<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-54001
PROSPECTUS SUPPLEMENT
(To Prospectus dated July 8, 1998)
$205,000,000
The Charles Schwab Corporation
MEDIUM-TERM NOTES, SERIES A
--------------
Due More Than Nine Months From Date of Issue
--------------
The Charles Schwab Corporation (the "Company") may offer from time to time
its Medium-Term Notes, which are issuable in one or more series and will be
offered and sold in the United States. The Medium-Term Notes offered by this
Prospectus Supplement (the "Notes") are offered at an aggregate initial public
offering price of up to $205,000,000. Such aggregate offering price is subject
to reduction as a result of the sale by the Company of certain other Debt
Securities. See "Plan of Distribution." The Notes may be issued as Senior Debt
Securities or Senior Subordinated Debt Securities. Senior Subordinated Debt
Securities will be subordinate to all Senior Debt Securities. See "Description
of Debt Securities--Senior Debt" and "--Senior Subordinated Debt" in the
accompanying Prospectus. The interest rate on each Note will be either a fixed
rate established by the Company at the date of issue of such Note (a "Fixed
Rate Note") or a floating rate as set forth therein and specified in the
applicable Pricing Supplement (a "Floating Rate Note"). A Fixed Rate Note may
pay a level amount in respect of both interest and principal amortized over
the life of the Note (an "Amortizing Note").
Unless otherwise specified in the applicable Pricing Supplement, interest on
each Fixed Rate Note is payable each March 1 and September 1 and at maturity
or any earlier redemption or repayment. Interest on each Floating Rate Note is
payable on the dates set forth herein and in the applicable Pricing
Supplement. Unless otherwise specified in the applicable Pricing Supplement,
Amortizing Notes will pay principal and interest semiannually each March 1 and
September 1, or quarterly each March 1, June 1, September 1 and December 1,
and at maturity or any earlier redemption or repayment. Each Note will mature
on any day more than nine months from the date of issue, as set forth in the
applicable Pricing Supplement. See "Description of Notes." Unless otherwise
specified in the applicable Pricing Supplement, the Notes may not be redeemed
by the Company or repaid at the option of the holder prior to maturity and
will be issued in fully registered form in denominations of $1,000 or any
amount in excess thereof which is an integral multiple of $1,000. Each Note
will be represented either by a Global Security registered in the name of a
nominee of The Depository Trust Company, as Depositary (a "Book-Entry Note"),
or by a certificate issued in definitive form (a "Certificated Note"), as set
forth in the applicable Pricing Supplement. Interests in Global Securities
representing Book-Entry Notes will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary (with respect to
participants' interests) and its participants. Book-Entry Notes will not be
issuable as Certificated Notes except under the circumstances described in the
accompanying Prospectus.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE
PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
------------ --------------------- ------------------------
<S> <C> <C> <C>
Per Note........... 100.000% .125%-.875% 99.875%-99.125%
Total.............. $205,000,000 $256,250-1,793,750 $204,743,750-203,206,250
</TABLE>
- -------
(1) Unless otherwise specified in the applicable Pricing Supplement, Notes
will be sold at 100% of their principal amount. If the Company issues
any Note at a discount from or at a premium over its principal amount,
the Price to Public of any Note issued at a discount or premium will be
set forth in the applicable Pricing Supplement.
(2) Unless otherwise specified in the applicable Pricing Supplement, the
commission payable to an Agent for each Note sold through such Agent
shall range from .125% to .875% of the principal amount of such Note,
depending upon such Note's maturity. The Company may also sell Notes to
an Agent as principal at a discount equal to, unless otherwise specified
in the applicable Pricing Supplement, the commission applicable to an
agency sale of a Note of identical maturity for resale to investors or
other purchasers at a fixed reoffering price or varying prices related
to prevailing market prices at the time of resale or otherwise, to be
determined by such Agent. The Company has agreed to indemnify each Agent
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
(3) Before deducting expenses payable by the Company estimated at $238,000.
--------------
Offers to purchase the Notes may be solicited from time to time by Morgan
Stanley & Co. Incorporated, Goldman, Sachs & Co., Credit Suisse First Boston
Corporation and Charles Schwab & Co., Inc. (individually, an "Agent" and
collectively, the "Agents"), on behalf of the Company. The Agents have agreed
to use reasonable efforts to solicit purchases of such Notes. The Company may
also sell Notes to an Agent acting as principal for its own account for resale
to one or more investors and other purchasers at a fixed offering price or at
varying prices related to prevailing market prices at the time of resale or
otherwise, to be determined by such Agent and specified in the applicable
Pricing Supplement. No termination date for the offering of the Notes has been
established. The Company or an Agent may reject any order in whole or in part.
The Notes will not be listed on any securities exchange, and there can be no
assurance that the Notes offered hereby will be sold or that there will be a
secondary market for the Notes. See "Plan of Distribution."
This Prospectus Supplement and the accompanying Prospectus may be used by
Charles Schwab & Co., Inc., which is a wholly owned subsidary of the Company,
in connection with offers and sales of the Notes in market-making transactions
at negotiated prices related to prevailing market prices at the time of sale
or otherwise. Charles Schwab & Co., Inc. may act as principal or agent in such
transactions.
--------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
CHARLES SCHWAB & CO., INC.
July 13, 1998
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT, ANY
PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE AGENTS. THIS PROSPECTUS SUPPLEMENT, ANY
PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY DEBT SECURITIES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------
DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES, THE
DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF THE DEBT SECURITIES SET
FORTH IN THE ACCOMPANYING PROSPECTUS, TO WHICH REFERENCE IS HEREBY MADE. THE
PARTICULAR TERMS OF THE NOTES SOLD PURSUANT TO ANY PRICING SUPPLEMENT (A
"PRICING SUPPLEMENT") WILL BE DESCRIBED THEREIN. THE TERMS AND CONDITIONS SET
FORTH IN "DESCRIPTION OF NOTES" WILL APPLY TO EACH NOTE UNLESS OTHERWISE
SPECIFIED IN THE APPLICABLE PRICING SUPPLEMENT AND IN SUCH NOTE.
