering, Wachovia Preferred Funding Holding Corp. will not sell the securities directly to the public. We, Wachovia and Wachovia Preferred Funding Holding Corp. will enter into an underwriting agreement with the underwriters for this offering. The underwriters will be obligated to purchase all of the Series A preferred securities offered in this offering if they purchase any Series A preferred securities.

We expect that the Series A preferred securities will be ready for delivery in book-entry form only through The Depository Trust Company on or about December 16, 2002.

Wachovia Securities

Sole Bookrunner

A. G. Edwards & Sons, Inc.

Morgan Stanley

Banc of America Securities LLC

Prudential Securities

Merrill Lynch & Co.

UBS Warburg

Prospectus dated December 11, 2002

The following table of contents has been designed to help you find important information contained in this prospectus. We encourage you to read the entire prospectus.

“Wachovia Funding”, “we”, “our” and “us” refer to Wachovia Preferred Funding Corp. “Wachovia Preferred Holding” refers to Wachovia Preferred Funding Holding Corp., the “Bank” refers to Wachovia Bank, National Association, and “Wachovia” refers to Wachovia Corporation.

TABLE OF CONTENTS

		Page
Forward-Looking Statements		ii
Prospectus Summary		1
Risk Factors		14
Information Concerning the Bank		25
Use of Proceeds		29
Capitalization		30
Ratios of Earnings to Fixed Charges		31
Business		32
Selected Consolidated Financial Data		52
Unaudited Pro Forma Condensed Consolidated Financial Information		53
Management’s Discussion and Analysis of Financial Condition and Results of Operations		59
Management		74
Certain Relationships and Related Party Transactions		76
Beneficial Ownership of Our Capital Stock		77
Description of the Series A Preferred Securities		77
Description of Other Wachovia Funding Capital Stock		86
Description of Wachovia Series G, Class A Preferred Stock		91
Description of Wachovia Depositary Shares		94
Description of Other Wachovia Capital Stock		97
Global Securities		98
Federal Income Tax Considerations		100
ERISA Considerations		110
Underwriting		112
Experts		114
Validity of Securities		115
Where You Can Find More Information about Wachovia Funding		115
Where You Can Find More Information about Wachovia		115
Glossary		117
Wachovia Preferred Funding Corp. and Subsidiary Index to Consolidated Financial Statements		F-1
Wachovia Corporation and Subsidiaries Supplementary Consolidating Financial Information		F-22

FORWARD-LOOKING STATEMENTS

This prospectus contains or incorporates statements that are forward-looking statements. These statements can be identified by the use of forward-looking language such as “will likely result”, “may”, “are expected to”, “is anticipated”, “estimate”, “projected”, “intends to”, or other similar words. Wachovia Funding’s and Wachovia’s actual results, performance or achievements could be significantly different from the results expressed in or implied by these forward-looking statements. These statements are subject to certain risks and uncertainties, including but not limited to certain risks described in this prospectus or the documents incorporated by reference. When considering these forward-looking statements, you should keep in mind these risks, uncertainties and other cautionary statements made in this prospectus. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. You should refer to Wachovia Funding’s and Wachovia’s periodic and current reports filed with the SEC for specific risks which could cause actual results to be significantly different from those expressed or implied by these forward-looking statements.

PROSPECTUS SUMMARY

Before you decide to invest in the Series A preferred securities, conditionally exchangeable into the Wachovia depositary shares representing interests in Wachovia Series G, Class A preferred stock, you should carefully read the following summary, together with the more detailed information and financial statements and related notes contained elsewhere in this prospectus, especially the risks of investing in the Series A preferred securities discussed under “Risk Factors”.

You should refer to the Glossary on page 117 for the definitions of certain capitalized and industry and proprietary terms used in this prospectus.

General

Wachovia Preferred Funding Corp.

We are a Delaware corporation, formed in July 2002 and the survivor of a merger with First Union Real Estate Asset Company of Connecticut, which was formed in 1996. Our principal business objective is to hold and manage mortgage assets and other authorized investments that will generate net income for distribution to our shareholders. We are qualified as a real estate investment trust, or REIT, for Federal income tax purposes. As a REIT, we generally will not be required to pay Federal income tax on distributed income if we distribute at least 90% of our earnings to our shareholders and continue to meet a number of other requirements as discussed below.

Upon our merger, we were a direct subsidiary of the Bank and an indirect subsidiary of Wachovia. By the completion of this offering, we will be a direct subsidiary of Wachovia Preferred Holding as a result of the Bank transferring certain assets, including 99.85% of our common stock and 87.62% of our Series D preferred securities, to Wachovia Preferred Holding in exchange for additional shares of Wachovia Preferred Holding common stock.

Our principal executive offices are located at 1620 East Roseville Parkway, Roseville, California 95661, and our telephone number is (877) 867-7378.

Assets

All of the financial information in this section is presented on a pro forma basis to reflect the following:

$866 million of participation interests in home equity loans received by us as collateral for an intercompany loan to the Bank in October 2002. The underlying home equity loans were originated by the Bank; and

the issuance of three new series of preferred securities (Series A, B and C ) to Wachovia Preferred Holding in exchange for participations in commercial and commercial real estate loans prior to this offering. The commercial and commercial real estate loans were originated by the Bank and contributed to Wachovia Preferred Holding. We will issue the preferred securities to Wachovia Preferred Holding in exchange for participations in the loans prior to this offering.

At September 30, 2002, we had total assets of $12.5 billion, total liabilities of $607 million, and stockholders’ equity of $11.9 billion. As of such date,

$9.8 billion, or 78.7% of our assets, were comprised of participation interests in commercial real estate loans;

$866 million, or 6.9% of our assets, were comprised of an intercompany loan to the Bank secured by participation interests in home equity loans;

$661 million, or 5.3% of our assets, were comprised of participation interests in commercial loans;

$605 million, or 4.8% of our assets, were comprised of interest rate swaps;

$303 million, or 2.4% of our assets, were comprised of cash and cash equivalents;

$205 million, or 1.6% of our assets, were comprised of participation interests in home equity loans;

$89 million, or 0.7% of our assets, were comprised of residential mortgage loans; and

$31 million, or 0.3% of our assets, were comprised of net other assets;

each before the allowance for loan losses.

In the past, we have purchased or accepted as capital contributions, loans and participation interests in loans both secured and not secured by real property along with other assets. We anticipate that we will acquire, or receive as capital contributions, interests in additional real estate secured loans from the Bank or its affiliates. Although we are permitted to do so, we have no present plans or intentions to purchase loans or loan participation interests from unaffiliated third parties.

Dividends

We currently expect to pay an aggregate amount of dividends with respect to the outstanding shares of our capital stock equal to substantially all of our REIT taxable income, which excludes capital gains. In order to remain qualified as a REIT, we must distribute annually at least 90% of our REIT taxable income to stockholders. Dividends will be authorized and declared at the discretion of our board of directors after considering our distributable funds, financial condition and capital needs, the impact of current and pending legislation and regulations, economic conditions, tax considerations, our continued qualification as a REIT, and other factors. Although there can be no assurances, we currently expect that both our cash available for distribution and our REIT taxable income will be in excess of amounts needed to pay dividends on the Series A preferred securities, at the dividend rate of 7.25% per annum of the $25.00 liquidation preference per security, in the foreseeable future because:

substantially all of our mortgage assets and other authorized investments are interest-earning;

we do not anticipate incurring any indebtedness, although we may incur indebtedness that in an aggregate amount does not exceed 20% of our shareholders’ equity;

we expect that our interest-earning assets will continue to exceed the liquidation preference of all of our series of preferred stock;

the amount of loan servicing costs and management fees paid to the Bank are expected to be less than 4% of our income per year; and

we anticipate that, in addition to cash flows from operations, additional cash will be available from principal payments on our loan portfolio.

Management

Our board of directors is currently composed of one member who is also an employee of Wachovia and therefore not considered independent. Prior to this offering, we will elect three additional directors, two of whom will satisfy the definition of being “independent” as set forth in the corporate governance standards of the New York Stock Exchange, as amended from time to time. We refer to directors satisfying this NYSE independence definition as “Independent Directors”. We currently have two executive officers and approximately 15 additional officers. Our executive officers are also executive officers of Wachovia. All of our day-to-day activities and the servicing of the loans in our portfolio are administered, pursuant to participation and servicing agreements, by the Bank, which is our indirect parent company.

Risk Factors

A purchase of our Series A preferred securities is subject to a number of risks described in more detail under “Risk Factors” beginning on page 14. These risks include, but are not limited to:

Dividends on the Series A preferred securities are not cumulative. Consequently, our board of directors may decide to declare less than a full dividend or no dividend on the Series A preferred securities for any quarterly period and you will not be entitled to receive that dividend whether or not funds are or subsequently become available.

The Series A preferred securities solely represent an interest in us and are not the obligation of, or guaranteed by, Wachovia, the Bank or any other entity. A decline in the performance and capital levels of the Bank or the placement by the Office of the Comptroller of the Currency, or the “OCC”, of the Bank into conservatorship or receivership could result in the automatic exchange of each Series A preferred security for one depositary share representing a one-sixth interest in one share of Wachovia Series G, Class A, preferred stock. Upon such an exchange, you would have an investment in Wachovia and not in us at a time when the Bank’s and, ultimately, Wachovia’s financial condition is deteriorating.

Based on our ownership immediately after the offering, the holders of our Series A preferred securities not affiliated with Wachovia will have the right to vote less than 2% of all votes on matters on which all our shareholders are entitled to vote and the right to vote 60% of all votes on any matter which requires the holders of Series A preferred securities to vote separately as a single class.

Due to, among other things, certain changes in legislation, regulations or our capital structure, we could fail to qualify as a REIT. As a result of such loss of qualification, we would suffer adverse tax consequences.

Our close relationship with Wachovia and the Bank may create potential conflicts of interest. Wachovia and the Bank are involved in virtually every aspect of our existence.

We have no control over changes in interest rates and such changes could negatively impact our financial condition, results of operations, and ability to pay dividends.

The loans in our portfolio are subject to economic conditions that could negatively affect the value of the collateral securing such loans and/or the results of our operations.

We cannot assure you that we paid the Bank fair value for all of our assets because we have not obtained any third party valuation of all those assets. Nor can we assure you that we will acquire or dispose of assets in the future at their fair market value.

