Filed Pursuant to Rule 424(b)(2)
Registration No. 333-73242
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 19, 2001)
$1,761,125,000
POPULAR, INC.
MEDIUM-TERM NOTES, SERIES 4
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
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THE COMPANY: Popular, Inc. Our principal executive office is located at Popular
Center, 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918, and our telephone
number is (787) 765-9800.
TERMS: We plan to offer and sell notes with various terms, including the
following:
- Ranking as senior or subordinated indebtedness of Popular
- Stated maturities of 9 months or more from date of issue
- Redemption and/or repayment provisions, if applicable, whether
mandatory or at the option of Popular or holders of the notes
- Payments in U.S. dollars or one or more foreign currencies
- Minimum denomination of $1,000, increasing in integral multiples of
$1,000 or other specified denominations for foreign currencies
- Book-entry (through The Depository Trust Company) or certificated
form
- Interest at fixed or floating rates, or no interest at all. The
floating interest rate may be based on one or more of the following
indices plus or minus a spread and/or multiplied by a spread
multiplier:
- commercial paper rate
- prime rate
- LIBOR
- treasury rate
- CMT rate
- CD rate
- federal funds rate
- 11th district cost of funds rate
- any other base rate or interest rate formula as may be
specified in your pricing supplement
- Interest payments on fixed rate notes on each June 15 and December
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- Interest payments on floating rate notes on a monthly, quarterly,
semiannual or annual basis
We will specify the final terms for each note, which may be different from the
terms described in this prospectus supplement, in the applicable pricing
supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT,
THE ACCOMPANYING PROSPECTUS OR ANY PRICING SUPPLEMENT IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The notes will be unsecured obligations of Popular and will not be savings
accounts, deposits or other obligations of any bank or nonbank subsidiary of
Popular and are not insured by the Federal Deposit Insurance Corporation, the
Bank Insurance Fund or any other government agency.
AGENTS' DISCOUNTS AND
PUBLIC OFFERING PRICE COMMISSIONS PROCEEDS TO POPULAR
Per note........ 100% .125% - .750% 99.250% - 99.875%
Total (1)....... $1,761,125,000.00 $2,201,406.25- $13,208,437.50 $1,747,916,562.50-
$1,758,923,593.75
(1) Or the equivalent of this amount in one or more foreign or composite
currencies.
We may sell notes to the agents referred to below as principal for resale at
varying or fixed offering prices or through the agents as agent using their
reasonable efforts on our behalf. We may also sell notes without the assistance
of the agents, whether acting as principal or as agent.
If we or Popular International Bank, Inc. or Popular North America, Inc. sells
securities referred to in the accompanying prospectus other than pursuant to
this prospectus supplement, the aggregate initial offering price of notes that
we may offer and sell under this prospectus supplement will be reduced.
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CREDIT SUISSE FIRST BOSTON JPMORGAN
KEEFE, BRUYETTE & WOODS, INC. MERRILL LYNCH & CO.
POPULAR SECURITIES, INC. UBS WARBURG
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The date of this Prospectus Supplement is March 21, 2003.
DESCRIPTION OF NOTES WE MAY OFFER
This description of the terms of the notes supplements the description of the
general terms and provisions of the notes and replaces any inconsistent terms
and provisions contained in "Description of Debt Securities We May Offer" in the
accompanying prospectus. Each pricing supplement will describe the particular
terms of the notes it offers. Unless the pricing supplement applicable to a note
provides otherwise, however, each note will have the following terms. In this
prospectus supplement, WE means Popular.
Popular will issue the notes under the Popular senior indenture, which is
described in the accompanying prospectus. The Popular senior indenture is
subject to, and governed by, the Trust Indenture Act of 1939, as amended. The
following description of some provisions of the Popular senior indenture and the
notes is only a summary and is qualified by reference to the provisions of the
Popular senior indenture and the notes. The terms and conditions below will
apply to each note unless the applicable pricing supplement or foreign currency,
multi-currency and indexed note supplement to the applicable pricing supplement
specifies otherwise.
Under the Popular senior indenture, Popular may issue any amount of debt
securities in one or more series. From time to time, Popular may, without the
consent of the holders, issue debt securities (including medium-term notes)
under the Popular senior indenture in addition to the $1,761,125,000 principal
amount of notes to which this prospectus supplement relates. The notes will be
denominated in and payable in United States dollars unless the applicable
pricing supplement provides otherwise.
The applicable pricing supplement will specify the interest rate or interest
rate formula and other variable terms of each note. Popular may change interest
rates and interest rate formulae, but no change will affect any note already
issued or for which Popular has accepted an offer to purchase. Unless the
applicable pricing supplement indicates otherwise, FIXED RATE NOTES will bear
interest at fixed rates and FLOATING RATE NOTES will bear interest at floating
rates determined by reference to one or more BASE RATES adjusted by any SPREAD
and/or SPREAD MULTIPLIER applicable to these notes. These terms are defined
below in "-- Interest Rates -- Floating Rate Notes". Original issue discount
notes may be issued at significant discounts from their principal amount payable
at maturity, and some original issue discount notes may not bear interest.
Popular may offer interest rates on notes that differ depending upon, among
other factors, the principal amount of notes purchased in any single
transaction. Popular may also offer notes with variable terms other than
interest rates concurrently to different investors. Popular may change the terms
of notes from time to time, but no change will affect any note that has been
issued or as to which Popular has accepted an offer to purchase.
Each interest payment will equal the amount of interest that accrues from and
includes the next preceding interest payment date on which interest has been
paid (or from and including the date the note was issued, if no interest has
been paid since then) up to and excluding the applicable interest payment date
or at maturity.
Unless otherwise indicated in a pricing supplement, the notes will be issued in
book-entry, i.e., global form or fully registered certificated form. Book-entry
notes may be transferred or exchanged through the depositary. "Description of
Debt Securities We May Offer -- Legal Ownership of Securities" and "-- Special
Considerations for Global Debt Securities" in the accompanying prospectus
describe the procedures for transferring or exchanging book-entry notes. No
service charge will be made for the registration of transfer or exchange of
notes issued in certificated form, but Popular may require the holder to pay any
tax or other governmental charge in connection with a transfer or exchange.
INFORMATION IN THE PRICING SUPPLEMENT
Your pricing supplement will describe one or more of the following terms of your
note:
- the stated maturity;
- the specified currency or currencies for principal and interest, if not
U.S. dollars;
- the price at which we originally issue your note, expressed as a
percentage of the principal amount, and the original issue date;
- whether your note is a fixed rate note, a floating rate note or an
indexed note and also whether it is an original issue discount note;
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- if your note is a fixed rate note, the yearly rate at which your note
will bear interest, if any, and the interest payment dates, if different
from those stated below under "-- Interest Rates -- Fixed Rate Notes";
- if your note is a floating rate note, the interest rate basis, which may
be one or more of the base rates described in "-- Interest Rates --
Floating Rate Notes" below; any applicable index currency or maturity,
spread or spread multiplier or initial, maximum or minimum rate, if any;
the interest reset, determination, calculation and payment dates; and
the calculation agent, all of which we describe under "-- Interest Rates
-- Floating Rate Notes" below;
- if your note is an original issue discount note, the yield to maturity;
- if your note is an indexed note, the principal amount, if any, we will
pay you at maturity, the amount of interest, if any, we will pay you on
an interest payment date or the formula we will use to calculate these
amounts, if any, and whether your note will be exchangeable for or
payable in stock of an issuer other than us or other property;
- whether your note may be redeemed at our option or repaid at your option
before the stated maturity and, if so, other relevant terms such as the
redemption commencement date, repayment date(s), redemption price(s) and
redemption period(s), all of which we describe under "-- Redemption and
Repayment" below;
- whether we will issue or make available your note in non-book-entry
form; and
- any other terms of your note that are consistent with the provisions of
the indenture, which other terms could be different from those described
in this prospectus supplement.
Your pricing supplement will summarize specific financial and other terms of
your note, while this prospectus supplement describes terms that apply generally
to the notes as a series. Consequently, the terms described in your pricing
supplement will supplement those described in this prospectus supplement and, if
the terms described there are inconsistent with those described here, the terms
described there will be controlling. The terms used in your pricing supplement
have the meaning described in this prospectus supplement, unless otherwise
specified.
PAYMENT MECHANICS
WHO RECEIVES PAYMENT?
If interest is due on a note on an interest payment date, we will pay the
interest to the person or entity in whose name the note is registered at the
close of business on the regular record date relating to the interest payment
date. See "-- Regular Record Dates for Interest" below for more information
about the regular record dates. If interest is due at the maturity, we will pay
the interest to the person or entity entitled to receive the principal of the
note. If principal or another amount is payable on a note at the maturity, we
will pay the amount to the holder of the note against surrender of the note at
the CORPORATE TRUST OFFICE of the paying agent in the Borough of Manhattan, New
York City, which is located at 153 West 51st Street, 5th Floor, New York, New
York 10019, Attention: Corporate Trust Services, or, in the case of a global
note, in accordance with the applicable policies of the depositary.
REGULAR RECORD DATES FOR INTEREST
Unless we specify otherwise in the applicable pricing supplement, the regular
record date relating to an interest payment date for any fixed rate note will be
the June 1 or December 1 next preceding that interest payment date, and for any
floating rate note will be the 15th calendar day before that interest payment
date, in each case whether or not the record date is a business day. For the
purpose of determining the holder at the close of business on a regular record
date when business is not being conducted, the close of business will mean 5:00
P.M., New York City time, on that day.
HOW WE WILL MAKE PAYMENTS DUE IN U.S. DOLLARS
We will follow the practice described in this subsection when paying amounts
payable in U.S. dollars. Payments of amounts payable in other currencies will be
made as described in the next subsection.
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PAYMENTS ON GLOBAL NOTES
We will make payments on a global note in accordance with the applicable
policies of the depositary as in effect from time to time. Under those policies,
we will pay directly to the depositary, or its nominee, and not to any indirect
owners who own beneficial interests in the global note. An indirect owner's
right to receive those payments will be governed by the rules and practices of
the depositary and its participants, as described in the accompanying prospectus
under "Description of Debt Securities We May Offer -- What Is a Global Debt
Security?".
PAYMENTS ON NON-GLOBAL NOTES
We will make payments on a note in non-global form as follows.
- We will pay interest that is due on an interest payment date by check
mailed on the interest payment date to the holder at his or her address
shown on the trustee's records as of the close of business on the
regular record date.
- We will make all other payments by check at the paying agent described
below, against surrender of the note.
All payments by check will be made in "next-day" funds -- i.e., funds that
become available on the day after the check is cashed. A holder of notes in
certificated form with a principal amount of $10,000,000 or more may ask the
paying agent in writing before a regular record date to pay interest due on the
next interest payment date by transferring immediately available funds to an
account at any bank in New York City or, with Popular's approval, to another
bank. The holder must file this request with Bank One, NA, the paying agent, at
its corporate trust office. Unless the paying agent receives written notice that
the holder is revoking these wire transfer instructions on or before the regular
record date immediately preceding an interest payment date or the fifteenth day
before maturity, these instructions will apply to any further payment to the
holder.
HOW WE WILL MAKE PAYMENTS DUE IN OTHER CURRENCIES
We will follow the practice described in this subsection when paying amounts
that are payable in a specified currency other than U.S. dollars.
PAYMENTS ON GLOBAL NOTES
We will make payments on global notes in accordance with the applicable policies
of the depositary as in effect from time to time. We understand that these
policies, as currently in effect at DTC, are as follows.
Unless otherwise indicated in your pricing supplement, if you are an indirect
owner of global notes denominated in a specified currency other than U.S.
dollars and if you elect to receive payments in a specified currency other than
U.S. dollars, you must notify the participant through which your interest in the
global note is held of your election:
- on or before the applicable regular record date, in the case of a
payment of interest; or
- on or before the 16th day before the stated maturity, or any redemption
or repayment date, in the case of a payment of principal or any premium.
You may elect to receive all or only a portion of any interest, principal or
premium payment in a specified currency other than U.S. dollars.