GENERAL
The Notes will be issued under the Senior Debt Indenture ("Senior Notes") or
the Senior Subordinated Debt Indenture ("Senior Subordinated Notes"), each
dated as of July 15, 1993 between the Company and The Chase Manhattan Bank
(formerly Chemical Bank), as trustee (the "Trustee"). The Notes issued under
each Indenture will constitute a single series under such Indenture, together
with any medium-term notes of the Company issued in the future under such
Indenture which are designated by the Company as constituting a single series
of securities with the Notes for the purposes of such Indenture. The Notes
issued under the Senior Debt Indenture will constitute part of the Senior
Indebtedness of the Company and will rank pari passu with all other unsecured
and unsubordinated indebtedness of the Company. Notes issued under the Senior
Subordinated Debt Indenture will rank pari passu with all other senior
subordinated indebtedness of the Company and, together with such other senior
subordinated indebtedness, will be subordinated in right of payment to the
prior payment in full of the Senior Indebtedness of the Company. See
"Description of Debt Securities--Senior Subordinated Debt" in the Prospectus.
The Notes may be issued from time to time in an aggregate principal amount of
up to $205,000,000, subject to reduction as a result of the sale by the
Company of other Debt Securities referred to in the accompanying Prospectus.
At the date hereof the Company had approximately $391,000,000 aggregate
principal amount of medium term notes outstanding under the Senior Debt
Indenture. Such aggregate principal amounts may be increased from time to time
as authorized by, or pursuant to authority delegated by, the Board of
Directors of the Company. Neither Indenture limits the amount of additional
indebtedness the Company may incur.
The Notes will mature on any day more than nine months from the date of
issue, as set forth in the applicable Pricing Supplement. The Notes will be
issued only in fully registered form in denominations of $1,000 or any amount
in excess thereof which is an integral multiple of $1,000.
The Notes will be offered on a continuing basis, and each Note will be
issued initially as either a Book-Entry Note or a Certificated Note. Except as
set forth in the accompanying Prospectus under "Description of Debt
Securities--Global Securities," Book-Entry Notes will not be issuable as
Certificated Notes. See "Book-Entry System" below.
The Notes may be presented for payments of principal and interest, and
transfer of the Notes will be registrable and the Notes will be exchangeable
at the agency in the Borough of Manhattan, The City of New York, maintained by
the Company for such purpose; provided that Book-Entry Notes will be
exchangeable
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<PAGE>
only in the manner and to the extent set forth under "Description of Debt
Securities--Global Securities" in the accompanying Prospectus. On the date
hereof, the agent for the payment, transfer and exchange of the Notes (the
"Paying Agent") is The Chase Manhattan Bank (formerly Chemical Bank), acting
through its principal corporate trust office at 450 West 33rd Street, New
York, New York 10001.
The applicable Pricing Supplement will specify the price (the "Issue Price")
of each Note to be sold pursuant thereto (unless such Note is to be sold at
100% of its principal amount), the interest rate or interest rate formula,
ranking, maturity, principal amount and any other terms on which each such
Note will be issued.
As used herein, the following terms shall have the meanings set forth below:
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close in The City of New
York and, with respect to LIBOR Notes (as defined below), is also a London
Banking Day.
An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
"London Banking Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
The "Record Date" with respect to any Interest Payment Date shall be the
date 15 calendar days prior to such Interest Payment Date, whether or not
such date shall be a Business Day.
INTEREST AND PRINCIPAL PAYMENTS
Interest will be payable to the person in whose name the Note is registered
at the close of business on the applicable Record Date; provided that the
interest payable upon maturity, redemption or repayment (whether or not the
date of maturity, redemption or repayment is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest
payment on a Note will be made on the first Interest Payment Date falling
after the date the Note is issued; provided, however, that the initial payment
of interest (or, in the case of an Amortizing Note, principal and interest) on
a Note issued less than 15 calendar days before an Interest Payment Date will
be paid on the next succeeding Interest Payment Date to the holder of record
on the Record Date with respect to such succeeding Interest Payment Date.
Payments of interest, other than interest payable at maturity (or on the
date of redemption or repayment, if a Note is redeemed or repaid by the
Company prior to maturity), will be made by check mailed to the address of the
person entitled thereto as shown on the Note register. Payments of principal,
premium, if any, and interest upon maturity, redemption or repayment will be
made in immediately available funds against presentation and surrender of the
Note. Notwithstanding the foregoing, (a) the Depositary, as holder of Book-
Entry Notes, shall be entitled to receive payments of interest by wire
transfer of immediately available funds and (b) a holder of $10,000,000 or
more in aggregate principal amount of Certificated Notes having the same
Interest Payment Date shall be entitled to receive payments of interest by
wire transfer of immediately available funds upon written request to the
Paying Agent not later than 15 calendar days prior to the applicable Interest
Payment Date.
Certain Notes may be considered to be issued with original issue discount,
which, under certain circumstances, may be required to be included in income
for United States federal income tax purposes at a constant rate, prior to the
receipt of the cash attributable to that income. See "Certain United States
Federal Tax Consequences--Inclusion of Interest Income" below.
S-3
<PAGE>
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the date of issuance at the
annual rate stated on the face thereof until the principal thereof is paid or
made available for payment. Such interest will be computed on the basis of a
360-day year of twelve 30-day months. Unless otherwise specified in the
applicable Pricing Supplement, payments of interest on Fixed Rate Notes other
than Amortizing Notes will be made semiannually on each March 1 and September
1 and at maturity or upon any earlier redemption or repayment. Payments of
principal and interest on Amortizing Notes, which are securities on which
payments of principal and interest are made in equal installments over the
life of the security, will be made either quarterly on each March 1, June 1,
September 1 and December 1 or semiannually on each March 1 and September 1, as
set forth in the applicable Pricing Supplement, and at maturity or upon any
earlier redemption or repayment. Payments with respect to Amortizing Notes
will be applied first to interest due and payable thereon and then to the
reduction of the unpaid principal amount thereof. A table setting forth
repayment information in respect of each Amortizing Note will be provided to
the original purchaser and will be available, upon request, to subsequent
holders.