The exchange of our Series A preferred securities for depositary shares representing an interest in Wachovia Series G, Class A, preferred stock would most likely be a taxable event to you under the Code, and you would incur a gain or loss.

A decline in Wachovia’s financial condition following an exchange may restrict its ability to pay dividends and could result in a loss on your investment.

The holders of the depositary shares representing Wachovia Series G, Class A, preferred stock will:

not have voting rights;

not have the right to elect Independent Directors even if dividends are not authorized and declared by Wachovia’s board of directors;

not have the benefit of similar favorable covenants as the Series A preferred securities; and

not be listed on any securities exchange.

Conflicts of Interest

Because our day-to-day business affairs are managed by the Bank, conflicts of interest will arise from time to time between us and the Bank. These conflicts of interest relate to, among other things:

the amount, type, and price of loan participation interests and other assets we acquire from or sell to the Bank;

the servicing of the underlying loans, particularly with respect to loans that are placed on non-accrual status;

the management of the cash collateral related to our interest rate swaps;

the amount of loan servicing costs and management fees paid to the Bank;

the treatment of new business opportunities identified by the Bank; and

the modification of the loan participation and servicing agreements.

We have adopted policies with a view to ensuring that all financial dealings between the Bank and us will be fair to both parties and consistent with market terms.

Wachovia Preferred Funding Holding Corp.

Wachovia Preferred Holding is a California corporation which by completion of this offering will own:

99,851,752 (or 99.85%) of our common stock;

12,000,000 (or 40%) of our outstanding Series A preferred securities;

40,000,000 (or 100%) of our outstanding Series B preferred securities;

4,233,754 (or 100%) of our outstanding Series C preferred securities; and

800 (or approximately 88%) of our outstanding Series D preferred securities.

By the completion of this offering, the Bank will own 99.95% of the outstanding shares of common stock of Wachovia Preferred Holding. Approximately two weeks prior to this offering, the Bank will contribute its ownership of us, consisting of 99.85% of our common stock and 87.62% of our Series D preferred securities, as well as commercial and commercial real estate loan participations to Wachovia Preferred Holding in exchange for Wachovia Preferred Holding common stock. Immediately thereafter, pursuant to an assignment of a participation agreement, Wachovia Preferred Holding will acquire from us 30,000,000 Series A, 40,000,000 Series B and 4,233,754 Series C preferred securities, with liquidation preferences of $25.00, $25.00 and $1,000 per security, respectively, in exchange for participation interests in certain commercial and commercial real estate loans. Subsequent to this exchange, Wachovia Preferred Holding will offer for sale 18,000,000 Series A preferred securities in this offering.

Although a statutory underwriter in connection with this offering, Wachovia Preferred Holding will not sell the Series A preferred securities directly to the public and will not have the rights and obligations of an underwriter under the underwriting agreement that we will enter into with the underwriters of this offering.

Wachovia Preferred Holding’s principal executive offices are located at 1620 East Roseville Parkway, Roseville, California 95661, and its telephone number is (877) 867-7378.

Wachovia Corporation

Wachovia was incorporated under the laws of North Carolina in 1967. Wachovia is registered as a financial holding company and a bank holding company under the Bank Holding Company Act of 1956, as amended, and is supervised and regulated by the Board of Governors of the Federal Reserve System. Wachovia’s banking and securities subsidiaries are supervised and regulated by various Federal and state

banking and securities regulatory authorities. On September 1, 2001, the former Wachovia Corporation merged with and into First Union Corporation, and First Union Corporation changed its name to “Wachovia Corporation”.

Wachovia’s full-service banking subsidiaries provide a wide range of commercial and retail banking and trust services. Wachovia also provides a variety of other financial services through other subsidiaries, including mortgage banking, home equity lending, leasing, investment banking, insurance and securities brokerage services.

Wachovia is a separate and distinct legal entity from its banking and other subsidiaries. Dividends received by it from its subsidiaries are Wachovia’s principal source of funds to pay dividends on its common and preferred stock and to service its debt. Various Federal and state statutes and regulations limit the amount of dividends that Wachovia’s subsidiaries may pay to Wachovia without regulatory approval.

In 1985, the Supreme Court upheld regional interstate banking legislation. Since then, Wachovia has concentrated its efforts on building a large regional banking organization in what it perceives to be some of the better banking markets in the eastern United States. Since November 1985, Wachovia has completed over 90 banking-related acquisitions.

Wachovia continually evaluates its business operations and organizational structures to ensure they are aligned closely with its goal of maximizing performance in its core business lines. Therefore, Wachovia routinely explores acquisition opportunities, particularly in areas that would complement its core business lines, and frequently conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations frequently take place, and future acquisitions involving cash, debt or equity securities can be expected. When consistent with Wachovia’s overall business strategy, Wachovia also considers the potential disposition of certain of its assets, branches, subsidiaries or lines of business.

The principal executive offices of Wachovia are located at One Wachovia Center, Charlotte, North Carolina 28288, and its telephone number is (704) 374-6565.

Wachovia Bank, National Association

The Bank is a national banking association with its principal office in Charlotte, North Carolina, that offers a wide range of domestic and international retail and commercial banking and trust services. The Bank has offices in Connecticut, Florida, Georgia, Maryland, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Virginia and Washington, D.C., and in several foreign countries. On April 1, 2002, the former Wachovia Bank, National Association merged with and into First Union National Bank, and First Union National Bank changed its name to “Wachovia Bank, National Association”. The Bank’s business is subject to examination and regulation by United States Federal banking authorities. Based on deposits of $195.4 billion as of September 30, 2002, the Bank was the fifth largest bank in the United States. The Bank has numerous wholly-owned subsidiaries, none of which contributes over 30% of its consolidated net income. For more information see “Information Concerning the Bank”.

The principal executive offices of the Bank are located at One Wachovia Center, Charlotte, North Carolina 28288, and its telephone number is (704) 374-6565.

Our Organizational Structure

Upon the completion of this offering, our legal and organizational structure will be as follows:

(1)The remaining 12.38% of our Series D preferred securities is held by employees of Wachovia or its affiliates.

Conditional Exchange of Series A Preferred Securities

The Series A preferred securities will be exchanged automatically for depositary shares representing Series G, Class A preferred stock of Wachovia at the direction of the OCC if any of the following events occurs:

the Bank becomes undercapitalized under the OCC’s “prompt corrective action” regulations;

the Bank is placed into conservatorship or receivership; or

the OCC, in its sole discretion, anticipates that the Bank may become “undercapitalized” in the near term or takes supervisory action that limits the payment of dividends by us and in connection therewith directs an exchange.

In an exchange, you would receive one depositary share representing a one-sixth interest in one share of Wachovia Series G, Class A preferred stock with a liquidation preference of $25.00 per depositary share for each of our Series A preferred securities you own. The Wachovia Series G, Class A preferred stock will be non-cumulative, perpetual, non-voting preferred stock of Wachovia ranking equally upon issuance with the most senior preferred stock of Wachovia then outstanding. If a Conditional Exchange occurs you would own an investment in Wachovia and not in us at a time when the Bank’s and, ultimately, Wachovia’s financial condition is deteriorating or the Bank may have been placed into conservatorship or receivership. Please see “Where You Can Find More Information about Wachovia”.

Reasons for the Offering

The Series A preferred securities are being offered for sale to increase the Bank’s and Wachovia’s regulatory capital. The proceeds from the sale of the Series A preferred securities will be included as Tier 1 capital of the Bank and Wachovia under relevant regulatory capital guidelines.

Additionally, the Series A preferred securities will be included in other liabilities on the consolidated balance sheet of Wachovia.

Selected Consolidated Financial Data

The following selected consolidated financial data for the three years ended December 31, 2001, are derived from our audited consolidated financial statements. The following selected consolidated financial data for the nine months ended September 30, 2002 and 2001, are derived from unaudited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, that, in the opinion of our management, are necessary for a fair and consistent presentation of such data. Operating results for the nine months ended September 30, 2002, are not necessarily indicative of results expected for the entire year. This data should be read in conjunction with the consolidated financial statements, related notes, and other financial information beginning on page F-1 of this prospectus and Wachovia’s unaudited supplementary consolidating financial information as of and for the nine months ended September 30, 2002, and the years ended December 31, 2001 and 2000, which includes certain consolidated financial information for the Bank, beginning on Page F-22 of this prospectus.

	Nine Months Ended September 30,					Years Ended December 31,
(In thousands, except per share data)	2002			2001		2001		2000		1999
Income Statement Data
Net interest income	$	127,098		43,374		67,322		57,257		47,005
Provision for loan losses		7,033		6,290		5,262		3,602		1,034
Other income (loss)		68,356		—		(95,890	)	395		96
Noninterest expense		6,597		1,013		2,394		2,207		3,078
Net income (loss)	$	305,936		23,446		(23,545	)	32,434		27,951

Balance Sheet Data
Cash and cash equivalents	$	1,169,380		327,057		957,454		183,223		196,397
Loans, net of unearned income		4,297,280		440,040		4,378,961		558,756		512,858
Allowance for loan losses		(37,335	)	(5,655	)	(37,158	)	(3,833	)	(1,285	)
Interest rate swaps		605,438		—		573,620		—		—
Total assets		6,071,086		775,039		5,889,666		746,803		714,097
Collateral held on interest rate swaps		599,570		—		570,340		—		—
Total liabilities		606,938		5,082		732,246		283		—
Total stockholders’ equity	$	5,464,148		769,957		5,157,420		746,520		714,097

Selected Other Information
Nonperforming loans	$	16,425		2,882		5,024		2,684		3,733
Nonperforming loans as a % of total loans		0.38	%	0.65		0.11		0.48		0.73
Nonperforming loans as a % of total assets		0.27		0.37		0.09		0.36		0.52
Allowance for loan losses as a % of nonperforming loans		227.31		196.22		739.61		142.81		34.42
Allowance for loan losses as a % of total loans		0.87	%	1.29		0.85		0.69		0.25