Your participant must, in turn, notify DTC of your election on or before the
third DTC business day after that regular record date, in the case of a payment
of interest, and on or before the 12th business day before the stated maturity,
or on the redemption or repayment date if your note is redeemed or repaid
earlier, in the case of a payment of principal or any premium.
DTC, in turn, will notify the paying agent of your election in accordance with
DTC's procedures.
If complete instructions are received by the participant and forwarded by the
participant to DTC, and by DTC to the paying agent, on or before the dates noted
above, the paying agent, in accordance with DTC's instructions, will make the
payments to you or your
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participant by wire transfer of immediately available funds to an account
maintained by the payee with a bank located in the country issuing the specified
currency or in another jurisdiction outside the United States acceptable to us
and the paying agent.
If the steps described above are not properly completed, you will receive
payments in U.S. dollars.
Indirect owners of a global note denominated in a currency other than U.S.
dollars should consult their banks or brokers for information on how to request
payment in the specified currency.
PAYMENTS ON NON-GLOBAL NOTES
Except as described in the last paragraph under this heading, we will make
payments on notes in non-global form in the applicable specified currency. We
will make these payments by wire transfer of immediately available funds to any
account requested by the holder, provided the account is at a bank located in
the country issuing the specified currency or is in another jurisdiction outside
the United States acceptable to us and the trustee. To designate an account for
wire payment, the holder must give the paying agent appropriate wire
instructions at least five business days before the requested wire payment is
due. In the case of any interest payment due on an interest payment date, the
instructions must be given by the person or entity who is the holder on the
regular record date. In the case of any other payment, the payment will be made
only after the notes are surrendered to the paying agent. Any instructions, once
properly given, will remain in effect unless and until new instructions are
properly given in the manner described above.
If a holder fails to give instructions as described above, we will notify the
holder at the address in the trustee's records and will make the payment within
five business days after the holder provides appropriate instructions. Any late
payment made in these circumstances will be treated under the indenture as if
made on the due date, and no interest will accrue on the late payment from the
due date to the date paid.
Although a payment on a note in non-global form may be due in a specified
currency other than U.S. dollars, we will make the payment in U.S. dollars if
the holder asks us to do so. To request U.S. dollar payment, the holder must
provide appropriate written notice to the trustee at least five business days
before the next due date for which payment in U.S. dollars is requested. In the
case of any interest payment due on an interest payment date, the request must
be made by the person or entity who is the holder on the regular record date.
Any request, once properly made, will remain in effect unless and until revoked
by notice properly given in the manner described above.
Book-entry and other indirect owners of a note with a specified currency other
than U.S. dollars should contact their banks or brokers for information about
how to receive payments in the specified currency or in U.S. dollars.
CONVERSION TO U.S. DOLLARS
When we are asked by a holder to make payments in U.S. dollars of an amount due
in another currency, either on a global note or a non-global note as described
above, we will determine the U.S. dollar amount the holder receives as follows.
The exchange rate agent described below will request currency bid quotations
expressed in U.S. dollars from three or, if three are not available, then two,
recognized foreign exchange dealers in New York City, any of which may be the
exchange rate agent, as of 11:00 A.M., New York City time, on the second
business day before the payment date. Currency bid quotations will be requested
on an aggregate basis, for all holders of notes and other debt securities, if
any, requesting U.S. dollar payments of amounts due on the same date in the same
specified currency. The U.S. dollar amount the holder receives will be based on
the highest acceptable currency bid quotation received by the exchange rate
agent. If the exchange rate agent determines that at least two acceptable
currency bid quotations are not available on that second business day, the
payment will be made in the specified currency.
To be acceptable, a quotation must be given as of 11:00 A.M., New York City
time, on the second business day before the due date and the quoting dealer must
commit to execute a contract at the quotation. If some but not all of the
relevant notes are LIBOR notes, the second preceding business day will be
determined for this purpose as if none of those notes were LIBOR notes.
A holder that requests payment in U.S. dollars will bear all associated currency
exchange costs, which will be deducted from the payment.
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WHEN THE SPECIFIED CURRENCY IS NOT AVAILABLE
If we are obligated to make any payment in a specified currency other than U.S.
dollars, and the specified currency or any successor currency is not available
to us due to circumstances beyond our control -- such as the imposition of
exchange controls or a disruption in the currency markets -- we will be entitled
to satisfy our obligation to make the payment in that specified currency by
making the payment in U.S. dollars, on the basis of the exchange rate, computed
by the exchange rate agent, on the second business day before the particular
payment or, if that rate is not then available, on the basis of the most
recently available market exchange rate.
For a specified currency other than U.S. dollars, the exchange rate will be the
noon buying rate for cable transfers of the specified currency in The City of
New York as certified for customs purposes (or, if not certified, as otherwise
determined) by the Federal Reserve Bank of New York.
The procedures described above will apply to any note, whether in global or
non-global form, and to any payment, including a payment at maturity. Any
payment made under the circumstances and in a manner described above will not
result in a default under any note or the indenture.
EXCHANGE RATE AGENT
If we issue a note in a specified currency other than U.S. dollars, we will
appoint a financial institution to act as the exchange rate agent and will name
the institution initially appointed when the note is originally issued in the
applicable pricing supplement. We may select one of our affiliates or one of the
agents or their affiliates to perform this role. We may change the exchange rate
agent from time to time after the original issue date of the note without your
consent and without notifying you of this change.
All determinations made by the exchange rate agent will be at its sole
discretion unless we state in the applicable pricing supplement that any
determination requires our approval. In the absence of manifest error, those
determinations will be conclusive for all purposes and binding on you and us,
without any liability on the part of the exchange rate agent.
DENOMINATION OF NOTES
Unless we specify differently in the pricing supplement relating to your note,
the denomination of your note will be $1,000 or integral multiples of $1,000
above that. If your note is denominated in a specified currency other than U.S.
dollars, the denomination of the note will be in an amount of the specified
currency for the note equivalent to $1,000 and integral multiples of $1,000
above that, using an exchange rate equal to the noon buying rate in New York
City for cable transfers for the specified currency on the first business day
immediately before the date on which we accept the offer to buy the note.
INTEREST RATES
FIXED RATE NOTES
Each fixed rate note, except any zero coupon note, will bear interest from its
original issue date or from the most recent date to which interest on the note
has been paid or made available for payment. Interest will accrue on the
principal of a fixed rate note at the fixed yearly rate stated in the applicable
pricing supplement, until the principal is paid or made available for payment.
Unless otherwise specified in the applicable pricing supplement, interest on a
fixed rate note will be payable semiannually each June 15 and December 15, which
will be the interest payment dates for a fixed rate note, and at maturity. Each
payment of interest due on an interest payment date or the date of maturity will
include interest accrued from and including the last date to which interest has
been paid or made available for payment, or from the issue date if none has been
paid or made available for payment, to but excluding the interest payment date
or the date of maturity. If, however, an interest payment date or the maturity
date of a fixed rate note falls on a day that is not a business day, we will
make the required payment of principal, premium, if any, and/or interest on the
next succeeding business day, and no additional interest will accrue with
respect to the payment made on that next succeeding business day. We will
compute interest on fixed rate notes on the basis of a 360-day year of twelve
30-day months. We will pay interest on each interest payment date and at
maturity as described above under "-- Payment Mechanics". If the original issue
date of a note is between a regular record date and the corresponding interest
payment date, the initial interest payment will be made to the holder of record
on the next interest payment date after the next regular record date.
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FLOATING RATE NOTES
In this subsection, we use several specialized terms relating to the manner in
which floating interest rates are calculated. These terms appear in BOLD,
ITALICIZED type the first time they appear, and we define these terms in "--
Special Rate Calculation Terms" at the end of this subsection.
Also, please remember that the specific terms of your note as described in your
pricing supplement will supplement and may modify or replace the general terms
regarding the floating rates of interest described in this subsection. The
statements we make in this subsection may not apply to your note.
Each floating rate note will bear interest from its original issue date or from
the most recent date to which interest on the note has been paid or made
available for payment. Interest will accrue on the principal of a floating rate
note at the yearly rate determined according to the interest rate formula stated
in the applicable pricing supplement, until the principal is paid or made
available for payment. We will pay interest on each interest payment date and at
maturity as described above under "-- Payment Mechanics".
BASE RATES
We currently expect to issue floating rate notes that bear interest at rates
based on one or more of the following base rates:
- commercial paper rate;
- prime rate;
- LIBOR;
- treasury rate;
- CMT rate;
- CD rate;
- federal funds rate;
- 11th district rate; and/or
- any other base rate or interest rate formula as may be specified in your
pricing supplement.
If you purchase a floating rate note, your pricing supplement will specify the
type or types of base rates applicable to your note.
INITIAL BASE RATE
For any floating rate note, the base rate in effect from the original issue date
to the first interest reset date will be the initial base rate. We will specify
the initial base rate in the applicable pricing supplement.
SPREAD OR SPREAD MULTIPLIER
In some cases, the base rate for a floating rate note may be adjusted:
- by adding or subtracting a specified number of basis points, called the
spread, with one basis point being 0.01%; or
- by multiplying the base rate by a specified percentage, called the
spread multiplier.
If you purchase a floating rate note, your pricing supplement will specify
whether a spread or spread multiplier will apply to your note and, if so, the
amount of the spread or spread multiplier. We may change the spread, spread
multiplier, INDEX MATURITY and other
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variable terms of the floating rate notes from time to time, but no change will
affect any floating rate note previously issued or as to which we have accepted
an offer.
Your pricing supplement will also specify whether the floating rate note is a
regular floating rate note, a floating rate/fixed rate note or an inverse
floating rate note. Unless you purchase a floating rate note that is designated
a floating rate/fixed rate note or an inverse floating rate note, your
particular floating rate note will be a regular floating rate note. A regular
floating rate note will bear interest at a rate determined by reference to the
applicable rate as specified in your pricing supplement and as adjusted by the
spread and/or spread multiplier, if applicable. Commencing on the first interest
reset date, the rate at which interest on a regular floating rate note is
payable will be reset as of each interest reset date. The interest rate in
effect for the period, if any, from the date of issue to the first interest
reset date will be the initial interest rate.
A floating rate/fixed rate note will bear interest at a rate determined by
reference to the applicable rate as specified in your pricing supplement and as
adjusted by the spread and/or spread multiplier, if applicable. Commencing on
the first interest reset date, the rate at which interest on a floating
rate/fixed rate note is payable will be reset as of each interest reset date.
The interest rate in effect for the period, if any, from the date of issue to
the first interest reset date will be the initial interest rate, and the
interest rate in effect commencing on the fixed rate commencement date will be
the fixed interest rate, if specified in your pricing supplement, or, if not so
specified, the interest rate in effect on the day immediately preceding the
fixed rate commencement date.
An inverse floating rate note will bear interest at a fixed rate minus the
applicable interest rate as specified in your pricing supplement and as adjusted
by the spread and/or spread multiplier, if applicable, provided, however, that
interest on an inverse floating rate note will not be less than zero. Commencing
on the first interest reset date, the rate at which interest on an inverse
floating rate note is payable will be reset as of each interest reset date. The
interest rate in effect for the period, if any, from the date of issue to the
first interest reset date will be the initial interest rate.
Your pricing supplement will also specify, if applicable, the fixed rate
commencement date and the fixed interest rate, as those rates may apply to some
floating rate notes.
MAXIMUM AND MINIMUM RATES
The actual interest rate, after being adjusted by the spread or spread
multiplier, may also be subject to either or both of the following limits:
- a maximum rate-- i.e., a specified upper limit, or ceiling, that the
actual interest rate in effect at any time may not exceed; and/or
- a minimum rate-- i.e., a specified lower limit, or floor, that the
actual interest rate in effect at any time may not fall below.
If you purchase a floating rate note, your pricing supplement will specify
whether a maximum rate and/or minimum rate will apply to your note and, if so,
what those rates are.
Whether or not a maximum rate applies, the interest rate on a floating rate note
will in no event be higher than the maximum rate permitted by New York law, as
it may be modified by U.S. law of general application. Under current New York
law, the maximum rate of interest, with some exceptions, for any loan in an
amount less than $250,000 is 16% and for any loan in the amount of $250,000 or
more but less than $2,500,000 is 25% per year on a simple interest basis. These
limits do not apply to loans of $2,500,000 or more.