If any Interest Payment Date for any Fixed Rate Note would fall on a day
that is not a Business Day, the interest payment shall be made on the next day
that is a Business Day, and no interest on such payment shall accrue for the
period from and after the Interest Payment Date. If the maturity date (or date
of redemption or repayment) of any Fixed Rate Note would fall on a day that is
not a Business Day, the payment of principal, premium, if any, and interest
may be made on the next succeeding Business Day, and no interest on such
payment shall accrue for the period from and after the maturity date (or date
of redemption or repayment).
Interest payments for Fixed Rate Notes will include accrued interest from
and including the date of issue or from but excluding the last date in respect
of which interest has been paid, as the case may be, to, but excluding, the
Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to
pay on newly issued Fixed Rate Notes are subject to change without notice by
the Company from time to time, but no such change will affect any Fixed Rate
Notes theretofore issued or that the Company has agreed to issue.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from the date of issuance until
the principal thereof is paid or made available for payment at a rate
determined by reference to an interest rate basis (the "Base Rate"), which may
be adjusted by a Spread and/or Spread Multiplier (each as defined below). The
applicable Pricing Supplement will designate one of the following Base Rates
as applicable to each Floating Rate Note: (a) the CD Rate (a "CD Rate Note"),
(b) the Commercial Paper Rate (a "Commercial Paper Rate Note"), (c) the
Federal Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a "LIBOR Note"),
(e) the Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate (a "Treasury
Rate Note"), (g) the Constant-Maturity Treasury Rate (a "CMT Rate Note") or
(h) such other Base Rate or interest rate formula as is set forth in such
Pricing Supplement and in such Floating Rate Note. The "Index Maturity" for
any Floating Rate Note is the period of maturity of the instrument or
obligation from which the Base Rate is calculated and will be specified in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to
the specified Base Rate (i) plus or minus the Spread, if any, and/or
(ii) multiplied by the Spread Multiplier, if any. The "Spread" is the number
of basis points (one one-hundredth of a percentage point) specified in the
applicable Pricing Supplement to be added to or subtracted from the Base Rate
for such Floating Rate Note, and the "Spread Multiplier" is the percentage
specified in the applicable Pricing Supplement to be applied to the Base Rate
for such Floating Rate Note.
As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following: (i) a maximum limitation, or
ceiling, on the rate of interest which may accrue during any
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<PAGE>
interest period ("Maximum Interest Rate"); and (ii) a minimum limitation, or
floor, on the rate of interest which may accrue during any interest period
("Minimum Interest Rate").
The rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such period being the "Interest
Reset Period" for such Note, and the first day of each Interest Reset Period
being an "Interest Reset Date"), as specified in the applicable Pricing
Supplement. The Interest Reset Date will be, in the case of Floating Rate
Notes which reset daily, each Business Day; in the case of Floating Rate Notes
(other than Treasury Rate Notes) which reset weekly, the Wednesday of each
week; in the case of Treasury Rate Notes which reset weekly, the Tuesday of
each week, except as provided below; in the case of Floating Rate Notes which
reset monthly, the third Wednesday of each month; in the case of Floating Rate
Notes which reset quarterly, the third Wednesday of March, June, September and
December; in the case of Floating Rate Notes which reset semiannually, the
third Wednesday of two months of each year, as specified in the applicable
Pricing Supplement; and in the case of Floating Rate Notes which reset
annually, the third Wednesday of one month of each year, as specified in the
applicable Pricing Supplement; provided, however, that (a) the interest rate
in effect from the date of issue to the first Interest Reset Date with respect
to a Floating Rate Note will be the initial interest rate set forth in the
applicable Pricing Supplement (the "Initial Interest Rate") and (b) unless
otherwise specified in the applicable Pricing Supplement, the interest rate in
effect for the ten days immediately prior to maturity, redemption or repayment
will be that in effect on the tenth day preceding such maturity, redemption or
repayment date. If any Interest Reset Date for any Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Reset Date shall
be postponed to the next succeeding Business Day, except that in the case of a
LIBOR Note, if such Business Day is in the next succeeding calendar month,
such Interest Reset Date shall be the immediately preceding Business Day.
Except as provided below, and unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in
the case of Floating Rate Notes with a daily, weekly or monthly Interest Reset
Date, on the third Wednesday of each month or on the third Wednesday of March,
June, September and December, as specified in the applicable Pricing
Supplement; (ii) in the case of Floating Rate Notes with a quarterly Interest
Reset Date, on the third Wednesday of March, June, September and December;
(iii) in the case of Floating Rate Notes with a semiannual Interest Reset
Date, on the third Wednesday of the two months specified in the applicable
Pricing Supplement; and (iv) in the case of Floating Rate Notes with an annual
Interest Reset Date, on the third Wednesday of the month specified in the
applicable Pricing Supplement and, in each case, at maturity or upon any
earlier redemption or repayment. Subject to the next succeeding sentence, if
any Interest Payment Date for any Floating Rate Note would fall on a day that
is not a Business Day with respect to such Floating Rate Note, such Interest
Payment Date will be postponed to the following day that is a Business Day
with respect to such Floating Rate Note, except that, in the case of a LIBOR
Note, if such Business Day is in the next succeeding calendar month, such
Interest Payment Date shall be the immediately preceding day that is a
Business Day with respect to such LIBOR Note. If the maturity date or any
earlier redemption or repayment date of a Floating Rate Note would fall on a
day that is not a Business Day, the payment of principal and interest will be
made on the next succeeding Business Day, and no interest on such payment
shall accrue for the period from and after such maturity, redemption or
repayment date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments for Floating Rate Notes (except Floating Rate Notes on which interest
is reset daily or weekly) shall be the amount of interest accrued from and
including the date of issue or from but excluding the last date in respect of
which interest has been paid to, but excluding, the Interest Payment Date. In
the case of a Floating Rate Note on which interest is reset daily or weekly,
interest payments shall be, unless otherwise specified in the applicable
Pricing Supplement, the amount of interest accrued from the date of issue or
from the last date to which interest has been paid, as the case may be, to and
including the Record Date immediately preceding such Interest Payment Date,
except that at maturity or earlier redemption or repayment, the interest
payable will include interest accrued to, but excluding, the maturity,
redemption or repayment date, as the case may be.