The Offering

Issuer		Wachovia Preferred Funding Corp., a Delaware corporation that will be an indirect subsidiary of Wachovia and the Bank and operates as a REIT for Federal income tax purposes.
Securities Offered		18,000,000 7.25% Non-cumulative Exchangeable Perpetual Series A Preferred Securities.
Ranking		With respect to the payment of dividends and liquidation preference, the Series A preferred securities will rank equal to our Series B and D preferred securities and senior to our common stock and Series C preferred securities. Additional preferred stock ranking senior to the Series A preferred securities, which we refer to as “Senior Stock”, may not be issued without the approval of holders of at least two-thirds of the Series A preferred securities. Additional preferred stock ranking on a parity with the Series A preferred securities, which we refer to as “Parity Stock”, may be issued without your approval, but that issuance requires the approval of a majority of our Independent Directors.
Dividends		Dividends on the Series A preferred securities are payable at the rate of 7.25% per annum of the liquidation preference of $25.00 per security, if, when, and as declared by our board of directors. If declared, dividends are payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year or, if any such day is not a business day, on the next business day, unless the next business day falls in a different calendar year, in which case the dividend will be paid on the preceding business day, commencing December 31, 2002. A business day is any day other than a Saturday, Sunday or bank holiday. Dividends accrue in each quarterly period from the first day of such period, whether or not dividends are paid with respect to the preceding period. Dividends on the Series A preferred securities are not cumulative and, accordingly, if we do not declare a dividend or declare less than a full dividend on the Series A preferred securities for a quarterly dividend period, holders of the Series A preferred securities will have no right to receive a dividend or the full dividend, as the case may be, for that period, and we will have no obligation to pay a

		dividend for that period, whether or not dividends are declared and paid for any future period with respect to either the Series A preferred securities, other series of preferred securities or our common stock. If the full dividend is not paid on the Series A preferred securities for a quarterly dividend period, the payment of dividends on our common stock (100% of which will be owned collectively by Wachovia and Wachovia Preferred Holding) and other preferred securities ranking subordinate to the Series A preferred securities will be prohibited for that period and at least the following three quarterly dividend periods.
Liquidation Preference		The liquidation preference for each Series A preferred security is $25.00, plus an amount equal to any authorized, declared, but unpaid dividends, if any. The Bank through Wachovia Preferred Holding may cause us to liquidate, dissolve or wind up at any time.
Redemption		The Series A preferred securities are not redeemable prior to December 31, 2022, except upon the occurrence of a Special Event which may be a Tax Event, an Investment Company Act Event or a Regulatory Capital Event. On and after December 31, 2022, the Series A preferred securities may be redeemed for cash at our option, with the prior approval of the OCC, in whole or in part, at any time and from time to time, at a redemption price of $25.00 per security, plus authorized, declared, but unpaid dividends, if any. Upon the occurrence of a Special Event, we will have the right prior to December 31, 2022, with the prior approval of the OCC, to redeem the Series A preferred securities in whole, but not in part, at a redemption price of $25.00 per security, plus authorized, declared, but unpaid dividends, if any. The Series A preferred securities are not subject to any sinking fund or mandatory redemption and are not convertible into any of our other securities.
Conditional Exchange		Each Series A preferred security will automatically be exchanged at the direction of the OCC upon the occurrence of a Supervisory Event for one depositary share representing a one-sixth interest in one share of Wachovia Series G, Class A preferred stock. Each depositary share will represent a one-sixth interest in the Wachovia Series G, Class A preferred stock and will: Ÿ rank equal to the most senior preferred stock of Wachovia then outstanding;

		Ÿ pay dividends at the rate of 7.25% per annum of the liquidation preference of $25.00 per depositary share, if, when, and as declared by Wachovia’s board of directors; Ÿ have a liquidation preference of $25.00 per depositary share; Ÿ be non-cumulative and non-voting; Ÿ be redeemable on the same terms as the Series A preferred securities; and Ÿ be evidenced by a depositary receipt.
Voting Rights		Holders of the Series A preferred securities are entitled to 1/10th of one vote per security on all matters submitted to a vote of the holders of our common stock. Without the consent of holders of two-thirds of the Series A preferred securities, voting as a separate class, we will not: Ÿ amend, alter or repeal our certificate of incorporation in a manner that materially and adversely affects the terms of the Series A preferred securities; Ÿ effect a consolidation or merger with or into another entity other than an entity controlled by, or under common control with, the Bank unless certain conditions have been met; or Ÿ approve the issuance of any Senior Stock. Holders of the Series A preferred securities, voting together as a class with the holders of any Parity Stock with the same voting rights, will also have the right to elect two directors in addition to the directors then in office if we fail to pay, or declare and set aside for payment, dividends on the Series A preferred securities for six quarters. The term of such additional directors will terminate when we pay for three consecutive quarters and pay or declare and set aside for payment for the fourth consecutive quarter dividends on the Series A preferred securities or, if earlier, upon the redemption of all Series A preferred securities or a Conditional Exchange. Holders of depositary shares representing Wachovia Series G, Class A preferred stock will not have voting rights.

Covenants		Our certificate of incorporation provides certain covenants in favor of the holders of the Series A preferred securities. Specifically we will not, except with the consent or affirmative vote of the holders of at least two thirds of the Series A preferred securities, voting as a separate class:
		Ÿ make or permit to be made any payment to the Bank or its affiliates relating to our indebtedness or beneficial interests in us when we are precluded, as described under “Dividends” above, from making payments in respect of our common stock and all other stock ranking subordinate to our Series A preferred securities, which we refer to as “Junior Stock”, or make such payment or permit such payment to be made in anticipation of any liquidation, dissolution or winding up; Ÿ at any time incur indebtedness in an aggregate amount exceeding 20% of our shareholders’ equity; Ÿ pay dividends on our common stock or other Junior Stock unless our funds from operations, or FFO, for the four prior fiscal quarters equals or exceeds 150% of the amount that would be required to pay full annual dividends on the Series A preferred securities as well as any other Parity Stock, except as may be necessary to maintain our status as a REIT; Ÿ make any payment of interest or principal with respect to our indebtedness to the Bank or its affiliates unless our FFO for the four prior fiscal quarters equals or exceeds 150% of the amount that would be required to pay full annual dividends on the Series A preferred securities as well as any other Parity Stock, except as may be necessary to maintain our status as a REIT; Ÿ amend or otherwise change our policy of reinvesting the proceeds of our assets in other interest-earning assets such that our FFO over any period of four fiscal quarters will be anticipated to equal or exceed 150% of the amount that would be required to pay full annual dividends on the Series A preferred securities as well as any other Parity Stock, except as may be necessary to maintain our status as a REIT;

		Ÿ issue any additional shares of common stock to anyone other than the Bank or its affiliates; or Ÿ remove “Wachovia” from our name unless the name of either the Bank or Wachovia changes and we need to make a change to our name to be consistent with the new group name.

		Wachovia’s articles of incorporation do not contain similar covenants regarding the Series G, Class A preferred stock.

Transfer Restrictions		Our certificate of incorporation prohibits any transfer of shares or securities that would result in more than 50% in value of our outstanding shares of capital stock being owned by five or fewer individuals, under the applicable attribution rules of the Code, or that would cause our shares of capital stock to be beneficially owned by fewer than 100 persons. This prohibition is necessary to maintain our status as a REIT. Any transfer of Series A preferred securities that would violate this prohibition will be null and void and the purported transferee will acquire no rights or economic interest in such Series A preferred securities.

Listing		We have applied for the listing of the Series A preferred securities on the New York Stock Exchange under the symbol “WNA Pr”. Trading in the Series A preferred securities is expected to commence not later than 30 days after the date of delivery of the Series A preferred securities. Consequently, there will be no trading market for the Series A preferred securities, at least in the short term. We do not anticipate that the depositary shares representing interests in Wachovia Series G, Class A preferred stock to be issued in the event of a Conditional Exchange will be listed on any securities exchange or quotation system.

Use of Proceeds		Prior to this offering, Wachovia Preferred Holding will acquire from us 30,000,000 Series A, 40,000,000 Series B and 4,233,754 Series C preferred securities in exchange for participation interests, with an aggregate fair market value of $6.0 billion, in certain commercial and commercial real estate loans. Wachovia Preferred Holding will subsequently sell the 18,000,000 Series A preferred securities offered hereby to the public for cash consideration of $25.00 per security. Wachovia Preferred Holding will receive all proceeds from this offering and will pay all expenses of and underwriting discounts and commissions associated with this offering.

		Wachovia Preferred Holding intends to use the net proceeds from this offering for general corporate purposes.

		The pro forma condensed consolidated financial information included under “Unaudited Pro Forma Condensed Consolidated Financial Information” reflects, on a pro forma basis as of and for the nine months ended September 30, 2002, the assets we will acquire in connection with the issuance of the Series A, Series B and Series C preferred securities.

Tax Consequences		As long as we qualify as a REIT, corporate holders of the Series A preferred securities will not be entitled to a dividends-received deduction for any income recognized from the Series A preferred securities.

		Additionally, if the Series A preferred securities are exchanged for Wachovia Series G, Class A preferred stock, the exchange would most likely be a taxable event to holders of the Series A preferred securities. See “Federal Income Tax Considerations”.

Settlement		We expect that delivery of the Series A preferred securities will be made to investors through the facilities of The Depository Trust Company on or about December 16, 2002.

ERISA Considerations		If you are a fiduciary of a pension, profit-sharing or other employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or Section 4975 of the Code, you should consider the requirements of ERISA and the Code in the context of the plan’s particular circumstances and ensure the availability of an applicable exemption before authorizing an investment in the Series A preferred securities (and the depositary shares representing the Wachovia Series G, Class A preferred stock into which the Series A preferred securities are exchangeable upon the occurrence of a Conditional Exchange). See “ERISA Considerations”.

RISK FACTORS

You should consider carefully the following risks before purchasing our Series A preferred securities, conditionally exchangeable into depositary shares representing interests in Wachovia’s Series G, Class A preferred stock.

All of the financial information in this section is presented on a pro forma basis to reflect the following:

the issuance of three new series of preferred securities (Series A, B and C) to Wachovia Preferred Holding in exchange for participations in commercial and commercial real estate loans prior to this offering. The commercial and commercial real estate loans were originated by the Bank and contributed to Wachovia Preferred Holding. We will issue the preferred securities to Wachovia Preferred Holding in exchange for participations in the loans prior to this offering.

Risks Relating to the Terms of the Series A Preferred Securities.

Dividends are not cumulative and you are not entitled to receive dividends unless authorized and declared by our board of directors.