The rest of this subsection describes how the interest rate and the interest
payment dates will be determined, and how interest will be calculated, on a
floating rate note.
INTEREST RESET DATES
The rate of interest on a floating rate note will be reset, by the calculation
agent described below, daily, weekly, monthly, quarterly, semi-annually or
annually. The date on which the interest rate resets and the reset rate becomes
effective is called the interest reset date. Except as otherwise specified in
the applicable pricing supplement, the interest reset date will be as follows:
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- for floating rate notes that reset daily, each BUSINESS DAY;
- for floating rate notes that reset weekly and are not treasury rate
notes, the Wednesday of each week;
- for treasury rate notes that reset weekly, the Tuesday of each week,
except as otherwise described in the next to last paragraph under
"--Interest Determination Dates" below;
- for floating rate notes that reset monthly and are not 11th district
rate notes, the third Wednesday of each month;
- for 11th district rate notes that reset monthly, the first calendar day
of the month;
- for floating rate notes that reset quarterly, the third Wednesday of
March, June, September and December of each year;
- for floating rate notes that reset semi-annually, the third Wednesday of
each of two months of each year as specified in the applicable pricing
supplement; and
- for floating rate notes that reset annually, the third Wednesday of one
month of each year as specified in the applicable pricing supplement.
For a floating rate note, the interest rate in effect on any particular day will
be the interest rate determined with respect to the latest interest reset date
that occurs on or before that day. If an interest reset date falls on a day that
is not a business day, that interest reset date will be postponed to the next
succeeding business day, except where LIBOR is applicable, and that business day
falls in the next succeeding calendar month, the particular interest reset date
will be the immediately preceding business day. Also, where a treasury rate is
applicable, if the interest determination date would otherwise fall on an
interest reset date, that interest reset date will be postponed to the next
succeeding business day.
There are several exceptions, however, to the reset provisions described above.
The base rate in effect from the original issue date to the first interest reset
date will be the initial base rate. For floating rate notes that reset daily or
weekly, the base rate in effect for each day following the second business day
before an interest payment date to, but excluding, the interest payment date,
and for each day following the second business day before the maturity to, but
excluding, the maturity, will be the base rate in effect on that second business
day.
INTEREST DETERMINATION DATES
The interest rate that takes effect on an interest reset date will be determined
by the calculation agent by reference to a particular date called an interest
determination date. Except as otherwise specified in the applicable pricing
supplement:
- for CD rate notes, CMT rate notes, commercial paper rate notes, federal
funds rate notes and prime rate notes, the interest determination date
relating to a particular interest reset date will be the second business
day preceding that interest reset date;
- for LIBOR notes, the interest determination date relating to a
particular interest reset date will be the second LONDON BANKING DAY
preceding the interest reset date unless the index currency is British
Pounds Sterling, in which case the interest determination date will be
the applicable interest reset date. We refer to an interest
determination date for a LIBOR note as a LIBOR interest determination
date;
- for treasury rate notes, the interest determination date relating to a
particular interest reset date, which we refer to as a treasury interest
determination date, will be the day of the week in which the interest
reset date falls on which treasury bills -- i.e., direct obligations of
the U.S. government -- would normally be auctioned. Treasury bills are
usually sold at auction on the Monday of each week, unless that day is a
legal holiday, in which case the auction is usually held on the
following Tuesday, except that the auction may be held on the preceding
Friday. If as the result of a legal holiday an auction is held on the
preceding Friday, that Friday will be the treasury interest
determination date relating to the interest reset date occurring in the
next succeeding week. If no auction is held for the week in which such
interest reset date falls, then the interest reset date with respect to
such week shall be the first business day of such week. If the auction
is held on a day that would otherwise be an interest reset date, then
the interest reset date will instead be the first business day following
the auction date;
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- for 11th district rate notes, the interest determination date relating
to a particular interest reset date will be the last working day in San
Francisco, in the first calendar month before that interest reset date,
on which the Federal Home Loan Bank of San Francisco publishes the
monthly average cost of funds paid by member institutions of the
Eleventh Federal Home Loan Bank District for the second calendar month
before that interest reset date. We refer to an interest determination
date for an 11th district rate note as an 11th district interest
determination date; and
- for notes with interest rates based on two or more rates, the interest
determination date will be the most recent business day which is at
least two business days prior to the applicable interest reset date for
such rate on which each interest rate basis is determined.
INTEREST CALCULATION DATES
As described above, the interest rate that takes effect on a particular interest
reset date will be determined by reference to the corresponding interest
determination date. Except for LIBOR notes and 11th district rate notes,
however, the determination of the rate will actually be made by a calculation
agent on the corresponding interest calculation date. The interest calculation
date will be the earlier of the following:
- the tenth calendar day after the interest determination date or, if that
tenth calendar day is not a business day, the next succeeding business
day; or
- the business day immediately preceding the interest payment date or the
maturity, whichever is the day on which the next payment of interest
will be due.
INTEREST PAYMENT DATES
The interest payment dates for a floating rate note will depend on when the
interest rate is reset and, unless we specify otherwise in the applicable
pricing supplement, will be as follows:
- for floating rate notes that reset daily, weekly or monthly, the third
Wednesday of each month or the third Wednesday of March, June, September
and December of each year, as specified in the applicable pricing
supplement;
- for floating rate notes that reset quarterly, the third Wednesday of
March, June, September and December of each year;
- for floating rate notes that reset semi-annually, the third Wednesday of
the two months of each year specified in the applicable pricing
supplement;
- for floating rate notes that reset annually, the third Wednesday of the
month specified in the applicable pricing supplement; and
- for all floating rate notes, at maturity.
Regardless of these rules, if a note is originally issued after the regular
record date and before the date that would otherwise be the first interest
payment date, the first interest payment date will be the date that would
otherwise be the second interest payment date.
If, however, an interest payment date or the maturity date of a floating rate
note falls on a day that is not a business day, we will make the required
payment of principal, premium, if any, and/or interest on the next succeeding
business day, and no additional interest will accrue with respect to the payment
made on that next succeeding business day.
CALCULATION OF INTEREST
Calculations relating to floating rate notes will be made by the calculation
agent, an institution that we appoint as our agent for this purpose. Unless the
applicable pricing supplement provides otherwise, Bank One, NA will be the
calculation agent for the floating rate notes. We may appoint a different
institution to serve as calculation agent from time to time after the original
issue date of a note without your consent and without notifying you of the
change.
For each floating rate note, the calculation agent will determine, on the
corresponding interest calculation or determination date, as applicable, the
interest rate that takes effect on each interest reset date. In addition, the
calculation agent will calculate the amount of
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interest that has accrued during each interest period -- i.e., the period from
and including the original issue date, or the last date to which interest has
been paid or made available for payment, to but excluding the payment date. For
each interest period, the calculation agent will calculate the amount of accrued
interest by multiplying the face amount of the floating rate note by an accrued
interest factor for the interest period. This factor will equal the sum of the
interest factors calculated for each day during the interest period. The
interest factor for each day will be expressed as a decimal and will be
calculated by dividing the interest rate (also expressed as a decimal)
applicable to that day:
- by 360, in the case of commercial paper rate notes, prime rate notes,
LIBOR notes, CD rate notes, federal funds rate notes and 11th district
rate notes; or
- by the actual number of days in the year, in the case of treasury rate
notes and CMT rate notes.
The interest factor for notes as to which the interest rate is based on two or
more rates will be calculated in each interest period as if only the applicable
rate specified in your pricing supplement applied.
Upon the request of the holder of any floating rate note, the calculation agent
will provide for that note the interest rate then in effect and, if determined,
the interest rate that will become effective on the next interest reset date.
The calculation agent's determination of any interest rate, and its calculation
of the amount of interest for any interest period, will be final and binding in
the absence of manifest error.
All percentages resulting from any calculation relating to a note will be
rounded upward or downward, as appropriate, to the next higher or lower one
hundred-thousandth of a percentage point (e.g., 9.876541% (or .09876541) being
rounded down to 9.87654% (or .0987654) and 9.876545% (or .09876545) being
rounded up to 9.87655% (or .0987655)). All amounts used in or resulting from any
calculation relating to a floating rate note will be rounded upward or downward,
as appropriate, to the nearest cent, in the case of U.S. dollars, or to the
nearest corresponding hundredth of a unit, in the case of a currency other than
U.S. dollars, with one-half cent or one-half of a corresponding hundredth of a
unit or more being rounded upward.
In determining the base rate that applies to a floating rate note during a
particular interest period, the calculation agent may obtain rate quotes from
various banks or dealers active in the relevant market, as described in the
following subsections. Those reference banks and dealers may include the
calculation agent itself and its affiliates, as well as any agent and its
affiliates, and they may include our affiliates.
COMMERCIAL PAPER RATE NOTES
If you purchase a commercial paper rate note, your note will bear interest at a
base rate equal to the commercial paper rate and adjusted by the spread or
spread multiplier, if any, specified in your pricing supplement.
The commercial paper rate will be the MONEY MARKET YIELD of the rate, for the
relevant interest determination date, for commercial paper having the INDEX
MATURITY specified in your pricing supplement, as published in H.15 (519) under
the heading "Commercial Paper -- Nonfinancial":
- If the rate described above is not published in H.15 (519) by 3:00 P.M.,
New York City time, on the relevant interest calculation date, then the
commercial paper rate will be the rate, for the relevant interest
determination date, for commercial paper having the index maturity
specified in your pricing supplement, as published in H.15 DAILY UPDATE
or any other recognized electronic source used for displaying that rate,
under the heading "Commercial Paper -- Nonfinancial"; or
- If the rate described in the prior paragraph is not published in H.15
(519), H.15 Daily Update or another recognized electronic source by 3:00
P.M., New York City time, on the relevant interest calculation date
(unless the calculation is made earlier and the rate is available from
one of those sources at that time), the commercial paper rate will be
the money market yield of the arithmetic mean of the following offered
rates for U.S. dollar commercial paper that has the relevant index
maturity and is placed for an industrial issuer whose bond rating is
"Aa", or the equivalent, from a nationally recognized rating agency: the
rates offered as of 11:00 A.M., New York City time, on the relevant
interest determination date, by three leading U.S. dollar commercial
paper dealers in The City of New York (which may include the agents or
their affiliates) selected by the calculation agent; or
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- If fewer than three dealers selected by the calculation agent are
quoting as described above, the commercial paper rate for the new
interest period will be the commercial paper rate in effect for the
prior interest period. If the initial base rate has been in effect for
the prior interest period, however, it will remain in effect for the new
interest period.
PRIME RATE NOTES
If you purchase a prime rate note, your note will bear interest at a base rate
equal to the prime rate and adjusted by the spread or spread multiplier, if any,
specified in your pricing supplement.
The prime rate will be the rate, for the relevant interest determination date,
published in H.15 (519) under the heading "Bank Prime Loan".
- If the rate described above is not published in H.15 (519) by 3:00 P.M.,
New York City time, on the relevant interest calculation date, then the
prime rate will be the rate, for the relevant interest determination
date, as published in H.15 daily update or another recognized electronic
source used for the purpose of displaying that rate, under the heading
"Bank Prime Loan"; or
- If the rate described in the prior paragraph is not published in
H.15(519), H.15 Daily Update or another recognized electronic source by
3:00 P.M., New York City time, on the relevant interest calculation date
(unless the calculation is made earlier and the rate is available from
one of those sources at that time), then the prime rate will be the
arithmetic mean of the following rates as they appear on the REUTERS
SCREEN US PRIME 1 PAGE: the rate of interest publicly announced by each
bank appearing on that page as that bank's prime rate or base lending
rate, as of 11:00 A.M., New York City time, on the relevant interest
determination date; or
- If fewer than four of these rates appear on the Reuters screen US PRIME
1 page, the prime rate will be the arithmetic mean of the prime rates or
base lending rates, as of the close of business on the relevant interest
determination date, of three major banks in The City of New York
selected by the calculation agent. For this purpose, the calculation
agent will use rates quoted on the basis of the actual number of days in
the year divided by a 360-day year; or
- If fewer than three banks selected by the calculation agent are quoting
as described above, the prime rate for the new interest period will be
the prime rate in effect for the prior interest period. If the initial
base rate has been in effect for the prior interest period, however, it
will remain in effect for the new interest period.