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<PAGE>
With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of such Floating Rate Note by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement,
the interest factor for each such day is computed by dividing the interest
rate applicable to such day by 360, in the case of CD Rate Notes, Commercial
Paper Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes,
or by the actual number of days in the year, in the case of Treasury Rate
Notes. All percentages used in or resulting from any calculation of the rate
of interest on a Floating Rate Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point (.0000001), with five
one-millionths of a percentage point rounded upward, and all dollar amounts
used in or resulting from such calculation on Floating Rate Notes will be
rounded to the nearest cent, with one-half cent rounded upward. The interest
rate in effect on any Interest Reset Date will be the applicable rate as reset
on such date. The interest rate applicable to any other day will be the
interest rate in effect on the immediately preceding Interest Reset Date (or,
if none, the Initial Interest Rate).
The applicable Pricing Supplement shall specify a calculation agent (the
"Calculation Agent") with respect to any issue of Floating Rate Notes. Upon
the request of the holder of any Floating Rate Note, the Calculation Agent
will provide the interest rate then in effect and, if determined, the interest
rate that will become effective on the next succeeding Interest Reset Date
with respect to such Floating Rate Note.
Unless otherwise specified in the applicable Pricing Supplement: (i) the
"Interest Determination Date" pertaining to an Interest Reset Date for CD Rate
Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes and Prime Rate
Notes will be the second Business Day preceding such Interest Reset Date; (ii)
the Interest Determination Date pertaining to an Interest Reset Date for a
LIBOR Note will be the second London Banking Day preceding such Interest Reset
Date; and (iii) the Interest Determination Date pertaining to an Interest
Reset Date for a Treasury Rate Note will be the day of the week in which such
Interest Reset Date falls on which Treasury bills would normally be auctioned.
Treasury bills are normally sold at auction on Monday of each week, unless
that day is a legal holiday, in which case the auction is normally held on the
following Tuesday, but such auction may be held on the preceding Friday. If,
as the result of a legal holiday, an auction is so held on the preceding
Friday, such Friday will be the Interest Determination Date pertaining to the
Interest Reset Date occurring in the next succeeding week. If an auction falls
on a day that is an Interest Reset Date, such Interest Reset Date will be the
next following Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date or, if such day is not a Business Day, the next succeeding
Business Day or (ii) the Business Day preceding the applicable Interest
Payment Date or maturity as the case may be.
Interest rates will be determined by the Calculation Agent as follows:
CD Rate Notes
CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the Index Maturity designated in
the applicable Pricing Supplement as published by the Board of Governors of
the Federal Reserve System in "Statistical Release H.15(519), Selected
Interest Rates," or any successor publication of the Board of Governors of the
Federal Reserve System ("H.15(519)") under the heading "CDs (Secondary
Market)," or, if
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<PAGE>
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate
on such Interest Determination Date for negotiable certificates of deposit of
the Index Maturity designated in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily statistical
release "Composite 3:30 P.M. Quotations for U.S. Government Securities" (the
"Composite Quotations") under the heading "Certificates of Deposit." If such
rate is not yet published in either H.15(519) or the Composite Quotations by
3:00 P.M., New York City time, on the Calculation Date pertaining to such
Interest Determination Date, the CD Rate on such Interest Determination Date
will be calculated by the Calculation Agent and will be the arithmetic mean of
the secondary market offered rates as of 10:00 A.M., New York City time, on
such Interest Determination Date for certificates of deposit in the
denomination of $5,000,000 with a remaining maturity closest to the Index
Maturity designated in the Pricing Supplement of three leading nonbank dealers
in negotiable U.S. dollar certificates of deposit in The City of New York
selected by the Calculation Agent for negotiable certificates of deposit of
major United States money center banks in the market for negotiable
certificates of deposit; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting as set forth above, the CD
Rate in effect for the applicable period will be the CD Rate in effect for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the Initial Interest Rate).
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes
and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Interest Determination Date, the Money
Market Yield (as defined below) of the rate on such date for commercial paper
having the Index Maturity specified in the applicable Pricing Supplement, as
such rate shall be published in H.15(519), under the heading "Commercial
Paper--Nonfinancial." In the event that such rate is not published by 9:00
A.M., New York City time, on the Calculation Date pertaining to such Interest
Determination Date, then the Commercial Paper Rate shall be the Money Market
Yield of the rate on such Interest Determination Date for commercial paper of
the specified Index Maturity as published in Composite Quotations under the
heading "Commercial Paper." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet available in either H.15(519) or
Composite Quotations, then the Commercial Paper Rate shall be the Money Market
Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York
City time, on such Interest Determination Date of three leading dealers of
commercial paper in The City of New York selected by the Calculation Agent for
commercial paper of the specified Index Maturity, placed for an industrial
issuer whose bond rating is "AA," or the equivalent, from a nationally
recognized rating agency; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting offered rates as mentioned
in this sentence, the Commercial Paper Rate in effect for the applicable
period will be the Commercial Paper Rate in effect for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset
Period, the Initial Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
D X 360
Money Market Yield = ------------- X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the period for which interest is being calculated.
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Federal Funds Rate Notes
Federal Funds Rate Notes will bear interest at the interest rate (calculated
with reference to the Federal Funds Rate and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any) specified in the Federal Funds Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date,
the rate on such date for Federal Funds as published in H.15(519) under the
heading "Federal Funds (Effective)," or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the Federal Funds Rate will be the rate on such Interest
Determination Date as published in the Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not yet published in either
H.15(519) or the Composite Quotations by 3:00 P.M., New York City time, on the
Calculation Date pertaining to such Interest Determination Date, the Federal
Funds Rate for such Interest Determination Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the rates for the last
transaction in overnight Federal funds, as of 9:00 A.M., New York City time,
on such Interest Determination Date, arranged by three leading brokers of
Federal funds transactions in The City of New York selected by the Calculation
Agent; provided, however, that if the brokers selected as aforesaid by the
Calculation Agent are not quoting as set forth above, the Federal Funds Rate
in effect for the applicable period will be the Federal Funds Rate in effect
for the immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the Initial Interest Rate).