Dividends on the Series A preferred securities are not cumulative. Consequently, if our board of directors does not declare a dividend on the Series A preferred securities for any quarterly period, you will not be entitled to receive that dividend whether or not funds are or subsequently become available. Our board of directors may determine that it would be in our best interests to pay less than the full amount of the stated dividends on the Series A preferred securities or no dividends for any quarter even though funds are available. Factors that would generally be considered by our board of directors in making this determination are the amount of our distributable funds, our financial condition and capital needs, the impact of current and pending legislation and regulations, economic conditions, tax considerations, and our continued qualification as a REIT. If we fail to pay, or declare and set aside for payment, dividends on the Series A preferred securities for six quarters, the holders of the Series A preferred securities, voting together as a class with the holders of other stock ranking on parity with our Series A preferred securities, which we refer to as “Parity Stock”, with the same voting rights, will have the right to elect two directors in addition to those already on the board.

The Series A preferred securities solely represent an interest in us and are not the obligation of, or guaranteed by, any other entity.

The Series A preferred securities do not constitute obligations or equity securities of Wachovia, the Bank, or any other entity, nor are our obligations with respect to the Series A preferred securities guaranteed by any other entity. In particular, none of Wachovia, the Bank, or any other entity guarantees that we will declare or pay any dividends nor are they obligated to provide additional capital or other support to us to enable us to pay dividends in the event our assets and results of operations are insufficient for such purpose. The Series A preferred securities are not exchangeable for Wachovia preferred stock except in connection with a Supervisory Event. No holder of Series A preferred securities will have the right to require us to exchange such holder’s Series A preferred securities for depositary shares of Wachovia.

A decline in the Bank’s capital levels may result in your Series A preferred securities being exchanged for depositary shares representing Wachovia preferred stock and such exchange is likely to occur at a time when the Bank’s and Wachovia’s financial condition has deteriorated.

The returns from your investment in the Series A preferred securities will be dependent to a significant extent on the performance and capital of the Bank. A decline in the performance and capital levels of the Bank

or the placement by the OCC of the Bank into conservatorship or receivership could result in the automatic exchange of each Series A preferred security for one depositary share representing a one-sixth interest in one share of Wachovia Series G, Class A preferred stock, which would represent an investment in Wachovia and not in us. Under these circumstances:

you would become a preferred shareholder of Wachovia at a time when the Bank’s and, ultimately, Wachovia’s financial condition has deteriorated or when the Bank may have been placed into conservatorship or receivership and, accordingly, it is unlikely that Wachovia would be in a financial position to make any dividend payments on Wachovia preferred stock;

in the event of a liquidation of Wachovia, the claims of depositors and creditors of Wachovia would be entitled to priority in payment over the claims of holders of equity interests such as the depositary shares representing Wachovia Series G, Class A preferred stock, and, therefore, you may receive substantially less than you would receive had the Series A preferred securities not been exchanged for the depositary shares;

the exchange of the Series A preferred securities for depositary shares representing Wachovia Series G, Class A preferred stock would most likely be a taxable event to you under the Code, and in that event you would incur a gain or loss, as the case may be, measured by the difference between your basis in the Series A preferred securities and the fair market value of depositary shares representing Wachovia Series G, Class A preferred stock received in the exchange; and

although the terms of the Wachovia Series G, Class A preferred stock are substantially similar to the terms of our Series A preferred securities, there are differences that you might deem to be important, such as the fact that holders of depositary shares representing Wachovia Series G, Class A preferred stock will not have any voting rights, any right to elect additional directors regardless of whether dividends are paid and will not benefit from any covenants. In addition, neither the Wachovia Series G, Class A preferred stock nor the depositary shares representing an interest in that stock will be listed on any securities exchange.

We may liquidate, dissolve or wind up at any time without your approval or consent.

Our certificate of incorporation provides that, subject to the terms of the capital stock we have outstanding at the time, we may liquidate, dissolve or wind up upon the affirmative vote of a majority of our Independent Directors. However, since the Series A preferred securities will not have voting rights as a separate class with respect to these matters, Wachovia Preferred Holding, which will be the holder of substantially all of our common stock, will have control over our liquidation, dissolution or winding up. Although Wachovia Preferred Holding has no present intention to cause such an event to occur, there can be no assurance that it will not cause us to liquidate, dissolve or wind up at any time or for any reason. If such an event were to occur, you may not be able to invest your liquidation proceeds in securities with a dividend yield comparable to that of the Series A preferred securities.

The holders of Series A preferred securities have limited voting rights.

Holders of Series A preferred securities are entitled to 1/10th of one vote per security on all matters to be voted on by all our shareholders. Immediately after the offering, Wachovia and its affiliates will have the right to vote approximately 98% of all votes and the holders of Series A preferred securities not affiliated with Wachovia will have the right to vote less than 2% of all votes on any matter to be voted on by all our shareholders. In addition, each of Wachovia Preferred Holding and the holders of Series A preferred securities not affiliated with Wachovia will have the right to vote 60% of all votes on any matter which requires the holders of Series A preferred securities to vote separately as a single class. The consent or vote of the holders of at least two-thirds of the outstanding Series A preferred securities is required for an adoption of any matter on which the holders of Series A preferred securities have a right to vote separately as a single class. See “Description of the Series A Preferred Securities—Voting Rights”.

We may redeem the Series A preferred securities upon the occurrence of a Special Event.

At any time following the occurrence of a Special Event, even if such Special Event occurs prior to December 31, 2022, we will have the right to redeem the Series A preferred securities in whole, subject to the prior written approval of the OCC. The occurrence of such a Special Event will not, however, give a shareholder any right to request that the Series A preferred securities be redeemed. There are three types of Special Events: Tax Events, Investment Company Events and Regulatory Capital Events.

A Tax Event occurs when we receive an opinion of counsel to the effect that, as a result of a judicial decision or administrative pronouncement, ruling, or other action or as a result of certain changes in the tax laws, regulations, or related interpretations, there is a significant risk that dividends with respect to our capital stock will not be fully deductible by us or we will be subject to additional taxes or governmental charges.

An Investment Company Event occurs when we receive an opinion of counsel to the effect that, as a result of certain changes in the applicable laws, regulations, or related interpretations, there is a significant risk that we will be considered an investment company under the Investment Company Act of 1940 (the “Investment Company Act”).

A Regulatory Capital Event occurs when, as a result of certain changes in the applicable laws, regulations, or related interpretations, there is a significant risk that our Series A preferred securities will no longer constitute Tier 1 capital of the Bank or Wachovia.

If we redeem the Series A preferred securities, you may not be able to invest your redemption proceeds in securities with a dividend yield comparable to that of the Series A preferred securities.

The Series A preferred securities will rank subordinate to claims of our creditors and on a parity with our Series B and D preferred securities and any other Parity Stock we may issue.

The Series A preferred securities will rank subordinate to all claims of our creditors. The Series A, B and D preferred securities will rank on parity with each other with respect to dividend rights and upon our liquidation, dissolution or winding up. In addition, we may issue additional Parity Stock at any time in the future without your consent or approval but upon the approval of a majority of our Independent Directors. Accordingly, if

we do not have funds legally available to pay full dividends on the Series A, B and D preferred securities and any other Parity Stock we may issue; or

in the event of our liquidation, dissolution or winding up, we do not have funds legally available to pay the full liquidation value of the Series A, B and D preferred securities and any other Parity Stock,

any funds that are legally available to pay such amounts will be paid pro rata to the Series A, B and D preferred securities and any other Parity Stock outstanding. See “Description of Other Wachovia Funding Capital Stock—Preferred Stock—Series B Preferred Securities” and “—Series D Preferred Securities”.

There has never been a market for the Series A preferred securities.

Prior to this offering, there has been no public market for the Series A preferred securities. We have applied for the listing of the Series A preferred securities on the New York Stock Exchange under the symbol “WNA Pr”. Trading in the Series A preferred securities is expected to commence not later than 30 days after the date of delivery of the Series A preferred securities. Consequently, there will be no trading market for the Series A preferred securities, at least in the short term. We cannot assure you that an active and liquid trading market for the Series A preferred securities will develop or be sustained. If such a market were to develop, the prices at which the Series A preferred securities trade would depend on many factors, including prevailing

interest rates, our operating results, and the market for similar securities. You may not be able to resell your Series A preferred securities at or above the initial price to the public or at all.

Risks Relating to Our Status as a REIT.

We would suffer adverse tax consequences if we fail to qualify as a REIT.

Although we currently conduct our operations so as to qualify as a REIT under the Code, we may not be able to continue to qualify as a REIT. Qualification as a REIT involves the application of highly technical and complex tax law provisions for which there are only limited judicial or administrative interpretations and involves the determination of various factual matters and circumstances not entirely within our control. No assurance can be given that new legislation or new regulations, administrative interpretations, or court decisions will not significantly change the tax laws in the future with respect to qualification as a REIT or the Federal income tax consequences of such qualification in a way that would materially and adversely affect our ability to operate. Any such new legislation, regulation, interpretation or decision could be the basis of a Tax Event that would permit us to redeem the Series A preferred securities. See “Description of the Series A Preferred Securities—Redemption”.

If we were to fail to qualify as a REIT, the dividends on our preferred stock, including the Series A preferred securities, would not be deductible by us for Federal income tax purposes, and we would likely become part of the consolidated group of which the Bank is a member. Consequently, the consolidated group would face a greater tax liability which could result in a reduction in the Bank’s net earnings after taxes. We would also become jointly and severally liable for the consolidated group’s United States Federal income tax liabilities. A reduction in the Bank’s net earnings after taxes could adversely affect the Bank’s ability to raise additional capital, as well as its ability to generate additional capital internally, and consequently its ability to add interest-earning assets to its portfolio.

If in any taxable year we fail to qualify as a REIT, unless we are entitled to relief under certain statutory provisions, we would also be disqualified from treatment as a REIT for the four taxable years following the year our qualification was lost. As a result, the amount of funds available for distribution to our shareholders would be reduced for the year or years involved.

As a REIT, we generally will be required each year to distribute as dividends to our shareholders at least 90% of our REIT taxable income, excluding capital gains. Failure to comply with this requirement would result in our earnings being subject to tax at regular corporate rates. In addition, we would be subject to a 4% non-deductible excise tax on the amount by which certain distributions considered as paid by us with respect to any calendar year are less than the sum of:

85% of our ordinary income for the calendar year;

95% of our capital gains net income for the calendar year; and

100% of undistributed taxable income from prior periods.

We currently intend to operate in a manner designed to qualify as a REIT. However, future economic, market, legal, tax, or other considerations may cause us to determine that it is in our best interests and the best interests of holders of our common stock and preferred stock to revoke our REIT election. As long as any Series A preferred securities are outstanding, any such determination by us may not be made without the approval of a majority of our Independent Directors.