LIBOR NOTES
If you purchase a LIBOR note, your note will bear interest at a base rate equal
to LIBOR, which means the London interbank offered rate for deposits in U.S.
dollars or any other index currency, as specified in your pricing supplement. In
addition, the applicable LIBOR base rate will be adjusted by the spread or
spread multiplier, if any, specified in your pricing supplement. LIBOR will be
determined in the following manner:
- LIBOR will be either:
-- the offered rate appearing on the Moneyline TELERATE LIBOR PAGE; or
-- the arithmetic mean of the offered rates appearing on the REUTERS
SCREEN LIBOR PAGE unless that page by its terms cites only one rate,
in which case that rate;
in either case, as of 11:00 A.M., London time, on the relevant LIBOR interest
determination date, for deposits of the relevant index currency having the
relevant index maturity beginning on the relevant interest reset date. Your
pricing supplement will indicate the index currency, the index maturity and the
reference page that apply to your LIBOR note. If no reference page is specified
in your pricing supplement, the Moneyline Telerate LIBOR page will apply to your
LIBOR note.
- If the Moneyline Telerate LIBOR page applies and the rate described
above does not appear on that page, or if the Reuters screen LIBOR page
applies and fewer than two of the rates described above appear on that
page or no rate appears on any page on which only one rate normally
appears, then LIBOR will be determined on the basis of the rates, at
approximately 11:00 A.M., London
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time, on the relevant LIBOR interest determination date, at which
deposits of the following kind are offered to prime banks in the London
interbank market by four major banks in that market selected by the
calculation agent: deposits of the index currency having the relevant
index maturity beginning on the relevant interest reset date, and in a
REPRESENTATIVE AMOUNT. The calculation agent will request the principal
London office of each of these banks to provide a quotation of its rate.
If at least two quotations are provided, LIBOR for the relevant LIBOR
interest determination date will be the arithmetic mean of the
quotations; or
- If fewer than two quotations are provided as described above, LIBOR for
the relevant LIBOR interest determination date will be the arithmetic
mean of the rates for loans of the following kind to leading European
banks quoted, at approximately 11:00 A.M., in the principal financial
center for the country of the index currency, on that LIBOR interest
determination date, by three major banks in that financial center
selected by the calculation agent: loans of the index currency having
the relevant index maturity, beginning on the relevant interest reset
date, and in a representative amount; or
- If fewer than three banks selected by the calculation agent are quoting
as described above, LIBOR for the new interest period will be LIBOR in
effect for the prior interest period. If the initial base rate has been
in effect for the prior interest period, however, it will remain in
effect for the new interest period.
TREASURY RATE NOTES
If you purchase a treasury rate note, your note will bear interest at a base
rate equal to the treasury rate and adjusted by the spread or spread multiplier,
if any, specified in your pricing supplement.
The treasury rate will be the rate for the auction, on the relevant treasury
interest determination date, of treasury bills having the index maturity
specified in your pricing supplement, as that rate appears on Moneyline TELERATE
PAGE 56 or 57 under the heading "Investment Rate". If the treasury rate cannot
be determined in this manner, the following procedures will apply.
- If the rate described above does not appear on either page at 3:00 P.M.,
New York City time, on the relevant interest calculation date (unless
the calculation is made earlier and the rate is available from that
source at that time), the treasury rate will be the BOND EQUIVALENT
YIELD of the rate, for the relevant interest determination date, for the
type of treasury bill described above, as published in H.15 Daily
Update, or another recognized electronic source used for displaying that
rate, under the heading "U.S. Government Securities/Treasury
Bills/Auction High"; or
- If the rate described in the prior paragraph does not appear in H.15
Daily Update or another recognized electronic source by 3:00 P.M., New
York City time, on the relevant interest calculation date (unless the
calculation is made earlier and the rate is available from one of those
sources at that time), the treasury rate will be the bond equivalent
yield of the auction rate, for the relevant treasury interest
determination date and for treasury bills of the kind described above,
as announced by the U.S. Department of the Treasury; or
- If the auction rate described in the prior paragraph is not so announced
by 3:00 P.M., New York City time, on the relevant interest calculation
date, or if no such auction is held for the relevant week, then the
treasury rate will be the bond equivalent yield of the rate, for the
relevant treasury interest determination date and for treasury bills of
the kind described above, as published in H.15 (519) under the heading
"U.S. Government Securities/Treasury Bills/Secondary Market"; or
- If the rate described in the prior paragraph is not published in H.15
(519) by 3:00 P.M., New York City time, on the relevant interest
calculation date, then the treasury rate will be the rate, for the
relevant treasury interest determination date and for treasury bills of
the kind described above, as published in H.15 Daily Update, or another
recognized electronic source used for displaying that rate, under the
heading "U.S. Government Securities/Treasury Bills/Secondary Market"; or
- If the rate described in the prior paragraph is not published in H.15
Daily Update or another recognized electronic source by 3:00 P.M., New
York City time, on the relevant interest calculation date (unless the
calculation is made earlier and the rate is available from one of those
sources at that time), the treasury rate will be the bond equivalent
yield of the arithmetic mean of the following secondary market bid rates
for the issue of treasury bills with a remaining maturity closest to the
specified index maturity: the rates bid as of approximately 3:30 P.M.,
New York City time, on the relevant treasury interest determination
date, by three primary U.S. government securities dealers in The City of
New York selected by the calculation agent; or
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- If fewer than three dealers selected by the calculation agent are
quoting as described in the prior paragraph, the treasury rate in effect
for the new interest period will be the treasury rate in effect for the
prior interest period. If the initial base rate has been in effect for
the prior interest period, however, it will remain in effect for the new
interest period.
CMT RATE NOTES
If you purchase a CMT rate note, your note will bear interest at a base rate
equal to the CMT rate and adjusted by the spread or spread multiplier, if any,
specified in your pricing supplement.
The CMT rate will be the following rate displayed on the DESIGNATED CMT
MONEYLINE TELERATE PAGE under the heading "Treasury Constant Maturities", under
the column for the DESIGNATED CMT INDEX MATURITY:
- if the designated CMT Moneyline Telerate page is Moneyline Telerate page
7051, the rate for the relevant interest determination date; or
- if the designated CMT Moneyline Telerate page is Moneyline Telerate page
7052, the weekly or monthly average, as specified in your pricing
supplement, for the week that ends immediately before the week in which
the relevant interest determination date falls, or for the month that
ends immediately before the month in which the relevant interest
determination date falls, as applicable; or
- if the applicable rate described above is not displayed on the relevant
designated CMT Moneyline Telerate page at 3:00 P.M., New York City time,
on the relevant interest calculation date (unless the calculation is
made earlier and the rate is available from one of those sources at that
time), then the CMT rate will be the applicable treasury constant
maturity rate described above -- i.e., for the designated CMT index
maturity and for either the relevant interest determination date or the
weekly or monthly average, as applicable -- as published in H.15 (519);
or
- if the applicable rate described in the prior paragraph is not published
in H.15 (519) by 3:00 P.M., New York City time, on the relevant interest
calculation date, then the CMT rate will be the treasury constant
maturity rate, or other U.S. treasury rate, for the designated CMT index
maturity and with reference to the relevant interest determination date,
that:
-- is published by the Board of Governors of the Federal Reserve
System, or the U.S. Department of the Treasury; and
-- is determined by the calculation agent to be comparable to the
applicable rate formerly displayed on the designated CMT Moneyline
Telerate page and published in H.15 (519); or
- if the rate described in the prior paragraph is not published by 3:00
P.M., New York City time, on the relevant interest calculation date,
then the CMT rate will be the yield to maturity of the arithmetic mean
of the following secondary market offered rates for the most recently
issued treasury notes having an original maturity of approximately the
designated CMT index maturity and a remaining term to maturity of not
less than the designated CMT index maturity minus one year and in a
representative amount: the offered rates, as of approximately 3:30 P.M.,
New York City time, on the relevant interest determination date, of
three primary U.S. government securities dealers in The City of New York
selected by the calculation agent. In selecting these offered rates, the
calculation agent will request quotations from five of these primary
dealers and will disregard the highest quotation -- or, if there is
equality, one of the highest -- and the lowest quotation -- or, if there
is equality, one of the lowest. Treasury notes are direct, non-callable,
fixed rate obligations of the U.S. government; or
- if fewer than five but more than two of these primary dealers are
quoting as described in the prior paragraph, then the CMT rate for the
relevant interest determination date will be based on the arithmetic
mean of the offered rates so obtained, and neither the highest nor the
lowest of those quotations will be disregarded; or
- if fewer than three of these primary dealers are quoting as described
in the paragraph preceding the prior paragraph, the CMT rate will be the
yield to maturity of the arithmetic mean of the following secondary
market offered rates for treasury notes with an original maturity longer
than the designated CMT index maturity, with a remaining term to
maturity closest to the designated CMT index maturity and in a
representative amount: the offered rates, as of approximately 3:30 P.M.,
New York City time, on the relevant interest determination date, of
three primary U.S. government securities dealers in The City of New York
selected by the calculation agent. In selecting these offered rates, the
calculation agent will request quotations from five of these primary
dealers and will disregard the highest quotation-- or, if there is
equality, one of the highest-- and the lowest quotation-- or, if there
is equality, one of the lowest. If two treasury notes with an original
maturity longer than the designated
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CMT index maturity have remaining terms to maturity that are equally
close to the designated CMT index maturity, the calculation agent will
obtain quotations for the treasury note with the shorter remaining term
to maturity; or
- if fewer than five but more than two of these primary dealers are
quoting as described in the prior paragraph, then the CMT rate for the
relevant interest date will be based on the arithmetic mean of the
offered rates so obtained, and neither the highest nor the lowest of
those quotations will be disregarded; or
- if fewer than three primary dealers selected by the calculation agent
are quoting as described in the paragraph preceding the prior paragraph,
the CMT rate in effect for the new interest period will be the CMT rate
in effect for the prior interest period. If the initial base rate has
been in effect for the prior interest period, however, it will remain in
effect for the new interest period.
CD RATE NOTES
If you purchase a CD rate note, your note will bear interest at a base rate
equal to the CD rate and adjusted by the spread or spread multiplier, if any,
specified in your pricing supplement.
The CD rate will be the rate, on the relevant interest determination date, for
negotiable U.S. dollar certificates of deposit having the index maturity
specified in your pricing supplement, as published in H.15 (519) under the
heading "CDs (secondary market)".
- If the rate described above is not published in H.15 (519) by 3:00 P.M.,
New York City time, on the relevant interest calculation date, then the
CD rate will be the rate, for the relevant interest determination date,
described above as published in H.15 Daily Update, or another recognized
electronic source used for displaying that rate, under the heading "CDs
(secondary market)"; or
- If the rate described in the prior paragraph is not published in H.15
(519), H.15 Daily Update or another recognized electronic source by 3:00
P.M., New York City time, on the relevant interest calculation date
(unless the calculation is made earlier and the rate is available from
one of those sources at that time), the CD rate will be the arithmetic
mean of the following secondary market offered rates for negotiable U.S.
dollar certificates of deposit of major U.S. money center banks with a
remaining maturity closest to the specified index maturity, and in a
representative amount: the rates offered as of 10:00 A.M., New York City
time, on the relevant interest determination date, by three leading
nonbank dealers in negotiable U.S. dollar certificates of deposit in The
City of New York (which may include the agents or their affiliates), as
selected by the calculation agent; or
- If the dealers selected by the calculation agent are not quoting as
described above, the CD rate in effect for the new interest period will
be the CD rate in effect for the prior interest period. If the initial
base rate has been in effect for the prior interest period, however, it
will remain in effect for the new interest period.
FEDERAL FUNDS RATE NOTES
If you purchase a federal funds rate note, your note will bear interest at a
base rate equal to the federal funds rate and adjusted by the spread or spread
multiplier, if any, specified in your pricing supplement.
The federal funds rate will be the rate for U.S. dollar federal funds on the
relevant interest determination date, as published in H.15 (519) under the
heading "Federal Funds (Effective)", as that rate is displayed on Moneyline
Telerate page 120.