LIBOR Notes
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, LIBOR will
be determined by the Calculation Agent as follows:
(i) With respect to a LIBOR Interest Determination Date, LIBOR will be,
as specified in the applicable Pricing Supplement, either: (a) the
arithmetic mean of the offered rates for deposits in U.S. dollars having
the Index Maturity designated in the applicable Pricing Supplement,
commencing on the second London Banking Day immediately following that
LIBOR Interest Determination Date, that appear on the Reuters Screen LIBO
Page as of 11:00 A.M., London time, on that LIBOR Interest Determination
Date, if at least two such offered rates appear on the Reuters Screen LIBO
Page ("LIBOR Reuters"), or (b) the rate for deposits in U.S. dollars having
the Index Maturity designated in the applicable Pricing Supplement,
commencing on the second London Banking Day immediately following that
LIBOR Interest Determination Date, that appears on the Telerate Page 3750
as of 11:00 A.M., London time, on that LIBOR Interest Determination Date
("LIBOR Telerate"). "Reuters Screen LIBO Page" means the display designated
as page "LIBO" on the Reuters Monitor Money Rates Service (or such other
page as may replace the LIBO page on that service for the purpose of
displaying London interbank offered rates of major banks). "Telerate Page
3750" means the display designated as page "3750" on the Telerate Service
(or such other page as may replace the 3750 page on that service or such
other service or services as may be nominated by the British Bankers'
Association for the purpose of displaying London interbank offered rates
for U.S. dollar deposits). If neither LIBOR Reuters nor LIBOR Telerate is
specified in the applicable Pricing Supplement, LIBOR will be determined as
if LIBOR Telerate had been specified. If fewer than two offered rates
appear on the Reuters Screen LIBO Page, or if no rate appears on the
Telerate Page 3750, as applicable, LIBOR in respect of that LIBOR Interest
Determination Date will be determined as if the parties had specified the
rate described in (ii) below.
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(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear on the Reuters Screen LIBO Page, as specified
in (i)(a) above, or on which no rate appears on Telerate Page 3750, as
specified in (i)(b) above, as applicable, LIBOR will be determined on the
basis of the rates at which deposits in U.S. dollars having the Index
Maturity designated in the applicable Pricing Supplement are offered at
approximately 11:00 A.M., London time, on that LIBOR Interest Determination
Date by four major banks in the London interbank market selected by the
Calculation Agent ("Reference Banks") to prime banks in the London
interbank market commencing on the second London Banking Day immediately
following that LIBOR Interest Determination Date and in a principal amount
equal to an amount of not less than $1,000,000 that is representative for a
single transaction in such market at such time. The Calculation Agent will
request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If at least two such quotations are
provided, LIBOR in respect of that LIBOR Interest Determination Date will
be the arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR in respect of that LIBOR Interest Determination Date will
be the arithmetic mean of the rates quoted at approximately 11:00 A.M., New
York City time, on that LIBOR Interest Determination Date by three major
banks in The City of New York selected by the Calculation Agent for loans
in U.S. dollars to leading European banks having the Index Maturity
designated in the applicable Pricing Supplement commencing on the second
London Banking Day immediately following that LIBOR Interest Determination
Date and in a principal amount equal to an amount of not less than
$1,000,000 that is representative for a single transaction in such market
at such time; provided, however, that if the banks selected as aforesaid by
the Calculation Agent are not quoting as mentioned in this sentence, LIBOR
with respect to such LIBOR Interest Determination Date will be the rate of
LIBOR in effect on such date.
Prime Rate Notes
Prime Rate Notes will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any,
and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Prime Rate Notes and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set
forth in H.15(519) for such date opposite the caption "Bank Prime Loan." If
such rate is not yet published by 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Interest Determination Date, the Prime
Rate for such Interest Determination Date will be the arithmetic mean of the
rates of interest publicly announced by each bank named on the Reuters Screen
USPRIME 1 Page (as defined below) as such bank's prime rate or base lending
rate as in effect for such Interest Determination Date as quoted on the
Reuters Screen USPRIME 1 Page on such Interest Determination Date, or, if
fewer than four such rates appear on the Reuters Screen USPRIME 1 Page for
such Interest Determination Date, the rate shall be the arithmetic mean of the
prime rates quoted on the basis of the actual number of days in the year
divided by 360 as of the close of business on such Interest Determination Date
by at least two major money center banks in The City of New York selected by
the Calculation Agent from which quotations are requested. If fewer than two
quotations are provided, the Prime Rate shall be calculated by the Calculation
Agent and shall be determined as the arithmetic mean on the basis of the prime
rates in The City of New York by the appropriate number of substitute banks or
trust companies organized and doing business under the laws of the United
States, or any State thereof, in each case having total equity capital of at
least U.S. $500 million and being subject to supervision or examination by
federal or state authority, selected by the Calculation Agent to quote such
rate or rates; provided, however, that if the substitute banks or trust
companies selected as aforesaid are not quoting as mentioned in this sentence,
the Prime Rate for such Interest Reset Period will be the Prime Rate in effect
for the immediately preceding Interest Reset Period (or, if there is no such
Interest Reset Period, the Initial Interest Rate). "Reuters Screen USPRIME 1
Page" means the display designated as Page "USPRIME 1" on the Reuters Monitor
Money Rates Service (or such other page as may replace the USPRIME 1 Page on
that service for the purpose of displaying prime rates or base lending rates
of major United States banks).