If ownership of our capital stock becomes concentrated in a small number of individuals, we may fail to qualify as a REIT.

In order to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding shares of capital stock may be owned, directly or constructively, by five or fewer individuals (as

defined in the Code to include certain entities) at any time during the last half of a taxable year, and the shares of capital stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (or during a proportionate part of a shorter taxable year, other than the first 12 months as a REIT). Therefore, our certificate of incorporation contains provisions restricting the ownership and transfer of our preferred securities.

These transfer restrictions imposed by us could impair the liquidity of the Series A preferred securities and thereby affect the secondary market for the Series A preferred securities.

Risks Associated with Our Business.

We are effectively controlled by Wachovia and our relationship with Wachovia and/or the Bank may create potential conflicts of interest.

All of our officers and certain of our directors are also either officers or directors of Wachovia or the Bank or their affiliates. After this offering, Wachovia, the Bank and Wachovia Preferred Holding will continue to control a substantial majority of our outstanding voting shares. In effect, Wachovia, the Bank and Wachovia Preferred Holding will have the right to elect all of our directors, including Independent Directors, except under limited circumstances if we fail to pay dividends.

The Bank may have interests that are not identical to our interests. Wachovia, the owner of the Bank’s common stock, may have investment goals and strategies that differ from those of the holders of the Series A preferred securities. Consequently, conflicts of interest between us, on one hand, and the Bank and/or Wachovia, on the other hand, may arise.

We are dependent on the officers and employees of Wachovia and the Bank for the selection, structuring and monitoring of the loans in our portfolio and our relationship with Wachovia and/or the Bank may create potential conflicts of interest.

Wachovia and the Bank are involved in virtually every aspect of our existence. The Bank administers our day-to-day activities under the terms of participation and servicing agreements between the Bank and us. We are dependent on the diligence and skill of the officers and employees of the Bank for the selection, structuring and monitoring of the loans in our portfolio and our other authorized investments.

This dependency and our close relationship with Wachovia and the Bank may create potential conflicts of interest. Specifically, such conflicts of interest may arise because the employees of Wachovia and the Bank (i) were directly involved in the decisions regarding the amount, type and price of loan participation interests and other assets acquired indirectly from the Bank prior to the offering, and (ii) will make decisions on the amount, type and price of future acquisitions of loan participation interests and other assets from the Bank as well as future dispositions of loan participation interests to the Bank or third parties.

We are dependent on the officers and employees of the Bank for the servicing of the loans in our portfolio and our relationship with the Bank may create potential conflicts of interest.

We are dependent on the Bank and others for the servicing of the loans in our portfolio. The Bank administers our day-to-day activities under the terms of participation and servicing agreements relating to our

assets. These agreements contain terms which we believe are consistent with those resulting from arm’s length negotiations and contain the following fees:

• with respect to the commercial, commercial real estate and home equity loans, an annual service fee of 0.03% multiplied by the outstanding principal balance of each loan, and

• with respect to residential mortgages, $48.00 per loan. Additionally, we are subject to Wachovia’s management fee policy and thus reimburse Wachovia on a monthly basis for general overhead expenses.

Despite our belief that the terms of the loan participation and servicing agreements between the Bank and us reflect terms consistent with those negotiated on an arms-length basis, our dependency on the Bank’s officers and employees and our close relationship with the Bank may create potential conflicts of interest. Specifically, such conflicts of interest may arise because the employees of the Bank have the power to set the amount of the service fees paid to the Bank, modify the loan participation and servicing agreements, and make business decisions with respect to servicing of the underlying loans, particularly the loans that are placed on non-accrual status or are otherwise non-performing.

We are dependent on the officers and employees of the Bank for the management of the cash collateral related to the interest rate swaps and our relationship with the Bank may create potential conflicts of interest.

Wachovia and the Bank are involved in virtually every aspect of our existence. The Bank manages our cash collateral related to the interest rate swaps. We are dependent on the diligence, skill and discretion of the officers and employees of the Bank for the selection and monitoring of the investments made with our cash collateral. This dependency and our close relationship with Wachovia and the Bank may create potential conflicts of interest.

We are dependent on the officers and employees of the Bank for the identification and treatment of new business opportunities and our relationship with the Bank may create potential conflicts of interest.

Wachovia and the Bank are involved in virtually every aspect of our existence. The employees of the Bank identify any new business opportunities for us and the Bank decides whether such opportunities are directed to us or other affiliates. As a result, we are dependent on the diligence, skill and discretion of the officers and employees of the Bank for the identification and treatment of new business opportunities and this dependency and our close relationship with Wachovia and the Bank may create potential conflicts of interest.

Bank regulators may limit our ability to implement our business plan and may restrict our ability to pay dividends.

Because we are an indirect subsidiary of the Bank, bank regulatory authorities will have the right to examine us and our activities and, under certain circumstances, to impose restrictions on the Bank or us that could impact our ability to conduct business pursuant to our business plan and that could adversely effect our financial condition and results of operations.

If the OCC, which is the Bank’s primary regulator, determines that the Bank’s relationship with us results in an unsafe and unsound banking practice, the Bank’s regulators have the authority to:

restrict our ability to transfer assets;

restrict our ability to make distributions to our shareholders, including dividends to holders of the Series A preferred securities;

restrict our ability to redeem our preferred stock; or

require the Bank to sever its relationship with us or divest its ownership of us.

If the OCC determines that the Bank is operating with an insufficient level of capital, or that the payment of dividends by either the Bank or its subsidiaries is under the then present circumstances an unsafe and unsound banking practice, the OCC could restrict our ability to pay dividends.

Certain of these actions by the OCC would likely result in our failure to qualify as a REIT.

If we lose our exemption under the Investment Company Act it could have a material adverse effect on us and would likely result in a redemption of the Series A preferred securities.

We believe that we are not, and intend to conduct our operations so as not to become, regulated as an investment company under the Investment Company Act. Under the Investment Company Act, a non-exempt entity that is an investment company is required to register with the SEC and is subject to extensive, restrictive and potentially adverse regulation relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates. The Investment Company Act exempts entities that, directly or through majority-owned subsidiaries, are “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate” (which we refer to as “Qualifying Interests”). Under current interpretations of the staff of the SEC, in order to qualify for this exemption, we, among other things, must maintain at least 55% of our assets in Qualifying Interests and also may be required to maintain an additional 25% in Qualifying Interests or other real estate-related assets. The assets that we may acquire therefore may be limited by the provisions of the Investment Company Act. We have established a policy of limiting authorized investments which are not Qualifying Interests to no more than 20% of the value of our total assets. The Investment Company Act does not treat cash and cash equivalents as either Qualifying Interests or other real estate-related assets.

Based on the criteria outlined above, we believe that, as of the time of this offering, our Qualifying Interests will be comprised of approximately 87% of the estimated fair market value of our total assets. As a result, we believe that we are not required to register as an investment company under the Investment Company Act. We do not intend, however, to seek an exemptive order, no-action letter or other form of interpretive guidance from the SEC or its staff on this position. If the SEC or its staff were to take a different position with respect to whether our assets constitute Qualifying Interests, we could be required either (a) to change the manner in which we conduct our operations to avoid being required to register as an investment company or (b) to register as an investment company, either of which could have a material adverse effect on us, the price of our securities and our ability to make payments in respect of the Series A preferred securities. Further, in order to ensure that we at all times continue to qualify for the above exemption from the Investment Company Act, we may be required at times to adopt less efficient methods of financing certain of our assets than would otherwise be the case and may be precluded from acquiring certain types of assets whose yield is somewhat higher than the yield on assets that could be purchased in a manner consistent with the exemption. The net effect of these factors may be to lower at times our net interest income. Finally, if we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties and that third parties could seek to obtain rescission of transactions undertaken during the period we were determined to be an unregistered investment company. In the event we are ever considered an investment company under the Investment Company Act as a result of an Investment Company Act Event, we would likely redeem the Series A preferred securities. See above under “—We may redeem the Series A preferred securities upon the occurrence of a Special Event”.

We have no control over changes in interest rates and such changes could negatively impact our financial condition, results of operations, and ability to pay dividends.

Our income consists primarily of interest payments on the loans in our portfolio. At September 30, 2002, 14% of the loans in our portfolio, as measured by the aggregate outstanding principal amount, bore

interest at fixed rates and the remainder bore interest at adjustable rates. Adjustable-rate loans decrease the risks to a lender associated with changes in interest rates but involve other risks. As interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, and the increased payment increases the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on the loans in our portfolio as the borrowers refinance their mortgages at lower interest rates. Under these circumstances, we may find it more difficult to purchase additional participation interests with rates sufficient to support the payment of the dividends on the Series A preferred securities. A declining interest rate environment would adversely affect our ability to pay full, or even partial, dividends on the Series A preferred securities.

The loans in our portfolio are subject to economic conditions that could negatively affect the value of the collateral securing such loans and/or the results of our operations.

The value of the collateral underlying our loans and/or the results of our operations could be affected by various conditions in the economy, such as:

local and other economic conditions affecting real estate and other collateral values;

sudden or unexpected changes in economic conditions, including changes that might result from terrorist attacks and the United States’ response to such attacks;

the continued financial stability of a borrower and the borrower’s ability to make loan principal and interest payments, which may be adversely affected by job loss, recession, divorce, illness or personal bankruptcy;

the ability of tenants to make lease payments;

the ability of a property to attract and retain tenants, which may be affected by conditions such as an oversupply of space or a reduction in demand for rental space in the area, the attractiveness of properties to tenants, competition from other available space, and the ability of the owner to pay leasing commissions, provide adequate maintenance and insurance, pay tenant improvement costs, and make other tenant concessions;

interest rate levels and the availability of credit to refinance loans at or prior to maturity; and

increased operating costs, including energy costs, real estate taxes, and costs of compliance with environmental controls and regulations.

The loans in our portfolio are concentrated in five states, and adverse conditions in those states, in particular, could negatively impact our operations.