- If the rate described above is not displayed on Moneyline Telerate page
120 by 3:00 P.M., New York City time, on the relevant interest
calculation date (unless the calculation is made earlier and the rate is
available from that source at that time), then the federal funds rate
will be the rate, for the relevant interest determination date,
described above as published in H.15 Daily Update, or another recognized
electronic source used for displaying that rate, under the heading
"Federal Funds (Effective)"; or
- If the rates described in the prior paragraph are not displayed on
Moneyline Telerate page 120 or are not published in H.15 (519), H.15
Daily Update or another recognized electronic source by 3:00 P.M., New
York City time, on the relevant interest calculation date (unless the
calculation is made earlier and the rate is available from one of those
sources at that time), the federal funds rate will be the arithmetic
mean of the rates for the last transaction in overnight U.S. dollar
federal funds arranged, before 9:00 A.M., New York City time, on the
relevant interest determination date, by three leading brokers of U.S.
dollar federal funds transactions in The City of New York (which may
include the agents or their affiliates) selected by the calculation
agent; or
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- If the brokers selected by the calculation agent are not quoting as
described above, the federal funds rate in effect for the new interest
period will be the federal funds rate in effect for the prior interest
period. If the initial base rate has been in effect for the prior
interest period, however, it will remain in effect for the new interest
period.
11TH DISTRICT RATE NOTES
If you purchase an 11th district rate note, your note will bear interest at a
base rate equal to the 11th district rate and adjusted by the spread or spread
multiplier, if any, specified in your pricing supplement.
The 11th district rate will be the rate equal to the monthly weighted average
cost of funds for the calendar month immediately before the relevant 11th
district interest determination date, as displayed on Moneyline Telerate page
7058 under the heading "11th District" as of 11:00 A.M., San Francisco time, on
that date.
- If the rate described above does not appear on Moneyline Telerate page
7058 on the relevant 11th district interest determination date, then the
11th district rate for that date will be the monthly weighted average
cost of funds paid by institutions that are members of the Eleventh
Federal Home Loan Bank District for the calendar month immediately
before the relevant 11th district interest determination date, as most
recently announced by the Federal Home Loan Bank of San Francisco as
that cost of funds; or
- If the Federal Home Loan Bank of San Francisco fails to announce the
cost of funds described in the prior paragraph on or before the relevant
11th district interest determination date, the 11th district rate in
effect for the new interest period will be the 11th district rate in
effect for the prior interest period. If the initial base rate has been
in effect for the prior interest period, however, it will remain in
effect for the new interest period.
SPECIAL RATE CALCULATION TERMS
In this subsection entitled "-- Interest Rates", we use several terms that have
special meanings relevant to calculating floating interest rates. We define
these terms as follows:
"BOND EQUIVALENT YIELD" means a yield expressed as a percentage and calculated
in accordance with the following formula:
bond equivalent yield = D X N
------------------------
360 -- (D X M) X 100
where
- "D" means the annual rate for treasury bills quoted on a bank discount
basis and expressed as a decimal;
- "N" means 365 or 366, as the case may be; and
- "M" means the actual number of days in the applicable interest reset
period.
"BUSINESS DAY" means, for any note, a day that meets all the following
applicable requirements:
- for all notes, is a Monday, Tuesday, Wednesday, Thursday or Friday that
is neither a legal holiday nor a day on which commercial banking
institutions generally are authorized or required by law, regulation or
executive order to close in The City of New York;
- if the note is a LIBOR note, is also a London banking day; and
- if the note has a specified currency other than U.S. dollars, is also a
day on which banking institutions are not authorized or required by law,
regulation or executive order to close in the principal financial center
of the country issuing the specified currency. If the specified currency
is euro, the day must also be a day on which the Trans-European
Automated Real-Time Gross Settlement Express Transfer System is open.
The term "principal financial center" refers to (i) the capital city of
the country issuing the specified currency (which in the case of those
countries whose currencies were replaced by the euro, shall be Brussels,
Belgium) or (ii) the capital city of the country to which the LIBOR
currency, if applicable, relates, except, in each case with respect to
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United States dollars, Australian dollars, Canadian dollars, New Zealand
dollars, South African rand and Swiss francs, the term "principal
financial center" refers to The City of New York, Sydney and (solely in
the case of specified currency) Melbourne, Toronto, Wellington,
Johannesburg and Zurich, respectively.
"DESIGNATED CMT INDEX MATURITY" means the index maturity for a CMT rate note and
will be the original period to maturity of a U.S. treasury security -- either 1,
2, 3, 5, 7, 10, 20 or 30 years -- specified in the applicable pricing
supplement. If no such original maturity period is so specified, the designated
CMT index maturity will be 2 years.
"DESIGNATED CMT MONEYLINE TELERATE PAGE" means the Moneyline Telerate page
specified in the applicable pricing supplement that displays treasury constant
maturities as reported in H.15 (519). If no Moneyline Telerate page is so
specified, then the applicable page will be Moneyline Telerate page 7052. If
Moneyline Telerate Page 7052 applies but the applicable pricing supplement does
not specify whether the weekly or monthly average applies, the weekly average
will apply.
"H.15 (519)" means the weekly statistical release designated as "H.15 (519)", or
any successor publication, published by the Board of Governors of the Federal
Reserve System.
"H.15 DAILY UPDATE" means the daily update of H.15 (519) available through the
worldwide-web site of the Board of Governors of the Federal Reserve System, at
http: //www.federalreserve.gov/releases/h15/update, or any successor site or
publication.
"INDEX CURRENCY" means, with respect to a LIBOR note, the currency specified as
such in the applicable pricing supplement. The index currency may be U.S.
dollars or any other currency, and will be U.S. dollars unless another currency
is specified in the applicable pricing supplement.
"INDEX MATURITY" means, with respect to a floating rate note, the period to
maturity of the instrument or obligation on which the interest rate formula is
based, as specified in the applicable pricing supplement.
"LONDON BANKING DAY" means a day on which commercial banks are open for
business (including dealings in the relevant index currency) in London.
"MONEY MARKET YIELD" means a yield expressed as a percentage and calculated in
accordance with the following formula:
money market yield = D X 360 X 100
-------------
360-- (D X M)
where
- "D" means the annual rate for commercial paper quoted on a bank discount
basis and expressed as a decimal; and
- "M" means the actual number of days in the relevant interest reset
period.
"MONEYLINE TELERATE LIBOR PAGE" means Moneyline Telerate page 3750 or any
replacement page or pages on which London interbank rates of major banks for the
relevant index currency are displayed.
"MONEYLINE TELERATE PAGE" means the display on Moneyline Telerate, or any
successor service, on the page or pages specified in this prospectus supplement
or the applicable pricing supplement, or any replacement page or pages on that
service.
"REPRESENTATIVE AMOUNT" means an amount that, in the calculation agent's
judgment, is representative of a single transaction in the relevant market at
the relevant time.
"REUTERS SCREEN LIBOR PAGE" means the display on the Reuters Monitor Money Rates
Service, or any successor service, on the page designated as "LIBO" or any
replacement page or pages on which London interbank rates of major banks for the
relevant index currency are displayed.
"REUTERS SCREEN US PRIME 1 PAGE" means the display on the "US PRIME 1" page on
the Reuters Monitor Money Rates Service, or any successor service, or any
replacement page or pages on that service, for the purpose of displaying prime
rates or base lending rates of major U.S. banks.
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If, when we use the terms designated CMT Moneyline Telerate page, H.15 (519),
H.15 Daily Update, Reuters screen LIBOR page, Reuters screen US PRIME 1 page,
Moneyline Telerate LIBOR page or Moneyline Telerate page, we refer to a
particular heading or headings on any of those pages, those references include
any successor or replacement heading or headings as determined by the
calculation agent.
INDEXED NOTES
We may issue notes with the amount of principal, premium and/or interest payable
in respect of the notes to be determined with reference to the price or prices
of specified commodities or stocks, to the exchange rate of one or more
designated currencies relative to an indexed currency or to other items, which
we will specify, if applicable, in your pricing supplement. In certain cases,
holders of indexed notes may receive a principal payment on the maturity date
that is greater than or less than the principal amount of the indexed notes
depending upon the relative value on the maturity date of the specified indexed
item. Information as to the method for determining the amount of principal,
premium, if any, and/or interest, if any, payable in respect of indexed notes,
certain historical information with respect to the specified indexed item and
any material tax considerations associated with an investment in indexed notes
will be specified in your pricing supplement.
ORIGINAL ISSUE DISCOUNT NOTES
We may issue notes at a price lower than their stated principal amount which may
or may not bear interest. These notes are called original issue discount notes.
If original issue discount notes are redeemed before the stated maturity or
their maturity is accelerated, the holder will be entitled to receive less than
the principal amount of the notes that it holds. In addition, original issue
discount notes may be considered "discount notes" for U.S. federal income tax
purposes, as "United States Taxation -- Original Issue Discount" describes later
in this prospectus supplement. The pricing supplement may describe other
considerations that apply only to original issue discount notes.
AMORTIZING NOTES
We will make payments on amortized notes at intervals specified in the pricing
supplement and at maturity. Unless the applicable pricing supplement specifies
otherwise, interest on an amortizing note will be computed on the basis of a
360-day year of twelve 30-day months. Payments on amortizing notes will count
towards interest first and then to the reduction of the unpaid principal amount.
The applicable pricing supplement and note each will provide information
regarding repayment and other matters.
FOREIGN CURRENCY NOTES, MULTI-CURRENCY
NOTES AND INDEXED NOTES
A foreign currency or indexed currency supplement in the applicable pricing
supplement will establish provisions that apply to notes denominated in a
currency other than U.S. dollars. This currency supplement will specify the
following information:
- the currency or currencies, including composite currencies, of payments
on the note;
- tax considerations;
- method for determining the principal amount due at maturity;
- risks associated with this type of note;
- whether the principal amount at maturity will be determined by reference
to the exchange rate of a currency other than U.S. dollars to an indexed
currency or other index. Indexed notes' principal amount due at maturity
may be greater or less than the face amount of the note depending upon
the relative value of the non-U.S. currency and the indexed currency;
and
- any other terms relating to the denomination in a currency other than
U.S. dollars.
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REDEMPTION AND REPAYMENT
Unless otherwise indicated in your pricing supplement, your note will not be
entitled to the benefit of any sinking fund -- that is, we will not deposit
money on a regular basis into any separate custodial account to repay your
notes. We will be entitled to redeem your notes in the circumstances described
in the accompanying prospectus under "Description of Debt Securities We May
Offer -- Redemption and Repayment". Except as described in the accompanying
prospectus, we will not be entitled to redeem your note before its stated
maturity unless your pricing supplement specifies a redemption commencement
date. You will not be entitled to require us to buy your note from you before
its stated maturity unless your pricing supplement specifies one or more
repayment dates.
If your pricing supplement specifies a redemption commencement date or a
repayment date, it will also specify one or more redemption prices, which will
be expressed as a percentage of the principal amount of your note. It may also
specify one or more redemption periods during which the redemption prices
relating to a redemption of notes during those periods will apply.
If your pricing supplement specifies a redemption commencement date, your note
will be redeemable at our option at any time on or after that date. If we redeem
your note, we will do so at the specified redemption price, together with
interest accrued to the redemption date. If different prices are specified for
different redemption periods, the price we pay will be the price that applies to
the redemption period during which your note is redeemed.
If your pricing supplement specifies a repayment date, your note will be
repayable at your option on the specified repayment date at the specified
repayment price, together with interest accrued to the repayment date.
If we exercise an option to redeem any note, we will give to the trustee and the
holder written notice of the principal amount of the note to be redeemed, not
less than 30 days nor more than 60 days before the applicable redemption date.
We will give the notice in the manner described in the accompanying prospectus
under "Description of Debt Securities We May Offer -- Notices".
If a note represented by a global note is repayable at the holder's option, DTC
or its nominee, as the holder, will be the only person that can exercise the
right to repayment. Any indirect owners who own beneficial interests in the
global note and wish to exercise a repayment right must give proper and timely
instructions to their banks or brokers through which they hold their interest,
requesting that they notify DTC to exercise the repayment right on their behalf.