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Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rate (calculated with
reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate,
if any) specified in the Treasury Rate Notes and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the
rate for the auction held on such date of direct obligations of the United
States ("Treasury Bills") having the Index Maturity designated in the
applicable Pricing Supplement, as published in H.15(519) under the heading
"Treasury Bills--auction average (investment)" or, if not so published by 9:00
A.M., New York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination
Date (expressed as a bond equivalent, on the basis of a year of 365 to 366
days, as applicable, and applied on a daily basis) as otherwise announced by
the United States Department of the Treasury. In the event that the results of
the auction of Treasury Bills having the Index Maturity designated in the
applicable Pricing Supplement are not published or reported as provided above
by 3:00 P.M., New York City time, on such Calculation Date or if no such
auction is held on such Interest Determination Date, then the Treasury Rate
shall be calculated by the Calculation Agent and shall be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 to 366 days, as
applicable, and applied on a daily basis) calculated using the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 P.M., New York
City time, on such Interest Determination Date, of three leading primary
United States government securities dealers selected by the Calculation Agent
for the issue of Treasury Bills with a remaining maturity closest to the Index
Maturity designated in the applicable Pricing Supplement; provided, however,
that if the dealers selected as aforesaid by the Calculation Agent are not
quoting bid rates as mentioned in this sentence, the Treasury Rate for such
Interest Reset Date will be the Treasury Rate in effect for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset
Period, the initial Interest Rate).
CMT Rate Notes
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CMT Rate Notes and in the applicable Pricing Supplement.
Unless otherwise indicated in an applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date, the rate displayed for
the Index Maturity designated in such CMT Rate Note on the Designated CMT
Telerate Page (as defined below) under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15" under the column for the
Designated CMT Maturity Index (as defined below) for (i) if the Designated CMT
Telerate Page is 7055, the rate on such Interest Determination Date and (ii)
if the Designated CMT Telerate Page is 7052, the week or the month, as
applicable, ended immediately preceding the week in which the related Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page, or if not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such Interest Determination Date will
be such Treasury Constant Maturity rate for the Designated CMT Maturity Index
as published in the relevant H.15(519). If such rate is no longer published,
or if not published by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such Interest Determination Date will
be such Treasury Constant Maturity rate for the Designated CMT Maturity Index
(or other United States Treasury rate for the Designated CMT Maturity Index)
for the Interest Determination Date with respect to the related Interest Reset
Date as may then be published by either the Board of Governors of the Federal
Reserve System or the United States Department of the Treasury that the
Calculation Agent determines to be comparable to the rate formerly displayed
on the Designated CMT Telerate Page and published in the relevant H.15(519).
If such information is not provided by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate for the Interest Determination
Date will be calculated by the Calculation Agent and will be a yield to
maturity, based on the arithmetic mean of the secondary market closing offer
side prices as of approximately 3:30 P.M., New York City time, on the Interest
Determination Date reported, according to their written records, by three
leading primary United States government securities dealers (each, a
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"Reference Dealer") in The City of New York (which may include an Agent or
other affiliates of the Company) selected by the Calculation Agent (from five
such Reference Dealers selected by the Calculation Agent, after consultation
with the Company, and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury notes") with an
original maturity of approximately the Designated CMT Maturity Index and
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three such Treasury
notes quotations, the CMT Rate for such Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity based on
the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 P.M., New York City time, on the Interest Determination
Date of three Reference Dealers in The City of New York (from five such
Reference Dealers selected by the Calculation Agent, after consultation with
the Company, and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for Treasury notes with an original maturity of
the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least $100,000,000. If three or four (and not
five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated;
provided, however, that if fewer than three Reference Dealers selected by the
Calculation Agent are quoting as described herein, the CMT Rate for such
Interest Reset Date will be the same as the CMT Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset
Period, the rate of interest payable on the CMT Rate Notes for which the CMT
Rate is being determined shall be the Initial Interest Rate). If two Treasury
notes with an original maturity as described in the second preceding sentence
have remaining terms to maturity equally close to the Designated CMT Maturity
Index, the quotes for the Treasury note with the shorter remaining term to
maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in an applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)), for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519).
If no such page is specified in the applicable Pricing Supplement, the
Designated CMT Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" shall be the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in an applicable Pricing Supplement with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.
NOTES LINKED TO COMMODITY PRICES, SINGLE SECURITIES, BASKETS OF SECURITIES OR
INDICES
Notes may be issued, from time to time, with the principal amount payable on
any principal payment date, or the amount of interest payable on any interest
payment date, to be determined by reference to one or more commodity prices,
securities of entities unaffiliated with the Company, baskets of such
securities or indices and on such other terms as may be set forth in the
relevant Pricing Supplement.
BOOK-ENTRY SYSTEM
Upon issuance, all Fixed Rate Book-Entry Notes having the same Issue Date,
interest rate, amortization schedule, if any, ranking, maturity date and other
terms, if any, will be represented by one or more Global Securities, and all
Floating Rate Book-Entry Notes having the same Issue Date, Initial Interest
Rate, Base Rate, Interest Reset Period, Interest Payment Dates, Index
Maturity, Spread and/or Spread Multiplier, if any, Minimum Interest Rate, if
any, Maximum Interest Rate, if any, ranking, maturity date and other terms, if
any, will be represented by one or more Global Securities. Each Global
Security representing Book-Entry Notes will be deposited with, or on behalf
of, The Depository Trust Company, New York, New York (the "Depositary"), and
registered in the name of a nominee of the Depositary. Certificated Notes will
not be exchangeable for Book-Entry Notes and, except under the circumstances
described in the accompanying Prospectus under "Description of Debt
Securities--Global Securities," Book-Entry Notes will not be exchangeable for
Certificated Notes and will not otherwise be issuable as Certificated Notes.
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A further description of the Depositary's procedures with respect to Global
Securities representing Book-Entry Notes is set forth in the accompanying
Prospectus under "Description of Debt Securities--Global Securities." The
Depositary has confirmed to the Company, each Agent and the Trustee that it
intends to follow such procedures.