At September 30, 2002, 71% (as a percentage of loan principal balances) of the assets in our portfolio were located in Florida, North Carolina, Pennsylvania, New Jersey and Virginia. Because of the concentration of our interests in those states, in the event of adverse economic conditions in those states, we would likely experience higher rates of loss and delinquency on our loan portfolio than if the underlying loans were more geographically diversified. Additionally, the loans in our portfolio may be subject to a greater risk of default than other comparable loans in the event of adverse economic, political, or business developments or natural hazards that may affect Florida, North Carolina, Pennsylvania, New Jersey or Virginia, and the ability of property owners or commercial borrowers in those states to make payments of principal and interest on the underlying loans. In the event of any adverse development or natural disaster, our ability to pay dividends on the Series A preferred securities could be adversely affected.

Our acquisitions of participation interests in commercial and commercial mortgage loans subjects us to risks that are not present in our portfolio of residential mortgage loans, including the fact that some commercial loans are unsecured.

As of September 30, 2002, 84% of our assets, as measured by aggregate outstanding principal amount, consisted of participation interests in commercial and commercial real estate loans. Commercial and

commercial real estate loans generally tend to have shorter maturities than residential mortgage loans and may not be fully amortizing, meaning that they may have a significant principal balance or “balloon” payment due on maturity. Commercial real estate properties tend to be unique and are more difficult to value than single-family residential real estate properties. They are also subject to relatively greater environmental risks and to the corresponding burdens and costs of compliance with environmental laws and regulations. In addition, some of our commercial loans are unsecured. Such unsecured loans are more likely than loans secured by real estate or personal property collateral to result in a loss upon a default.

We have adopted policies with a view to ensuring that all financial dealings between the Bank and us will be fair to both parties and consistent with market terms. However, there has been no third party valuation of all our assets. In addition, it is not anticipated that third party valuations will be obtained in connection with future acquisitions or dispositions of assets even in circumstances where an affiliate of ours is selling the assets to us, or purchasing the assets from us. Accordingly, we cannot assure you that the purchase price we paid for all of our assets was equal to the fair value of those assets. Nor can we assure you that the consideration to be paid by us to, or received by us from, the Bank or any of our affiliates in connection with future acquisitions or dispositions of assets will be equal to the fair value of such assets.

We could incur losses as a result of environmental liabilities of properties underlying our assets through foreclosure action.

We may be forced to foreclose on an underlying commercial, commercial real estate or residential loan where the borrower has defaulted on its obligation to repay the loan. It is possible that we may be subject to environmental liabilities with respect to foreclosed property, particularly industrial and warehouse properties, which are generally subject to relatively greater environmental risks than non-commercial properties. The discovery of these liabilities and any associated costs for removal of hazardous substances, wastes, contaminants, or pollutants, could have a material adverse effect on the fair value of such loan and therefore we may not recover any or all of our investment in the underlying commercial, commercial real estate or residential loan.

We do not have insurance to cover our exposure to borrower defaults and bankruptcies and special hazard losses that are not covered by standard insurance.

Generally, neither we nor the Bank obtain credit enhancements such as borrower bankruptcy insurance or obtain special hazard insurance for the loans in our portfolio, other than standard hazard insurance typically required by the Bank, which relates only to individual loans. Without third party insurance, we are subject to risks of borrower defaults and bankruptcies and special hazard losses that are not covered by standard hazard insurance.

Delays in liquidating defaulted loans could occur which could cause our business to suffer.

Substantial delays could be encountered in connection with the liquidation of the collateral securing defaulted loans in our portfolio, with corresponding delays in our receipt of related proceeds. An action to foreclose on a mortgaged property or repossess and sell other collateral securing a loan is regulated by state statutes and rules. Any such action is subject to many of the delays and expenses of lawsuits, which may impede our ability to foreclose on or sell the collateral or to obtain proceeds sufficient to repay all amounts due on the related loan in our portfolio.

We may invest in assets which involve new risks and need not maintain the current asset coverage.

Although our portfolio currently consists primarily of commercial, commercial real estate and residential loan interests, and we presently intend to reinvest proceeds of such interests in similar assets, we are not required to limit our investments to assets of the types currently in our portfolio. Assets such as mortgage-backed securities, equipment loans or real estate may involve different risks not described in this prospectus. Nevertheless, we will not invest in assets that are not REIT Qualified Assets if such investments would cause us to violate the requirements for taxation as a REIT. Moreover, while our policies will call for maintaining specified levels of funds from operations coverage as to expected dividend distributions, we are not required to maintain the levels of asset coverage that currently exist.

Risk Factors Applicable Only to Wachovia Depositary Shares Representing the Wachovia Series G, Class A Preferred Stock Issued upon the Occurrence of a Conditional Exchange.

You may have adverse tax consequences as a result of a Conditional Exchange.

The exchange of our Series A preferred securities for depositary shares representing an interest in Wachovia Series G, Class A preferred stock would most likely be a taxable event to you under the Code, and you would incur a gain or loss, as the case may be, measured by the difference between your basis in our Series A preferred securities and the fair market value of the depositary shares.

A decline in Wachovia’s financial condition may restrict its ability to pay dividends and could result in a loss on your investment.

If Wachovia’s financial condition were to deteriorate, the holders of the depositary shares representing the Wachovia Series G, Class A preferred stock could suffer direct and materially adverse consequences, including suspension of the payment of non-cumulative dividends on the Wachovia Series G, Class A preferred stock and, if a liquidation, dissolution or winding up of Wachovia were to occur, loss by holders of depositary shares of all or part of their investment. See “Description of Wachovia Series G, Class A Preferred Stock”.

A Conditional Exchange may be based on the Bank’s receivership, which could lead to Wachovia’s receivership and would mean that others may have liquidation claims senior to yours.

A Supervisory Event triggering a Conditional Exchange will occur if the Bank is placed into conservatorship or receivership. The Bank’s conservatorship or receivership could lead to Wachovia being placed into conservatorship or receivership. In the event of Wachovia’s receivership, the claims of Wachovia’s secured, senior, general and subordinated creditors would be entitled to a priority of payment over the claims of holders of equity interests such as the Wachovia Series G, Class A preferred stock. As a result of such subordination, either if Wachovia were to be placed into receivership after a Conditional Exchange or if a Conditional Exchange were to occur after Wachovia’s receivership, the holders of the depositary shares would likely receive, if anything, substantially less than they would have received had our Series A preferred securities not been exchanged.

Upon the occurrence of a Conditional Exchange, the holders of the depositary shares will not have any voting rights, the right to elect Independent Directors nor have the benefit of the same favorable covenants as the Series A preferred securities.

Upon the occurrence of a Conditional Exchange, the holders of the depositary shares representing Wachovia Series G, Class A preferred stock will not have voting rights, the right to elect Independent Directors if dividends are not authorized and declared by Wachovia’s board of directors nor have the benefit of the same favorable covenants as the Series A preferred securities. Therefore, Wachovia may authorize and issue additional shares of preferred stock that may rank junior to, on parity with or senior to the Series G, Class A preferred stock as to dividend rights and rights upon liquidation, winding up, or dissolution without the consent of the holders of the Series G, Class A preferred stock.

Wachovia is not obligated to pay, and is subject to certain limitations on the payment of, dividends on the Wachovia Series G, Class A preferred stock and dividends on these securities are not cumulative.

Dividends on the Wachovia Series G, Class A Preferred stock are not cumulative. Consequently, if Wachovia’s board of directors does not declare dividends on the Wachovia Series G, Class A preferred stock for any quarterly period, the holders of the Wachovia Series G, Class A preferred stock and the depositary shares represented thereby would not be entitled to any such dividend whether or not funds are or subsequently become available. Under an indenture between Wachovia and Wilmington Trust Company, as trustee, Wachovia has agreed not to pay any dividends on, or make a liquidation payment relating to, any of Wachovia’s common stock or preferred stock, including its Series G, Class A preferred stock, if, at that time, there is a default under the indenture or a related Wachovia guarantee or Wachovia has delayed interest payments on trust preferred securities issued under the indenture. Currently, there are $1.3 billion aggregate principal amount of trust preferred securities outstanding under such indenture.

The Wachovia board of directors may determine that it would be in Wachovia’s best interests to pay less than the full amount of the stated dividends on the Wachovia Series G, Class A preferred stock or no dividends for any quarter even if funds are available. Factors that would be considered by the Wachovia board of directors in making this determination are Wachovia’s financial condition and capital needs, the impact of current and pending legislation and regulations, economic conditions, tax considerations, and such other factors as the board of directors may deem relevant. In addition, as a bank holding company, Wachovia is subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The Federal Reserve Board is authorized to determine, under certain circumstances relating to the financial condition of a bank holding company, such as Wachovia, that the payment of dividends would be an unsound and unsafe practice and to prohibit payment thereof. See “Description of Wachovia Series G, Class A Preferred Stock—Dividends”.

There is no active trading market for the Wachovia Series G, Class A preferred stock or the depositary shares representing that stock and no such trading market may develop.

The Wachovia Series G, Class A preferred stock and the depositary shares representing that stock will be new issues of securities. Prior to this offering, there has been no public market for the Wachovia Series G, Class A preferred stock or the depositary shares. Wachovia does not intend to cause the listing or quotation of the Wachovia Series G, Class A preferred stock or the depositary shares representing an interest in that stock on the New York Stock Exchange or on any other national securities exchange or quotation system on which the Series A preferred securities are then listed or quoted. Consequently, it is unlikely that an active and liquid trading public market for the depositary shares or the underlying Wachovia Series G, Class A preferred stock will develop or be maintained. The lack of liquidity and an active trading market could adversely affect your ability to dispose of the depositary shares representing an interest in the Wachovia Series G, Class A preferred stock.

INFORMATION CONCERNING THE BANK

General

The Bank is a national banking association organized under the laws of the United States and with its principal office in Charlotte, North Carolina. The Bank offers a wide range of domestic and international , retail and commercial banking and trust services. At September 30, 2002, the Bank operated 2,769 branches in Connecticut, Florida, Georgia, Maryland, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Virginia and Washington, D.C., and in several foreign countries. At September 30, 2002, the Bank had total assets of $312 billion, total liabilities of $280 billion and total shareholders’ equity of $32 billion. On April 1, 2002, the former Wachovia Bank, National Association merged with and into First Union National Bank, and First Union National Bank changed its name to “Wachovia Bank, National Association”. Presentation of certain financial information in this prospectus for periods prior to April 1, 2002, will be for First Union National Bank only.