Different firms have different deadlines for accepting instructions from their
customers, and you should take care to act promptly enough to ensure that your
request is given effect by DTC before the applicable deadline for exercise.
Street name and other indirect owners should contact their banks or brokers for
information about how to exercise a repayment right in a timely manner.
If the option of the holder to elect repayment as described above is deemed to
be a "tender offer" within the meaning of Rule 14e-1 under the Securities
Exchange Act of 1934, we will comply with Rule 14e-1 as then in effect to the
extent applicable.
We or our affiliates may purchase notes from investors who are willing to sell
from time to time, either in the open market at prevailing prices or in private
transactions at negotiated prices. Notes that we or they purchase may, at our
discretion, be held, resold or canceled.
UNITED STATES TAXATION
This section describes the principal United States federal income tax
consequences of owning the notes we are offering. This section represents the
opinion of Sullivan & Cromwell LLP, counsel to Popular. It applies to you only
if you are an initial purchaser of notes and you own your notes as capital
assets for tax purposes. This section does not apply to you if you are a member
of a class of holders subject to special rules, such as:
- a dealer in securities or currencies;
- a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings;
- an individual that is a bona fide resident of Puerto Rico during the
entire taxable year;
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- a bank;
- a life insurance company;
- a tax-exempt organization;
- a person that actually or constructively owns 10 percent or more of the
total combined voting power of all classes of stock of Popular entitled
to vote;
- a person that owns notes that are a hedge or that are hedged against
interest rate or currency risks;
- a person that owns notes as part of a straddle or conversion transaction
for tax purposes; or
- a person whose functional currency for tax purposes is not the U.S.
dollar.
This section deals only with notes that are due to mature 30 years or less from
the date on which they are issued. The United States federal income tax
consequences of owning notes that are due to mature more than 30 years from
their date of issue will be discussed in an applicable pricing supplement. This
section is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations under the Internal
Revenue Code, published rulings and court decisions, all as currently in effect.
These laws may change, possibly on a retroactive basis.
Please consult your own tax advisor concerning the consequences of owning these
notes in your particular circumstances under the Internal Revenue Code and the
laws of any other taxing jurisdiction.
UNITED STATES HOLDERS
This section describes the tax consequences to a United States holder. You are a
United States holder if you are a beneficial owner of a note and you are:
- a citizen or resident of the United States;
- a corporation created or organized under the laws of the United States,
any state thereof, or the District of Columbia;
- an estate whose income is subject to United States federal income tax
regardless of its source; or
- a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
If you are not a United States holder this section does not apply to you and you
should refer to "-- Non-United States Holders" below.
PAYMENTS OF INTEREST
Except as described below in the case of interest on a discount note that is not
qualified stated interest (each as defined below under "-- Original Issue
Discount"), you will be taxed on any interest on your note (including any
additional amounts paid with respect to withholding tax on the notes), whether
payable in U.S. dollars or a currency, composite currency or basket of
currencies other than U.S. dollars, which we call a "foreign currency", as
ordinary income at the time you receive the interest or it accrues, depending on
your method of accounting for tax purposes. You must include any tax withheld
from the interest payment as ordinary income even though you do not in fact
receive it. You may be entitled to deduct or credit this tax, subject to
applicable limits. Interest paid by Popular on the notes and original issue
discount, if any, accrued with respect to the notes (as described below under
"-- Original Issue Discount") constitutes income from sources outside the United
States, but, with some exceptions, will be "passive" or "financial services"
income, which is treated separately from other types of income for purposes of
computing the foreign tax credit allowable to a United States holder. The rules
governing foreign tax credits are complex and you should consult your tax
advisor regarding the availability of the foreign tax credit in your situation.
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CASH BASIS TAXPAYERS. If you are a taxpayer that uses the cash receipts
and disbursements method of accounting for tax purposes and you receive an
interest payment that is denominated in, or determined by reference to, a
foreign currency, you must recognize income equal to the U.S. dollar value of
the interest payment, based on the exchange rate in effect on the date of
receipt, regardless of whether you actually convert the payment into U.S.
dollars.
ACCRUAL BASIS TAXPAYERS. If you are a taxpayer that uses an accrual
method of accounting for tax purposes, you may determine the amount of income
that you recognize with respect to an interest payment denominated in, or
determined by reference to, a foreign currency by using one of two methods.
Under the first method, you will determine the amount of income accrued based on
the average exchange rate in effect during the interest accrual period (or, with
respect to an accrual period that spans two taxable years, that part of the
period within the taxable year).
If you elect the second method, you would determine the amount of income accrued
on the basis of the exchange rate in effect on the last day of the accrual
period (or, in the case of an accrual period that spans two taxable years, the
exchange rate in effect on the last day of the part of the period within the
taxable year). Additionally, under this second method, if you receive a payment
of interest within five business days of the last day of your accrual period or
taxable year, you may instead translate the interest accrued into U.S. dollars
at the exchange rate in effect on the day that you actually receive the interest
payment. If you elect the second method it will apply to all debt instruments
that you own at the beginning of the first taxable year to which the election
applies and to all debt instruments that you acquire after that time. You may
not revoke this election without the consent of the Internal Revenue Service.
When you actually receive an interest payment (including a payment attributable
to accrued but unpaid interest upon the sale or retirement of your note)
denominated in, or determined by reference to, a foreign currency for which you
accrued an amount of income, you will recognize ordinary income or loss measured
by the difference, if any, between the exchange rate that you used to accrue
interest income and the exchange rate in effect on the date of receipt,
regardless of whether you actually convert the payment into U.S. dollars.
ORIGINAL ISSUE DISCOUNT
If you own a note, other than a note with a term of one year or less (a
short-term note), it will be treated as issued at an original issue discount (a
discount note) if the amount by which the note's "stated redemption price at
maturity" exceeds its "issue price" is more than a "de minimis amount". All
three terms are defined below. Generally, a note's issue price will be the first
price at which a substantial amount of notes included in the issue of which the
note is a part are sold to persons other than bond houses, brokers, or similar
persons or organizations acting in the capacity of underwriters, placement
agents, or wholesalers. A note's stated redemption price at maturity is the
total of all payments provided by the note that are not payments of qualified
stated interest. Generally, an interest payment on a note is qualified stated
interest if it is one of a series of stated interest payments on a note that are
unconditionally payable at least annually at a single fixed rate (with some
exceptions for lower rates paid during some periods) applied to the outstanding
principal amount of the note. There are special rules for variable rate notes
that we discuss below under "-- Variable Rate Notes".
In general, your note is not a discount note if the amount by which its stated
redemption price at maturity exceeds its issue price is less than 1/4 of 1
percent of its stated redemption price at maturity multiplied by the number of
complete years to its maturity (the de minimis amount). Your note will have de
minimis original issue discount if the amount of the excess is less than the de
minimis amount. If, however, the amount of original issue discount on your note
is more than the de minimis amount as otherwise determined, and all stated
interest provided for in your note would be qualified stated interest except
that for one or more accrual periods the interest rate is below the rate
applicable for the remainder of your note's term, then for purposes of
determining whether your note has de minimis original issue discount your note's
stated redemption price at maturity is treated as equal to the note's issue
price plus the greater of the amount of foregone interest or the excess (if any)
of the instrument's stated principal amount over its issue price. The amount of
foregone interest is the amount of additional stated interest that would be
required to be payable on your note during the period of the interest shortfall
so that all stated interest would be qualified stated interest. If your note has
de minimis original issue discount, you must include the de minimis amount in
income as stated principal payments are made on the note, unless you make the
election described below under "-- Election to Treat All Interest as Original
Issue Discount". You can determine the includible amount with respect to each
such payment by multiplying the total amount of your note's de minimis original
issue discount by a fraction equal to:
- the amount of the principal payment made divided by
- the stated principal amount of the note.
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INCLUSION OF ORIGINAL ISSUE DISCOUNT IN INCOME. Generally, if your
discount note matures more than one year from its date of issue, you must
include original issue discount, which we call "OID", in income before you
receive cash attributable to that income. The amount of OID that you must
include in income is calculated using a constant-yield method, and generally you
will include increasing amounts of OID in income over the life of your discount
note. More specifically, you can calculate the amount of OID that you must
include in income by adding the daily portions of OID with respect to your
discount note for each day during the taxable year or portion of the taxable
year that you hold your discount note (accrued OID). You can determine the daily
portion by allocating to each day in any accrual period a pro rata portion of
the OID allocable to that accrual period. You may select an accrual period of
any length with respect to your discount note and you may vary the length of
each accrual period over the term of your discount note. However, no accrual
period may be longer than one year and each scheduled payment of interest or
principal on your discount note must occur on either the first or final day of
an accrual period.
You can determine the amount of OID allocable to an accrual period by:
- multiplying your discount note's adjusted issue price at the beginning
of the accrual period by your note's yield to maturity, and then
- subtracting from this figure the sum of the payments of qualified stated
interest on your note allocable to the accrual period.
You must determine the discount note's yield to maturity on the basis of
compounding at the close of each accrual period and adjusting for the length of
each accrual period. Further, you determine your discount note's adjusted issue
price at the beginning of any accrual period by:
- adding your discount note's issue price and any accrued OID for each
prior accrual period, and then
- subtracting any payments previously made on your discount note that were
not qualified stated interest payments.
If an interval between payments of qualified stated interest on your discount
note contains more than one accrual period, then, when you determine the amount
of OID allocable to an accrual period, you must allocate the amount of qualified
stated interest payable at the end of the interval, including any qualified
stated interest that is payable on the first day of the accrual period
immediately following the interval, pro rata to each accrual period in the
interval based on their relative lengths. In addition, you must increase the
adjusted issue price at the beginning of each accrual period in the interval by
the amount of any qualified stated interest that has accrued before the first
day of the accrual period but that is not payable until the end of the interval.
You may compute the amount of OID allocable to an initial short accrual period
by using any reasonable method if all other accrual periods, other than a final
short accrual period, are of equal length.
The amount of OID allocable to the final accrual period is equal to the
difference between:
- the amount payable at the maturity of your note other than any payment
of qualified stated interest, and
- your note's adjusted issue price as of the beginning of the final
accrual period.
ACQUISITION PREMIUM. If you purchase your note for an amount that is
less than or equal to the sum of all amounts, other than qualified stated
interest, payable on your note after the purchase date but is greater than the
amount of your note's adjusted issue price (determined as described above under
"-- Original Issue Discount"), the excess is acquisition premium. If you do not
make the election described below under "-- Election to Treat All Interest as
Original Issue Discount", then you must reduce the daily portions of OID by an
amount equal to:
- the excess of your adjusted basis in the note immediately after purchase
over the adjusted issue price of your note, divided by
- the excess of the sum of all amounts payable, other than qualified
stated interest, on your note after the purchase date over your note's
adjusted issue price.
MARKET DISCOUNT. You will be treated as if you purchased your note,
other than a short-term note, at a market discount and your note will be a
market discount note if:
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- you purchase your note for less than its issue price (determined as
described above under "--Original Issue Discount"); and
- the difference between the note's stated redemption price at maturity
or, in the case of a discount note, the note's revised issue price, and
the price you paid for your note is equal to or greater than 1/4 of 1
percent of your note's stated redemption price at maturity or the
revised issue price, respectively, multiplied by the number of complete
years to the note's maturity. To determine the revised issue price of
your note for these purposes, you generally add any OID that has accrued
on your note to its issue price.
If your note's stated redemption price at maturity or, in the case of a discount
note, its revised issue price, does not exceed the price you paid for the note
by 1/4 of 1 percent multiplied by the number of complete years to the note's
maturity, the excess constitutes de minimis market discount, and the rules that
we discuss below are not applicable to you.
If you recognize gain on the maturity or disposition of your market discount
note, you must treat it as ordinary income to the extent of the accrued market
discount on your note. Alternatively, you may elect to include market discount
in income currently over the life of your note. If you make this election, it
will apply to all debt instruments with market discount that you acquire on or
after the first day of the first taxable year to which the election applies. You
may not revoke this election without the consent of the Internal Revenue
Service. If you own a market discount note and do not make this election, you
will generally be required to defer deductions for interest on borrowings
allocable to your note in an amount not exceeding the accrued market discount on
your note until the maturity or disposition of your note.