OPTIONAL REDEMPTION
The Pricing Supplement will indicate either that the Notes cannot be
redeemed prior to maturity or will indicate the terms on which the Notes will
be redeemable at the option of the Company. Notice of redemption will be
provided by mailing a notice of such redemption to each holder by first class
mail, postage prepaid, at least 30 days and not more than 60 days prior to the
date fixed for redemption to the respective address of each holder as that
address appears upon the books maintained by the Paying Agent. The Notes,
except for Amortizing Notes, will not be subject to any sinking fund.
REPAYMENT AT THE NOTEHOLDERS' OPTION; REPURCHASE
If applicable, the Pricing Supplement relating to each Note will indicate
that the Note will be repayable at the option of the holder on a date or dates
specified prior to its maturity date and, unless otherwise specified in such
Pricing Supplement, at a price equal to 100% of the principal amount thereof,
together with accrued interest to the date of repayment.
In order for such a Note to be repaid, the Paying Agent must receive, unless
otherwise specified in the applicable Pricing Supplement, at least 15 days but
not more than 30 days prior to the repayment date (i) the Note with the form
entitled "Option to Elect Repayment" on the reverse of the Note duly completed
or (ii) a telegram, telex, facsimile transmission or a letter from a member of
a national securities exchange, or the National Association of Securities
Dealers, Inc. (the "NASD") or a commercial bank or trust company in the United
States setting forth the name of the holder of the Note, the principal amount
of the Note, the principal amount of the Note to be repaid, the certificate
number or a description of the tenor and terms of the Note, a statement that
the option to elect repayment is being exercised thereby and a guarantee that
the Note to be repaid, together with the duly completed form entitled "Option
to Elect Repayment" on the reverse of the Note, will be received by the Paying
Agent not later than the third Business Day after the date of such telegram,
telex, facsimile transmission or letter; provided, however, that such
telegram, telex, facsimile transmission or letter shall only be effective if
such Note and form duly completed are received by the Paying Agent by such
third Business Day. Unless otherwise specified in the applicable Pricing
Supplement, exercise of the repayment option by the holder of a Note will be
irrevocable. The repayment option may be exercised by the holder of a Note for
less than the entire principal amount of the Note but, in that event, the
principal amount of the Note remaining outstanding after repayment must be an
authorized denomination.
If a Note is represented by a Registered Global Security, the Depositary's
nominee will be the holder of such Note and therefore will be the only entity
that can exercise a right to repayment. In order to ensure that the
Depositary's nominee will timely exercise a right to repayment with respect to
a particular Note, the beneficial owner of such Note must instruct the broker
or other direct or indirect participant through which it holds an interest in
such Note to notify the Depositary of its desire to exercise a right to
repayment. Different firms have different cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner
should consult the broker or other direct or indirect participant through
which it holds an interest in a Note in order to ascertain the cut-off time by
which such an instruction must be given in order for timely notice to be
delivered to the Depositary.
The Company may purchase Notes at any price in the open market or otherwise.
Notes so purchased by the Company may, at the discretion of the Company, be
held or resold or surrendered to the Trustee for cancellation.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership and disposition of the Notes. This summary is
based on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), revenue rulings, judicial decisions and existing and proposed
Treasury Regulations, including regulations concerning the treatment of debt
instruments issued with original issue discount (the "OID Regulations"), all
of which are subject to change or differing interpretations (possibly with
retroactive effect). This summary discusses only Notes held as capital assets,
within the meaning of Section 1221 of the Code by initial purchasers who
acquired such Notes at the "issue price" (the first price to the public
(excluding bond houses, brokers or similar persons) at which a substantial
amount of the Notes is sold for money). It does not discuss all of the tax
consequences that may be relevant to a Holder (as defined below) in light of
such Holder's particular circumstances or to Holders subject to special rules,
such as certain financial institutions, insurance companies, dealers in
securities, or Holders whose functional currency (as defined in Section 985 of
the Code) is not the U.S. dollar. Persons considering the purchase of Notes
should consult their own tax advisors with regard to the application of the
United States federal income tax laws to their particular situation, as well
as any tax consequences arising under the laws of any other taxing
jurisdiction.
As used herein, the term "Holder" means the beneficial holder of a Note (a)
that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate the income of which is subject
to United States federal income taxation regardless of its source, or (iv) any
trust if (A) a United States court is able to exercise primary supervision
over the administration of the trust and (B) one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust; or (b) whose income from such Note is treated as effectively connected
with such owner's conduct of a United States trade or business. The term
Holder also includes certain former citizens and certain former long-term
residents of the United States whose interest and gain on the Notes will be
subject to United States federal income taxation.
INCLUSION OF INTEREST INCOME
In General. Interest payable with respect to a Note will generally be
taxable to a Holder as ordinary interest income as it accrues or at the time
it is received, in accordance with the Holder's normal method of accounting
for federal income tax purposes. Except as otherwise noted below with respect
to Short-Term Notes or in the applicable Pricing Supplement, it is not
expected that any Note will be treated as having been issued with more than a
de minimis amount of original issue discount for United States federal income
tax purposes. However, any Holder may elect to treat all interest accrued on a
Note as constituting original issue discount and include such interest in
gross income using the constant yield to maturity method provided in the
applicable OID Regulations.
Short-Term Notes. Certain Notes may be issued with a maturity date that is
one year or less from its issue date ("Short-Term Notes"). Under the OID
Regulations, interest on such Notes may be treated as included in the stated
redemption price of the Notes, with the result that the Notes would be treated
as bearing original issue discount. In general, a cash method Holder of a
Short-Term Note is not required to accrue original issue discount on a Short-
Term Note for United States federal income tax purposes unless it elects to do
so. Cash method Holders who make such an election and other Holders who report
income for federal income tax purposes on the accrual method are required to
include original issue discount on such Short-Term Notes in income as it
accrues on a straight-line basis, unless an election is made to accrue the
original issue discount according to a constant yield method based on daily
compounding. In the case of a Holder who is not required and who does not
elect to include original issue discount in income currently, any gain
realized on the sale, exchange or retirement of the Short-Term Note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis (or, if elected, according to a constant yield method
based on daily compounding) through the date of sale, exchange or retirement.