The Series A preferred securities will be exchangeable, without your approval or any action on your part, for depositary shares representing interests in the Wachovia Series G, Class A preferred stock if the OCC so directs under the following circumstances, each of which is referred to as a Supervisory Event:

the Bank becomes undercapitalized under “prompt corrective action” regulations,

the Bank is placed into conservatorship or receivership, or

the OCC, in its sole discretion, anticipates that the Bank may become undercapitalized in the near term or takes supervisory action that limits the payment of dividends by us and in connection therewith directs an exchange.

The Series A preferred securities are exchangeable only for the depositary shares. Under no circumstances will you ever receive securities of the Bank upon the occurrence of a Supervisory Event or for any other reason.

Capital Adequacy

The OCC has issued regulations addressing the capital adequacy of national banks. Under these regulations, capital adequacy is measured by three different ratios: a ratio of total capital to risk-weighted assets; a ratio of Tier 1 capital to risk-weighted assets; and a “leverage” ratio of Tier 1 capital to balance sheet assets. For purposes of determining risk-weighted assets for the risk-based capital ratios, the book value of each of the bank’s on-balance sheet assets, and a portion of certain off-balance sheet items and exposures, are weighted from 0% to 100% based on broad categories. For instance, U.S. government debt obligations are generally risk weighted at 0%; residential real estate mortgage loans on one-to-four family dwellings are generally risk weighted at 50%; and commercial loans and most other assets are generally risk-weighted at 100%. Off-balance sheet items (including letters of credit, loan commitments, swaps and other derivatives) are converted into on-balance sheet “equivalent” amounts for risk-based capital purposes, then assigned a risk weight like other assets. Under amendments adopted in November 2001 and being phased in by year-end 2002, the capital risk weighting assigned to certain asset-backed securities may vary from 20% to 200% depending on credit rating. Subordinated residual interests retained in asset securitizations, credit enhancement and forms of “recourse” can result in higher capital charges. The sum of all risk-weighted assets are measured against “total capital” and “Tier 1 capital” to determine risk-based capital ratios. A bank’s leverage ratio represents Tier 1 capital divided by average total on-balance sheet assets, without recognizing off-balance sheet exposures or applying risk weights. As noted below, to be considered adequately capitalized, a national bank generally must maintain a total risk-based capital ratio of at least 8%, a Tier 1 risk-based ratio of at least 4%, and a Tier 1 leverage ratio of at least 4% (or 3% in exceptional cases).

For purposes of these regulations, total capital is defined as the sum of Tier 1 capital and Tier 2 capital. Tier 1 capital generally includes common shareholders’ equity; non-cumulative perpetual preferred stock and related surplus; and qualifying minority interests in the equity accounts of consolidated subsidiaries (which may include such instruments as qualifying REIT preferred stock and trust preferred stock). Tier 2 capital generally includes (subject to certain limits and sub-limits): cumulative perpetual preferred stock; limited-life preferred stock; Dutch auction and money market preferred stock; hybrid capital instruments (including certain mandatory convertible notes); term subordinated debt; the bank’s allowance for loan and lease losses (up to a maximum of 1.25% of total risk-weighted assets); and up to 45% of the pretax net unrealized gains of available-for-sale equity securities investments. Tier 2 capital is permitted to count towards only one-half of total capital. In addition, limited-life instruments generally can represent not more than one-half of Tier 2 capital and are phased out of capital over the last five years before maturity. Deductions from Tier 1 capital include goodwill, certain other intangible assets, and deferred tax assets in excess of certain limits.

For national banks with large trading portfolios, a different method known as the Market Risk Measure is applied to determine the risk-based capital requirements for items booked in the trading account and for foreign exchange and commodity positions, wherever booked. Under the Market Risk Measure, capital requirements for these portfolios are based on value-at-risk calculations and certain other factors, and the result is combined into the bank’s total risk-based capital ratio. For purposes of the Market Risk Measure only, a portion of a bank’s total capital can consist of certain “Tier 3” capital instruments—subordinated two-year notes with “lock-in” clauses restricting payment of principal or interest (even at maturity) if the bank falls below required capital ratios.

Under the OCC’s “prompt corrective action” regulations, issued pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991, national banks are placed into one of five capital categories, as follows:

“Well capitalized” banks:

have a total risk-based capital ratio of 10% or greater;

have a Tier 1 risk-based capital ratio of 6% or greater;

have a leverage ratio of 5% or greater; and

are not subject to any other OCC action directed at a specific level of capital.

“Adequately capitalized” banks:

have a total risk-based capital ratio of 8% or greater;

have a Tier 1 risk-based capital ratio of 4% or greater;

have a leverage ratio of

(a)

4% or greater; or

(b)

3% or greater for certain exceptionally well managed and well run banks; and

do not meet the definition of well capitalized.

“Undercapitalized” banks:

have a total risk-based capital that is less than 8%;

have a Tier 1 risk-based capital ratio that is less than 4%; or

have a leverage ratio of less than 4% or, if the bank is exceptionally well managed and well run, less than 3%.

“Significantly undercapitalized” banks:

have a total risk-based capital ratio that is less than 6%;

have a Tier 1 risk-based capital that is less than 3%; or

have a leverage ratio that is less than 3%.

“Critically undercapitalized” banks:

have a ratio of tangible equity capital (Tier 1 capital plus cumulative preferred stock less certain intangible capital) that is equal to or less than 2%.

Under prompt corrective action provisions, if a national bank becomes “undercapitalized”, “significantly undercapitalized” or “critically undercapitalized”, the OCC may undertake (and, in some cases, may be compelled by statute to undertake) a variety of actions of increasing severity. Among other things, an undercapitalized bank must submit an acceptable capital restoration plan and is generally restricted from paying dividends, redeeming stock or making other capital distributions. Failure to achieve the goals of a capital restoration plan could subject a bank to penalties and to being considered “significantly undercapitalized”. A significantly undercapitalized bank is subject to a broad range of restrictions, including restrictions on growth, limits on activities, divestiture requirements, limits on interest rates paid on deposits, restrictions on transactions with affiliates, limits on executive compensation, and mandated changes in directors or management. Critically undercapitalized banks face even stricter measures, including possible receivership.

In addition, the OCC from time to time may impose higher specific capital requirements on any national bank that is perceived to have risks, exposures, asset concentrations, rapid growth or other circumstances warranting special attention. Failure to satisfy such a capital directive could subject a bank to civil money penalties, judicial enforcement and administrative remedies available to the OCC, as well as a finding that the bank is “undercapitalized”.

A national bank’s capital ratios are monitored through the quarterly reports of condition submitted by each national bank pursuant to 12 U.S.C. §181 (frequently referred to as “call reports”). These call reports are filed with the Federal Deposit Insurance Corporation.

Whether the Bank would ever be determined by the OCC to be “undercapitalized”, or at risk of becoming “undercapitalized” in the near term—thereby triggering the exchange of the Series A preferred securities into depositary shares representing Wachovia Series G, Class A preferred stock—could be influenced not only by the OCC’s capital adequacy regulations, but also by the regulator’s interpretations and judgment on other matters. For example, the OCC’s views on asset credit quality could potentially affect a bank’s capital status. Among other things, the OCC typically evaluates asset quality, loan loss reserves and procedures during periodic regulatory examinations of each national bank. If, following such an examination or otherwise, the OCC in its discretion were to require the Bank to significantly increase its reserves against credit losses (i.e., the allowance for loan and lease losses), this could potentially reduce the Bank’s retained earnings and regulatory capital. As noted above, a bank’s allowance for loan and lease losses is includible within Tier 2 capital only up to a limit, and is not includible at all in Tier 1 capital.

A bank’s regulatory capital status, and the risk of being deemed “undercapitalized” also could be affected by other developments or by future changes in regulatory capital and other standards. The Banking Supervision Committee of the Bank for International Settlements (the “Basel Committee”) has proposed for comment, and is continuing to study and revise, substantial changes to its 1988 “Basel Accord” on international bank capital adequacy. We and the Bank are unable to predict whether or when the Basel Committee’s proposed new capital accord may be finalized, how the new accord might be interpreted and implemented by the OCC, or what impact any such new standards might have on the Bank and its capital status.

The following table presents the capital ratios reported to the OCC by the Bank, as well as those of Wachovia, the Bank’s parent company, compared to the standards for “adequately capitalized” and “well capitalized” status, as of the dates indicated.

				Regulatory Standards
	The Bank		Wachovia	Adequately Capitalized	Well Capitalized
September 30, 2002
Tier 1 capital	7.63		8.11	4.00	6.00
Total capital	12.12		12.02	8.00	10.00
Leverage	6.61		6.82	4.00	5.00

December 31, 2001
Tier 1 capital	7.55		7.04	4.00	6.00
Total capital	11.68		11.08	8.00	10.00
Leverage	6.29		6.19	4.00	5.00

December 31, 2000
Tier 1 capital	6.92		7.02	4.00	6.00
Total capital	10.73		11.19	8.00	10.00
Leverage	6.04	%	5.92	4.00	5.00

The Bank currently intends to maintain its capital ratios in excess of the “well capitalized” levels under the prompt corrective action regulations. However, there is no guarantee that the Bank’s capital ratios will be maintained in the future at their current or historical levels. Accordingly, there is no assurance that the Bank will not be deemed to be “undercapitalized” by the OCC in the future or that the Bank will not be placed in conservatorship or receivership in the future. Consequently, there can be no assurance that a Supervisory Event will not occur and that the Series A preferred securities will not be exchanged for depositary shares in the future. You should therefore carefully consider the description of the Wachovia Series G, Class A preferred stock set forth under the caption “Description of Wachovia Series G, Class A Preferred Stock” and the description of the depositary shares representing interests in that stock set forth under the caption “Description of Wachovia Depositary Shares” before investing in the Series A preferred securities.

Supplementary consolidating financial information for Wachovia, which includes certain financial information for the Bank as of and for the nine months ended September 30, 2002, and as of and for the years ended December 31, 2001 and 2000, is included in the prospectus beginning on page F-22. We will continue to provide annual unaudited financial information for the Bank on an ongoing basis in the reports we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We will also continue to provide in those reports current unaudited capital and capital ratio information. Additional information regarding the Bank can be obtained on Wachovia’s website, www.wachovia.com, but that information is not incorporated by reference in this prospectus.