You will accrue market discount on your market discount note on a straight-line
basis unless you elect to accrue market discount using a constant-yield method.
If you elect to accrue market discount using a constant-yield method, this
method will apply only to the note with respect to which it is made and you may
not revoke this election.
PRE-ISSUANCE ACCRUED INTEREST. An election can be made to decrease the
issue price of your note by the amount of pre-issuance accrued interest if:
- a portion of the initial purchase price of your note is attributable to
pre-issuance accrued interest;
- the first stated interest payment on your note is to be made within one
year of your note's issue date; and
- the payment will equal or exceed the amount of pre-issuance accrued
interest.
If this election is made, a portion of the first stated interest payment will be
treated as a return of the excluded pre-issuance accrued interest and not as an
amount payable on your note.
NOTES SUBJECT TO CONTINGENCIES INCLUDING OPTIONAL REDEMPTION. Your note
is subject to a contingency if it provides for an alternative payment schedule
or schedules applicable upon the occurrence of a contingency or contingencies,
other than a remote or incidental contingency, whether this contingency relates
to payments of interest or of principal. In this case, you must determine the
yield and maturity of your note by assuming that the payments will be made
according to the payment schedule most likely to occur if:
- the timing and amounts of the payments that comprise each payment
schedule are known as of the issue date; and
- one of these schedules is significantly more likely than not to occur.
If there is no single payment schedule that is significantly more likely than
not to occur, other than because of a mandatory sinking fund, you must include
income on your note in accordance with the general rules that govern contingent
payment obligations. These rules will be discussed in the applicable pricing
supplement.
Notwithstanding the general rules for determining yield and maturity, if your
note is subject to contingencies, and either you or Popular has an unconditional
option or options that, if exercised, would require payments to be made on the
note under an alternative payment schedule or schedules, then:
- in the case of an option or options that Popular may exercise, Popular
will be deemed to exercise or not exercise an option or combination of
options in the manner that minimizes the yield on your note; and
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- in the case of an option or options that you may exercise, you will be
deemed to exercise or not exercise an option or combination of options
in the manner that maximizes the yield on your note.
If both you and Popular hold options described in the preceding sentence, those
rules will apply to each option in the order in which they may be exercised. You
may determine the yield on your note for the purposes of those calculations by
using any date on which your note may be redeemed or repurchased as the maturity
date and the amount payable on the date that you chose in accordance with the
terms of your note as the principal amount payable at maturity.
If a contingency, including the exercise of an option, actually occurs or does
not occur contrary to an assumption made according to the above rules then,
except to the extent that a portion of your note is repaid as a result of this
change in circumstances and solely to determine the amount and accrual of OID,
you must redetermine the yield and maturity of your note by treating your note
as having been retired and reissued on the date of the change in circumstances
for an amount equal to your note's adjusted issue price on that date.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. You may
elect to include in gross income all interest that accrues on your note using
the constant-yield method described above under the heading "-- Inclusion of
Original Issue Discount in Income", with the modifications described below. For
purposes of this election, interest will include stated interest, OID, de
minimis original issue discount, market discount, de minimis market discount and
unstated interest, as adjusted by any amortizable bond premium (described below
under "-- Notes Purchased at a Premium") or acquisition premium.
If you make this election for your note, then, when you apply the constant-yield
method:
- the issue price of your note will equal your cost;
- the issue date of your note will be the date you acquired it; and
- no payments on your note will be treated as payments of qualified stated
interest.
Generally, this election will apply only to the note for which you make it
unless the note has amortizable bond premium or market discount. If the note has
amortizable bond premium, you will be deemed to have elected to apply
amortizable bond premium against interest for all debt instruments with
amortizable bond premium, other than debt instruments the interest on which is
excludible from gross income, that you own as of the beginning of the taxable
year to which the election applies or any taxable year after that year.
Additionally, if you make this election for a market discount note, you will be
treated as having made the election discussed above under "-- Market Discount"
to include market discount in income currently over the life of all debt
instruments that you currently own or later acquire. You may not revoke any
election to apply the constant-yield method to all interest on a note or the
deemed elections with respect to amortizable bond premium or market discount
notes without the consent of the Internal Revenue Service.
VARIABLE RATE NOTES. Your note will be a variable rate note if:
- your note's issue price does not exceed the total noncontingent
principal payments by more than the lesser of:
1. .015 multiplied by the product of the total noncontingent principal
payments and the number of complete years to maturity from the
issue date; or
2. 15 percent of the total noncontingent principal payments; and
- your note provides for stated interest (compounded or paid at least
annually) only at:
1. one or more qualified floating rates;
2. a single fixed rate and one or more qualified floating rates;
3. a single objective rate; or
4. a single fixed rate and a single objective rate that is a qualified
inverse floating rate.
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Your note will have a variable rate that is a qualified floating rate if:
- variations in the value of the rate can reasonably be expected to
measure contemporaneous variations in the cost of newly borrowed funds
in the currency in which your note is denominated; or
- the rate is equal to this kind of rate multiplied by either:
1. a fixed multiple that is greater than 0.65 but not more than 1.35;
or
2. a fixed multiple greater than 0.65 but not more than 1.35, increased
or decreased by a fixed rate; and
- the value of the rate on any date during the term of your note is set no
earlier than three months before the first day on which that value is in
effect and no later than one year following that first day.
If your note provides for two or more qualified floating rates that are within
0.25 percentage points of each other on the issue date or can reasonably be
expected to have approximately the same values throughout the term of the note,
the qualified floating rates together constitute a single qualified floating
rate.
Your note will not have a qualified floating rate, however, if the rate is
subject to some restrictions (including caps, floors, governors, or other
similar restrictions) unless these restrictions are fixed throughout the term of
the note or are not reasonably expected to significantly affect the yield on the
note.
Your note will have a variable rate that is a single objective rate if:
- the rate is not a qualified floating rate;
- the rate is determined using a single, fixed formula that is based on
objective financial or economic information that is not within the
control of or unique to the circumstances of the issuer or a related
party; and
- the value of the rate on any date during the term of your note is set no
earlier than three months before the first day on which that value is in
effect and no later than one year following that first day.
Your note will not have a variable rate that is an objective rate, however, if
it is reasonably expected that the average value of the rate during the first
half of your note's term will be either significantly less than or significantly
greater than the average value of the rate during the final half of your note's
term.
An objective rate as described above is a qualified inverse floating rate if:
- the rate is equal to a fixed rate minus a qualified floating rate; and
- the variations in the rate can reasonably be expected to inversely
reflect contemporaneous variations in the cost of newly borrowed funds.
Your note will also have a single qualified floating rate or an objective rate
if interest on your note is stated at a fixed rate for an initial period of one
year or less followed by either a qualified floating rate or an objective rate
for a subsequent period, and either:
- the fixed rate and the qualified floating rate or objective rate have
values on the issue date of the note that do not differ by more than
0.25 percentage points; or
- the value of the qualified floating rate or objective rate is intended
to approximate the fixed rate.
Commercial paper rate notes, prime rate notes, LIBOR notes, treasury rate notes,
CMT rate notes, CD rate notes, 11th district rate notes, and federal funds rate
notes generally will be treated as variable rate notes under these rules.
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In general, if your variable rate note provides for stated interest at a single
qualified floating rate or objective rate (or one of those rates after a single
fixed rate for an initial period), all stated interest on your note is qualified
stated interest. In this case, the amount of OID, if any, is determined by
using, in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date of the qualified floating rate or qualified
inverse floating rate, or, in the case of any other objective rate, a fixed rate
that reflects the yield reasonably expected for your note.
If your variable rate note does not provide for stated interest at a single
qualified floating rate or a single objective rate, and also does not provide
for interest payable at a fixed rate, other than at a single fixed rate for an
initial period, you generally must determine the interest and OID accruals on
your note by:
- determining a fixed rate substitute for each variable rate provided
under your variable rate note;
- constructing the equivalent fixed rate debt instrument (using the fixed
rate substitute described above);
- determining the amount of qualified stated interest and OID with respect
to the equivalent fixed rate debt instrument; and
- adjusting for actual variable rates during the applicable accrual
period.
When you determine the fixed rate substitute for each variable rate provided
under the variable rate note, you generally will use the value of each variable
rate as of the issue date or, for an objective rate that is not a qualified
inverse floating rate, a rate that reflects the reasonably expected yield on
your note.
If your variable rate note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and also
provides for stated interest at a single fixed rate, other than at a single
fixed rate for an initial period, you generally must determine interest and OID
accruals by using the method described in the previous paragraph. However, your
variable rate note will be treated, for purposes of the first three steps of the
determination, as if your note had provided for a qualified floating rate, or a
qualified inverse floating rate, rather than the fixed rate. The qualified
floating rate, or qualified inverse floating rate, that replaces the fixed rate
must be such that the fair market value of your variable rate note as of the
issue date approximates the fair market value of an otherwise identical debt
instrument that provides for the qualified floating rate, or qualified inverse
floating rate, rather than the fixed rate.
SHORT-TERM NOTES. In general, if you are an individual or other cash
basis United States holder of a short-term note, you are not required to accrue
OID, as specially defined below for the purposes of this paragraph, for United
States federal income tax purposes unless you elect to do so. However, you may
be required to include any stated interest in income as you receive it. If you
are an accrual basis taxpayer, a taxpayer in a special class, including, but not
limited to, a regulated investment company, common trust fund, or a certain type
of pass-through entity, or a cash basis taxpayer who so elects, you will be
required to accrue OID on short-term notes on either a straight-line basis or
under the constant-yield method, based on daily compounding. If you are not
required and do not elect to include OID in income currently, any gain you
realize on the sale or retirement of your short-term note will be ordinary
income to the extent of the OID accrued on a straight-line basis, unless you
make an election to accrue the OID under the constant-yield method, through the
date of sale or retirement. However, if you are not required and do not elect to
accrue OID on your short-term notes, you will be required to defer deductions
for interest on borrowings allocable to your short-term notes in an amount not
exceeding the deferred income until the deferred income is realized.
When you determine the amount of OID subject to these rules, you must include
all interest payments on your short-term note, including stated interest, in
your short-term note's stated redemption price at maturity.
FOREIGN CURRENCY DISCOUNT NOTES. If your discount note is denominated
in, or determined by reference to, a foreign currency, you must determine OID
for any accrual period on your discount note in the foreign currency and then
translate the amount of OID into U.S. dollars in the same manner as stated
interest accrued by an accrual basis United States holder, as described under
"-- Payments of Interest -- Accrual Basis Taxpayers" above. You may recognize
ordinary income or loss when you receive an amount attributable to OID in
connection with a payment of interest or the sale or retirement of your note.
S-26
NOTES PURCHASED AT A PREMIUM
If you purchase your note for an amount in excess of its principal amount, you
may elect to treat the excess as amortizable bond premium. If you make this
election, you will reduce the amount required to be included in your income each
year with respect to interest on your note by the amount of amortizable bond
premium allocable, based on your note's yield to maturity, to that year. If your
note is denominated in, or determined by reference to, a foreign currency, you
will compute your amortizable bond premium in units of the foreign currency and
your amortizable bond premium will reduce your interest income in units of the
foreign currency. Gain or loss recognized that is attributable to changes in
exchange rates between the time your amortized bond premium offsets interest
income and the time of the acquisition of your note is generally taxable as
ordinary income or loss. If you make an election to amortize bond premium, the
election will apply to all debt instruments (other than debt instruments, the
interest on which is excludible from gross income) that you hold at the
beginning of the first taxable year to which the election applies, and to all
debt instruments that you acquire after that time, and you may not revoke it
without the consent of the Internal Revenue Service. See also "-- Original Issue
Discount -- Election to Treat All Interest as Original Issue Discount" for more
information about the consequences of an election to amortize bond premium.
PURCHASE, SALE AND RETIREMENT OF THE NOTES
Your tax basis in your note will generally be the U.S. dollar cost (as defined
below) of your note, adjusted by:
- adding any OID or market discount, de minimis original issue discount
and de minimis market discount previously included in income with
respect to your note; and then
- subtracting the amount of any payments on your note that are not
qualified stated interest payments and the amount of any amortizable
bond premium applied to reduce interest on your note.