Furthermore, such Holders will be required to defer deductions for any
interest paid on indebtedness incurred to purchase or carry such Short-Term
Notes in an amount not exceeding the deferred interest income, until such
deferred interest income is recognized for tax purposes.
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SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange or retirement of a Note, a Holder will recognize
taxable gain or loss equal to the difference between the amount realized on
the sale, exchange or retirement and such Holder's adjusted tax basis in the
Note. A Holder's adjusted tax basis in a Note generally will equal the cost of
the Note to such Holder, reduced by any return of principal on Amortizing
Notes, and in the case of certain Holders of Short-Term Notes, increased by
discount previously included in income but not yet received with respect to
such Notes. Any amount received by the Holder that is attributable to accrued
but unpaid interest (and which has not previously been included in the
Holder's income) will be treated as interest income and will not be treated as
an amount realized upon the sale, exchange or retirement of such Note.
Subject to the discussion relating to Short-Term Notes above, gain or loss
realized on the sale, exchange or retirement of a Note will be capital gain or
loss. For this purpose, Holders of Amortizing Notes acquired at a cost less
than par will recognize some amount of capital gain upon the receipt of each
principal payment, the same as though they had sold a proportionate amount of
the related Amortizing Note. As a general rule, gains realized by certain
noncorporate Holders from the sale, exchange or redemption of a Note, or upon
the receipt of a principal payment on an Amortizing Note acquired at a cost
less than par, may be taxable at lower maximum rates than ordinary income if
such Holder has held the Note for more than one year, and may be taxable at
even lower maximum rates if such Holder has held the Note for more than 18
months. The distinction between capital gain or loss and ordinary income or
loss is also relevant for purposes of, among other things, limitations on the
deductibility of capital losses.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain noncorporate Holders may be subject to backup withholding at a rate
of 31% on payments of principal and interest on, and the proceeds of
disposition of, a Note. Backup withholding will apply only if the noncorporate
Holder (i) fails to furnish its Taxpayer Identification Number ("TIN"), which,
for an individual, would be his Social Security number, (ii) furnishes an
incorrect TIN, (iii) is notified by the Internal Revenue Service that it has
failed to properly report payments of interest and dividends or (iv) under
certain circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the Internal Revenue
Service that it is subject to backup withholding for failure to report
interest and dividend payments. Holders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a Holder will be
allowed as a credit against such Holder's United States federal income tax
liability and may entitle such Holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF
THE NOTES, INCLUDING THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER INCOME TAX LAWS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company through the
Agents, who have agreed to use reasonable efforts to solicit offers to
purchase Notes. The Company may appoint additional agents to solicit sales of
the Notes; provided that any such solicitation and sale of the Notes shall be
on the same terms and conditions to which the Agents have agreed. The Company
will have the sole right to accept offers to purchase Notes and may reject any
offer to purchase Notes in whole or in part. An Agent will have the right to
reject any offer to purchase Notes solicited by it in whole or in part.
Payment of the purchase price of the Notes will be
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required to be made in immediately available funds. Unless otherwise specified
in the applicable Pricing Supplement, the Company will pay an Agent, in
connection with sales of Notes resulting from a solicitation made or an offer
to purchase received by such Agent, a commission ranging from .125% to .875%
of the principal amount of Notes to be sold, depending upon the maturity of
the Notes. The Company may also sell Notes directly to investors on its own
behalf. In the case of sales made directly by the Company, no commission will
be payable.
The Company may also sell Notes to an Agent as principal for its own account
at a discount equal to the commission applicable to any agency sale of a Note
of identical maturity unless otherwise specified in the applicable Pricing
Supplement. Such Notes may be resold to investors and other purchasers at a
fixed reoffering price or at prevailing market prices, or prices related
thereto at the time of such resale or otherwise, as determined by the Agent
and specified in the applicable Pricing Supplement. 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 and, unless otherwise
specified in the applicable Pricing Supplement, such discount allowed to any
dealer will not be in excess of the discount to be received by such Agent from
the Company. After the initial public offering of Notes to be resold by an
Agent to investors and other purchasers on a fixed public offering price
basis, the public offering price, concession and discount may be changed.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Company and the
Agents have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
made in respect thereof. The Company has also agreed to reimburse the Agents
for certain expenses.
The Company does not intend to apply for the listing of the Notes on a
national securities exchange, but has been advised by the Agents that the
Agents intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Agents are not obligated to do so, however, and the
Agents may discontinue making a market at any time without notice. No
assurance can be given as to the liquidity of any trading market for the
Notes.
Charles Schwab & Co., Inc. ("Schwab") is a wholly owned subsidiary of the
Company. Each offering of Notes will be conducted in compliance with the
requirements of Conduct Rule 2720 of the National Association of Securities
Dealers, Inc. ("NASD") regarding an NASD member firm's distributing the
securities of an affiliate. Following the initial distribution of any Notes,
Schwab may sell such Notes in the course of its business as a broker-dealer.
Schwab may act as principal or agent in such transactions. This Prospectus
Supplement may be used by Schwab in connection with such transactions. Such
sales, if any, will be made at varying prices related to prevailing market
prices at the time of sale or otherwise. Schwab is not obligated to make a
market in any Notes and may discontinue any market-making activities at any
time without notice.
The Agents and any dealers utilized in the sale of Notes will not confirm
sales to accounts over which they exercise discretionary authority.
Concurrently with the offering of Notes through the Agents as described
herein, the Company may issue other Debt Securities pursuant to the Indentures
referred to herein.
LEGAL MATTERS
The validity of the Notes and the accuracy of the summary of certain tax
matters described under the caption "Certain United States Federal Income Tax
Consequences" will be passed upon for the Company by Howard, Rice, Nemerovski,
Canady, Falk & Rabkin, A Professional Corporation. Certain directors of that
firm beneficially own an aggregate of less than 1% of the Common Stock of the
Company.
Certain legal matters relating to the Notes will be passed upon for the
Agents by Davis Polk & Wardwell.
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