Benefits to the Bank and Wachovia

The Bank has received confirmation from the OCC that proceeds from the public sale of Series A preferred securities will qualify as Tier 1 capital of the Bank under relevant regulatory capital guidelines. Those guidelines limit the inclusion of our Series A preferred securities, together with all other outstanding non-cumulative perpetual preferred securities, to 25% of the Bank’s Tier 1 capital, with the balance treated as Tier 2 capital of the Bank. The Bank and Wachovia expect that as of December 31, 2002, all of the proceeds from the public sale of Series A preferred securities will qualify as Tier 1 capital of the Bank and Wachovia. The increase in the Bank’s Tier 1 risk-based capital level that will result from the treatment of the Series A preferred securities as Tier 1 capital will enable the Bank to retain a higher base of interest-earning assets, resulting in incrementally higher related earnings.

USE OF PROCEEDS

Prior to this offering, Wachovia Preferred Holding will acquire from us 30,000,000 Series A, 40,000,000 Series B and 4,233,754 Series C preferred securities with liquidation preferences of $25.00, $25.00, and $1,000 per security, respectively. Wachovia Preferred Holding will acquire these preferred securities in exchange for participation interests with an aggregate fair market value of $6.0 billion, calculated using a discounted cash-flow methodology, in certain commercial and commercial real estate loans originated by and acquired from the Bank. Wachovia Preferred Holding acquired these participation interests from the Bank in exchange for 2,400 newly issued shares of Wachovia Preferred Holding’s common stock valued at $6.0 billion. We intend to hold these participation interests as long-term investments.

Wachovia Preferred Holding, a statutory underwriter, will subsequently sell the 18,000,000 Series A preferred securities offered hereby through an underwriting syndicate to the public for cash consideration of $25.00 per security. We will not receive any of the proceeds from the sale of our Series A preferred securities owned by Wachovia Preferred Holding. The proceeds, before expenses and commissions, to be received by Wachovia Preferred Holding from the sale of the 18,000,000 Series A preferred securities are expected to be $450 million in the aggregate. Wachovia Preferred Holding intends to use the net proceeds from this offering for general corporate purposes and will not use the proceeds to purchase additional assets for contribution to us.

Wachovia Preferred Holding will pay all expenses and underwriting discounts and commissions involved with the offering to the public.

The depositary shares each representing a one-sixth interest in a share of Series G, Class A preferred stock of Wachovia will be made available, if ever, in connection with a Conditional Exchange of our Series A preferred securities at the direction of the OCC following a Supervisory Event. Wachovia will not receive any proceeds, directly or indirectly, from the subsequent exchange of the Series A preferred securities for the depositary shares.

CAPITALIZATION

The following table sets forth our unaudited capitalization as of September 30, 2002, and as adjusted to reflect the issuance of our Series A, B and C preferred securities to Wachovia Preferred Holding.

	September 30, 2002
(In thousands)	Actual		Pro Forma
Long-term debt	$	—	—

Stockholders’ equity
Preferred stock
Series A preferred securities, $0.01 par value, $25.00 liquidation preference, non-cumulative and conditionally exchangeable, 30,000,000 shares authorized, issued and outstanding(1)		—	300
Series B preferred securities, $0.01 par value, $25.00 liquidation preference, non-cumulative and conditionally exchangeable, 40,000,000 shares authorized, issued and outstanding		—	400
Series C preferred securities, $0.01 par value, $1,000 liquidation preference, cumulative, 5,000,000 shares authorized, 4,233,754 shares issued and outstanding		—	42
Series D preferred securities, $0.01 par value, $1,000 liquidation preference, non-cumulative, 913 shares authorized, issued and outstanding		—	—
Common stock, $0.01 par value, 100,000,000 shares authorized, 99,999,900 shares issued and outstanding		1,000	1,000
Paid-in capital		5,086,474	11,519,803
Retained earnings		376,674	376,674

Total stockholders’ equity		5,464,148	11,898,219

Total capitalization	$	5,464,148	11,898,219

(1) Our Series A preferred securities are exchangeable, without the approval or any action on the part of the holder, for depositary shares representing one-sixth of a share of Series G, Class A preferred stock of Wachovia if such an exchange is directed by the OCC upon the occurrence of a Supervisory Event.

The following table sets forth the unaudited capitalization of Wachovia at September 30, 2002.

	September 30, 2002
(In millions)
Long-term debt	$	39,758

Stockholders’ equity
Dividend Equalization Preferred shares, issued 97 million shares		2
Common stock, authorized 3 billion shares, issued 1.373 billion shares		4,577
Paid-in capital		18,233
Retained earnings		7,221
Accumulated other comprehensive income, net		2,072

Total stockholders’ equity		32,105

Total capitalization	$	71,863

RATIOS OF EARNINGS TO FIXED CHARGES

The following table provides our consolidated ratio of earnings to fixed charges for the nine months ended September 30, 2002 and the year ended December 31, 2001. Data for the four years ended December 31, 2000, is not meaningful due to the immaterial amount of fixed charges in each of the four years.

	Nine Months Ended September 30,			Year Ended December 31,
	2002			2001
Pretax income (loss) from continuing operations	$	181,824		(36,224	)
Fixed charges, excluding capitalized interest		8,287		857

Earnings (loss)	$	190,111		(35,367	)

Interest	$	8,287		857
One-third of rents		—		—
Capitalized interest		—		—

Fixed charges	$	8,287		857

Consolidated ratios of earnings to fixed charges		22.94	x	n/m

n/m – not meaningful.

For purposes of computing the ratio in the table above, earnings represent income from continuing operations and fixed charges represent interest.

The following table provides Wachovia’s consolidated ratios of earnings to fixed charges and preferred stock dividends.

	Nine Months Ended September 30,	Years Ended December 31,
	2002	2001	2000	1999	1998	1997
Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock Dividends
Excluding interest on deposits	2.87x	1.61	1.13	2.29	2.13	2.50
Including interest on deposits	1.79x	1.27	1.06	1.62	1.51	1.57

For purposes of computing the ratios in the table above:

earnings represent income from continuing operations before extraordinary items and cumulative effect of a change in accounting principles, plus income taxes and fixed charges (excluding capitalized interest);

fixed charges, excluding interest on deposits, represent interest (including capitalized interest), one-third of rents and all amortization of debt issuance costs; and

fixed charges, including interest on deposits, represent all interest (including capitalized interest), one-third of rents and all amortization of debt issuance costs.

One-third of rents is used because it is the proportion deemed representative of the interest factor.

BUSINESS

General

We are a Delaware corporation, formed in July 2002 and the survivor of a merger with First Union Real Estate Asset Company of Connecticut, which was formed in 1996. By the completion of this offering, we will be a direct subsidiary of Wachovia Preferred Holding and Wachovia and an indirect subsidiary of the Bank. Wachovia Preferred Holding will own 99.85% of our common stock and Wachovia will own the remaining .15%. The Bank will own 99.95% of the common stock of Wachovia Preferred Holding and Wachovia will own the remaining 0.05%. Wachovia Preferred Holding will own 87.62% of our Series D preferred securities, while the remaining 12.38% is owned by 113 employees of Wachovia or its affiliates.

After our merger with First Union Real Estate Asset Company of Connecticut, we issued and sold 913 shares of our Series D preferred securities to Wachovia Realty Management Corporation, an affiliate of Wachovia. In a series of related corporate reorganization transactions that occurred in July 2002, Wachovia Realty Management Corporation merged with and into its parent, Wachovia Realty Management Holding Company, Inc., a Delaware corporation, with the then holders of its preferred securities (113 employees of Wachovia or its affiliates ) receiving Series D preferred securities as merger consideration. Wachovia Realty Management Holding Company, Inc. in turn merged with and into its parent, Wachovia Management Company, Inc., a Delaware corporation. Wachovia Management Company, Inc. then liquidated and distributed all of its assets, including the Series D preferred securities, to the Bank. As a result of this series of related corporate reorganization transactions, 87.62% of our Series D preferred securities are now owned by the Bank and the remaining 12.38% by 113 employees of Wachovia or its affiliates. Upon our merger with First Union Real Estate Asset Company of Connecticut, we were a direct subsidiary of the Bank and an indirect subsidiary of Wachovia. By the completion of this offering, we will be a direct subsidiary of Wachovia Preferred Holding as a result of the Bank transferring certain interests in mortgage assets and other authorized investments through a loan participation agreement, 99.85% of our common stock and 87.62% of our Series D preferred securities to Wachovia Preferred Holding in exchange for additional shares of Wachovia Preferred Holding common stock.

One of our subsidiaries, Wachovia Real Estate Investment Corp. was formed as a Delaware corporation in 1996 and has operated as a REIT since its formation. Of the 645 shares of Wachovia Real Estate Investment Corp. common stock outstanding, we own 644 shares or 99.84% and the remaining 1 share is owned by Wachovia. Of the 667 shares of preferred stock outstanding, we own 529.3 shares, 131 shares are owned by employees of Wachovia or its affiliates and 6.7 shares are owned by Wachovia.

Our other subsidiary, Wachovia Preferred Realty, LLC (“WPR”), was formed as a Delaware limited liability company in October 2002. Under the REIT Modernization Act, which became effective on January 1, 2001, a REIT is permitted to own “taxable REIT subsidiaries” which are subject to taxation similar to corporations that do not qualify as REITs or for other special tax rules. Our ownership of WPR provides us with additional flexibility by allowing us to hold assets which earn non-qualifying REIT income while maintaining our REIT status. Following formation of WPR, we transferred our interest-rate swaps and related cash collateral, including those described below, to WPR. We are the sole member of WPR.

In December 2001, the Bank contributed received-fixed interest rate swaps, commercial loans and commercial real estate loans to us in exchange for shares of our common stock. The swaps had a notional amount of $4.25 billion and a fair value of $673 million. The commercial and commercial real estate loans had a book value of $4.0 billion. Prior to this transaction, our consolidated assets primarily consisted of home equity loans and residential mortgage loans.

All of the financial information and other data in this section is presented on a pro forma basis to reflect the following:

the issuance of three new series of preferred securities (Series A, B and C) to Wachovia Preferred Holding in exchange for participations in commercial and commercial real estate loans prior to this offering. The commercial and commercial real estate loans were originated by the Bank and contributed to Wachovia Preferred Holding. We will issue the preferred securities to Wachovia Preferred Holding in exchange for participations in the loans prior to this offering.

Our principal business objective is to acquire, hold, and manage mortgage assets and other authorized investments that will generate net income for distribution to our stockholders. At September 30, 2002, we had total assets of $12.5 billion, total liabilities of $607 million, and stockholders’ equity of $11.9 billion. As of such date,