If you purchase your note with foreign currency, the U.S. dollar cost of your
note will generally be the U.S. dollar value of the purchase price on the date
of purchase. However, if you are a cash basis taxpayer, or an accrual basis
taxpayer if you so elect, and your note is traded on an established securities
market, as defined in the applicable Treasury regulations, the U.S. dollar cost
of your note will be the U.S. dollar value of the purchase price on the
settlement date of your purchase.
You will generally recognize gain or loss on the sale or retirement of your note
equal to the difference between the amount you realize on the sale or retirement
and your tax basis in your note. If your note is sold or retired for an amount
in foreign currency, the amount you realize will be the U.S. dollar value of
this amount on:
- the date payment is received, if you are a cash basis taxpayer and the
notes are not traded on an established securities market, as defined in
the applicable Treasury regulations;
- the date of disposition, if you are an accrual basis taxpayer; or
- the settlement date for the sale, if you are a cash basis taxpayer, or
an accrual basis taxpayer that so elects, and the notes are traded on an
established securities market, as defined in the applicable Treasury
regulations.
You will recognize capital gain or loss when you sell or retire your note,
except to the extent:
- described above under "-- Original Issue Discount -- Short-Term Notes"
or "-- Original Issue Discount--Market Discount";
- attributable to accrued but unpaid interest;
- the rules governing contingent payment obligations apply; or
- attributable to changes in exchange rates as described below.
Capital gain of a noncorporate United States holder is generally taxed at a
maximum rate of 20% for property held more than one year, and 18% where the
property is held for more than five years.
S-27
You must treat any portion of the gain or loss that you recognize on the sale or
retirement of a note as ordinary income or loss to the extent attributable to
changes in exchange rates. However, you take exchange gain or loss into account
only to the extent of the total gain or loss you realize on the transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
If you receive foreign currency as interest on your note or on the sale or
retirement of your note, your tax basis in the foreign currency will equal its
U.S. dollar value when the interest is received or at the time of the sale or
retirement. If you purchase foreign currency, you generally will have a tax
basis equal to the U.S. dollar value of the foreign currency on the date of your
purchase. If you sell or dispose of a foreign currency, including if you use it
to purchase notes or exchange it for U.S. dollars, any gain or loss recognized
generally will be ordinary income or loss.
INDEXED NOTES AND RENEWABLE, EXTENDIBLE AND AMORTIZING NOTES
The applicable pricing supplement will discuss any special United States federal
income tax rules (a) with respect to notes the payments on which are determined
by reference to any index and other notes that are subject to the rules
governing contingent payment obligations which are not subject to the rules
governing variable rate notes, (b) with respect to any renewable and extendible
notes and (c) with respect to any notes providing for the periodic payment of
principal over the life of the note.
BACKUP WITHHOLDING AND INFORMATION REPORTING
If you are a noncorporate United States holder, information reporting
requirements, on Internal Revenue Service Form 1099, generally will apply to:
- payments of principal and interest on a note within the United States,
including payments made by wire transfer from outside the United States
to an account you maintain in the United States, and
- the payment of the proceeds from the sale of a note effected at a United
States office of a broker.
Additionally, backup withholding will apply to those payments if you are a
noncorporate United States holder that:
- fails to provide an accurate taxpayer identification number,
- is notified by the Internal Revenue Service that you have failed to
report all interest and dividends required to be shown on your federal
income tax returns, or
- in certain circumstances, fails to comply with applicable certification
requirements.
NON-UNITED STATES HOLDERS
If you are a United States Holder, this section does not apply to you and you
should refer to "--United States Holders" above.
BACKUP WITHHOLDING AND INFORMATION REPORTING
If you are a beneficial owner of a note and you are not a United States person
for U.S. federal income tax purposes, you are generally exempt from backup
withholding and information reporting requirements with respect to:
- payments of principal and interest on a note made to you outside the
United States by Popular or another non-United States payor, and
- other payments of principal and interest on a note and the payment of
the proceeds from the sale of a note effected at a United States office
of a broker, as long as the income associated with those payments is
otherwise exempt from United States federal income tax, and:
1. the payor or broker does not have actual knowledge or reason to know
that you are a United States person and you have furnished to the
payor or broker:
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- an Internal Revenue Service Form W-8BEN or an acceptable
substitute form upon which you certify, under penalties of
perjury, that you are a non-United States person, or
- other documentation upon which it may rely to treat the
payments as made to a non-United States person in
accordance with U.S. Treasury regulations, or
2. you otherwise establish an exemption.
In general, payment of the proceeds from the sale of notes effected at a foreign
office of a broker will not be subject to information reporting or backup
withholding. However, a sale effected at a foreign office of a broker will be
subject to information reporting and backup withholding if:
- the proceeds are transferred to an account maintained by you in the
United States,
- the payment of proceeds or the confirmation of the sale is mailed to you
at a United States address, or
- the sale has some other specified connection with the United States as
provided in the U.S. Treasury regulations,
unless the broker does not have actual knowledge or reason to know that you are
a United States person and the documentation requirements described above are
met or you otherwise establish an exemption.
In addition, payment of the proceeds from the sale of notes effected at a
foreign office of a broker will be subject to information reporting if the
broker is:
- a United States person,
- a controlled foreign corporation for United States tax purposes,
- a foreign person 50% or more of whose gross income is effectively
connected with the conduct of a United States trade or business for a
specified three-year period, or
- a foreign partnership, if at any time during its tax year:
1. one or more of its partners are "U.S. persons", as defined in U.S.
Treasury regulations, who in the aggregate hold more than 50% of the
income or capital interest in the partnership, or
2. the foreign partnership is engaged in the conduct of a United States
trade or business,
unless the broker does not have actual knowledge or reason to know that you are
a United States person and the documentation requirements described above
(relating to a sale of notes effected at a foreign office of a broker) are met
or you otherwise establish an exemption. Backup withholding will apply if the
sale is subject to information reporting and the broker has actual knowledge
that you are a United States person.
DISCLOSURE REQUIREMENTS
Recently enacted Treasury Regulations meant to require the reporting of certain
transactions ("Reportable Transactions") could be interpreted to cover
transactions generally not regarded as tax shelters, including certain foreign
currency transactions. Under these regulations, transactions may be
characterized as Reportable Transactions for a variety of reasons, one or more
of which may apply to an investment in the notes. You should consult your own
tax advisers to determine your tax return disclosure obligations, if any, with
respect to your investment in the notes, including any requirement to file IRS
Form 8886 (Reportable Transaction Disclosure Statement).
SUPPLEMENTAL PLAN OF DISTRIBUTION
Popular is offering the notes on a continuous basis through the agents, each of
which has agreed to use its reasonable efforts to solicit offers to purchase the
notes. In addition, the notes may also be sold to an agent, as principal, for
resale to investors or other purchasers. The notes are a new issue of securities
with no established trading market and will not be listed on any securities
exchange. Investors have no assurance that the notes offered by this prospectus
supplement will be sold or that there will be a secondary market for the notes.
Popular reserves the right to withdraw, cancel or modify this offer without
notice. Popular or any agent may reject any offer to purchase the notes in whole
or in part.
Unless the applicable pricing supplement specifies otherwise, Popular will sell
notes to an agent at a price equal to 100% of the notes' principal amount less
the commission applicable to an agency sale of a note of identical maturity.
Popular and an agent may agree that the agent may utilize its reasonable efforts
as an agent to solicit offers to purchase notes at 100% of their principal
amount, unless the applicable pricing supplement specifies otherwise. Depending
upon the maturity of the note, Popular will pay a commission to each agent
ranging from .125% to .750% of the principal amount of any note sold through
that agent. Popular and the agents will negotiate
S-29
the commissions payable on the sale of notes with stated maturities in excess of
30 years. Popular may also sell notes directly to investors on its own behalf,
in which case no commission will be payable.
In addition, the agents may offer the notes they have purchased as principal to
other dealers. The agents may sell notes to any dealer at a discount which,
unless the applicable pricing supplement specifies otherwise, will not be in
excess of the discount the agent receives from Popular. If all the notes are not
sold at the initial offering price, Popular or the agents may change the
offering price and the other selling terms.
Popular has reserved the right to accept offers to purchase notes through
additional distributors on substantially the same terms and conditions
(including commission rates) as would apply to purchases of notes by the agents.
In addition, Popular has reserved the right to appoint additional agents for the
purpose of soliciting offers to purchase notes. The applicable pricing
supplement will provide the names of any additional distributors or agents.
Popular reserves the right to withdraw, cancel or modify the offer made by this
prospectus supplement without notice and may reject all or part of any orders
whether the orders are placed directly with Popular or through an agent. Each
agent will have the right in its reasonable discretion to reject all or part of
any offer to purchase notes that it receives.
Unless otherwise provided in a pricing supplement relating to foreign currency,
multi-currency or indexed notes, purchasers must pay the purchase price of the
notes in immediately available funds in New York City on the settlement date.
Popular has agreed to indemnify the agents against and to make contributions
relating to some civil liabilities, including liabilities under the Securities
Act of 1933. The agents may be deemed to be "underwriters" within the meaning of
this Act. Popular has also agreed to reimburse the agents for some of their
expenses.
Popular Securities, Inc., a wholly owned subsidiary of Popular, Inc., is a
member of the National Association of Securities Dealers, Inc. and is
participating in the distribution of this offering as an agent. The offering is
therefore being made in compliance with the applicable provisions of NASD
Conduct Rule 2720. No NASD member may sell the securities to a discretionary
account without the prior specific written approval of the customer.
Each agent who purchases notes as principal on a fixed price basis in connection
with an offering of notes may engage in transactions that stabilize the price of
notes in the offering. These transactions may consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the notes. If an
agent creates a short position in the notes, i.e., if it sells notes in an
aggregate principal amount exceeding that stated in the applicable pricing
supplement, that agent may reduce that short position by purchasing notes in the
open market. In general, purchases of notes for the purpose of stabilization or
to reduce a short position could cause the price of notes to be higher than it
might be in the absence of these purchases.
None of Popular or any of the agents makes any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the notes. In addition, none of Popular or any of
the agents make any representation that the agents will engage in these
transactions or that the transactions, once commenced, will not be discontinued
without notice.
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for Popular by Sullivan & Cromwell
LLP, New York, New York, and for the agents by Sidley Austin Brown & Wood LLP,
New York, New York. Brunilda Santos de Alvarez, Esq., counsel to Popular, will
pass upon the validity of the notes as to matters of Puerto Rico law for
Popular. Sullivan & Cromwell LLP and Sidley Austin Brown & Wood LLP will rely as
to all matters of the laws of the Commonwealth of Puerto Rico upon the opinion
of Brunilda Santos de Alvarez, Esq. The opinions of Sullivan & Cromwell LLP,
Brunilda Santos de Alvarez, Esq., and Sidley Austin Brown & Wood LLP will be
conditioned upon and subject to assumptions regarding future action required to
be taken by Popular and the trustee in connection with the issuance and sale of
any particular note, the specific terms of the notes and other matters which may
affect the validity of the notes but which cannot be ascertained on the date of
their opinions. Brunilda Santos de Alvarez, Esq. owns, directly or indirectly,
6,323 shares of common stock of Popular, Inc. pursuant to Popular, Inc.'s
employee stock ownership plan and otherwise. The employee stock ownership plan
is open to all employees of Popular, Inc.
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NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IT DESCRIBES, BUT ONLY UNDER
CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
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TABLE OF CONTENTS
PAGE
Prospectus Supplement
Description of Notes We May Offer........................ S-2
United States Taxation................................... S-19
Supplemental Plan of Distribution........................ S-29
Validity of the Notes.................................... S-30
Prospectus
Popular, Inc............................................. 2
Popular International Bank, Inc.......................... 2
Popular North America, Inc............................... 2
Consolidated Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends of Popular, Inc........................ 3
Use of Proceeds.......................................... 3
Description of Debt Securities We May Offer ............. 5
Description of Preferred Stock........................... 21
Validity of Offered Securities........................... 25
Experts.................................................. 25
Plan of Distribution..................................... 25
Where You Can Find More Information...................... 27
Incorporation of Information We File With the SEC........ 27